UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 333-50103
CREDITRUST CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 52-1754916
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER
OR ORGANIZATION) IDENTIFICATION NO.)
7000 SECURITY BLVD., BALTIMORE, MD 21244-2543
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 410-594-7000
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED
TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR
THE PAST 90 DAYS YES [X] NO [ ]
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AS OF
NOVEMBER 15, 1999 WAS 10,453,548.
<PAGE>
CREDITRUST CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
a) Consolidated Statements of Earnings
For the Three and Nine Months Ended September 30, 1998 and 1999............................... 1
b) Consolidated Balance Sheets
As of December 31, 1998 and September 30, 1999................................................ 2
c) Consolidated Statements of Stockholders' Equity and Comprehensive
Income as of December 31, 1998 and September 30, 1999......................................... 3
e) Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1998 and 1999......................................... 4
f) Notes to Consolidated Financial Statements.................................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk....................................... 12
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds........................................................ 14
Item 5. Other Information................................................................................ 14
SIGNATURE....................................................................................................... 15
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CREDITRUST CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue
Income on finance receivables...................... $ 2,870 $ 21,646 $ 6,324 $ 46,549
Servicing fees..................................... 647 1,318 2,380 4,187
Income on investment in securitizations............ -- 1,206 -- 3,876
Gain on sale....................................... 800 -- 7,417 --
--- -- ----- --
4,317 24,170 16,121 54,612
----- ------ ------ ------
Expenses
Personnel.......................................... 3,567 8,671 7,497 21,644
Communications..................................... 399 1,347 1,103 2,817
Rent and other occupancy........................... 319 764 898 1,764
Professional fees.................................. 152 858 433 2,306
Other expenses..................................... 250 935 714 1,827
--- --- ---- -----
4,687 12,575 10,645 30,358
----- ------ ------ ------
Earnings from Operations...................................... (370) 11,595 5,476 24,254
Other Income (Expense)
Interest and other income.......................... 290 518 387 1,221
Interest expense................................... (101) (1,820) (383) (3,185)
----- ------- ----- ------
Earnings (Loss) Before Income Taxes and Extraordinary Loss.... (181) 10,293 5,480 22,290
Provision for Income Taxes.................................... (67) 3,998 2,141 8,677
---- ----- ----- -----
Earnings (Loss) Before Extraordinary Loss..................... (114) 6,295 3,339 13,613
Extraordinary Loss (Net of taxes) ............................ (566) -- (566) --
----- -- ----- --
Net Earnings (Loss) .......................................... $ (680) $ 6,295 $ 2,773 $ 13,613
======= ======= ======= ========
Basic Earnings (Loss) Per Common Share Before Extraordinary
Loss ...................................................... $ (.01) $ .60 $ .52 $ 1.40
------ ------- ----- ------
Basic (Loss) Per Common Share on Extraordinary Loss .......... $ (.08) $ -- $ (.09) $ --
------- --- ------- -----
Basic Earnings (Loss) Per Common Share ....................... $ (.09) $ .60 $ .43 $ 1.40
------- ----- ----- ------
Weighted-Average Number of Basic Common Shares Outstanding.... 7,333,333 10,430,475 6,444,444 9,725,690
========= ========== ========= =========
Diluted Earnings (Loss) Per Common Share Before Extraordinary Loss $ (.01) $ .58 $ .52 $ 1.35
------ ----- ----- ------
Diluted (Loss) Per Common Share on Extraordinary Loss ........ $ (.08) $ -- $ (.09) $ --
------- ---- ------ -----
Diluted Earnings (Loss) Per Common Share ..................... $ (.09) $ .58 $ .43 $ 1.35
------- ----- ----- ------
Weighted-Average Number of Diluted Common Shares
Outstanding............................................. 7,333,333 10,796,369 6,444,444 10,053,059
========= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
1
<PAGE>
CREDITRUST CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) DECEMBER 31, SEPTEMBER 30,
------------ -------------
1998 1999
<S> <C> <C>
Assets
Cash and Cash Equivalents...................................................................... $ 7,906 $ 15,461
Finance Receivables............................................................................ 26,915 166,392
Investment in Securitizations.................................................................. 30,269 31,517
Property and Equipment......................................................................... 2,449 7,343
Deferred Costs................................................................................. 475 3,324
Other Assets................................................................................... 734 2,875
--- --------
Total Assets............................................................... $ 68,748 $ 226,912
======== =========
Liabilities and Stockholders' Equity
Notes Payable.................................................................................. $ 6,789 $ 101,894
Accounts Payable and Accrued Expenses.......................................................... 1,621 4,684
Capitalized Lease Obligations.................................................................. 1,652 1,236
Deferred Tax Liability......................................................................... 11,915 18,533
Other Liabilities.............................................................................. 346 376
--- ---
Total Liabilities.......................................................... 22,323 126,723
------ -------
Stockholders' Equity
Preferred stock, $.01 par value; 5,000,000 shares authorized, none issued and
outstanding..................................................................... -- --
Common stock, $.01 par value; 20,000,000 shares authorized, 8,000,000 shares
issued and 7,984,480 outstanding at December 31, 1998 and 10,464,689
shares issued and 10,449,169 outstanding at September 30, 1999.................. 80 104
Paid-in capital...................................................................... 27,754 71,079
Stock held for benefit plans......................................................... (269) (269)
Net unrealized gains on available for sale securities................................ 6,714 3,516
Retained earnings.................................................................... 12,146 25,759
------ ------
Total Stockholders' Equity................................................. 46,425 100,189
------ -------
Total Liabilities and Stockholders' Equity................................. $ 68,748 $ 226,912
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE>
CREDITRUST CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) STOCK NET
ADDITIONAL HELD FOR UNREALIZED
PAID-IN BENEFIT GAINS RETAINED
COMMON STOCK CAPITAL PREFERRED STOCK PLANS (AMORTIZATION) EARNINGS TOTAL
-------------------- ---------- --------------- -------- -------------- -------- -----
SHARES AMOUNT SHARES AMOUNT
--------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998............. 6,000,000 $ 60 $ 53 -- $ -- $ -- $ -- $ 1,951 $ 2,064
Initial public offering................ 2,000,000 20 27,291 -- -- -- -- -- 27,311
Value of common stock purchase
warrants issued in connection with
subordinated debt financing........ -- -- 410 -- -- -- -- -- 410
Stock purchased for benefit plans...... (15,520) -- -- -- -- (269) -- -- (269)
Net earnings........................... -- -- -- -- -- -- -- 10,195 10,195
Other Comprehensive Income,
unrealized gains on available for
sale securities, net of taxes of
$4,214............................. -- -- -- -- -- -- 6,714 -- 6,714
-----
Total Comprehensive Income............. 16,909
--------- ----- -------- ---- ----- ---- ------ ------- ------
Balance at December 31, 1998........... 7,984,480 80 27,754 -- -- (269) 6,714 12,146 46,425
Common stock issued on options and
warrants exercised................. 64,689 -- 896 -- -- -- -- -- 896
Common stock offering.................. 2,400,000 24 42,429 -- -- -- -- -- 42,453
Net earnings........................... -- -- -- -- -- -- -- 13,613 13,613
Other Comprehensive Income
(amortization) of unrealized gains
on available for sale securities,
net of taxes of $2,046............. -- -- -- -- -- -- (3,198) -- (3,198)
------
Total Comprehensive Income............. 10,415
---------- ----- -------- ---- ----- ----- ------- ------- ------
Balance at September 30, 1999..........10,449,169 $ 104 $ 71,079 -- $ -- $(269) $ 3,516 $ 25,759 $100,189
========== ===== ======== == ==== ===== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
CREDITRUST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1999
---- ----
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net earnings.................................................................... $ 2,773 $ 13,613
Adjustments to reconcile net earnings to net cash (used in) provided
by operating activities:
Depreciation and amortization......................................... 262 653
Deferred tax expense.................................................. 1,775 8,677
Income on investment in securitization................................ -- (3,876)
Gain on sale.......................................................... (7,417) --
Extraordinary Loss.................................................... 929 --
Changes in assets and liabilities:
Increase in other assets.............................................. (960) (2,142)
Increase in accounts payable and accrued expenses..................... 1,369 3,143
Increase (decrease) in other liabilities.............................. 37 (51)
Net Cash and Cash Equivalents (Used in) Provided by Operating Activities................... (1,232) 20,017
------- -------
Cash Flows from Investing Activities
Collections applied to principal (accretion) on finance
receivables................................................................ (641) (11,149)
Increase in cash reserves on securitizations.................................... -- (2,616)
Proceeds from Securitization.................................................... 12,059 --
Purchases of property and equipment............................................. (147) (5,384)
Acquisitions of finance receivables............................................. (26,178) (128,328)
Net cost of portfolios sold..................................................... 562 --
--- --
Net Cash and Cash Equivalents Used in Investing
Activities........................................................................... (14,345) (147,477)
-------- --------
Cash Flows from Financing Activities
Proceeds from issuance of common stock.......................................... 27,261 43,349
(Payments on) proceeds from notes payable, net.................................. (2,102) 95,105
Payments on capital lease obligations........................................... (224) (415)
Payment for stock held for benefit program...................................... (269) --
Proceeds from warrants issued................................................... 411 --
Deferred costs.................................................................. (395) (3,024)
----- ------
Net Cash and Cash Equivalents Provided by Financing
Activities........................................................................... 24,682 135,015
------ -------
Net Increase in Cash and Cash Equivalents.................................................. 9,105 7,555
Cash and Cash Equivalents at Beginning of period........................................... 770 7,906
--- -----
Cash and Cash Equivalents at End of period................................................. $ 9,875 $ 15,461
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
CREDITRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
Note A--Organization and Business
Creditrust Corporation (the "Company") was incorporated in Maryland on October
17, 1991. The Company purchases, collects and manages defaulted consumer
receivables from credit grantors, including banks, finance companies, retail
merchants and other service providers. The Company's customers are located
throughout the United States. The Company has funded its receivables purchases
and the expansion of its business through a combination of bank and other
warehouse funding, public and private equity funding and asset-backed
securitizations.
Note B--Summary of Significant Accounting Policies
Basis of Accounting
In the opinion of management, the accompanying financial statements include all
adjustments (consisting only of normal recurring items) necessary for their fair
presentation in conformity with generally accepted accounting principles.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues,
and expenses. Actual results may differ from these estimates. Interim results
are not necessarily indicative of results for a full year. The information
included in these Statements should be read in conjunction with Management's
Discussion and Analysis and financial statements and notes thereto included in
Creditrust Corporation's Annual Report on Form 10K for the year ended December
31, 1998.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Creditrust Funding I LLC, Creditrust Card
Services Corp, Creditrust SPV99-1, LLC, and Creditrust SPV99-2, LLC.
All material inter-company accounts and transactions have been eliminated.
Note C--Secondary Offering
On March 19, 1999, the Company completed a secondary public offering of 2.4
million shares of common stock at $19.00 per share. After payment of
underwriting discounts and commissions and other offering expenses, the Company
received net proceeds of $42.5 million. The proceeds were used to purchase
additional portfolios and contribute to working capital.
Note D--Earnings per Common Share
The following table reconciles basic and diluted EPS for the three months and
nine months ended September 30, 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999 NINE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------- ------------------------------------
PER PER
EARNINGS SHARES SHARE EARNINGS SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net earnings................................ $ 6,295 10,430,475 $ .60 $ 13,613 9,725,690 $ 1.40
Effect of dilutive securities
Warrants.................................... -- 243,098 -- 220,064
Stock options............................... -- 122,796 -- 107,305
-- ------- -- -------
Diluted EPS
Net earnings plus assumed conversions....... $ 6,295 10,796,369 $ .58 $ 13,613 10,053,059 $ 1.35
======= ========== ===== ======== ========== ======
</TABLE>
5
<PAGE>
CREDITRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Dollars in thousands except share data)
Note E--Finance Receivables
The Company purchases defaulted consumer receivables at a discount from the
actual principal balance. The following summarizes the change in finance
receivables for the nine months ended September 30, 1999:
<TABLE>
<CAPTION>
<S> <C>
Balance, at beginning of period.................................................................... $26,915
Purchases of finance receivables................................................... 128,328
Net accretion to principal on finance receivables.................................. 11,149
------
Balance, at end of period.......................................................................... $166,392
========
Unrecorded discount $ 2,235,650
===========
</TABLE>
To the extent that the carrying amount of a static pool exceeds its fair value,
a valuation allowance would be recognized in the amount of such impairment. As
of December 31, 1998 and September 30, 1999, no provision for loss has been
recorded.
Note F--Investment in Securitizations
Investment in securitizations for the nine months ended September 30, 1999 is
comprised of the following:
<TABLE>
<CAPTION>
ESTIMATED
CASH AMORTIZED UNREALIZED FAIR
RESERVES COST GAINS VALUE
(AMORTIZATION)
-------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Balance at beginning of period.................... $ 1,934 $ 17,407 $ 10,928 $30,269
Deposits to reserves.............................. 2,616 -- -- 2,616
Income on investment.............................. -- 3,876 -- 3,876
Amortization of unrealized gain................... -- -- (5,244) (5,244)
-------- -------- ------- -------
Balance at end of period.......................... $ 4,550 $ 21,283 $ 5,684 $31,517
======== ======== ======= =======
</TABLE>
The investment in securitizations accrues interest at 12% per annum. The net
after tax effect of unrealized gains is reflected as a separate component of
stockholders' equity and is included in other comprehensive income. Fair value,
absent actual market quotations for similar securities, was calculated by a
discounted cash flow valuation.
Note G--Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following at:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Accounts payable............................................................ $ 512 $1,529
Accrued salaries, taxes and fringe benefits................................. 695 1,949
Accrued other liabilities................................................... 414 1,206
--- ------
$1,621 $4,684
====== ======
</TABLE>
6
<PAGE>
CREDITRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Dollars in thousands except for share data)
Note H--Notes Payable
Warehouse Facility
In September 1998, the Company established through a wholly owned consolidated
special purpose finance subsidiary a $30 million securitized revolving warehouse
facility for use in acquiring finance receivables. The warehouse facility
carries a floating interest rate of LIBOR plus .65%, with the revolving period
expiring in October 2000. The final due date of all payments due under the
facility is October 2005. The warehouse facility is secured by a trust estate,
primarily consisting of specific consumer receivables that the Company has
absolutely assigned to the newly formed special purpose finance subsidiary.
Generally, the warehouse facility provides 95% of the acquisition costs of
receivables purchased, with the Company funding the remaining 5% and a one-time
$900,000 liquidity reserve requirement. The $900,000 reserve account is
consolidated and included in cash on the balance sheet and restricted as to use
until the warehouse facility is retired. The facility contains financial
covenants the most restrictive of which requires that the Company maintains a
net worth of $1.8 million plus 75% of net earnings. As of September 30, 1999,
the Company had approximately $6.3 million outstanding under the facility.
Revolving Line of Credit
In October 1998, the Company entered into a $20 million revolving line of credit
with a commercial lender to provide receivables financing. The facility has a
term of three years, during which time the Company may borrow and repay funds to
purchase receivables at 80% of acquisition cost. Interest is based on prime plus
0.5%, or LIBOR plus 2.5% at the option of the Company on each advance. The
facility is secured by any receivables purchased under the facility and
substantially all the Company's other assets. The facility contains financial
covenants the most restrictive of which requires that the Company maintains a
net worth of $30.0 million plus 50% of net earnings. As of September 30, 1999,
the Company had approximately $15.6 million outstanding under the facility.
$40 Million Interim Financing
In August 1999, the Company entered into a $40.0 million interim credit facility
to fund purchases of additional portfolios of defaulted receivables. Under this
arrangement, Creditrust SPV99-2, LLC (Series 1999-2), a newly formed special
purpose subsidiary issued secured, short-term notes in a private placement to
institutional investors. The notes are backed by a parent guarantee from the
Company. Through September 30, 1999, Series 1999-2 had used the proceeds of the
interim credit facility to purchase portfolios including purchases under forward
flow contracts with all remaining funds being used subsequent to the end of the
period. The Company is obligated to retire this facility with proceeds from any
capital markets transactions or assets sales, each as defined prior to the May
2000 maturity date. Interest is payable at 12% per annum.
$40 Million Securitization Note
In August 1999, the Company issued a $40.0 million asset backed Securitization
Note through its newly formed special purpose subsidiary Creditrust SPV99-1, LLC
(Series 99-1). The Note is secured by the receivables pledged to the Note
holders and is non recourse to Creditrust and its other subsidiaries. Interest
is payable at 9.43% per annum and the final maturity date of the Note is July,
2004.
7
<PAGE>
CREDITRUST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Dollars in thousands except for share data)
As of September 30, 1999, required minimum principal payments payable by the
Company were as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1999................................................................ $ 11,174
2000................................................................ 54,755
2001................................................................ 35,391
2002................................................................ 574
---
Total minimum principal payments...................... $ 101,894
=========
</TABLE>
Note I--Commitments and Contingencies
Forward Flow Agreements
Beginning in September 1998, the Company entered into multiple forward flow
agreements with certain financial institutions, which obligate the Company to
purchase, on a monthly basis, portfolios of charged-off receivables meeting
certain criteria.
Litigation
The Company is involved in various litigation arising in the ordinary course of
business. Management believes these items, individually or in aggregate, will
not have a material adverse impact on the Company's financial position, results
of operations or liquidity.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Quarter Ended September 30, 1999 Compared to Quarter Ended September 30, 1998
Revenues. Total revenues increased by $19.9 million, or 459.8%, from $4.3
million for the three months ended September 30, 1998 to $24.2 million for the
three months ended September 30, 1999. The 1998 third quarter included a gain on
sale of $0.8 million while 1999's revenue in the third quarter was largely due
to a $18.8 million increase in income on finance receivables resulting from
receivables purchases during the past year. The Company expects that revenue in
future periods will consist primarily of income on finance receivables.
Income on finance receivables increased by $18.8 million, or 654.2%, from $2.9
million for the three months ended September 30, 1998 to $21.6 million for the
three months ended September 30, 1999. This increase was attributable to the
purchase of receivables in the last two-quarters of 1998 and the first three
quarters of 1999 with proceeds from the initial public offering, the follow on
public offering, the Company's two credit facilities, the interim financing
facility, and the August 1999 securitization. Collections on managed receivables
increased by $17.2 million, or 312.7%, from $5.5 million for the three months
ended September 30, 1998 to $22.7 million for the three months ended September
30, 1999.
Expenses from Operations. Total expenses from operations increased by $7.9
million, or 168.2%, from $4.7 million for the three months ended September 30,
1998 to $12.6 million for the three months ended September 30, 1999. Operating
expenses increased primarily as a result of increased personnel expenses
associated with the rapid growth of the Company's managed receivables base and
associated recovery efforts. The Company's communications and rent and occupancy
expenses also increased as the Company's managed receivables base grew and as
the Company built infrastructure to support further expansion of its operations.
Personnel expenses increased by $5.1 million, or 143.1%, from $3.6 million for
the three months ended September 30, 1998 to $8.7 million for the three months
ended September 30, 1999. Major categories of personnel expense increases
included: (a) recruiting, training and compensation costs associated with the
increase in the number of employees from 388 to 1075 needed to service the
larger volume of managed receivables, and (b) additional costs for development,
installation and training associated with the Company's expanded information
technology systems. The Company expects further personnel increases at its third
recovery facility over the next several quarters.
Communications costs increased by $948,000, or 237.3%, from $399,000 for the
three months ended September 30, 1998 to $1.3 million for the three months ended
September 30, 1999. This increase was due to greater use of credit reporting and
long distance telephone services to service the higher volume of managed
receivables.
Professional fees and general and administrative expenses increased from
$376,000 for the three months ended September 30, 1998 to $1.4 million for the
three months ended September 30, 1999, primarily as a result of increased
accounting fees, investor relations expenses, other consulting fees, and
miscellaneous other administrative costs.
Earnings from Operations. Earnings from operations increased by $12.0 million
from a loss of $400,000 for the three months ended September 30, 1998 to $11.6
million for the three months ended September 30, 1999. This increase resulted
from numerous factors, particularly the increase in income on finance
receivables, which more than offset the planned growth in operating costs
associated with the additions to recovery personnel to support a substantially
larger volume of receivables.
Other Income (Expense). Other income (expense) decreased from net income of
$189,000 for the three months ended September 30, 1998 to a net expense of $1.3
million for the three months ended September 30, 1999. This increase resulted
from a $228,000 increase in interest and other income primarily due to interest
earned on short term cash equivalent investments which were acquired with
proceeds from the interim finance facility and the August 1999 securitization
offset by an increase in interest expense of $1.7 million as a result of higher
borrowing incurred in connection with the credit facilities, interim finance
facility and the August 1999 securitization.
Earnings Before Income Taxes. As the result of the foregoing, earnings before
income taxes increased from a loss of $181,000 for the three months ended
September 30, 1998 to $10.3 million for the three months ended September 30,
1999.
Provision for Income Taxes. Income tax rates were 37% for the three months ended
September 30, 1998, and 39% for the three months ended September 30, 1999. The
Company's effective tax rate may fluctuate as a result of changes in pre-tax
income and nondeductible expenses.
9
<PAGE>
Net Earnings. Net earnings increased by $7.0 million from a net loss of $681,000
for the three months ended September 30, 1998 to net earnings of $6.3 million
for the three months ended September 30, 1999. This increase resulted from the
same factors which affected earnings from operations. The 1998 quarter included
an extraordinary loss of $567,000 after tax due to the early retirement of $5.0
million of subordinated notes required to be repaid upon closing the Company's
initial public offering.
EBITDA. EBITDA for the three months ended September 30, 1999 was $12.4 million
versus and zero for the three months ended September 30, 1998. EBITDA increased
more than earnings from operations primarily because of growth in interest
income for the three months ended September 30, 1999 over the same period for
1998.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
Revenues. Total revenues increased by $38.5 million, or 238.8%, from $16.1
million for the nine months ended Septmeber 30, 1998 to $54.6 million for the
nine months ended September 30, 1999. The 1998 results included gains from sales
and a securitization of $7.4 million while 1999's first half revenue increase
was largely due to a $40.2 million increase in income on finance receivables
resulting from substantially higher receivable purchases commencing in the third
quarter of 1998. The Company expects that revenue in future periods will consist
primarily of income on finance receivables.
Income on finance receivables increased by $40.2 million, or 636.0%, from $6.3
million for the nine months ended September 30, 1998 to $46.5 million for the
nine months ended September 30, 1999. This increase was attributable to the
purchase of receivables in the last two-quarters of 1998 and the first three
quarters of 1999 with proceeds from the initial public offering, the follow on
public offering, the Company's credit facilities, the Company's June and
December 1998 securitizations, the interim finance facility, and the August 1999
securitization. Collections on managed receivables increased by $43.5 million,
or 434.6%, from $13.0 million for the nine months ended September 30, 1998 to
$56.5 million for the nine months ended September 30, 1999.
Revenue for the nine months ended September 30, 1998 included $7.4 million of
gains on sales. $6.6 million of the gain on sale resulted from the
securitization of a portfolio of receivables in June 1998, and $800,000 gain on
sale resulted from the sale of other miscellaneous financed receivables.
Expenses from Operations. Total expenses from operations increased by $19.7
million, or 185.2%, from $10.6 million for the nine months ended September 30,
1998 to $30.4 million for the nine months ended September 30, 1999. Operating
expenses increased as expected in 1999 primarily as a result of increased
personnel expenses associated with the rapid growth of the Company's managed
receivables base and associated recovery efforts. The Company's communications
and rent and occupancy expenses also increased as the Company's managed
receivables base grew. Operating expenses as a percentage of revenues decreased
to 55.6% of revenues for the nine months ended September 30, 1999, as compared
to 66.0% of revenues for the nine months ended September 30, 1998.
Personnel expenses increased by $14.1 million, or 188.7%, from $7.5 million for
the nine months ended September 30, 1998 to $21.6 million for the nine months
ended September 30, 1999. Major categories of personnel expense increases
included: (a) recruiting, training and compensation costs associated with the
increase in the number of employees from 388 to 1075 needed to service the
larger volume of managed receivables, and (b) additional costs for development,
installation and training associated with the Company's expanded information
technology systems. The Company expects further personnel increases at its third
recovery facility over the next several quarters.
Communications costs increased by $1.7 million, or 155.5%, from $1.1 million for
the nine months ended September 30, 1998 to $2.8 million for the nine months
ended September 30, 1999. This increase was due to greater use of credit
reporting and long distance telephone services to service the higher volume of
managed receivables.
Professional fees and general and administrative expenses increased from
$843,000 for the nine months ended September 30, 1998 to $3.6 million for the
nine months ended September 30, 1999, primarily as a result of increased
accounting fees, investor relations expenses, other consulting fees, and
miscellaneous other administrative costs.
Earnings from Operations. Earnings from operations increased by $18.8 million,
or 343.0% from $5.5 million for the nine months ended September 30, 1998 to
$24.3 million for the nine months ended September 30, 1999. This increase
resulted from numerous factors, particularly the increase in income on finance
receivables, which more than offset the planned growth in operating costs
associated with the additions to recovery personnel to support a substantially
larger volume of receivables.
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Other Income (Expense). Other income (expense) decreased from net income of
$4,000 for the nine months ended September 30, 1998 to a net expense of $2.0
million for the nine months ended September 30, 1999. This decrease resulted
from a $834,000 increase in interest and other income primarily due to interest
earned on short term cash equivalent investments which were acquired with
proceeds from the secondary offering, the interim finance facility, and the
securitization in August 1999 offset by an increase in interest expense of $2.8
million as a result of higher borrowing incurred in connection with the credit
facilities, interim financing and securitization in August 1999.
Earnings Before Income Taxes. As the result of the foregoing, earnings before
income taxes increased from $5.5 million for the nine months ended September 30,
1998 to $22.3 million for the nine months ended September 30, 1999.
Provision for Income Taxes. Income tax rates were 39% for the nine months ended
September 30, 1998 and 1999. The Company's effective tax rate may fluctuate as a
result of changes in pre-tax income and nondeductible expenses.
Net Earnings. Net earnings increased by $10.8 million from $2.8 million for the
nine months ended September 30, 1998 to $13.6 million for the nine months ended
September 30, 1999. This increase resulted from the same factors which affected
earnings from operations. Net earnings for the nine months ended September 30,
1998 included an extraordinary loss of $567,000 after tax due to the early
retirement of $5.0 million of subordinated notes required to be repaid upon
closing the Company's initial public offering.
EBITDA. EBITDA increased by $20.0 million, or 326.6% from $6.1 million for the
nine months ended September 30, 1998 to $26.1 million for the nine months ended
Septemeber 30, 1999. EBITDA increased more than earnings from operations
primarily because of growth in interest income for the nine months ended
September 30, 1999 over the same period for 1998.
Financial Condition
Cash and Cash Equivalents. Cash and cash equivalents increased from $7.9 million
as of December 31, 1998 to $15.5 million as of September 30, 1999, primarily as
a result of an increase in net cash from financing activities including proceeds
from the secondary public offering, credit facilities, interim financing
facility, and the August 1999 securitization. These proceeds were offset by
investing activities, principally purchases of receivables, and further
increased by cash provided by operating activities.
Finance Receivables. Investment in finance receivables increased 518.2% to
$166.4 million, as of September 30, 1999 from $26.9 million as of December 31,
1998. The Company purchased $128.3 million of finance receivables during the
nine months ended September 30, 1999 with a portion of the net proceeds from the
secondary public offering, the December 1998 securitization, the borrowings
available under the Company's credit facilities, the interim finance facility,
the August 1999 securitization and other cash on hand. Accretion on finance
receivables of $11.2 million was recorded for the nine months ended September
30, 1999 due to the effects of the accelerated rate of receivables purchases in
recent months and collection patterns in the early months of the collection
cycle.
Investment in Securitizations. Investment in securitizations increased from
$30.3 million at December 31, 1998 to $31.5 million as of September 30, 1999 due
principally to additions to the reserve of the two securitizations in the amount
of $2.6 million. As of September 30, 1999, the fair value of investment in
securitizations was $31.5 million and the unrealized gain was $5.7 million
(pre-tax) or $3.5 million (net of taxes). Unrealized gains may fluctuate based
upon changes in the discount rate utilized by the Company and changes in
collection rates.
Accounts Payable and Accrued Expenses. Accounts payable and accrued expenses
increased 188.9% from $1.6 million at December 31, 1998 to $4.7 million at
September 30, 1999. The increase was principally due to increased trade payables
and accrued salary associated with increased payroll levels and associated
operating costs.
Notes Payable and Capitalized Lease Obligations. Notes payable increased from
$6.8 million as of December 31, 1998 to $101.9 million as of September 30, 1999.
The increase in notes payable was attributable to receivables purchased under
the Company's credit facilities, the interim financing facility and the August
1999 securitization.
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Deferred Tax Liability. The Company's deferred tax liability at September 30,
1999 was $18.5 million compared to $11.9 million as of December 31, 1998. This
increase of $6.6 million was primarily attributable to an increase of $8.7
million in deferred tax expenses resulting from the timing differences of
recognizing income on finance receivables on the cost recovery method for tax
and securitization transactions treated as financing for tax offset by a
decrease of $2.1 million in deferred tax liability and amortization of
comprehensive income.
Total Stockholders' Equity. Total stockholders' equity increased $53.8 million
to $100.2 million at September 30, 1999 from $46.4 million at December 31, 1998
as a result of net income of $13.6 million during the nine months ended
September 30, 1999, $42.5 million of additional paid in capital resulting from
the Company's secondary public offering and $896,000 from exercise of options
and warrants for common stock, reduced by $3.2 million (net of taxes) from
amortization of in unrealized gains related to the fair value of the Company's
investment in securitizations.
Liquidity and Capital Resources
Historically, the Company has derived substantially all of its cash flow from
collections on finance receivables and servicing income. The primary sources of
funds to purchase receivables are cash flow, asset backed securitizations, the
interim credit facility, borrowings under two credit facilities and equity
capital.
As of September 30, 1999, the Company had cash and cash equivalents of $15.5
million. Cash provided by operating activities was $20.0 million for the nine
months ended September 30, 1999. Receivables purchased were $128.3 million for
the nine months ended September 30, 1999. Available credit under the Company's
credit facilities at September 30, 1999 is $30.1 million.
Creditrust has entered into forward flow contracts with a number of credit
grantors. These contracts obligate Creditrust to make monthly purchases of
receivables portfolios providing they meet certain agreed-upon criteria. The
Company projects its obligations under these contracts based upon the Company's
experience to date, its estimates of future receivable offerings meeting these
criteria, and its expectations for general market conditions for receivables.
Based upon these factors, the Company estimates that its monthly obligations
under existing forward flow contracts will range from $7.5 million in October
1999 to $1.0 million in December 2000.
The debt service requirements associated with borrowings under the credit
facilities will significantly increase liquidity requirements. Both credit
facilities have interest only periods for up to six months, after which point
the principle balances must be fully amortized over periods of between 24 and 60
months. In August 1999, both credit facilities were substantially repaid through
proceeds of a securitization. The additional borrowings under the interim credit
facility and the August 1999 securitization also require significant additional
debt servicing. Both facilities have paydown requirements equal to nearly all
collections on the pledged receivables. The Company anticipates that its
operating cash flow and cash on hand, existing credit facilities, future asset
backed securitizations, and other financing transactions currently being pursued
will be sufficient to meet its anticipated future operating expenses and
receivable purchases, and to service its debt requirements as they become due.
To the extent the Company is successful in closing additional term
securitizations, amounts repaid under both facilities may be re-borrowed. The
Company regularly considers various financing alternatives to fund its purchases
of consumer receivables and corporate growth. The Company expects that it would
use a portion of any additional financing proceeds to repay the interim
financing.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company retains an investment in securitizations with respect to its
securitized receivables which are market risk sensitive financial instruments
held for purposes other than trading; it does not invest in derivative financial
or commodity instruments. This investment exposes the Company to market risk
which may arise in the credit standing of the investment in securitizations and
in interest and discount rates applicable to this investment.
The impact of a 1% increase in the discount rate used by the Company in the fair
value calculations would decrease the fair value reflected on the Company's
balance sheet by $809,000 as of September 30, 1999. There would be no impact on
the Company's future cash flows.
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Year 2000
The Year 2000 issue arises out of potential problems with computer systems or
any equipment with computer chips that use dates where the date has been stored
as just two digits (e.g. 98 for 1998). On January 1, 2000, any clock or date
recording mechanism, including date sensitive software, which uses only two
digits to represent the year, may recognize a date using 00 as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations and cause a disruption of operations, including, among other
things, a temporary inability to process transactions, send letters and
statements or engage in similar activities.
The Company believes it has replaced or modified all of its critical computer
systems and business applications software in the normal course of its business
expansion and that its computer systems will be able to utilize properly dates
beyond December 31, 1999. The Company used its in-house programmers in the
modification. Accordingly, the Company is unable to identify separately the
costs of making these systems Year 2000 compliant.
Most of the Company's major vendors are the largest credit grantors in the
country, which the Company expects will become Year 2000 compliant due to the
nature and financial strength of these businesses. Additionally, the Company
does not generally communicate on-line with credit grantors on a continuing
basis, but rather receives discrete data files for analysis and to support
recovery activities. The Company has to date been able to convert data received
from credit grantors and other third parties to be Year 2000 compliant and
expects that it will continue to be able to do so in the future. The Company is
in the process of seeking Year 2000 certifications from key vendors.
The Company also relies on internal and third party information databases in its
portfolio analysis and collection efforts. A significant amount is maintained in
internal databases. However, the Company must timely receive new data from third
party sources and an interruption in this data supply could adversely affect the
Company's ability to purchase additional portfolios and to collect on existing
receivables. The Company has successfully checked and converted third-party data
that is not Year 2000 compliant, and based on its efforts to date, believes that
it can continually effect any necessary conversions.
The Company's collection efforts rely heavily on telephone systems. The Company
has contracts with multiple telephone carriers. Based on communications with
vendors to date, the Company believes that major telephone systems will not be
interrupted by Year 2000 failures. However, if a protracted and major disruption
in the availability of local or long-distance telephone service were to occur as
the result of the Year 2000 problem or otherwise, the Company's collection
efforts, and therefore its operations, could be materially adversely affected.
Disruption of power supply by the Company's electric utilities could also have a
serious effect on the Company's ability to conduct business.
Inflation
The Company believes that inflation has not had a material impact on its results
of operations for the three months ended September 30, 1998 and 1999.
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PART II
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
(a) None.
(b) None.
(c) None.
(d) None.
Item 5. Other Information
Risk Factors and Forward-Looking Statements
The Company's business prospects are highly dependant on a variety of factors
within and beyond the Company's control which may affect the timing and amount
of collections on the Company's portfolios of previously defaulted consumer
receivables. Future growth of the Company will depend on numerous factors,
including the development and expansion of relationships with credit grantors,
the availability of adequate financing to purchase additional receivables, the
ability to securitize receivables, the ability to maintain the quality of
services the Company provides to its customers and to credit grantors, the
recruitment, training and retention of qualified personnel, the enhancement and
maintenance of the Company's information technology, operational, and financial
systems, any higher than anticipated rate of personnel turnover and the
continued availability of receivables that meet the Company's requirements. The
Company's future prospects may be significantly affected either positively or
negatively depending upon the circumstances of the marketplace and competitive
developments. There can be no assurance that the Company will be able to manage
its expanding operations effectively or to maintain its historical collection
rates, or that it will be able to maintain or accelerate its growth, and any
failure to do so could have a material adverse effect on the Company's business,
results of operations, and financial condition.
The Company's quarterly operating results may fluctuate in the future because of
a variety of factors. These factors include (1) the timing and amount of
collections on the Company's receivables, (2) any charge to earnings resulting
from a decline in value of the Company's existing investment in securitizations,
(3) increases in operating expenses associated with the growth of the Company's
operations and (4) the accuracy of the Company's pricing models. No assurance
can be given that unanticipated future events, including further refinements to
the Company's collection models, will not result in changes in estimates in
future periods which could adversely affect quarter-to-quarter comparisons. The
Company does not intend to securitize assets in the future that result in gain
on sale transactions.
Statements made herein and in other written and oral statements of the Company
may include the plans and objectives of management for future operations,
including plans and objectives relating to future growth in the number of
receivables and availability of adequate third-party financing. Any
forward-looking statements are based on current expectations which involve
numerous risks and uncertainties. Assumptions relating to the foregoing involve
judgments with respect to, among other things, future economic, competitive, and
market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that any of the
forward-looking statements will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or by any other person that the objectives and
plans of the Company will be achieved.
Items 1, 3, and 4 are not applicable and have been omitted.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
10.1 Bridge Loan Agreement, dated as of August 2, 1999, by and among
Creditrust SPV99-2, LLC, CRDT SPV99-2 Capital, Inc., Creditrust
Corporation, The Lenders named therein and Norwest Bank Minnesota,
National Association.
10.2 Senior Secured Bridge Note dated August 2, 1999, executed by
SPV99-2, LLC.
10.3 Indenture and Servicing Agreement, dated as of August 1, 1999, by
and among Creditrust SPV99-1, LLC, Norwest Bank Minnesota,
National Association and Creditrust Corporation.*
99 Limited Liability Company Agreement of Creditrust SPV99-1, LLC
* Confidential treatment has been requested with respect to certain
portions of this exhibit. The confidential portions have been
filed separately with the Securities and Exchange Commission.
(B) Reports on Form 8-K
Creditrust Corporation filed no reports on Form 8-K during the quarter ended
September 30, 1999.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Baltimore, State of Maryland, on November 15, 1999.
CREDITRUST CORPORATION
By: __________________________________________
Richard J. Palmer
Vice President and Chief Financial Officer
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Exhibit 10.1
BRIDGE LOAN AGREEMENT
dated as of
August 2, 1999
among
Creditrust SPV99-2, LLC
as Borrower
CRDT SPV99-2 Capital, Inc.
as a Guarantor
Creditrust Corporation
as Parent Guarantor
THE LENDERS named herein,
and
Norwest Bank Minnesota, National Association,
as Administrative Agent
================================================================================
<PAGE>
THIS BRIDGE LOAN AGREEMENT, dated as of August 2, 1999 (as
amended, restated and/or otherwise modified from time to time, this
"AGREEMENT"), is by and among:
(a) Creditrust SPV99-2, LLC, a Delaware limited liability
company (the "BORROWER"),
(b) CRDT SPV99-2 Capital, Inc., a Delaware corporation
("CAPITAL"), as guarantor;
(c) Creditrust Corporation, a Maryland corporation and the
direct parent of the Borrower, as guarantor (the "PARENT GUARANTOR"),
(d) Norwest Bank Minnesota, National Association, as
Administrative Agent, and
(e) the Lenders set forth on the signature pages hereto.
The parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1. DEFINED TERMS. As used in this Agreement, the
following terms shall have the meanings specified below:
"ADMINISTRATIVE AGENT" means Norwest Bank Minnesota, National
Association., acting as agent pursuant to Article X or any successor or
replacement Administrative Agent, acting in such capacity.
"AFFECTED PARTY" means any Lender, any beneficial owner of any
Lender, and their respective successors and assigns.
"AFFILIATE" as to any Person means, any other Person that,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person. For purposes of this definition, "control" of a
Person means the power, directly or indirectly, either to (a) vote 10% or more
of the securities having ordinary voting power for the election of directors (or
persons performing similar functions) of such Person or (b) direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise.
"AGREEMENT" has the meaning specified in the preamble to this
Agreement.
"ASSET SALE" means any Disposition of Property or series of
related Dispositions of Property by the Parent Guarantor or any of its
Subsidiaries (other than the Borrower and Capital) that yields gross proceeds to
the Parent Guarantor or such Subsidiary (valued at the initial principal amount
thereof in the case of non-cash proceeds consisting of notes or other debt
securities and valued at fair market value in the case of other non-cash
proceeds) in excess of $1.0 million; PROVIDED, that the Disposition of obsolete
or worn out property in the ordinary course of business shall not be deemed an
Asset Sale.
"ASSET SECURITIZATION" means the private placement of up to
$45.0 million in fixed rate Creditrust Receivables-Backed Notes, Series 1999-1,
by Creditrust SPV99-1, a Wholly Owned Subsidiary of the Parent Guarantor.
<PAGE>
"ASSIGNMENT AND ACCEPTANCE" shall mean an assignment and
acceptance entered into by a Lender and an assignee, and accepted by the
Administrative Agent, in the form of EXHIBIT A or such other form as shall be
approved by the Administrative Agent.
"AVAILABLE FUNDS" means, for any period, the sum of (a) the
Net Cash Proceeds recovered with respect to each Consumer Receivable during such
period, LESS (b) (i) the amount of interest paid in respect of the Bridge Loans
for such period and (ii) any amounts paid pursuant to the optional prepayment
provisions of Section 2.6 during such period to the extent that such amounts are
paid with Net Cash Proceeds recovered with respect to Consumer Receivables
during such period. In addition, Available Funds as of November 30, 1999 shall
include net proceeds of Bridge Loans not used to acquire Consumer Receivables on
or before the end of such period.
"AVAILABLE FUNDS PAYMENT DATE" means (a) with respect to the
first Available Funds Payment date after the Closing Date, October 15, 1999 and
(b) with respect to each subsequent Available Funds Payment Date, the 15th day
of each month after the Closing Date for so long as the Loans remain
outstanding; PROVIDED, HOWEVER, that in addition to the Available Funds Payment
Dates set forth in clauses (a) and (b) of this definition, November 30, 1999
shall be an Available Funds Payment Date solely with respect to the amounts
referred to in the last sentence of the definition of "Available Funds" set
forth above.
"BANK" has the meaning specified in Section 4.28.
"BANKRUPTCY LAW" means (i) Title 11 of the U.S. Code or (ii)
any other law of the United States, any political subdivision thereof or any
other jurisdiction relating to bankruptcy, insolvency, winding up, liquidation,
reorganization or relief of debtors.
"BENEFICIAL OWNER" and "BENEFICIAL OWNERSHIP" each has the
meaning as defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act.
"BLOCKED ACCOUNT AND LOCK-BOX AGREEMENT" has the meaning
specified in Section 4.28.
"BOARD" means the Board of Governors of the Federal Reserve
System of the United States or any successor.
"BORROWER" has the meaning specified in the preamble to this
Agreement.
"BRIDGE LOAN" means a loan made by any Lender to the Borrower
pursuant to Section 2.1.
"BRIDGE NOTE" means a promissory note of the Borrower in the
form attached as EXHIBIT B hereto evidencing the Bridge Loan and, subject to the
Conversion Date having occurred, Term Loan of any Lender.
"BUSINESS DAY" means each day other than a Saturday, a Sunday
or any other day on which banking institutions in the City of New York are
authorized by law, regulation or executive order to remain closed.
"CAPITAL" has the meaning specified in the preamble to this
Agreement.
"CAPITAL LEASE OBLIGATIONS" as to any Person means, the
obligations of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or
2
<PAGE>
personal property, or a combination thereof, which obligations are required to
be classified and accounted for as capital leases on a balance sheet of such
Person under GAAP, and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such time
determined in accordance with GAAP.
"CAPITAL MARKETS TRANSACTION" has the meaning specified in
Section 2.5(a).
"CAPITAL STOCK" means any and all shares, interests,
participations or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person (other than
a corporation) and any and all warrants, rights or options to purchase any of
the foregoing.
"CASH EQUIVALENTS" means (a) marketable direct obligations
issued by, or unconditionally guaranteed by, the United States Government or
issued by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition; (b) certificates of deposit, time deposits, eurodollar time
deposits or overnight bank deposits having maturities of six months or less from
the date of acquisition issued by any Lender or by any commercial bank organized
under the laws of the United States of America or any state thereof having
combined capital and surplus of not less than $500,000,000; (c) commercial paper
or other obligations of an issuer rated at least A-2 by Standard & Poor's
Ratings Services ("S&P") or P-2 by Moody's Investors Service, Inc. ("MOODY'S"),
or carrying an equivalent rating by a nationally recognized rating agency, if
both of the two named rating agencies cease publishing ratings of commercial
paper issuers generally, and maturing within six months from the date of
acquisition; (d) repurchase obligations of any Lender or of any commercial bank
satisfying the requirements of clause (b) of this definition, having a term of
not more than 30 days with respect to securities issued or fully guaranteed or
insured by the United States government; (e) securities with maturities of one
year or less from the date of acquisition issued or fully guaranteed by any
state, commonwealth or territory of the United States, by any political
subdivision or taxing authority of any such state, commonwealth or territory or
by any foreign government, the securities of which state, commonwealth,
territory, political subdivision, taxing authority or foreign government (as the
case may be) are rated at least A by S&P or A by Moody's; (f) securities with
maturities of six months or less from the date of acquisition backed by standby
letters of credit issued by any Lender or any commercial bank satisfying the
requirements of clause (b) of this definition; or (g) shares of money market
mutual or similar funds which invest exclusively in assets satisfying the
requirements of clauses (a) through (f) of this definition.
"CHANGE OF CONTROL" means (i) any event upon which the
Permitted Investors shall cease to have the power to vote or direct the voting
of securities having a majority of the ordinary voting power for the election of
directors of the Parent Guarantor (determined on a fully diluted basis); (ii)
the Permitted Investors shall cease to own of record and beneficially an amount
of common stock of the Parent Guarantor equal to at least 50.0% of the amount of
common stock of the Parent Guarantor owned by the Permitted Investors of record
and beneficially as of the Closing Date; (iii) any "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act), excluding the
Permitted Investors, shall become, or obtain rights (whether by means or
warrants, options or otherwise) to become, the beneficial owner, directly or
indirectly, of more than 25.0% of the outstanding common stock of the Parent
Guarantor; (iv) the board of directors of the Parent Guarantor shall cease to
consist of a majority of Continuing Directors; or (v) the Parent Guarantor shall
cease to own and control, of record and beneficially, directly, 100% of each
class of outstanding Capital Stock of the Borrower free and clear of all Liens
(except Liens created by the Parent Guarantee and Collateral Agreement).
"CHANGE OF CONTROL FEE" means a fee equal to 1.0% of the
principal amount of the Loans prepaid pursuant to the Change of Control Offer.
3
<PAGE>
"CHANGE OF CONTROL OFFER" has the meaning specified in Section
4.24(a).
"CHANGE OF CONTROL PAYMENT" has the meaning specified in
Section 4.24(a).
"CHANGE OF CONTROL PAYMENT DATE" has the meaning specified in
Section 4.24(a).
"CLOSING DATE" means the date on or before August 2, 1999 on
which the Bridge Loans are funded and the conditions set forth in Article V are
satisfied or waived in accordance with Section 11.3.
"CODE" means the Internal Revenue Code of 1986, as amended,
and any regulation promulgated thereunder.
"COLLATERAL" means (a) all Property of the Borrower and
Capital, now owned or hereafter acquired, upon which a Lien is purported to be
created by any Security Document and (b) all of the Capital Stock of the
Borrower.
"COMMITMENT" means, with respect to any Lender, the amount set
forth opposite such Lender's name on EXHIBIT J thereto.
"COMMONLY CONTROLLED ENTITY" means an entity, whether or not
incorporated, which is under common control with the Borrower within the meaning
of Section 4001 of ERISA or is part of a group that includes the Borrower and
that is treated as a single employer under Section 414 of the Code.
"CONSOLIDATED EBITDA" of any Person for any period means,
Consolidated Net Income of such Person and its Subsidiaries for such period
plus, without duplication and to the extent reflected as a charge in the
statement of such Consolidated Net Income for such period, the sum of (a) income
tax expense, (b) Consolidated Interest Expense of such Person and its
Subsidiaries, amortization or write-off of debt discount and debt issuance costs
and commissions, discounts and other fees and charges associated with
Indebtedness (including, in the case of the Parent Guarantor, the Borrower and
Capital, the Loans and the Guarantees thereof), (c) depreciation and
amortization expense, (d) amortization of intangibles (including, but not
limited to, goodwill) and organization costs, (e) any extraordinary, unusual or
non-recurring expenses or losses (including, whether or not otherwise includable
as a separate item in the statement of such Consolidated Net Income for such
period, losses on sales of assets outside of the ordinary course of business)
and (f) any other non-cash charges, and minus, to the extent included in the
statement of such Consolidated Net Income for such period, the sum of (a)
interest income (except to the extent deducted in determining Consolidated
Interest Expense), (b) any extraordinary, unusual or non-recurring income or
gains (including, whether or not otherwise includable as a separate item in the
statement of such Consolidated Net Income for such period, gains on the sales of
assets outside of the ordinary course of business) and (c) any other non-cash
income, all as determined on a consolidated basis; PROVIDED that for purposes of
calculating Consolidated EBITDA of the Parent Guarantor and its Subsidiaries for
any period, (i) the Consolidated EBITDA of any Person acquired by the Parent
Guarantor or any of its Subsidiaries during such period shall be included on a
pro forma basis for such period (assuming the consummation of such acquisition
and the incurrence or assumption of any Indebtedness in connection therewith
occurred on the first day of such period) if the consolidated balance sheet of
such acquired Person and its consolidated Subsidiaries as at the end of the
period preceding the acquisition of such Person and the related consolidated
statements of income and stockholders' equity and of cash flows for the period
in respect of which Consolidated EBITDA is to be calculated (x) have been
previously provided to the Administrative Agent and the Lenders and (y) either
(1) have been reported on without a qualification arising out of the scope of
the audit by independent certified public accountants of nationally recognized
standing or (2) have been found acceptable by the Administrative Agent and (ii)
the
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Consolidated EBITDA of any Person Disposed of by the Parent Guarantor or any
of its Subsidiaries during such period shall be excluded for such period
(assuming the consummation of such Disposition and the repayment of any
Indebtedness in connection therewith occurred on the first day of such period).
"CONSOLIDATED INTEREST COVERAGE RATIO" for any period means,
the ratio of (a) Consolidated EBITDA of the Parent Guarantor and its
Subsidiaries for such period to (b) Consolidated Interest Expense of the Parent
Guarantor and its Subsidiaries for such period.
"CONSOLIDATED INTEREST EXPENSE" of any Person for any period
means, total interest expense (including that attributable to Capital Lease
Obligations) of such Person and its Subsidiaries for such period with respect to
all outstanding Indebtedness of such Person and its Subsidiaries (including,
without limitation, all commissions, discounts and other fees and charges owed
by such Person and its Subsidiaries with respect to letters of credit and
bankers' acceptance financing and net costs of such Person under Hedge
Agreements in respect of interest rates to the extent such net costs are
allocable to such period in accordance with GAAP).
"CONSOLIDATED NET INCOME" of any Person for any period means,
the consolidated net income (or loss) of such Person and its Subsidiaries for
such period, determined on a consolidated basis in accordance with GAAP;
PROVIDED that in calculating Consolidated Net Income of the Parent Guarantor and
its consolidated Subsidiaries for any period, there shall be excluded (a) the
income (or deficit) of any Person accrued prior to the date it is merged into or
consolidated with, or becomes a Subsidiary of, the Parent Guarantor or any of
its Subsidiaries, (b) the income (or deficit) of any Person (other than a
Subsidiary of the Parent Guarantor) in which the Parent Guarantor or any of its
Subsidiaries has an ownership interest, except to the extent that any such
income is actually received by the Parent Guarantor or such Subsidiary in the
form of dividends or similar distributions and (c) the undistributed earnings of
any Subsidiary of the Parent Guarantor to the extent that the declaration or
payment of dividends or similar distributions by such Subsidiary is not at the
time permitted by the terms of any Contractual Obligation (other than under any
Loan Document) or Requirement of Law applicable to such Subsidiary.
"CONSOLIDATED NET WORTH" at any date means, all amounts that
would, in conformity with GAAP, be included on a consolidated balance sheet of
the Parent Guarantor and its Subsidiaries under stockholders' equity at such
date.
"CONSUMER RECEIVABLES" means receivables in consumer credit
card, revolving and installment accounts acquired by the Borrower, directly or
indirectly, from the banking institutions and merchants that originated the
accounts and their assignees and collections in respect thereof.
"CONTINUING DIRECTORS" as to any Person means, the directors
of such Person on the Closing Date, and each other director, if, in each case,
such other director's nomination for election to the board of directors of such
Person is recommended by at least 662/3% of the then Continuing Directors or
such other director receives the vote of each of the shareholders of such Person
on the Closing Date in his or her election by the shareholders of such Person;
PROVIDED, HOWEVER, that as long as the Permitted Investors own of record and
beneficially an amount of common stock of the Parent Guarantor equal to at least
35% of the amount of issued and outstanding common stock of the Parent Guarantor
and no other person or group (as such terms are used in Section 13(d) and 14(d)
of the Exchange Act) beneficially owns (as such terms are used in such Sections)
more of the Parent Guarantor's issued and outstanding common stock than the
Permitted Investors, any director of the Parent Guarantor elected in accordance
with Maryland law and with the affirmative vote of all of the Permitted
Investors, or with the affirmative vote of Joseph K. Rensin in the case of an
election held solely by the Parent Guarantor's Board of Directors, shall be a
Continuing Director.
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"CONTRACTUAL OBLIGATION" as to any Person means, any provision
of any security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
Property is bound.
"CONVERSION DATE" means May 2, 2000 if and only if the
conversion of Bridge Loans to Term Loans has occurred in compliance with Section
2.2.
"CONVERSION DEFAULT" means the occurrence of any one or more
of the following: (i) any Default or Event of Default has occurred and is
continuing, (ii) any fees due to the Administrative Agent, the Lenders and/or
their Affiliates have not been paid (including, without limitation, any fees due
under the Fee Letter), or (iii) the Conversion Fee shall not have been paid.
"CONVERSION FEE" means the conversion fee payable to the
Lenders on the Conversion Date equal to 3.25% of the aggregate principal amount
of Loans outstanding on such date.
"CONVERSION RATE" means, as of any date, the interest rate
payable on the Term Loans, which shall be 15% per annum.
"CUSTODIAN" means any receiver, interim receiver, receiver and
manager, trustee, assignee, liquidator, sequestrator, custodian or similar
official under any Bankruptcy Law.
"DEFAULT" means any event that, with the passage of time, the
giving of notice or both, would constitute an Event of Default.
"DISPOSITION" with respect to any Property means, any sale,
lease, sale and leaseback, assignment, conveyance, transfer or other disposition
thereof; and the terms "Dispose" and "Disposed of" shall have correlative
meanings.
"DISQUALIFIED STOCK" as to any Person means, any Capital Stock
or other ownership or profit interest of such Person that such Person is or,
upon the passage of time or the occurrence of any event, may become obligated to
redeem, purchase, retire, defease or otherwise make any payment in respect of in
consideration other than Capital Stock (other than Disqualified Stock).
"DOLLARS" or "$" shall mean lawful money of the United States
of America.
"ENVIRONMENTAL LAWS" means any and all laws, rules, orders,
regulations, statutes, ordinances, guidelines, codes, decrees, or other legally
enforceable requirements (including, without limitation, common law) of any
international authority, foreign government, the United States, or any state,
local, municipal or other governmental authority, regulating, relating to or
imposing liability or standards of conduct concerning protection of the
environment or of human health, or employee health and safety, as has been, is
now, or may at any time hereafter be, in effect.
"ENVIRONMENTAL PERMITS" means any and all permits, licenses,
approvals, registrations, notifications, exemptions and any other authorization
required under any Environmental Law.
"EQUITY REGISTRATION RIGHTS AGREEMENT" means the registration
rights agreement among the Parent Guarantor and the Lenders, pursuant to which
the Escrowed Warrant Shares are required to be registered for public sale, in
the form attached as EXHIBIT D.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any regulation promulgated thereunder.
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"ESCROW ACCOUNT" has the meaning specified in the Escrow
Agreement.
"ESCROW AGENT" means Norwest Bank Minnesota, National
Association, in its capacity as escrow agent pursuant to the Escrow Agreement.
"ESCROW AGREEMENT" means the escrow agreement among the
Borrower, Capital, the Parent Guarantor and the Administrative Agent, on behalf
of the Lenders, and the Escrow Agent, in the form attached as EXHIBIT E.
"ESCROWED WARRANTS" means the warrants to purchase up to 10%
of the fully-diluted common stock of the Parent Guarantor, par value $0.01 per
share calculated on a fully diluted basis (the "ESCROWED WARRANT SHARES"),
deposited with the Escrow Agent pursuant to the Escrow Agreement on the date
hereof, in the form attached as an Exhibit to the Warrant Agreement.
"EVENT OF DEFAULT" means any event specified in Section 7.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE NOTES" has the meaning specified in Section 4.30.
"FEE LETTER" means that certain Fee Letter, dated August 2,
1999, among the Parent Guarantor, U.S. Bancorp Investments, Inc. and Brean
Murray & Co., Inc.
"GAAP" means with respect to the financial statements or other
financial information of any Person, generally accepted accounting principles in
the United States which are in effect from time to time.
"GOVERNING DOCUMENTS" means collectively, as to any Person,
the articles or certificate of incorporation and bylaws, any shareholders
agreement, certificate of formation, limited liability company agreement,
partnership agreement or other formation or constituent documents of such
Person.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GUARANTEE AND COLLATERAL AGREEMENT" means the Guarantee and
Collateral Agreement to be executed and delivered by the Borrower and Capital,
substantially in the form attached as EXHIBIT F, as the same may be amended,
supplemented, replaced or otherwise modified from time to time in accordance
with this Agreement.
"GUARANTEE AND COLLATERAL AGREEMENTS" means, collectively, the
Guarantee and Collateral Agreement and the Parent Guarantee and Collateral
Agreement.
"GUARANTEE OBLIGATION" as to any Person (the "guaranteeing
person") means, any obligation of (a) the guaranteeing person or (b) another
Person (including, without limitation, any bank under any letter of credit) to
induce the creation of which the guaranteeing person has issued a reimbursement,
counterindemnity or similar obligation, in either case guaranteeing or in effect
guaranteeing any Indebtedness, leases, dividends or other obligations (the
"primary obligations") of any other third Person (the "primary obligor") in any
manner, whether directly or indirectly, including, without limitation, any
obligation of the guaranteeing person, whether or not contingent, (i) to
purchase any such primary obligation or any Property constituting direct or
indirect security therefor, (ii) to
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advance or supply funds (1) for the purchase or payment of any such primary
obligation or (2) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the primary
obligor, (iii) to purchase Property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation or (iv) otherwise
to assure or hold harmless the owner of any such primary obligation against loss
in respect thereof; provided, however, that the term Guarantee Obligation shall
not include endorsements of instruments for deposit or collection in the
ordinary course of business. The amount of any Guarantee Obligation of any
guaranteeing person shall be deemed to be the lower of (a) an amount equal to
the stated or determinable amount of the primary obligation in respect of which
such Guarantee Obligation is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the instrument
embodying such Guarantee Obligation, unless such primary obligation and the
maximum amount for which such guaranteeing person may be liable are not stated
or determinable, in which case the amount of such Guarantee Obligation shall be
such guaranteeing person's maximum reasonably anticipated liability in respect
thereof as determined by the Borrower in good faith.
"HEDGE AGREEMENTS" means all interest rate swaps, caps or
collar agreements or similar arrangements entered into by the Parent Guarantor
or any of its Subsidiaries providing for protection against fluctuations in
interest rates or currency exchange rates or the exchange of nominal interest
obligations, either generally or under specific contingencies.
"IDENTIFIED PORTFOLIOS" shall mean the portfolios described in
EXHIBIT C hereto.
"INDEBTEDNESS" of any Person at any date means, without
duplication, (a) all indebtedness of such Person for borrowed money, (b) all
obligations of such Person for the deferred purchase price of Property or
services (other than trade payables incurred in the ordinary course of such
Person's business), (c) all obligations of such Person evidenced by notes,
bonds, debentures or other similar instruments, (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to Property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such Property), (e) all Capital Lease Obligations of
such Person, (f) all obligations of such Person, contingent or otherwise, as an
account party under acceptance, letter of credit or similar facilities, (g) all
obligations of such Person, contingent or otherwise, to purchase, redeem, retire
or otherwise acquire for value any Capital Stock of such Person, (h) all
Guarantee Obligations of such Person in respect of obligations of the kind
referred to in clauses (a) through (g) above, and; (i) all obligations of the
kind referred to in clauses (a) through (h) above secured by (or for which the
holder of such obligation has an existing right, contingent or otherwise, to be
secured by) any Lien on Property (including, without limitation, accounts and
contract rights) owned by such Person, whether or not such Person has assumed or
become liable for the payment of such obligation.
"INDEMNIFIED PARTIES" has the meaning specified in Section
9.1(a).
"INDEMNIFYING PARTIES" has the meaning specified in Section
9.1(a).
"INSOLVENCY" with respect to any Multiemployer Plan means, the
condition that such Plan is insolvent within the meaning of Section 4245 of
ERISA.
"INSOLVENT" means pertaining to a condition of Insolvency.
"INTELLECTUAL PROPERTY" means the collective reference to all
rights, priorities and privileges relating to intellectual property, whether
arising under United States, state, multinational or foreign laws or otherwise,
including, without limitation, copyrights, patents, trademarks, service-marks,
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technology, know-how and processes, recipes, formulas, trade secrets, or
licenses (under which the applicable Person is licensor or licensee) relating to
any of the foregoing and all rights to sue at law or in equity for any
infringement or other impairment thereof, including the right to receive all
proceeds and damages therefrom.
"INTEREST PAYMENT DATE" means (i) the first day of each
calendar month after the Closing Date, (ii) the Maturity Date, (iii) the
Conversion Date and (iv) the date of any prepayment of all or any portion of the
principal of the Loans.
"INVESTMENTS" has the meaning specified in Section 4.19.
"LENDERS" shall mean (a) each financial institution that has
executed a counterpart to this Agreement (other than any such financial
institution that has ceased to be a party hereto pursuant to an Assignment and
Acceptance) and (b) any financial institution that has become a party hereto
pursuant to an Assignment and Acceptance.
"LIEN" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement and any
capital lease having substantially the same economic effect as any of the
foregoing).
"LIQUIDATED DAMAGES" means any and all liquidated damages then
owing pursuant to any of the Loan Documents.
"LLC INTERESTS" has the meaning specified in Section 1.1 of
the Parent Guarantee and Collateral Agreement.
"LOAN" means a Bridge Loan or a Term Loan.
"LOAN DOCUMENTS" means this Agreement, the Bridge Notes and
the Related Documents.
"LOAN REGISTER" means the register maintained by the
Administrative Agent on behalf of the Borrower pursuant to Section 6.7.
"MAJORITY LENDERS" means, at any time, Lenders holding at
least a majority of the then aggregate unpaid principal balance of the Loans,
or, if no such principal amount is then outstanding, Lenders having at least a
majority of the total Commitments; provided that, for purposes hereof, neither
the Borrower nor any of its Affiliates shall be included in (i) the Lenders
holding such amount of the Loans or having such amount of the Commitments or
(ii) determining the aggregate unpaid principal amount of the Loans or the total
Commitments.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
or affecting (a) the business, assets, property, condition (financial or
otherwise) or prospects of the Borrower, Capital, the Parent Guarantor and the
Parent Guarantor's Subsidiaries, taken as a whole, (b) the validity or
enforceability of this Agreement or any of the other Loan Documents, (c) the
validity, enforceability or priority of the Liens purported to be created by the
Security Documents, or (d) the rights or remedies of any Secured Party hereunder
or under any of the other Loan Documents.
"MATERIALS OF ENVIRONMENTAL CONCERN" means any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum products,
polychlorinated biphenyls, urea-formaldehyde
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insulation, asbestos, pollutants, contaminants, radioactivity, and any other
substances or forces of any kind, whether or not any such substance or force is
defined as hazardous or toxic under any Environmental Law, that is regulated
pursuant to or could give rise to liability under any Environmental Law.
"MATERIAL SUBSIDIARY" means, at any time, each Subsidiary of
the Parent Guarantor:
(a) that would be a "significant subsidiary" as defined in Article 1, Rule 1-02
of Regulation S-X, promulgated pursuant to the Securities Act, as such
Regulation is in effect on the date hereof; PROVIDED, that each reference in
such definition to "10 percent" shall be replaced with "five percent"; or
(b) to which is transferred all or substantially all of the business,
undertaking or assets of a Subsidiary which immediately prior to such transfer
is a Material Subsidiary whereupon the transferor Subsidiary shall cease to be a
Material Subsidiary under this sub-clause (ii) upon the completion of such
transfer.
"MATURITY DATE" means May 2, 2000, unless such date is
extended in accordance with Section 2.2.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in
Section 3(37) or 4001(a)(3) of ERISA.
"NET CASH PROCEEDS" means the aggregate cash proceeds received
(including any cash and cash equivalents and cash payments received by way of
deferred payment of principal pursuant to a note, an installment receivable or
otherwise, but only as and when received) from any Capital Markets Transaction
or from or on account of Consumer Receivables, net, (a) in the case of a Capital
Markets Transaction, of (i) reasonable costs of sale (including payment of the
outstanding principal amount of, premium or penalty, if any, interest and other
amounts on any Indebtedness (other than the Loans or the Exchange Notes) secured
by a Lien permitted pursuant to Section 4.14 hereof on such assets and required
to be repaid under the terms thereof as a result of such Capital Markets
Transaction), (ii) taxes paid or payable in the year such Capital Markets
Transaction occurs or in the following year as a result thereof and (iii)
amounts provided as a reserve, in accordance with GAAP, against any liabilities
under any indemnification obligations associated with such Capital Markets
Transaction (except that, to the extent and at the time any such amounts are
released from such reserve, such amounts shall constitute Net Cash Proceeds) and
(b) in the case of Consumer Receivables and in any case only after the
Conversion Date, of amounts paid to the Parent Guarantor pursuant to the
Servicing Agreement in compliance with Section 4.25 hereof.
"OBLIGATIONS" means all now existing and hereafter arising
obligations and liabilities of any of the Borrower, Capital or the Parent
Guarantor to any and all of the Lenders arising under or in connection with the
Loan Documents, whether absolute or contingent, and whether for principal,
interest, penalties, premium, fees, indemnifications, reimbursements, damages
(including, if applicable, Liquidated Damages), or otherwise and specifically
including post-petition interest (whether or not an allowable claim).
"OFFICER" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operation
Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
the Controller, the Secretary or any Vice-President of such Person.
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"OFFICERS' CERTIFICATE" means a certificate signed on behalf
of either the Borrower or the Parent Guarantor by an Officer of the Borrower or
the Parent Guarantor, as the case may be, who must be the principal executive
officer, a vice chairman, the principal financial officer, the treasurer or the
principal accounting officer of the Borrower or the Parent Guarantor, as the
case may be.
"OPINION OF COUNSEL" means an opinion from legal counsel of
the Borrower or the Parent Guarantor, which legal counsel is reasonably
acceptable to the Administrative Agent.
"OTHER TAXES" has the meaning specified in Section 2.10(b).
"PARENT GUARANTEE AND COLLATERAL AGREEMENT" means the
Guarantee and Collateral Agreement to be executed and delivered by the Parent
Guarantor, substantially in the form attached as EXHIBIT G, as the same may be
amended, supplemented, replaced or otherwise modified from time to time in
accordance with this Agreement.
"PARENT GUARANTOR" has the meaning specified in the preamble
to this Agreement.
"PARTICIPANTS" has the meaning specified in Section 6.3.
"PAYMENT DEFAULT" means any Default or Event of Default under
Section 7.1(b), (c) or (d).
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any of its functions under ERISA.
"PERMANENT SECURITIES" means senior secured discount debt
securities issued by the Borrower and Capital and unconditionally guaranteed by
the Parent Guarantor, which have either been registered with the SEC and sold
pursuant to a registration statement in a public offering or privately placed or
otherwise sold in an offering exempt from registration with the SEC to refinance
the Loans.
"PERMITS" means the collective reference to (i) Environmental
Permits, and (ii) any and all other franchises, licenses, leases, permits,
approvals, notifications, certifications, registrations, authorizations,
exemptions, qualifications, easements, rights of way, Liens and other rights,
privileges and approvals required under any Requirement of Law.
"PERMITTED INVESTMENTS" means, with respect to the Borrower,
(a) the purchase of Consumer Receivables and (b) Investments in Cash Equivalents
pending Investments made pursuant to clause (a) of this definition.
"PERMITTED INVESTORS" means Joseph K. Rensin and his Related
Parties.
"PERSON" means any individual, corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization or government or any agency or political subdivision thereof or any
other entity.
"PLAN" at a particular time means, any employee benefit plan
that is covered by ERISA and which the Borrower or any Commonly Controlled
Entity maintains, administers, contributes to or is required to contribute to or
under which the Borrower or any Commonly Controlled Entity could incur any
liability.
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"PLEDGED STOCK" means the shares, units, interests,
participations or other equivalents (however designated) of Capital Stock listed
on Schedule 1 to each of the Guarantee and Collateral Agreements, including,
without limitation, the entire limited liability company interest of the Parent
Guarantor in the Borrower, together with any other shares, stock certificates,
options or rights of any nature whatsoever in respect of the Capital Stock of
the Borrower that may be issued or granted to, or held by, the Parent Guarantor
while this Agreement is in effect.
"PREPAYMENT DATE" has the meaning specified in Section 2.8.
"PROCEEDS" means all "proceeds" as such term is defined in
Section 9-306(1) of the Uniform Commercial Code in effect in the State of New
York on the date of this Agreement and, in any event, shall include, without
limitation, all dividends or other income from the Pledged Stock and LLC
Interests, collections thereon or distributions or payments with respect
thereto.
"PRO FORMA BALANCE SHEET" has the meaning specified in Section
3.1(a).
"PROPERTY" means any right or interest in or to property or
assets of any kind whatsoever, whether real, personal or mixed and whether
tangible or intangible, including, without limitation, Capital Stock.
"PUBLIC OFFERING" means the public offering of 2,400,000
shares of common stock, par value $0.01 per share, of the Parent Guarantor
completed on March 24, 1999.
"REGULATION D" means Regulation D of the Board as the same may
be amended or supplemented from time to time.
"REGULATION H" means Regulation H of the Board as the same may
be amended or supplemented from time to time.
"REGULATION T" means Regulation T of the Board as the same may
be amended or supplemented from time to time.
"REGULATION U" means Regulation U of the Board as the same may
be amended or supplemented from time to time.
"REGULATION X" means Regulation X of the Board as the same may
be amended or supplemented from time to time.
"RELATED DOCUMENTS" means the Security Documents, the Equity
Registration Rights Agreement, the Escrow Agreement, the Stockholders Agreement,
the Escrowed Warrants, the Escrowed Warrant Shares, the Warrant Agreement, the
Servicing Agreement, the Fee Letter and the Blocked Account and Lock-Box
Agreement (from and after the date it is executed by the Parent Guarantor, the
Borrower and Capital).
"RELATED PARTY" means (a) any immediate family member of
Joseph K. Rensin or (b) any trust, corporation, partnership, limited liability
company or other entity, the beneficiaries, stockholders, partners, owners or
Persons beneficially holding a majority or greater controlling interest of which
consist of any one or more of Joseph K. Rensin and/or or such other Persons
referred to in the immediately preceding clause (a).
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"REORGANIZATION" with respect to any Multiemployer Plan means,
the condition that such plan is in reorganization within the meaning of Section
4241 of ERISA.
"REPORTABLE EVENT" means any of the events set forth in
Section 4043(c) of ERISA, other than those events as to which the thirty day
notice period is waived under subsections .27, .28, .29, .30, .31, .32, .34 or
.35 of PBGC Reg. Section 4043.
"REQUIREMENT OF LAW" as to any Person means, the Governing
Documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its Property or to
which such Person or any of its Property is subject.
"RESPONSIBLE OFFICER" of any corporation shall mean any
executive officer or financial officer of such corporation and any other officer
or similar official thereof responsible for the administration of the
obligations of such corporation in respect of this Agreement.
"RESTRICTED PAYMENTS" has the meaning specified in Section
4.15.
"REVOLVING FACILITY" means any revolving credit or similar
facility reflected on the Parent Guarantor's balance sheet for the fiscal
quarter ending immediately prior to the date of this Bridge Loan Agreement, as
such facility may from time to time be amended; PROVIDED, that in no event shall
the aggregate principal amount of Indebtedness thereunder exceed $75.0 million
at any time outstanding.
"SEC" means the Securities and Exchange Commission.
"SECURED PARTIES" means, collectively, the Administrative
Agent and the Lenders.
"SECURITIES" means, collectively, the Escrowed Warrants and
the Escrowed Warrant Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY DOCUMENTS" means the collective reference to the
Guarantee and Collateral Agreements and all other pledge and security documents
hereafter delivered to the Administrative Agent granting a Lien on any Property
of any Person to secure the obligations and liabilities of any of the Borrower,
Capital and the Parent Guarantor under any Loan Document.
"SENIOR SECURED NOTE INDENTURE" has the meaning specified in
Section 4.30.
"SERVICING AGREEMENT" means the Servicing Agreement, dated the
Closing Date, between the Borrower and the Parent Guarantor, pursuant to which
the Parent Guarantor will service the Consumer Receivables owned by the Borrower
in accordance with Section 4.25.
"SINGLE EMPLOYER PLAN" means any Plan that is covered by Title
IV of ERISA, but which is not a Multiemployer Plan.
"SOLVENT" when used with respect to any Person means, as of
any date of determination, (a) the amount of the "present fair saleable value"
of the assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise," as of such date, as such
quoted terms are determined in accordance with applicable federal and state laws
governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person
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will, as of such date, be greater than the amount that will be required to pay
the liability of such Person on its debts as such debts become absolute and
matured, (c) such Person will not have, as of such date, an unreasonably small
amount of capital with which to conduct its business, (d) such Person will be
able to pay its debts as they mature, and (e) such Person is not insolvent
within the meaning of any applicable Requirements of Law. For purposes of this
definition, (i) "debt" means liability on a "claim," and (ii) "claim" means any
(x) right to payment, whether or not such a right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured or (y) right to an equitable
remedy for breach of performance if such breach gives rise to a right to
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured
or unsecured.
"STOCKHOLDERS AGREEMENT" means the stockholders agreement
among the Parent Guarantor and each of the other parties listed therein, in the
form attached as EXHIBIT H.
"SUBSIDIARY" means, with respect to any person (herein
referred to as the "parent"), any corporation, partnership, association or other
business entity of which securities or other ownership interests representing
more than 50% of the equity or more than 50% of the ordinary voting power or
more than 50% of the general partnership interests are, at the time any
determination is being made, owned, controlled or held by the parent; PROVIDED,
that any reference to a Subsidiary of the Parent Guarantor in Article 4 of this
Agreement (or in any definition as used in Article 4) shall not include any
subsidiary that is not reflected in the consolidated balance sheet of the Parent
Guarantor prepared in accordance with GAAP.
"TAX AMOUNT" means, with respect to any Person for any period,
the combined federal, state and local income taxes that would be paid by such
Person if it were a separate entity and a Maryland corporation filing separate
tax returns with respect to its Taxable Income for such period, reduced by any
income taxes paid or payable directly by such Person with respect to all or a
portion of its Taxable Income for such period; PROVIDED, HOWEVER, that in
determining the Tax Amount, the effect thereon of any net operating loss
carryforwards or other carryforwards or tax attributes, such as alternative
minimum tax carryforwards that would have arisen if such Person were a Maryland
corporation shall be taken into account. Notwithstanding anything to the
contrary, Tax Amount shall not include taxes resulting from such Person's
reorganization as or change in the status to a corporation.
"TAXABLE INCOME" means, with respect to any Person for any
period, the hypothetical taxable income or loss of such Person for such period
for federal income tax purposes computed on the hypothetical assumption that
such person is a separate entity and a Maryland corporation, reduced by the net
operating loss or net operating loss carryforwards of the owner or owners of
such Person, or of the consolidated or unitary group of which such owner or
owners are members, which reduction shall be determined without regard to the
taxable income or loss attributable to such Person.
"TAXES" has the meaning specified in Section 2.10(a).
"TERM LOAN" means a loan by a lender converted from a Bridge
Loan to the Borrower on the Conversion Date pursuant to Section 2.2 to extend
the maturity of a Bridge Loan.
"TRANSFEREE" has the meaning specified in Section 6.4.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939,
as amended.
"WARRANT AGREEMENT" means the warrant agreement among the
Parent Guarantor and the Lenders in the form attached as EXHIBIT I.
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"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of
such Person, 100% of the Capital Stock of which is owned directly or indirectly
by such Person.
SECTION 1.2. INTERPRETATION. In this Agreement, the singular
includes the plural and the plural includes the singular; words implying any
gender include the other genders; references to any section, exhibit or schedule
are to sections, exhibits or schedules hereto unless otherwise indicated;
references to statutes are to be construed as including all statutory provisions
consolidating, amending or replacing the statute referred to; references to
"writing" include printing, typing, lithography and other means of reproducing
words in a visible form; "including" following a word or phrase shall not be
construed to limit the generality of such word or phrase; and an accounting term
not otherwise defined has the meaning assigned to it in accordance with GAAP.
ARTICLE II.
THE CREDIT FACILITY
SECTION 2.1. COMMITMENTS TO MAKE BRIDGE LOANS. In reliance
upon the representations and warranties of the Borrower, Capital and the Parent
Guarantor set forth herein and subject to the terms and conditions set forth
herein, each of the Lenders severally agrees to make a Bridge Loan to the
Borrower on the Closing Date in the amount of such Lender's Commitment. The
proceeds of each Bridge Loan shall be disbursed by wire transfer on the Closing
Date as provided in written instructions delivered by the Borrower to each of
the Lenders on the Business Day prior to the Closing Date. Each Bridge Loan will
mature on the Maturity Date.
SECTION 2.2. CONVERSION TO TERM LOANS. If, on the Maturity
Date: (i) all principal and interest in respect of the Bridge Loans has not been
paid in full, (ii) no Conversion Default exists and is continuing, (iii) no
order, decree, injunction or judgment enjoining the conversion of Bridge Loans
to Term Loans shall be in effect, and (iv) the Administrative Agent receives an
Officers' Certificate from the Borrower certifying to the foregoing and
requesting a conversion of the Bridge Loans to Term Loans, each of the Lenders
hereby commits that, on the Maturity Date, such Lender will convert its Bridge
Loan to a Term Loan maturing on the fourth anniversary of the original Maturity
Date (and the Maturity Date shall be deemed to have been automatically extended
to such fourth anniversary date), subject to earlier acceleration pursuant to
Section 7.1.
SECTION 2.3. BLOCKED ACCOUNT AND LOCK-BOX AGREEMENT. Each of
the parties to this Agreement agrees that, upon execution by the Administrative
Agent, the Borrower, Capital, the Parent Guarantor and the Bank of the Blocked
Account and Lock-Box Agreement pursuant to Section 4.28 hereof, to the extent
that the terms of such Blocked Account and Lock-Box Agreement conflict with the
terms of this Agreement, the terms of the Blocked Account and Lock-Box Agreement
shall govern.
SECTION 2.4. INTEREST AND DEFAULT INTEREST.
(a) INTEREST RATE APPLICABLE TO BRIDGE LOANS. The Bridge Loans
shall bear interest at the rate of 1.0% per month, payable in cash.
(b) INTEREST ON TERM LOANS. Interest on the unpaid principal
balance of the Term Loans of each Lender will accrue at a rate per annum equal
to the Conversion Rate.
(c) BASIS OF COMPUTATION OF INTEREST; PAYMENT OF INTEREST. All
interest shall be calculated for actual days elapsed and shall be payable in
advance not later than 12:00 noon (New York City time) on each Interest Payment
Date by wire transfer of immediately available funds in accordance with Section
2.9.
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(d) DEFAULT INTEREST. (i) If the Borrower shall default in the
payment of the principal of or interest on any Bridge Loan or Term Loan by
acceleration or otherwise, the Borrower shall on demand from time to time pay
interest, to the extent permitted by law, on such defaulted amount to but
excluding the date of actual payment (after as well as before judgment) to the
extent lawful, at a rate per month equal to 50 basis points in excess of the
otherwise applicable interest rate on the Bridge Loans or Term Loans, as
applicable. The Borrower shall pay such default interest and all interest
accruing on any overdue Bridge Loan or Term Loan in cash on demand from time to
time.
SECTION 2.5. MANDATORY PREPAYMENT.
(a) The Borrower shall prepay the Loans ratably in accordance
with the aggregate outstanding principal balances thereof, with the Net Cash
Proceeds of: (i) any direct or indirect public offering or private placement of
the Permanent Securities, or any other debt or equity securities of the
Borrower, the Parent Guarantor, any other direct or indirect parent holding
company of the Borrower or any of their respective Subsidiaries issued after the
Closing Date other than (A) any issuance of directors' qualifying shares and (B)
any issuance or sale for cash of common stock (or common stock equivalents) of
the Parent Guarantor, any other direct or indirect parent holding company of the
Borrower or any of their respective Subsidiaries to officers and employees under
employee benefit or compensation plans, (ii) the incurrence of any other
Indebtedness by the Parent Guarantor, any other direct or indirect parent
holding company of the Borrower or any of their respective Subsidiaries after
the Closing Date (other than Indebtedness incurred pursuant to the Asset
Securitization or borrowings and reborrowings under the Revolving Facility) and
(iii) any Asset Sale by the Parent Guarantor, any other direct or indirect
parent holding company of the Borrower or any of their respective Subsidiaries
after the Closing Date (each of the transactions in the foregoing clauses (i),
(ii) and (iii), a "CAPITAL MARKETS TRANSACTION"). The Borrower shall, not later
than the fourth Business Day following the funding of any Capital Markets
Transaction, apply such Net Cash Proceeds to prepay the Loans pursuant to this
Section 2.5, without premium or penalty, by paying to each Lender an amount
equal to 100% of such Lender's pro rata share of the aggregate principal amount
of the Loans to be prepaid, plus accrued and unpaid interest thereon to the
Prepayment Date.
(b) Subject to and in accordance with Section 4.24, in the
event of any Change of Control, the Borrower shall offer to prepay the Loans
pursuant to Section 4.24.
(c) On each Available Funds Payment Date, the Borrower shall
apply, for the calendar month immediately preceding such date, to the prepayment
of the Loans (ratably in accordance with the aggregate outstanding balance
thereof) by paying to each Lender an amount equal to 100% of such Lender's PRO
RATA share of the aggregate principal amount of the Loans to be prepaid, plus
accrued and unpaid interest thereon, to the Available Funds Payment Date, the
amount of Available Funds.
SECTION 2.6. OPTIONAL PREPAYMENT. The Borrower may, upon five
days' prior written notice to each of the Lenders, prepay the Loans at any time,
in whole or in part, on a PRO RATA basis, by paying to each applicable Lender an
amount equal to 100% of such Lender's PRO RATA share of the aggregate principal
amount of Loans to be prepaid, plus accrued and unpaid interest thereon to the
Prepayment Date.
SECTION 2.7. BREAKAGE COSTS; INDEMNITY. Each of the Borrower,
Capital and the Parent Guarantor agrees to indemnify and hold each Affected
Party harmless from and against any loss or expense which such Affected Party
sustains or incurs as a consequence of default by the Borrower in making any
prepayment after the Borrower has given a notice thereof in accordance with the
provisions of Section 2.5 or 2.6, as applicable.
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Such indemnification may include an amount equal to such
Affected Party's actual loss and expenses incurred (excluding lost profits) in
connection with, or by reason of, any of the foregoing events. A certificate as
to any amounts payable pursuant to this Section 2.7 submitted to the Borrower by
any Affected Party shall be conclusive in the absence of manifest error. This
covenant shall survive the termination of this Agreement and the payment of the
Obligations.
SECTION 2.8. EFFECT OF NOTICE OF PREPAYMENT.
The Borrower shall notify the Lenders in writing at their
addresses shown in the Loan Register of any date set for prepayment (each such
day, a "PREPAYMENT DATE") of Loans. Once such notice is sent or mailed, the
Loans to be prepaid shall become due and payable on the Prepayment Date set
forth in such notice.
Such notice may not be conditional.
SECTION 2.9. PAYMENTS.
(a) WIRE TRANSFER. The principal of, fees, premium, if any,
and interest on each Loan and all other Obligations arising under the Loan
Documents shall be payable by wire transfer in immediately available funds (in
United States dollars) to the accounts of the Lenders set forth opposite their
names on the EXHIBIT J hereto otherwise designated in the Loan Register from
time to time to the Borrower by any Lender at least three Business Days prior to
the due date therefor.
(b) PAYMENTS ON BUSINESS DAYS. If any payment to be made
hereunder or under any Bridge Note shall be due on a day other than a Business
Day, such payment shall be made on the next succeeding Business Day (and such
extension of time shall be included in computing interest in connection with
such payment); provided, however, that if such succeeding Business Day falls in
the next calendar month, such payment shall be made on the next preceding
Business Day.
(c) PARTIAL PREPAYMENTS AND REDEMPTIONS. All partial
prepayments and redemptions of the outstanding principal balance of the Loans
shall be made ratably amongst the applicable Lenders in accordance with their
respective shares of the aggregate outstanding principal balance of the Loans
eligible for prepayment or redemption.
(d) NO DEFENSE. To the fullest extent permitted by law, the
Borrower, Capital and the Parent Guarantor shall make all payments hereunder and
under the Bridge Notes regardless of any defense or counterclaim.
(e) ALLOCATION. Any money paid to, received by, or collected
by the Administrative Agent or any Lender pursuant to this Agreement or any
other Loan Document, shall be applied in the following order, at the date or
dates fixed by the Administrative Agent:
FIRST: to any unpaid fees and reimbursement or unpaid expenses
of the Administrative Agent incurred in connection herewith, under the
Guarantee and Collateral Agreements and any Related Document;
SECOND: to the payment of all costs, expenses, other fees,
commissions and taxes owing to any Lender hereunder, under the
Guarantee and Collateral Agreements and any Related Document;
THIRD: to the indefeasible payment of all accrued interest on
the Loans to the date of such payment or collection;
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FOURTH: to the indefeasible payment of the amounts then due
and unpaid under this Agreement, the Bridge Notes, or any other Loan
Document for principal, in respect of which or for the benefit of which
such money has been paid or collected, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Bridge Notes for principal; and
FIFTH: the balance, if any, to the Person lawfully entitled
thereto.
SECTION 2.10. TAXES.
(a) TAXES. Any and all payments by the Borrower, Capital and
the Parent Guarantor hereunder or under the Bridge Notes, the Exchange Notes or
any other Loan Document shall be made, in accordance with Section 2.9 or the
other applicable provision of the applicable Loan Document, free and clear of
and without deduction or withholding for or on account of any and all present or
future taxes, levies, imposts, deductions, charges, withholdings or additions to
tax, interest, penalties and all other liabilities with respect thereto,
excluding income, franchise or similar taxes imposed or levied on the
Administrative Agent or the Lenders as a result of a connection between the
Administrative Agent or the Lenders and the jurisdiction of the governmental
authority imposing such tax or any political subdivision or taxing authority
thereof or therein (other than any such connection arising solely from the
Administrative Agent or such Lenders having executed, delivered or performed its
obligations or received a payment under, or enforced, this Agreement) (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "TAXES"). If the Borrower, Capital
or the Parent Guarantor shall be required by law to deduct or withhold any Taxes
from, or in respect of, any sum payable hereunder or under the Bridge Notes, the
Exchange Notes or any other Loan Document to the Administrative Agent or the
Lenders or any of their respective Affiliates who may become a Lender: (i) the
sum payable thereunder shall be increased as may be necessary so that after
making all required deductions or withholdings (including deductions or
withholdings applicable to additional sums payable under this Section 2.10) the
Administrative Agent or the Lenders or any of their respective Affiliates
receives an amount equal to the sum it would have received had no such
deductions or withholdings been made; (ii) the Borrower, Capital or the Parent
Guarantor, as the case may be, shall make such deductions or withholdings; and
(iii) the Borrower, Capital or the Parent Guarantor, as the case may be, shall
pay the full amount deducted to the relevant tax authority or other authority in
accordance with applicable laws, provided, however, that the Borrower shall not
be required to increase any such amounts payable to the Administrative Agent or
such Lender with respect to any Taxes that are United States federal withholding
taxes imposed on amounts payable to the Administrative Agent or such Lender at
the time the Administrative Agent or such Lender becomes a party to this
Agreement, except to the extent that the Administrative Agent's or such Lender's
assignor (if any) was entitled, at the time of assignment, to receive additional
amounts from the Borrower with respect to such Taxes pursuant to this Section
2.10(a).
(b) OTHER TAXES. In addition, the Borrower, Capital and the
Parent Guarantor agree to pay any present or future stamp, mortgage recording or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or under a Bridge Note,
Exchange Note or other Loan Document or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or the other Loan
Documents (hereinafter referred to as "OTHER TAXES") and hold the Administrative
Agent and each Lender harmless from and against any and all liabilities with
respect to or resulting from any delay or omission (other than to the extent
attributable to such Lender) to pay such Other Taxes. Each Lender represents
that, to the best of its knowledge, except for any such Other Taxes that may be
imposed under the federal, state or local laws of the United States (or any
political subdivision thereof), it is not aware of any such stamp, mortgage
recording or documentary taxes or any other excise or property taxes, charges or
similar levies.
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(c) INDEMNITY. The Borrower, Capital and the Parent Guarantor will indemnify the
Administrative Agent and any Lender for the full amount of Taxes or Other Taxes
arising in connection with payments made under this Agreement or any other Loan
Document (including, without limitation, any incremental Taxes (determined for
purposes of this parenthetical without respect to the exclusions set forth in
the definition of Taxes set forth in Section 2.10(a)) or Other Taxes imposed by
any jurisdiction on amounts payable under this Section 2.10) paid by the
Administrative Agent or any Lender or any of their respective Affiliates and any
liability (including penalties, additions to tax, interest and expenses) arising
therefrom or with respect thereto. Payment under this indemnification shall be
made within fifteen days from the date the Administrative Agent or any Lender or
any of their respective Affiliates makes written demand therefor; provided,
however, that the Borrower, Capital and the Parent Guarantor shall not be
obligated to make payment to the Lender or the Administrative Agent (as the case
may be) pursuant to this Section 2.10(c) in respect of penalties, interest and
other liabilities attributable to any Taxes or Other Taxes, if (i) written
demand therefor has not been made by such Lender or the Administrative Agent
within 60 days from the date on which such Lender or the Administrative Agent
received written notice of the imposition of Taxes or Other Taxes by the
relevant taxing or governmental authority, but only to the extent such
penalties, interest and other similar liabilities are attributable to such
failure or delay by the Administrative Agent or the Lender in making such
written demand, (ii) such penalties, interest and other liabilities have accrued
after the Borrower had indemnified or paid an additional amount due as of the
date of such payment pursuant to this Section 2.10(c) or (iii) such penalties,
interest and other liabilities are attributable to the gross negligence or
willful misconduct of the Lender or the Administrative Agent or such Affiliates.
After the Lender or the Administrative Agent (as the case may be) received
written notice of the imposition of the Taxes or Other Taxes which are subject
to this Section 2.10(c), such Lender and Administrative Agent will act in good
faith to promptly notify the Borrower, Capital and the Parent Guarantor of their
obligations hereunder; provided, however, that the failure to so act shall not,
standing alone, affect the rights of the Administrative Agent or the Lenders
under this Section 2.10(c).
(d) FURNISH EVIDENCE TO ADMINISTRATIVE AGENT. The Borrower
will make reasonable efforts to obtain certified copies of tax receipts
evidencing the payment of any Taxes deducted or withheld from each taxing
authority imposing such Taxes. The Borrower will furnish to the Lenders, within
60 days after the date the payment of any Taxes so deducted or withheld is due
pursuant to applicable law, original or certified copies of tax receipts
evidencing such payment by the Borrower or, if such receipts are not obtainable,
other evidence of such payments by the Borrower reasonably satisfactory to the
Lenders.
(e) SURVIVAL. Without prejudice to the survival of any other
agreement of the Borrower, Capital or the Parent Guarantor hereunder, the
agreements and obligations of the Borrower, Capital and the Parent Guarantor
contained in this Section 2.10 shall survive the payment in full of all amounts
due hereunder and under the Bridge Notes.
(f) MITIGATION. If the Borrower, Capital or the Parent
Guarantor (as the case may be) is required to pay additional amounts to or for
the account of any Lender pursuant to this Section 2.10 as a result of a change
in law or treaty occurring after such Lender first became a party to this
Agreement, then such Lender will, at the request of the Borrower, Capital or the
Parent Guarantor, change the jurisdiction of its applicable lending office if
such change (i) will eliminate or reduce any such additional payment which may
thereafter accrue and (ii) is, in such Lender's sole, reasonable discretion,
determined not to be materially disadvantageous or cause unreasonable hardship
to such Lender, provided that fees, charges, costs or expenses that are related
to such change shall be borne by the Borrower, Capital or the Parent Guarantor
on behalf of a Lender, and the mere existence of such expenses, fees or costs
shall not be deemed to be materially disadvantageous or cause undue hardship to
the Lender.
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Each Lender and the Administrative Agent agrees that it will
(i) take all reasonable actions reasonably requested by the Borrower, Capital or
the Parent Guarantor in writing that are without risk and material cost to such
Lender or the Administrative Agent and consistent with the internal policies of
such Lender and applicable legal and regulatory restrictions (as the case may
be) to maintain all exemptions, if any, available to it from withholding taxes
(whether available by treaty or existing administrative waiver) and (ii) to the
extent reasonable and without risk and material cost to it, otherwise cooperate
with the Borrower, Capital or the Parent Guarantor to minimize any amounts
payable by the Borrower, Capital or the Parent Guarantor under this Section
2.10; provided, however, that in each case, any cost relating to such action or
cooperation requested by the Borrower, Capital or the Parent Guarantor shall be
borne by the Borrower, Capital or the Parent Guarantor, respectively.
(g) TAX BENEFIT. If and to the extent that any Lender is able,
in its sole opinion, to apply or otherwise take advantage of any offsetting tax
credit or other similar tax benefit arising out of or in conjunction with any
deduction or withholding which gives rise to an obligation on the Borrower,
Capital or the Parent Guarantor to pay any additional amount pursuant to this
Section 2.10 then such Lender shall, to the extent that in its sole opinion it
can do so without prejudice to the retention of the amount of such credit or
benefit and without any other adverse tax consequences for such Lender,
reimburse to the Borrower at such time as such tax credit or benefit shall have
actually been received by such Lender such amount as such Lender shall, in its
sole opinion, have determined to be attributable to the relevant deduction or
withholding and as will leave such Lender in no better or worse position than it
would have been in if the payment of such additional amount had not been
required.
Nothing in this Section 2.10 shall oblige any Lender to
disclose to the Borrower or any other person any information regarding its tax
affairs or tax computations or interfere with the right of any Lender to arrange
its tax affairs in whatever manner it thinks fit and, in particular, no Lender
shall be under any obligation to claim relief from its corporate profits or
similar tax liability in credits or deductions available to it and, if it does
claim, the extent, order and manner in which it does so shall be at its absolute
discretion.
SECTION 2.11. RIGHT OF SET OFF; SHARING OF PAYMENTS, ETC.
(a) RIGHT OF SET-OFF. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance of
any Event of Default or if the Borrower becomes insolvent, however evidenced,
the Borrower authorizes each Lender at any time or from time to time, without
presentment, demand, protest or other notice of any kind to the Borrower or to
any other Person, any such notice being hereby expressly waived, to set off and
to appropriate and apply any and all deposits (general or special, time or
demand, provisional or final, whether or not collected or available) in any
currency and any other indebtedness at any time held or owing by such Lender or
any of its Affiliates (including, without limitation, by branches and agencies
of such Lender wherever located) to or for the credit or the account of the
Borrower against and on account of the Obligations of the Borrower to such
Lender under this Agreement or under any of the other Loan Documents, including,
without limitation, all interests in or participation in the Obligations
purchased by such Lender, and all other claims of any nature or description
arising out of or in connection with this Agreement or any other Loan Document,
irrespective of whether or not such Lender shall have made any demand hereunder
and although the Obligations, liabilities or claims, or any of them, shall be
contingent or unmatured. A Lender may exercise such rights notwithstanding that
the amounts concerned may be expressed in different currencies and each Lender
is authorized to effect any necessary conversions at a market rate of exchange
selected by it. A Lender exercising its rights under this Section 2.11(a) shall
provide prompt notice to the Borrower following such exercise.
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(b) SHARING. If any Lender shall obtain from the Borrower
payment of any principal of or interest on any Loan owing to it or payment of
any other amount under this Agreement, a Loan Document or any Bridge Note held
by it though the exercise of any right of set-off, banker's lien or counterclaim
or similar right or otherwise (other than from the Administrative Agent as
provided herein) and, as a result of such payment, such Lender shall have
received a greater percentage of the principal of or interest on the Loans or
such other amounts then due to such Lender by the Borrower than the percentage
received by any other Lenders, it shall promptly purchase from such other
Lenders participation in (or, if and to the extent specified by such Lender,
direct interests in) the Loans or such other amounts, respectively, owing to
such other Lenders (or any interest due thereon, as the case may be) in such
amounts, and make such other adjustments from time to time as shall be
equitable, to the end that all the Lenders shall share the benefit of such
excess payment (net of any expenses which may be incurred by such Lender in
obtaining or preserving such excess payment) pro rata in accordance with the
unpaid principal of and/or interest on the Loans or such other amounts,
respectively, owing to each of the Lenders. To such end all the Lenders shall
make appropriate adjustments among themselves (by the resale of participation
sold or otherwise) if such payment is rescinded or must otherwise be restored.
(c) NO REQUIREMENT. Nothing in this Agreement shall require
any Lender to exercise any such right or shall affect the right of any Lender to
exercise, and retain the benefits of exercising, any such right with respect to
any other indebtedness or obligation of the Borrower. If, under any applicable
bankruptcy, insolvency or other similar law, any Lender receives a secured claim
in lieu of a set-off to which this Section 2.11 applies, such Lender shall, to
the extent practicable, exercise its rights in respect of such secured claim in
manner consistent with the rights of the Lenders entitled under this Section
2.11 to share in the benefits of any recovery on such secured claim.
SECTION 2.12. CERTAIN FEES. The Borrower, Capital and the
Parent Guarantor agree to pay to the Administrative Agent, for its own account,
an amount previously agreed to with the Administrative Agent, with respect to
the Bridge Loans and Term Loans, amounts for its expenses incurred hereunder and
all other amounts owing under this Agreement and the other Loan Documents.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
As of the date hereof and as of the Closing Date, the
Borrower, Capital and the Parent Guarantor hereby jointly and severally agree
with, and represent and warrant to, the Lenders that each of the following
representations and warranties is true and will be true after giving PRO FORMA
effect to the transactions contemplated by this Agreement:
SECTION 3.1. FINANCIAL CONDITION.
(a) The unaudited PRO FORMA consolidated and consolidating
balance sheet of the Borrower as at June 30, 1999 (including the notes thereto)
(the "PRO FORMA BALANCE SHEET"), copies of which have heretofore been furnished
to each Lender, has been prepared giving effect (as if such events had occurred
on such date) to (i) the Bridge Loans to be made and the use of proceeds thereof
and (ii) the payment of fees and expenses in connection with the foregoing. The
Pro Forma Balance Sheet has been prepared based on the best information
available to the Borrower as of the date of delivery thereof, and presents
fairly on a pro forma basis the estimated financial position of Borrower as at
June 30, 1999, assuming that the events specified in the preceding sentence had
actually occurred at such date.
(b) The audited consolidated and consolidating balance sheets
of the Parent Guarantor as at December 31, 1996, December 31, 1997 and December
31, 1998, and the related consolidated and consolidating statements of income
and of cash flows for the fiscal years ended on such
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dates, reported on by and accompanied by an unqualified report from the Parent
Guarantor's and the Company's independent public accountants (who shall be Grant
Thornton LLP or another firm of established national reputation), present fairly
the consolidated and consolidating financial condition of the Parent Guarantor
as at such date, and the consolidated and consolidating results of its
operations and its consolidated and consolidating cash flows for the respective
fiscal years then ended. The unaudited consolidated and consolidating balance
sheet of the Parent Guarantor as at June 30, 1999, and the related unaudited
consolidated and consolidating statements of income and cash flows for the
three-month period ended on such date, present fairly the consolidated and
consolidating financial condition of the Parent Guarantor as at such date, and
the consolidated and consolidating results of its operations and its
consolidated and consolidating cash flows for the six-month period then ended
(subject to normal year-end audit adjustments). All such financial statements,
including the related schedules and notes thereto, have been prepared in
accordance with GAAP applied consistently throughout the periods involved
(except as approved by the aforementioned firm of accountants and disclosed
therein). The Parent Guarantor, the Borrower and Capital do not have any
material Guarantee Obligations, contingent liabilities and liabilities for
taxes, or any long-term leases or unusual forward or long-term commitments,
including, without limitation, any interest rate or foreign currency swap or
exchange transaction or other obligation in respect of derivatives, that are not
reflected in the most recent financial statements referred to in this paragraph.
During the period from June 30, 1999 to and including the date hereof there has
been no Disposition by the Parent Guarantor of any material part of its business
or Property.
SECTION 3.2. NO CHANGE. Since December 31, 1998, there has
been no development or event that has had a Material Adverse Effect.
SECTION 3.3. CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of
the Borrower, Capital, the Parent Guarantor and the Parent Guarantor's
Subsidiaries: (a) is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, (b) has the corporate power
and authority, and the legal right, to own and operate its Property, to lease
the Property it operates as lessee and to conduct the business in which it is
currently engaged, (c) is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of Property or the conduct of its business requires such qualification
and (d) is in compliance with all Requirements of Law except to the extent that
the failure to comply therewith could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.
SECTION 3.4. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE
OBLIGATIONS.
(a) Each of the Borrower, Capital and the Parent Guarantor has
the corporate or limited liability company power and authority, and the legal
right, to make, deliver and perform the Loan Documents to which it is a party
and, in the case of the Borrower, to borrow hereunder. Each of the Borrower,
Capital and the Parent Guarantor has taken all necessary corporate or limited
liability company action to authorize the execution, delivery and performance of
the Loan Documents to which it is a party and, in the case of the Borrower, to
authorize the borrowings on the terms and conditions of this Agreement. No
consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person is required in
connection with the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of this Agreement or any of the other
Loan Documents, except (i) consents, authorizations, filings and notices
described in Schedule 3.4, which consents, authorizations, filings and notices
have been obtained or made and are in full force and effect and (ii) the filings
referred to in Section 3.19.
(b) Each Loan Document has been duly executed and delivered on
behalf of each of the Borrower, Capital and the Parent Guarantor to the extent a
party thereto. This Agreement constitutes, and each other Loan Document upon
execution will constitute, a legal, valid and binding obligation of
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each of the Borrower, Capital and the Parent Guarantor, to the extent a party
thereto, enforceable against each such Person in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
(c) The Loans and the Bridge Notes have been duly authorized
by the Borrower and the guarantee by Capital of the Borrower's obligations under
the Loans have been duly authorized by Capital, and the Parent Guarantee and the
guarantee by the Parent Guarantor of the Borrower's obligations under the Loans
have been duly authorized by the Parent Guarantor. When the Bridge Notes have
been executed and delivered pursuant to the terms of this Agreement, each of the
Loans, the Bridge Notes and the Parent Guarantee and the guarantees by the
Parent Guarantor and Capital of the Borrower's obligations under the Loans will
be valid and binding obligations of the Borrower, Capital and the Parent
Guarantor, as applicable, enforceable against it in accordance with their terms,
except as enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
(d) The Escrowed Warrants have been duly authorized and
validly issued, and upon release from the Escrow Account in accordance with the
terms of the Escrow Agreement will be the valid and binding obligations of the
Parent Guarantor, enforceable against it in accordance with their terms, except
as enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
(e) The Escrowed Warrant Shares have been duly authorized and
reserved for issuance by the Parent Guarantor and will be issued at the times
and in the manner required by the Warrant Agreement and, upon due exercise of an
Escrowed Warrant, the Escrowed Warrant Shares will be validly issued, fully paid
and nonassessable.
SECTION 3.5. CONFLICTS. The execution, delivery and
performance of this Agreement and the other Loan Documents, the issuance of the
Escrowed Warrants and the Escrowed Warrant Shares, the borrowings hereunder and
the use of the proceeds thereof will not violate any Requirement of Law or any
Contractual Obligation of the Borrower, Capital, the Parent Guarantor or any of
the Parent Guarantor's Subsidiaries and will not result in, or require, the
creation or imposition of any Lien on any of their respective properties or
revenues pursuant to any Requirement of Law or any such Contractual Obligation
(other than the Liens created by the Security Documents). No Requirement of Law
or Contractual Obligation applicable to the Borrower, Capital, the Parent
Guarantor or any of the Parent Guarantor's Subsidiaries could reasonably be
expected to have a Material Adverse Effect.
SECTION 3.6. NO MATERIAL LITIGATION. No litigation,
investigation or proceeding of or before any arbitrator or Governmental
Authority is pending or, to the knowledge of the Parent Guarantor or the
Borrower, threatened by or against the Borrower, Capital, the Parent Guarantor
or any of the Parent Guarantor's Subsidiaries or against any of their respective
properties or revenues (a) with respect to any of the Loan Documents or any of
the transactions contemplated hereby or thereby, or (b) that could reasonably be
expected to have a Material Adverse Effect.
SECTION 3.7. NO DEFAULT. Neither the Borrower, Capital, the
Parent Guarantor nor any of the Parent Guarantor's Subsidiaries is in default
under or with respect to any of its Contractual Obligations in any respect that
could reasonably be expected to have a Material Adverse Effect. No Default or
Event of Default has occurred and is continuing.
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SECTION 3.8. OWNERSHIP OF PROPERTY; LIENS. Each of the
Borrower, Capital, the Parent Guarantor and the Parent Guarantor's Subsidiaries
has good, marketable and insurable title in fee simple to, or a valid leasehold
interest in, all its real property, and good title to, or a valid leasehold
interest in, all its other Property, and none of the Borrower's or Capital's
Property is subject to any Lien except as permitted by Section 4.14.
SECTION 3.9. INTELLECTUAL PROPERTY. The Borrower, Capital, the
Parent Guarantor and each of the Parent Guarantor's Subsidiaries owns, or is
licensed to use, all Intellectual Property necessary for the conduct of its
business as currently conducted. No material claim has been asserted or is
pending by any Person challenging or questioning the use of any Intellectual
Property or the validity or effectiveness of any Intellectual Property, nor does
the Parent Guarantor or the Borrower know of any valid basis for any such claim.
The use of Intellectual Property by the Borrower, Capital, the Parent Guarantor
and the Parent Guarantor's Subsidiaries does not infringe on the rights of any
Person in any material respect.
SECTION 3.10. TAXES. Each of the Borrower, Capital, the Parent
Guarantor and each of the Parent Guarantor's Subsidiaries has filed or caused to
be filed all Federal, state and other material tax returns that are required to
be filed and has paid all taxes shown to be due and payable on said returns or
on any assessments made against it or any of its Property and all other taxes,
fees or other charges imposed on it or any of its Property by any Governmental
Authority (other than any amount or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on the books of the
Borrower, Capital, the Parent Guarantor or the Parent Guarantor's Subsidiaries,
as the case may be); no tax Lien has been filed, and, to the knowledge of the
Parent Guarantor and the Borrower, no claim is being asserted, with respect to
any such tax, fee or other charge.
SECTION 3.11. PRIVATE OFFERING; RULE 144A MATTERS.
(a) Based in part on the accuracy of the representations and
warranties of, and compliance with the covenants and agreements by, the Lenders
in Section 6.1, the making of the Loans hereunder and the issuance of the
instruments evidencing such Loans and the Securities are and will be exempt from
the registration and prospectus delivery requirements of the Securities Act.
Neither the Borrower, Capital nor the Parent Guarantor has issued or sold Loans,
the instruments evidencing such Loans or the Securities or equity securities to
anyone other than the Lenders. Except with respect to the Public Offering, no
securities of the same class as the Loans, the instruments evidencing such Loans
or the Securities have been issued or sold by the Borrower, Capital or the
Parent Guarantor within the six-month period immediately prior to the date
hereof. The Borrower, Capital and the Parent Guarantor agrees that neither it,
nor anyone acting on its behalf, will (i) offer the Loans, the instruments
evidencing such Loans or the Securities so as to subject the making, issuance
and/or sale of the Loans, the instruments evidencing such Loans or the
Securities, to the registration or prospectus delivery requirements of the
Securities Act or (ii) offer any similar securities for issuance or sale to, or
solicit any offer to acquire any of the same from, or otherwise approach or
negotiate with respect to the same with, anyone if the issuance or sale of the
Loans, the instruments evidencing such Loans, the Securities and any such
securities would be integrated as a single offering for the purposes of the
Securities Act, including without limitation, Regulation D thereunder, in such a
manner as would require registration under the Securities Act thereof. Each
Bridge Note, and (subject to the terms of the Escrow Agreement) Escrowed
Warrants shall have a legend setting forth the restrictions on the
transferability thereof imposed by the Securities Act for so long as such
restrictions apply.
(b) In the case of each offer, sale or issuance of the Loans
or the Securities no form of general solicitation or general advertising was or
will be used by the Borrower, Capital or the Parent
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Guarantor or their representatives, including, but not limited to,
advertisements, articles, notices or other communications published in any
newspaper, magazine or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
SECTION 3.12. FEDERAL REGULATIONS. No part of the
proceeds of the Loans be used for purchasing or carrying any "margin stock"
(within the meaning of Regulation U) or any "margin security" (within the
meaning of Regulation T), or for the purpose of purchasing, carrying or trading
in any securities under such circumstances as to involve the Borrower in a
violation of Regulation X or to involve any broker or dealer in a violation of
Regulation T. Following application of the proceeds of the Loans, "margin stock"
(within the meaning of Regulation U) does not constitute more than 25% of the
value of the assets of the Borrower. None of the transactions contemplated by
this Agreement (including, without limitation, the direct and indirect use of
proceeds of the Loans) will violate or result in a violation of Regulation T,
Regulation U or Regulation X. If requested by any Lender or the Administrative
Agent, the Borrower will furnish to the Administrative Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR Form
G-3 or FR Form U-1 referred to in Regulation U.
SECTION 3.13. LABOR MATTERS.
(a) There are no strikes, stoppages, slowdowns or other labor
disputes against the Borrower, Capital, the Parent Guarantor or any of the
Parent Guarantor's Subsidiaries pending or, to the knowledge of the Parent
Guarantor or the Borrower, threatened that (individually or in the aggregate)
could reasonably be expected to have a Material Adverse Effect. Hours worked by
and payment made to employees of the Borrower, Capital, the Parent Guarantor and
the Parent Guarantor's Subsidiaries have not been in violation of the Fair Labor
Standards Act or any other applicable Requirement of Law dealing with such
matters that (individually or in the aggregate) could reasonably be expected to
have a Material Adverse Effect. All payments due from the Borrower, Capital, the
Parent Guarantor or any of the Parent Guarantor's Subsidiaries on account of
employee health and welfare insurance that (individually or in the aggregate)
could reasonably be expected to have a Material Adverse Effect if not paid have
been paid or accrued as a liability on the books of the Borrower, Capital, the
Parent Guarantor or the relevant Subsidiary.
(b) None of the assets of Borrower, Capital or Parent
Guarantor constitute "plan assets" (within the meaning of Department of Labor
Regulation section 2510.3-101) of any employee benefit plan subject to Part 4 of
Subtitle B of Title 1 of ERISA or section 4975 of the Code (an "Employee Plan").
(c) With respect to each Employee Plan listed on Schedule
3.13(c) hereto (the assets of which constitute the assets of a Lender), each of
Borrower, Capital and the Parent Guarantor represents and warrants to the
Lenders that either: (a) it is not a "party in interest" (within the meaning of
section 3(14) of ERISA) or a "disqualified person" (within the meaning of
section 4975(e)(2) of the Code) with respect to such Employee Plan; or (b)
neither it nor any of its "affiliates" (within the meaning of Part V(c) of
Department of Labor Prohibited Transaction Class Exemption 84-14) has, or within
the prior one year has exercised, the authority to (I) appoint or terminate the
fiduciary causing the Employee Plan to engage in the transactions contemplated
by this Agreement (the "Manager") as a manager of any of the Employee Plan's
assets or (ii) negotiate the terms of the management agreement with the Manager
on behalf of the Employee Plan.
SECTION 3.14. ERISA. Neither a Reportable Event nor
an "accumulated funding deficiency" (within the meaning of Section 412 of the
Code or Section 302 of ERISA) has occurred during the five-year period prior to
the date on which this representation is made or deemed made with
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respect to any Plan, and each Plan has complied in all material respects with
all applicable provisions of ERISA and the Code. No termination of a Single
Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has
arisen, during such five-year period. The present value of all accrued benefits
under each Single Employer Plan (based on those assumptions used to fund such
Plans) did not, as of the last annual valuation date prior to the date on which
this representation is made or deemed made, exceed the value of the assets of
such Plan allocable to such accrued benefits by a material amount. Neither the
Borrower nor any Commonly Controlled Entity has had a complete or partial
withdrawal from any Multiemployer Plan that has resulted or could reasonably be
expected to result in a material liability under ERISA, and neither the Borrower
nor any Commonly Controlled Entity would become subject to any material
liability under ERISA if the Borrower or any such Commonly Controlled Entity
were to withdraw completely from all Multiemployer Plans as of the valuation
date most closely preceding the date on which this representation is made or
deemed made. No such Multiemployer Plan is in Reorganization or Insolvent.
SECTION 3.15. INVESTMENT COMPANY ACT; OTHER REGULATIONS.
Neither the Borrower, Capital nor the Parent Guarantor is an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended. Neither the Borrower,
Capital nor the Parent Guarantor is subject to regulation under any Requirement
of Law (other than Regulation X of the Board) that limits or conditions its
ability to incur Indebtedness.
SECTION 3.16. SUBSIDIARIES.
(a) The Subsidiaries listed on Schedule 3.16 constitute all
the Subsidiaries of the Parent Guarantor as of the Closing Date. Schedule 3.16
sets forth as of the Closing Date (i) the issued and outstanding shares of
Capital Stock of the Parent Guarantor and (ii) the name and jurisdiction of
incorporation of each Subsidiary and, as to each such Subsidiary, the percentage
and number of each class of Capital Stock owned by the Parent Guarantor and its
Subsidiaries. Capital is the only Subsidiary of the Borrower, and Capital does
not have any Subsidiaries. The Borrower owns 100% of the issued and outstanding
Capital Stock of Capital.
(b) Except as set forth on Schedule 3.16, there are no
outstanding subscriptions, options, warrants, calls, rights or other agreements
or commitments (other than the Escrowed Warrants, the Escrowed Warrant Shares,
stock options granted to employees or directors and directors' qualifying
shares) of any nature relating to any Capital Stock of the Borrower, Capital,
the Parent Guarantor or any of the Parent Guarantor's Subsidiaries. Neither the
Parent Guarantor, the Borrower nor Capital has issued, or authorized the
issuance of, any Disqualified Stock.
SECTION 3.17. ENVIRONMENTAL MATTERS. Other than exceptions to
any of the following that could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect:
(a) The Borrower, Capital, the Parent Guarantor and the Parent
Guarantor's Subsidiaries: (i) are, and within the period of all applicable
statutes of limitation have been, in compliance with all applicable
Environmental Laws; (ii) hold all Environmental Permits (each of which is in
full force and effect) required for all of their current or intended operations
or for any property owned, leased, or otherwise operated by any of them; (iii)
are, and within the period of all applicable statutes of limitation have been,
in compliance with all of their Environmental Permits; and (iv) reasonably
believe that: each of their Environmental Permits will be timely renewed and
complied with, without material expense; any additional Environmental Permits
that may be required of any of them will be timely obtained and complied with,
without material expense; and compliance with any Environmental Law that is or
is expected to become applicable to any of them will be timely attained and
maintained, without material expense.
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(b) Materials of Environmental Concern are not present at, on,
under, in, or about any real property now or formerly owned, leased or operated
by the Borrower, Capital, the Parent Guarantor or any of the Parent Guarantor's
Subsidiaries, or at any other location (including, without limitation, any
location to which Materials of Environmental Concern have been sent for re-use
or recycling or for treatment, storage, or disposal) which could reasonably be
expected to (i) give rise to liability of the Borrower, Capital, the Parent
Guarantor or any of the Parent Guarantor's Subsidiaries under any applicable
Environmental Law or otherwise result in costs to the Borrower, Capital, the
Parent Guarantor or any of the Parent Guarantor's Subsidiaries, or (ii)
interfere with the Borrower's, Capital's, the Parent Guarantor's or any of the
Parent Guarantor's Subsidiaries' continued operations, or (iii) impair the fair
saleable value of any real property owned or leased by the Borrower, Capital,
the Parent Guarantor, or any of the Parent Guarantor's Subsidiaries.
(c) There is no judicial, administrative, or arbitral
proceeding (including any notice of violation or alleged violation) under or
relating to any Environmental Law to which the Borrower, Capital, the Parent
Guarantor or any of the Parent Guarantor's Subsidiaries is, or to the knowledge
of the Parent Guarantor or the Borrower will be, named as a party that is
pending or, to the knowledge of the Parent Guarantor or the Borrower,
threatened.
(d) Neither the Borrower, Capital, the Parent Guarantor, nor
any of the Parent Guarantor's Subsidiaries has received any written request for
information, or been notified that it is a potentially responsible party under
or relating to the federal Comprehensive Environmental Response, Compensation,
and Liability Act or any similar Environmental Law, or with respect to any
Materials of Environmental Concern.
(e) Neither the Borrower, Capital, the Parent Guarantor, nor
any of the Parent Guarantor's Subsidiaries has entered into or agreed to any
consent decree, order, or settlement or other agreement, or is subject to any
judgment, decree, or order or other agreement, in any judicial, administrative,
arbitral, or other forum for dispute resolution, relating to compliance with or
liability under any Environmental Law.
(f) Neither the Borrower, Capital, the Parent Guarantor, nor
any of the Parent Guarantor's Subsidiaries has assumed or retained, by contract
or operation of law, any liabilities of any kind, fixed or contingent, known or
unknown, under any Environmental Law or with respect to any Material of
Environmental Concern.
SECTION 3.18. ACCURACY OF INFORMATION, ETC. No statement or
information contained in this Agreement, any other Loan Document or any other
document, certificate or statement furnished to the Administrative Agent or the
Lenders or any of them, by or on behalf of the Borrower, Capital, the Parent
Guarantor or any of the Parent Guarantor's Subsidiaries for use in connection
with the transactions contemplated by this Agreement or the other Loan
Documents, contained as of the date such statement, information, document or
certificate was so furnished any untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements contained
herein or therein not misleading. The projections and PRO FORMA financial
information contained in the materials referenced above are based upon good
faith estimates and assumptions believed by management of, the Parent Guarantor
to be reasonable at the time made, it being recognized by the Lenders that such
financial information as it relates to future events is not to be viewed as fact
and that actual results during the period or periods covered by such financial
information may differ from the projected results set forth therein by a
material amount. As of the Closing Date, the representations and warranties
contained in the Loan Documents are true and correct in all material respects.
There is no fact known to the Borrower, Capital, the Parent Guarantor or any of
the Parent Guarantor's Subsidiaries that could reasonably be expected to have a
Material Adverse Effect that has not been expressly disclosed herein, in the
other Loan Documents or in
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any other documents, certificates and written statements furnished to the
Administrative Agent and the Lenders for use in connection with the transactions
contemplated hereby and by the other Loan Documents.
SECTION 3.19. SECURITY DOCUMENTS. The Guarantee and Collateral
Agreements are effective to create in favor of the Administrative Agent, for the
benefit of the Secured Parties, legal, valid and enforceable security interests
in the Collateral described therein and proceeds and products thereof. In the
case of the Pledged Stock described, and as defined, in the Guarantee and
Collateral Agreements, when any stock certificates representing such Pledged
Stock are delivered to the Administrative Agent, and in the case of the other
Collateral described in the Guarantee and Collateral Agreement, when financing
statements in appropriate form are filed in the offices specified on Schedule
3.19 (which financing statements have been duly completed and executed and
delivered to the Administrative Agent) and such other filings as are specified
on Schedule 3 to the Guarantee and Collateral Agreements are made (all of which
filings have been duly completed and executed and delivered to the
Administrative Agent), the Guarantee and Collateral Agreements shall constitute
fully perfected Liens on, and security interests in, all right, title and
interest of the Borrower, Capital and the Parent Guarantor in such Collateral
and the proceeds and products thereof, as security for their respective
Obligations (as defined in the Guarantee and Collateral Agreements), in each
case prior and superior in right to any other Person (except, in the case of
Collateral other than Pledged Stock and the LLC Interests, non-consensual Liens
permitted by Section 4.14 to the extent arising by operation of law).
SECTION 3.20. SOLVENCY. Each of the Parent Guarantor and the
Borrower is, and after giving effect to the incurrence of all Indebtedness and
obligations being incurred in connection herewith and therewith will be and will
continue to be, Solvent.
SECTION 3.21. YEAR 2000 MATTERS. Other than exceptions to any
of the following that could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, any reprogramming required to permit
the proper functioning, in and following the year 2000, of (i) the Borrower's,
Capital's, the Parent Guarantor's and each of the Parent Guarantor's
Subsidiaries' computer systems and (ii) equipment containing embedded microchips
(including systems and equipment supplied by others or with which the
Borrower's, Capital's, the Parent Guarantor's or any of the Parent Guarantor's
Subsidiaries' systems interface) and the testing of all such systems and
equipment, as so reprogrammed, will be completed by December 1, 1999. The cost
to the Borrower, Capital, the Parent Guarantor and the Parent Guarantor's
Subsidiaries of such reprogramming and testing and of the reasonably foreseeable
consequences of year 2000 to the Borrower, Capital, the Parent Guarantor and the
Parent Guarantor's Subsidiaries (including, without limitation, reprogramming
errors and the failure of others' systems or equipment) could not reasonably be
expected to result in a Default or a Material Adverse Effect.
SECTION 3.22. INSURANCE. Each of the Borrower, Capital, the
Parent Guarantor and the Parent Guarantor's Subsidiaries is insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which it is engaged;
and none of the Borrower, Capital, the Parent Guarantor or any of the Parent
Guarantor's Subsidiaries (a) has received notice from any insurer or agent of
such insurer that substantial capital improvements or other material
expenditures will have to be made in order to continue such insurance or (b) has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers at a cost that could not reasonably be expected to have a
Material Adverse Effect.
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SECTION 3.23. PERMITS.
(a) Other than exceptions to any of the following that could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect: (a) each of the Borrower, Capital, the Parent Guarantor and the
Parent Guarantor's Subsidiaries has obtained and holds all Permits required for
any property owned, leased or otherwise operated by or on behalf of, or for the
benefit of, such Person and for the operation of each of its businesses as
presently conducted and as proposed to be conducted, (b) all such Permits are in
full force and effect, and each of the Borrower, Capital, the Parent Guarantor
and the Parent Guarantor's Subsidiaries has performed and observed all
requirements of such Permits, (c) no event has occurred which allows or results
in, or after notice or lapse of time would allow or result in, revocation or
termination by the issuer thereof or in any other impairment of the rights of
the holder of any such Permit, (d) no such Permits contain any restrictions,
either individually or in the aggregate, that are materially burdensome to the
Borrower, Capital, the Parent Guarantor or any of the Parent Guarantor's
Subsidiaries, or to the operation of any of its businesses or any property
owned, leased or otherwise operated by such Person, (e) each of the Borrower,
Capital, the Parent Guarantor and the Parent Guarantor's Subsidiaries reasonably
believes that each of its Permits will be timely renewed and complied with,
without material expense, and that any additional Permits that may be required
of such Person will be timely obtained and complied with, without material
expense, and (f) neither the Borrower nor the Parent Guarantor has any knowledge
or reason to believe that any Governmental Authority is considering limiting,
suspending, revoking or renewing on materially burdensome terms any such Permit.
(b) No consent or authorization of, filing with, Permit from,
or other act by or in respect of, any Governmental Authority is required in
connection with the execution, delivery, performance, validity or enforceability
of, or enforcement of remedies (including, without limitation, foreclosure on
the Collateral) pursuant to, this Agreement and the other Loan Documents other
than (i) consents and approvals of, and Permits issued by, Governmental
Authorities required in connection with any foreclosure on the Collateral
pursuant to the Security Documents and (ii) such actions as may be required
under the Registration Rights Agreements after the date hereof in connection
with any transfer of the Exchange Notes and the Escrowed Warrants.
SECTION 3.24. LEASE PAYMENTS. Each of the Borrower, Capital,
the Parent Guarantor and the Parent Guarantor's Subsidiaries has paid all
payments required to be made by it under leases of real property where any of
the Collateral is or may be located from time to time (other than any the amount
or validity of which are currently being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity with GAAP have been
provided on the books of the Parent Guarantor, the Borrower, Capital or such
Subsidiary, as the case may be); no landlord Lien has been filed, and, to the
knowledge of the Parent Guarantor and the Borrower, no claim is being asserted,
with respect to any such payments.
ARTICLE IV.
COVENANTS
So long as any Commitment shall remain outstanding or any
Obligation shall remain unpaid, the Borrower, Capital and the Parent Guarantor
(to the extent the Parent Guarantor is expressly named in this Article IV)
covenants and agrees with the Lenders as follows:
SECTION 4.1. USE OF PROCEEDS. The Borrower shall use the
proceeds of the Loans solely to make Permitted Investments, to pay interest on
the Loans and to pay related fees and expenses.
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SECTION 4.2. NOTICE OF DEFAULT AND RELATED MATTERS. The
Borrower shall furnish to the Administrative Agent (with copies for each Lender)
written notice, promptly upon becoming aware of the existence of:
(a) any condition or event that constitutes a Default or an
Event of Default, specifying the nature and period of existence thereof and the
action taken or proposed to be taken with respect thereto;
(b) the filing or commencement by any Person of, or any threat
or notice of intention of any Governmental Authority to file or commence, any
action, suit or proceeding, whether at law or in equity or by or before any
Governmental Authority, against or affecting the Borrower, Capital, the Parent
Guarantor or any of the Parent Guarantor's Subsidiaries or any of their
respective Affiliates that could reasonably be expected to result in
individually or in the aggregate, a Material Adverse Effect; and
(c) any development that, individually or in the aggregate,
has resulted in, or could reasonably be expected to have, a Material Adverse
Effect.
SECTION 4.3. MERGER; SALE OF ALL OR SUBSTANTIALLY ALL ASSETS.
(a) The Borrower and Capital shall not enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or Dispose of all or substantially all
of its Property or business.
(b) The Parent Guarantor shall not enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or Dispose of all or substantially all
of its Property or business, unless:
(i) either: (a) the Parent Guarantor is the surviving
corporation or entity; or (b) the Person formed by or surviving any
such consolidation or merger (if other than the Parent Guarantor) or to
which such Disposition shall have been made is a corporation, limited
liability company or partnership organized or existing under the laws
of the United States, any state thereof or the District of Columbia;
and
(ii) the Person formed by or surviving any such consolidation
or merger (if other than the Parent Guarantor) or the Person to which
such Disposition shall have been made assumes all the obligations of
the Parent Guarantor under the Loan Documents pursuant to agreements
reasonably satisfactory to the Majority Lenders.
SECTION 4.4. INFORMATION; SEC REPORTS; COMPLIANCE CERTIFICATES.
(a) The Borrower, Capital and the Parent Guarantor shall
promptly provide such information concerning the businesses, properties,
liabilities and financial condition of the Borrower, Capital or the Parent
Guarantor as any Lender may from time to time reasonably request. The Borrower,
Capital and the Parent Guarantor shall:
(i) keep proper books of record and account in which full,
true and correct entries shall be made of all dealings and transactions
in relation to its business and activities,
(ii) permit the Lenders or their representatives for the
purpose of their due diligence with respect to their investment in the
Borrower, to visit and inspect any of their respective properties, to
examine and make abstracts from any of their respective books and
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records and to discuss their respective businesses, finances and
accounts with their respective executive officers and, subject to the
right of their representatives to participate in any such discussion,
with their independent public accountants, all upon reasonable notice
and at such reasonable times as the Borrower, Capital and the Parent
Guarantor may reasonably agree, and
(iii) permit the Lenders or their representatives to consult
with the Borrower, Capital or the Parent Guarantor with respect to
their businesses and make proposals with respect to such businesses
(such proposals not to impede and may facilitate faster or more secure
repayment of the Obligations), and meet with the respective executive
officers of the Borrower, Capital or the Parent Guarantor with respect
to such proposals.
(b) Whether or not the Borrower, Capital or the Parent
Guarantor is required to make such filings, the Borrower shall furnish to the
Lenders (i) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the
Borrower, Capital and the Parent Guarantor were required to file such financial
information, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition and
results of operations of the Borrower, Capital, the Parent Guarantor and the
Parent Guarantor's Subsidiaries and, with respect to the annual information
only, a report thereon by the Borrower's and the Parent Guarantor's certified
independent public accountants (who shall be Grant Thornton LLP or another firm
of established national reputation) and (ii) all current reports that would be
required to be filed with the SEC on Form 8-K if the Borrower, Capital and the
Parent Guarantor were required to file such reports, in each case within the
time periods set forth in the SEC's rules and regulations. In addition, until
such time as the Borrower is subject to Section 13 or 15(d) of the Exchange Act,
the Borrower shall furnish to the Lenders, each holder of securities and to
prospective investors designated by the Lender or such a holder, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
(c) The Borrower shall deliver to the Lenders, within 45 days
after the end of each fiscal quarter for the first three quarters of each fiscal
year and within 90 days after the end of each fiscal year, an Officers'
Certificate stating that a review of the activities of the Parent Guarantor, the
Borrower and Capital during the preceding fiscal quarter have been performed
with a view to determining whether the Parent Guarantor, the Borrower and
Capital have kept, observed, performed and fulfilled their respective
Obligations under this Agreement, and further stating that (i) each of the
Parent Guarantor, the Borrower and Capital have kept, observed, performed and
fulfilled each and every covenant contained in the Loan Documents applicable to
it and are not in default in the performance or observance of any of the terms,
provisions or conditions hereof or under any other mortgage, indenture or debt
instrument (or, if a Default, Event of Default or default under any such
mortgage, indenture or instrument shall have occurred, describing all such
Defaults, Events of Default or defaults and what action the Borrower is taking
or proposes to take with respect thereto).
(d) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
annual financial statements delivered pursuant to paragraph (b) above shall be
accompanied by a written statement of the Borrower's and the Parent Guarantor's
certified independent public accountants (who shall be Grant Thornton LLP or
another firm of established national reputation) that, solely in making the
examination necessary for certification of such financial statements and without
independent investigation or inquiry, nothing has come to their attention that
would lead them to believe that the Parent Guarantor, the Borrower or Capital
has violated any provisions of Article IV of this Agreement or, if any such
violation has occurred, specifying the nature and period of existence thereof,
it being understood that such accountants shall not be liable directly or
indirectly to any Person for any failure to obtain knowledge of any such
violation.
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(e) to the extent not included in clauses (b) through (d)
above, no later than the date the same are required to be delivered thereunder,
copies of all agreements, documents or other instruments (including, without
limitation, (i) audited and unaudited, PRO FORMA and other financial statements,
reports, forecasts, and projections, together with any required certifications
thereon by independent public auditors or officers of the Parent Guarantor, the
Borrower, Capital or otherwise, (ii) press releases and (iii) other statements
or reports) furnished to any holder of the securities of the Parent Guarantor,
the Borrower or Capital.
SECTION 4.5. PAYMENT OF OBLIGATIONS. Each of the Borrower and
Capital shall pay, discharge or otherwise satisfy at or before maturity or
before they become delinquent, as the case may be, all its material obligations
of whatever nature, except where the amount or validity thereof is currently
being contested in good faith by appropriate proceedings and reserves in
conformity with GAAP with respect thereto have been provided on the books of the
Borrower or Capital.
SECTION 4.6. CONDUCT OF BUSINESS; MAINTENANCE OF EXISTENCE,
ETC. Each of the Borrower, Capital and the Parent Guarantor shall:
(a) (i) preserve, renew and keep in full force and effect its
corporate or limited liability company existence, as the case may be, and (ii)
take all reasonable action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business, except, in each
case, as otherwise permitted by Section 4.3 and except, in the case of clause
(ii) above, to the extent that failure to do so could not reasonably be expected
to have a Material Adverse Effect; and
(b) comply with all Contractual Obligations and Requirements
of Law except to the extent that failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION 4.7. MAINTENANCE OF PROPERTY; INSURANCE. Each of the
Borrower, Capital and the Parent Guarantor shall:
(a) Keep all Property and systems useful and necessary in its
business in good working order and condition, ordinary wear and tear excepted.
(b) Maintain with financially sound and reputable insurance
companies insurance on all its Property (including, without limitation, all
inventory, equipment and vehicles) in at least such amounts and against at least
such risks as are usually insured against in the same general area by companies
engaged in the same or a similar business; and furnish to the Administrative
Agent with copies for each Secured Party, upon written request, full information
as to the insurance carried. Each Secured Party shall be named as an additional
insured on all liability insurance policies of the Borrower and Capital, and the
Administrative Agent shall be named as loss payee on all property and casualty
insurance policies of each such Person.
SECTION 4.8. ADDITIONAL COLLATERAL. The Borrower, Capital and
the Parent Guarantor shall:
(a) With respect to any Property acquired or Capital Stock or
LLC Interests issued after the Closing Date by the Borrower or Capital as to
which the Administrative Agent, for the benefit of the Secured Parties, does not
have a perfected Lien, promptly (and, in any event, within 5 days following the
date of such acquisition) (i) execute and deliver to the Administrative Agent
such amendments to the Guarantee and Collateral Agreement and the Parent
Guarantee and Collateral Agreement or such other documents as the Administrative
Agent deems necessary or advisable to grant to the Administrative
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Agent, for the benefit of the Secured Parties, a security interest in such
Property, Capital Stock or LLC Interests and (ii) take all actions necessary or
advisable to grant to the Administrative Agent, for the benefit of the Secured
Parties, a perfected first priority security interest in such Property, Capital
Stock or LLC Interests, including without limitation, the filing of Uniform
Commercial Code financing statements in such jurisdictions as may be required by
the Guarantee and Collateral Agreement or by law or as may be requested by the
Administrative Agent.
(b) Notwithstanding anything to the contrary in this Section
4.8, paragraph (a) of this Section 4.8 shall not apply to any Property acquired
or Capital Stock or LLC Interests issued after the Closing Date as to which the
Majority Lenders have determined in their sole discretion that the collateral
value thereof is insufficient to justify the difficulty, time and/or expense of
obtaining a perfected Lien thereon.
SECTION 4.9. YEAR 2000. Each of the Borrower and Capital shall
take all action necessary and commit adequate resources to assure that the
computer-based and other systems that it owns or are used in its business by the
Parent Guarantor are able to effectively process data including dates before, on
and after January 1, 2000 without experiencing any year 2000 problem that could
reasonably be expected to cause a Material Adverse Effect. At the request of the
Administrative Agent, the Borrower shall provide or cause to be provided to the
Administrative Agent with assurance and substantiation (including, but not
limited to, the results of internal or external audit reports prepared in the
ordinary course of business) reasonably acceptable to the Administrative Agent
as to the year 2000 capability of the Borrower and its abilities to conduct its
business and operations before, on and after January 1, 2000 without
experiencing a year 2000 problem causing a Material Adverse Effect. For purposes
hereof, "year 2000 problem" means the failure of computer-based and other
systems or equipment, whether of the Borrower or otherwise, to recognize and
perform properly date-sensitive functions involving certain dates prior to and
any date after December 31, 1999, and any reprogramming errors resulting
therefrom.
SECTION 4.10. FURTHER ASSURANCES. The Parent Guarantor, the
Borrower and Capital shall from time to time to execute and deliver, or cause to
be executed and delivered, such additional instruments, certificates or
documents, and take all such actions, as the Administrative Agent may reasonably
request, for the purposes of implementing or effectuating the provisions of this
Agreement and the other Loan Documents, or of more fully perfecting or renewing
the rights of the Administrative Agent and the Lenders with respect to the
Collateral (or with respect to any additions thereto or replacements or proceeds
thereof or with respect to any other property or assets hereafter acquired by
the Borrower or Capital that may be deemed to be part of the Collateral)
pursuant hereto or thereto. Upon the exercise by the Administrative Agent or any
Lender of any power, right, privilege or remedy pursuant to this Agreement or
the other Loan Documents which requires any consent, approval, recording,
qualification or authorization of any Governmental Authority, the Parent
Guarantor, the Borrower and Capital will execute and deliver, or will cause the
execution and delivery of, all applications, certifications, instruments and
other documents and papers that the Administrative Agent or such Lender may be
required to obtain from the Parent Guarantor, the Borrower or Capital for such
governmental consent, approval, recording, qualification or authorization.
SECTION 4.11. CONSOLIDATED INTEREST COVERAGE RATIO. The Parent
Guarantor shall not, and shall not permit any of its Subsidiaries to, directly
or indirectly, permit the Consolidated Interest Coverage Ratio for any period of
four consecutive fiscal quarters of the Parent Guarantor (or, if less, the
number of full fiscal quarters subsequent to the Closing Date) to be less than
2.5 to 1.0.
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SECTION 4.12. MAINTENANCE OF NET WORTH. The Parent Guarantor
shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly, permit Consolidated Net Worth as of the last day of any fiscal
quarter of the Parent Guarantor to be less than $80.0 million.
SECTION 4.13. INCURRENCE OF INDEBTEDNESS. The Borrower and
Capital shall not, create, incur, assume or suffer to exist any Indebtedness,
except the Loans and the Guarantee Obligations of Capital pursuant to the
Guarantee and Collateral Agreement and the Exchange Notes issued pursuant to
Section 4.30.
SECTION 4.14. LIENS. The Borrower and Capital shall not
create, incur, assume or suffer to exist any Lien upon any of its Property,
whether now owned or hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested
in good faith by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of the Borrower or Capital, as the
case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business which
are not overdue for a period of more than 30 days or that are being contested in
good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security legislation; or
(d) Liens created pursuant to the Security Documents.
SECTION 4.15. RESTRICTED PAYMENTS. The Borrower and Capital
shall not declare or pay any dividend on, or make any payment on account of, or
set apart assets for a sinking or other analogous fund for, the purchase,
redemption, defeasance, retirement or other acquisition of, any Capital Stock of
the Borrower or Capital, whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or indirectly, whether in cash
or property or in obligations of the Borrower or Capital (collectively,
"RESTRICTED PAYMENTS"), except that:
(a) so long as no Default or Event of Default shall have
occurred and be continuing, the Borrower may pay servicing fees to the Parent
Guarantor expressly permitted by Section 4.25;
(b) so long as the Borrower is a limited liability company
treated as a partnership or an entity disregarded as separate from its owner for
federal and state income tax purposes (and prior to any distribution of any Tax
Amount, the Borrower delivers an Officers' Certificate to such effect) and no
Default or Event of Default has occurred and is continuing under this Agreement,
distributions to members of the Borrower in an amount, with respect to any
period beginning after August 2, 1999, not to exceed the Tax Amount for such
period; PROVIDED, HOWEVER, that no such distributions may be made with respect
to any period including any date on or before August 2, 1999, and PROVIDED,
FURTHER, HOWEVER, that distributions under this Section 4.15(b) may not be made
prior to, and no later than two days after, the date on which taxes are actually
paid by such members for such period with respect to the Taxable Income of the
Borrower; and
(c) Capital may make Restricted Payments to the Borrower.
SECTION 4.16. LIMITATION ON INVESTMENTS. The Borrower and
Capital shall not make any advance, loan, extension of credit (by way of
guaranty or otherwise) or capital contribution to, or purchase any Capital
Stock, bonds, notes, debentures or other debt securities of, or any assets
constituting
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an ongoing business from, or make any other investment in, any other Person (all
of the foregoing, "INVESTMENTS"), except, in the case of the Borrower, Permitted
Investments.
SECTION 4.17. LIMITATION ON MODIFICATIONS OF GOVERNING
DOCUMENTS. Each of the Borrower and Capital shall not amend or permit the
amendment of its Governing Documents in any manner reasonably determined by the
Administrative Agent to be materially adverse to the Lenders.
SECTION 4.18. LIMITATION ON TRANSACTIONS WITH AFFILIATES. The
Borrower and Capital shall not enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of Property, the rendering of
any service or the payment of any management, advisory or similar fees, with any
Affiliate unless such transaction is (a) otherwise permitted under this
Agreement, (b) in the ordinary course of business of the Borrower, and (c) upon
fair and reasonable terms no less favorable to the Borrower, than it would
obtain in a comparable arm's length transaction with a Person that is not an
Affiliate, and, in addition, the foregoing has been determined to be accurate by
the disinterested members of the Management Committee of the Borrower.
Notwithstanding the foregoing, after the Conversion Date the Borrower may make
payments to the Parent Guarantor under the Servicing Agreement pursuant to
Section 4.25.
SECTION 4.19. SALE AND LEASEBACK TRANSACTIONS The Borrower and
Capital shall not enter into any arrangement with any Person providing for the
leasing by the Borrower or Capital of Property that has been or is to be sold or
transferred by the Borrower or Capital to such Person or to any other Person to
whom funds have been or are to be advanced by such Person on the security of
such Property or rental obligations of the Borrower or Capital.
SECTION 4.20. LIMITATION ON DISPOSITION OF PROPERTY. Each of
the Borrower and Capital shall not dispose of any of its Property (including,
without limitation, any Consumer Receivables, other receivables and leasehold
interests), whether now owned or hereafter acquired; PROVIDED, that the Borrower
may dispose of Property that, together with all other Property of the Borrower
previously disposed since the Closing Date, does not exceed $1.0 million.
SECTION 4.21. LIMITATION ON CAPITAL MARKET TRANSACTIONS. The
Parent Guarantor shall not, and shall cause its Subsidiaries not to, enter into
any agreement with respect to or consummate any Capital Markets Transaction,
unless the Net Cash Proceeds thereof are applied in accordance with Section
2.5(a).
SECTION 4.22. LIMITATION ON LINES OF BUSINESS. The Borrower
shall not engage in any business other than the business of owning and
liquidating Consumer Receivables and all activities ancillary thereto.
SECTION 4.23. STAY, EXTENSION AND USURY LAWS.. Each of the
Borrower, Capital and the Parent Guarantor covenants (to the extent that they
may lawfully do so) that they shall not, and shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, now or at any time hereafter
in force, that may affect the covenants in or the performance of this Agreement;
and the Parent Guarantor, the Borrower and Capital (to the extent that Capital
may lawfully do so) waive, all benefit or advantage of any such law, and
covenant that they shall not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Lenders, but shall suffer and
permit the execution of every such power as though no such law has been enacted.
SECTION 4.24. CHANGE OF CONTROL. Upon the occurrence of a
Change of Control, each Lender will have the right to require the Borrower to
prepay all or any part of the principal amount
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of such Lender's Loans pursuant to the offer described below (the "CHANGE OF
CONTROL OFFER") at a prepayment price in cash equal to the aggregate principal
amount thereof plus (i) accrued and unpaid interest and Liquidated Damages
thereon, if any, to the date of prepayment and (ii) the Change of Control Fee
thereon (collectively, the "CHANGE OF CONTROL Payment"). Within 10 days
following any Change of Control, the Borrower will mail a notice to each Lender
describing the transaction or transactions that constituted the Change of
Control and offer to repay the Loans on the date specified in such notice, which
date shall be no earlier than 30 days and no later than 45 days from the date
such notice is mailed (the "CHANGE OF CONTROL PAYMENT DATE"), pursuant to the
procedures set forth below.
(b) Notice of a Change of Control Offer shall be mailed by the
Borrower to the Lenders at their addresses set forth in the Loan Register. The
Change of Control Offer shall remain open from the time of mailing until the
Change of Control Payment Date. The notice shall be accompanied by a copy of the
most recent reports furnished pursuant to Section 4.4(b)(i) and (ii). The notice
shall contain all instructions and materials necessary to enable such Lenders to
elect to be prepaid pursuant to the Change of Control Offer.
(c) On the Change of Control Payment Date, the Borrower shall
(i) repay all Loans or portions thereof of each Lender that properly elected
repayment thereof pursuant to the Change of Control Offer, (ii) pay the Change
of Control Payment for each such Loan (or portion thereof) elected to be repaid
and (iii) deliver to each such Lender a new Bridge Note equal in principal
amount (excluding premiums, if any) to the unpurchased portion of the
corresponding Bridge Note surrendered, if any. The Borrower will notify the
remaining Lenders of the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
SECTION 4.25. SERVICING OF CONSUMER RECEIVABLES.At all times
prior to the Conversion Date, the Parent Guarantor shall service all of the
Consumer Receivables owned by the Borrower in accordance with the terms of the
Servicing Agreement at no cost to the Borrower. Commencing on the Conversion
Date, if the conditions precedent set forth in Section 2.2 are satisfied, the
Parent Guarantor shall continue to service all of the Consumer Receivables owned
by the Borrower in accordance with the terms of the Servicing Agreement, for
which it shall receive 40% of the net proceeds of such Consumer Receivables (as
net proceeds are computed under the definition thereof in the Servicing
Agreement).
SECTION 4.26. SUBSIDIARIES. The Borrower shall not form,
create or acquire by any means any Subsidiary other than Capital or maintain any
Investments in any other Person other than the Investments permitted by Section
4.16.
SECTION 4.27. LIMITATION ON THE ACTIVITIES OF CAPITAL. Capital
shall not hold any assets (including, without limitation, any Consumer
Receivables), become liable for any obligations other than the Exchange Notes
and its Guarantee Obligations with respect to the Loans or engage in any
business activities.
SECTION 4.28. BLOCKED ACCOUNT AND LOCK-BOX AGREEMENT. Each of
the Borrower, Capital and the Parent Guarantor covenants that on or prior to
August 16, 1999, each of the Borrower, Capital and the Parent Guarantor shall
enter into a blocked account and lock-box agreement in a form reasonably
acceptable to the Lenders (the "BLOCKED ACCOUNT AND LOCK-BOX AGREEMENT") with
the Administrative Agent and a third party bank (the "BANK") acceptable to the
Lenders, pursuant to which a Collateral Account (as such term is defined in the
Guarantee and Collateral Agreements) shall be established with the Bank. The
Blocked Account and Lock-Box Agreement shall provide, among other things, that:
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(a) all Proceeds (as such term is defined in the Guarantee and
Collateral Agreements) from Consumer Receivables shall be directly deposited by
the payor thereon in the Collateral Account and all other Proceeds from the
Collateral securing the obligations of the Borrower or Capital, and all Net Cash
Proceeds from any Capital Markets Transaction received by any of the Borrower,
Capital, the Parent Guarantor or any of its Subsidiaries or other direct or
indirect parent holding company of any of the foregoing, and all other amounts
received in or converted into cash solely by either the Borrower or Capital,
shall within one business day of receipt thereof or conversion thereto be
deposited by the Parent Guarantor, the Borrower or Capital, as applicable, in
the Collateral Account;
(b) each of the Parent Guarantor, the Borrower and Capital
shall grant to the Administrative Agent, for the ratable benefit of the Lenders,
a present and continuing first priority security interest in (i) the Collateral
Account, all funds held therein and all certificates and instruments, if any,
from time to time representing or evidencing the Collateral Account, (ii) all
contract rights, claims and privileges in respect of the Collateral Account and
the right to enforce the same and receive payment thereunder, and (iii) all
cash, checks, drafts, bills of exchange, commercial paper of any kind
whatsoever, money orders and other items of value of any of the Parent
Guarantor, the Borrower or Capital now or hereafter paid, deposited, credited,
held (whether for collection, provisionally or otherwise) or otherwise in the
possession or under the control of, or in transit to the Bank or any agent,
bailee, or custodian thereof for deposit in the Collateral Account, and all
Proceeds of the foregoing;
(c) the Collateral Account shall be under the sole dominion
and control of the Administrative Agent for the ratable benefit of the Lenders
subject to withdrawal only by the Administrative Agent for the account of the
Lenders as provided in Section 2.9(e) hereof, and none of the Parent Guarantor,
the Borrower nor Capital nor any Person claiming by, through or under the Parent
Guarantor, the Borrower or Capital shall have any rights, title or interest in,
or control over the use of, or any right to withdraw any amount from, the
Collateral Account; and
(d) all Proceeds (whether consisting of checks, notes, drafts,
bills of exchange, money orders, commercial paper of any kind whatsoever or
other documents) not deposited in the Collateral Account by the payor thereon
shall be promptly deposited by the Parent Guarantor, its Subsidiaries, the
Borrower or Capital in precisely the form received, except for its endorsement
when required, directly in the Collateral Account and, until so turned over,
shall, from the moment received by any of the Parent Guarantor, its
Subsidiaries, the Borrower or Capital until deposited in the Collateral Account,
be held by such Person segregated from other assets and in trust for the
Administrative Agent and the Lenders and shall not be commingled with any other
property or funds of such Person or any other Person.
Such Blocked Account and Lock-Box Agreement shall also contain
such other provisions that are customary for agreements of that kind, and as may
be reasonably requested by any Lender.
Simultaneously with the execution of the Blocked Account and
Lock-Box Agreement, the Borrower shall provide the Lenders and the
Administrative Agent with an opinion of counsel that the Blocked Account and
Lock-Box Agreement, together with any other related filings, are sufficient to
create a perfected security interest in the Collateral Account for the
Administrative Agent on behalf of the Lenders.
SECTION 4.29. ACQUISITION OF CONSUMER RECEIVABLES. The Parent
Guarantor shall not, and shall not permit any of its Subsidiaries (other than
the Borrower) or any entity that would be a Subsidiary but for the proviso to
the definition of "Subsidiary" set forth in Section 1.1, to acquire any Consumer
Receivables at any time that the Borrower is holding any of its assets in the
form of cash or Cash Equivalents (other than Available Funds). Consumer
Receivables acquired by the Borrower shall be
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of like kind and quality in all material respects as those that are customarily
acquired by Parent Guarantor and Parent Guarantor's other Subsidiaries (or any
entity that would be a Subsidiary but for the proviso to the definition of
"Subsidiary" set forth in Section 1.1) on a basis consistent with past
practices. The Identified Portfolios shall not be acquired by the Parent
Guarantor or any of its Subsidiaries (or any entity that would be a Subsidiary
but for the proviso to the definition of "Subsidiary" set forth in Section 1.1)
other than the Borrower. As of November 30, 1999, the weighted average cost of
each dollar of Consumer Receivables acquired by the Borrower shall not be in
excess of ten cents. Upon the acquisition of Consumer Receivables by the
Borrower, the Borrower shall provide prompt (but not longer than three business
days') written notice of such acquisition to each Lender. Such notice shall
describe in reasonable detail the terms of the acquisition and the Consumer
Receivables acquired and shall include a copy of any definitive acquisition
agreement relating thereto. Within five business days of the commencement of
payment by an obligor under any Consumer Receivables owned by the Borrower or
such obligor's entry into arrangements with respect to making payment on such
Consumer Receivables, the Borrower shall notify such obligor on such Consumer
Receivables that all amounts paid by such obligor in respect thereof shall be
paid directly into the Collateral Account under the Blocked Account and Lock-Box
Agreement and shall use its best efforts to cause such obligors to do so. None
of the Borrower, Capital, the Parent Guarantor or any of its Subsidiaries shall
engage in any collection activity with respect to any of the Borrower's Consumer
Receivables at any time prior to the execution of the Blocked Account and
Lock-Box Agreement in accordance with the requirements of Section 4.28 and the
satisfaction of the remaining provisions of Section 4.28 .
SECTION 4.30. EXCHANGE OF TERM LOANS. Following the Conversion
Date, the Parent Guarantor, the Borrower and Capital shall, on the 20th business
day following the written request (the "EXCHANGE REQUEST") of any Lender:
(a) Execute and deliver, and cause a bank or trust company
acting as trustee thereunder to execute and deliver, a Senior Secured Note
Indenture which shall provide for the issuance of debt securities in principal
amount and containing the same terms as those of the Term Loans, including,
without limitation, security and guarantee provisions (the "SENIOR SECURED NOTE
INDENTURE"), if such a Senior Secured Note Indenture has not previously been
executed and delivered;
(b) Execute and deliver to such Lender in accordance with the
Senior Secured Note Indenture a note in the form attached to the Senior Secured
Note Indenture (the "EXCHANGE NOTES") to be issued by the Borrower and Capital
as co-obligors and guaranteed by the Parent Guarantor on the same terms as its
guarantee of the Term Loan and bearing a fixed interest rate equal to the rate
in effect for such Term Loan dated the date of the issuance of such Exchange
Note, payable to the order of such Lender, in the same principal amount as such
Term Loan (or portion thereof) being exchanged, and the Parent Guarantor shall
endorse its guarantee thereon; and
(c) Execute and deliver to such Lender a registration rights
agreement if such registration rights agreement has not previously been executed
and delivered or, if such registration rights agreement has previously been
executed and delivered and such Lender is not already a party thereto, permit
such Lender to become a party thereto, which registration rights Agreement shall
provide for:
(i) An effective shelf registration statement under the
Securities Act covering the Exchange Notes within 180 days of receipt by the
borrower of any Exchange Request;
(ii) Liquidated damages with terms substantially as follows:
if (a) a registration statement has not been declared effective by the SEC on or
prior to the 180th day after receipt by the Borrower of any Exchange Request or
(b) a registration statement is filed and
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declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose at any time within the time period required for
effectiveness in subsection (i) above because either (1) any event occurs as a
result of which the related prospectus forming part of such registration
statement would include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein in the light of the
circumstances under which they were made, not misleading, (2) it shall be
necessary to amend such registration statement, or supplement the related
prospectus, to comply with the Securities Act or the Exchange Act or the
respective rules thereunder or (3) the Borrower shall have failed to perform any
of its covenants, or shall have breached any of its representations or
warranties, in such registration rights agreement, and, in each case, such
registration statement is not succeeded within five business days by a
post-effective amendment to the registration statement that cures such failure
and that is itself immediately declared effective (each such event referred to
in clauses (1) through (3), a "registration default"), the Borrower, the Parent
Guarantor and Capital shall jointly and severally agree to pay liquidated
damages to each holder of Exchange Notes and each Lender, with respect to the
first 90-day period immediately following the occurrence of such registration
default (beginning on the date such registration default occurs), in an amount
equal to .25% per annum times the principal amount of Exchange Notes or Loans,
as the case may be, held by such holder. The amount of such liquidated damages
shall increase on each 90-day anniversary of the day the first registration
default occurred by an additional .25% per annum on the principal amount of
Exchange Notes and Loans for so long as any registration default continues until
all registration defaults have been cured, up to a maximum amount of liquidated
damages equal to 1.0% per annum on the principal amount of Exchange Notes and
Loans. All liquidated damages shall be calculated based on the actual number of
days elapsed and a 360 day year and all accrued liquidated damages shall be paid
to each record holder of Exchange Notes in cash, except if the interest rate on
the Exchange Notes exceeds 15%, liquidated damages shall be paid in the form of
additional Exchange Notes having a principal amount equal to the amount of such
liquidated damages; provided that such additional Exchange Notes shall be in
denominations of $1,000 and integral multiples thereof and that any difference
between such liquidated damages owing and such additional Exchange Notes shall
be paid in cash by wire transfer of immediately available funds or by federal
funds check on each Interest Payment Date, as provided in the Exchange Note
Indenture or this Agreement, as applicable. Following the cure of all
registration defaults relating to any particular Exchange Note, the accrual of
liquidated damages with respect to such registration default will cease.
(iii) such other customary terms.
The Exchange Request shall specify the principal amount of the
Term Loans to be exchanged pursuant to this Section 4.30. Bridge Notes delivered
to the Borrower under this Section 4.30 in exchange for Exchange Notes shall be
cancelled by the Borrower, and the corresponding amount of the Term Loan deemed
repaid, and the Exchange Notes shall be governed by and construed in accordance
with the terms of the Senior Secured Note Indenture.
The bank or trust company acting as trustee under the Senior
Secured Note Indenture shall at all times be a corporation organized and doing
business under the laws of the United States of America or the State of New
York, in good standing and having its principal offices in the Borough of
Manhattan, in the City of New York, which is authorized under such laws to
exercise corporate trust powers and is subject to supervision or examination by
Federal or State authority and which has a combined capital and surplus of not
less than $50.0 million and is reasonably acceptable to the Lenders.
SECTION 4.31. PAYMENTS FOR CONSENT The Company, Capital and
the Parent Guarantor shall not, directly or indirectly, pay or cause to be paid
any consideration to or for the benefit of any
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Lender for or as an inducement to any consent, waiver or amendment of any of the
terms or provisions of the Bridge Loan Agreement or any Related Document unless
such consideration is offered to be paid and is paid to all Lenders that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
ARTICLE V.
CONDITIONS
The obligation of each of the Lenders to make Bridge Loans is
subject to (i) the representations and warranties of the Borrower, Capital and
the Parent Guarantor in Article III being true, correct and complete in all
respects on and as of the Closing Date to the same extent as though made on and
as of the Closing Date, (ii) on or prior to the Closing Date, the Borrower,
Capital and the Parent Guarantor, as the case may be, having performed and
complied with all covenants and conditions to be performed and observed by it on
or prior to the Closing Date and (iii) the prior or concurrent satisfaction of
each of the following conditions:
SECTION 5.1. CORPORATE AND OTHER PROCEEDINGS. On or before the
Closing Date, all corporate and other proceedings taken or to be taken in
connection with the Bridge Loans and all documents incidental thereto not
previously found acceptable by the Administrative Agent shall be satisfactory in
form and substance to the Administrative Agent, and the Administrative Agent
shall have received on behalf of the Lenders the following items, each of which
shall be in form and substance satisfactory to the Administrative Agent and,
unless otherwise noted, dated the Closing Date:
(a) a certified copy of the Borrower's, Capital's and the
Parent Guarantor's charters, in each case together with a certificate of status,
compliance, good standing or like certificate with respect to the Borrower,
Capital and the Parent Guarantor issued by the appropriate government officials
of the respective jurisdiction of its formation and of each jurisdiction in
which the Borrower, Capital or the Parent Guarantor owns any material assets or
carries on any material business, each to be dated a recent date prior to the
Closing Date;
(b) a copy of the Borrower's operating agreement and the
Parent Guarantor's and Capital's bylaws, in each case certified as of the
Closing Date by its respective Secretary or one of its Assistant Secretaries;
(c) resolutions of the Borrower's, Capital's and the Parent
Guarantor's Board of Director or Management Committee, as applicable, approving
and authorizing the execution, delivery and performance of this Agreement, each
of the other Loan Documents and any other documents, instruments and
certificates required to be executed by the Borrower, Capital or the Parent
Guarantor in connection herewith or therewith and approving and authorizing the
execution, delivery and payment of the Bridge Notes, the Exchange Notes and the
Escrowed Warrants, each certified as of the Closing Date by its respective
Secretary or one of its Assistant Secretaries as being in full force and effect
without modification or amendment;
(d) signature and incumbency certificates of the Borrower's,
Capital's and the Parent Guarantor's Officers executing this Agreement and the
Bridge Notes and any other documents executed in connection therewith;
(e) executed copies of this Agreement and the Bridge Notes,
drawn to the order of the Lenders;
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(f) executed copies of the Guarantee and Collateral Agreement
and the Parent Guarantee and Collateral Agreement;
(g) an Officers' Certificate from the Borrower, Capital and
the Parent Guarantor in form and substance satisfactory to the Administrative
Agent to the effect that (i) the representations and warranties in Article III
are true, correct and complete in all respects on and as of the Closing Date to
the same extent as though made on and as of that date, (ii) on or prior to the
Closing Date, the Borrower, Capital or the Parent Guarantor, as the case may be,
has performed and complied with all covenants and conditions to be performed and
observed by it on or prior to the Closing Date and (iii) all conditions to the
consummation of the transactions contemplated by this Agreement have been
satisfied on the terms set forth in the documentation relating thereto and have
not been waived or amended without the Administrative Agent's prior written
consent;
(h) true and correct copies of each of the other Loan
Documents, each of which shall be satisfactory in form and substance to each of
the Lenders; and
(i) all authorizations, consents and approvals required by
Section 5.15.
SECTION 5.2. NO MATERIAL ADVERSE CHANGE. No material adverse
change (including any event which, in the opinion of the Lenders, is reasonably
likely to result in such a material adverse change) in the business, assets,
liabilities (actual and contingent), operations, condition (financial or
otherwise), management, prospects or value of the Borrower, Capital, the Parent
Guarantor and the Parent Guarantor's Subsidiaries taken as a whole, shall have
occurred since the date of the most recent audited financial statements of the
Parent Guarantor delivered to the Lenders as of June 10, 1999, and no material
inaccuracy in such financial statements shall exist.
SECTION 5.3. NO EVENT OF DEFAULT. No event shall have occurred
and be continuing or would result from the consummation of the transactions
contemplated by this Agreement that would constitute an Event of Default.
SECTION 5.4. JUDGMENTS, ETC.. There shall not exist (a) any
order, decree, judgment, ruling or injunction which restrains the consummation
of the transactions contemplated by this Agreement or (b) any pending or
threatened action, suit, investigation or proceeding which, if adversely
determined, could materially adversely affect the ability of the Borrower,
Capital or the Parent Guarantor to perform any of their respective obligations
under this Agreement or the other Loan Documents or the ability of the Lenders
to exercise their rights thereunder.
SECTION 5.5. NO CHANGES IN FINANCIAL MARKETS. No material
adverse change in the financial or capital markets generally, or in the market
for high yield debt or bridge loans in particular, shall have occurred which, in
the judgment of the Lenders, would make it impractical or inadvisable to proceed
with the funding of the Bridge Loans or the sale of permanent securities to
refinance the Bridge Loans. No banking moratorium shall have been declared by
Federal or New York State banking officials.
SECTION 5.6. DUE DILIGENCE. The Lenders and their counsel
shall have completed business due diligence as well as all legal, environmental,
tax, pension, regulatory and accounting due diligence reviews of the business,
assets, liabilities (actual and contingent), operations, condition (financial or
otherwise), management, prospects and value of each of the Borrower, Capital,
the Parent Guarantor and the Parent Guarantor's Subsidiaries and, in each case,
shall be satisfied with the results thereof.
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SECTION 5.7. ESCROW AGREEMENT. The Borrower, Capital, the
Parent Guarantor and the Escrow Agent shall have entered into the Escrow
Agreement, and a fully executed copy of the Escrow Agreement shall have been
delivered to each of the Lenders.
SECTION 5.8. ESCROWED WARRANTS. The Parent Guarantor shall
have issued the Escrowed Warrants into escrow and delivered the Escrowed
Warrants to the Escrow Agent as contemplated by the Escrow Agreement. The Parent
Guarantor shall have authorized and reserved for issuance upon exercise of the
Escrowed Warrants the Escrowed Warrant Shares.
SECTION 5.9. EQUITY REGISTRATION RIGHTS AGREEMENT. The Parent
Guarantor and the Administrative Agent shall have entered into the Equity
Registration Rights Agreement and a fully executed copy of the Equity
Registration Rights Agreement shall have been delivered to each of the Lenders.
SECTION 5.10. DELIVERY OF OPINIONS. The Lenders and the
Administrative Agent shall have received originally executed copies of one or
more favorable written opinions of (i) Hogan & Hartson L.L.P., counsel for the
Borrower, Capital and the Parent Guarantor, in the form of EXHIBIT K hereto and
addressed to the Lenders and (ii) such other opinions of counsel and such
certificates or opinions of accountants, appraisers or other professionals as
the Administrative Agent shall have reasonably requested.
SECTION 5.11. PAYMENT OF FEES. On or before the Closing Date,
the Borrower or the Parent Guarantor shall have paid to the Lenders and their
Affiliates the fees payable on the Closing Date pursuant to Section 2.12 and the
Fee Letter.
SECTION 5.12. NO BREACH UNDER FEE LETTER. Neither the Borrower
nor the Parent Guarantor shall be in breach or violation of any of its
obligations under the Fee Letter and the Fee Letter shall be in full force and
effect.
SECTION 5.13. CONSENTS AND APPROVALS; NO CONFLICTS. On or
before the Closing Date, all governmental, shareholder and third-party consents
and approvals necessary or desirable in connection with the transactions
contemplated hereby shall have been obtained; all such consents and approvals
shall be in full force and effect; and all applicable waiting periods shall have
expired without any action being taken by any authority that could restrain,
prevent or impose any material adverse conditions on the transactions
contemplated hereby or that could seek or threaten any of the foregoing. The
consummation of the transactions contemplated hereby shall not violate, conflict
with or constitute a breach or default under the charter or by-laws of any of
the Borrower, Capital, the Parent Guarantor or the Parent Guarantor's
Subsidiaries, any material agreement to which any of the Borrower, Capital, the
Parent Guarantor or the Parent Guarantor's Subsidiaries is a party or any law,
regulation, rule, court order, judgment, decree or other governmental ruling
applicable to any of the Borrower, Capital, the Parent Guarantor or the Parent
Guarantor's Subsidiaries.
SECTION 5.14. MARGIN REGULATIONS. The making of the Bridge
Loans in the manner contemplated in this Agreement shall not violate the
applicable provisions of Regulation T, Regulation U or Regulation X or any other
regulation of the Board.
SECTION 5.15. SATISFACTORY FINANCIAL STATEMENTS. The Lenders
shall have received and, in each case, approved all audited, unaudited and PRO
FORMA financial statements of the Borrower and the Parent Guarantor and all
completed, probable and pending acquisitions meeting the requirements of
Regulation S-X under the Securities Act applicable to a Registration Statement
on Form S-1.
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SECTION 5.16. PLEDGED STOCK; STOCK POWER. The Administrative
Agent shall have received the certificates representing the shares of Capital
Stock pledged pursuant to the Parent Guarantee and Collateral Agreement,
together with an undated stock power for each such certificate executed in blank
by a duly authorized officer of the pledgor thereof.
SECTION 5.17. FILINGS, REGISTRATIONS AND RECORDINGS. Each
document (including, without limitation, any Uniform Commercial Code financing
statement) required by the Security Documents or under law or reasonably
requested by the Administrative Agent to be filed, registered or recorded in
order to create in favor of the Administrative Agent, for the benefit of the
Secured Parties, a perfected Lien on the Collateral described therein, prior and
superior in right to any other Person (other than with respect to Liens
expressly permitted by Section 4.14), shall be in proper form for filing,
registration or recordation and delivered to the Administrative Agent.
SECTION 5.18. YEAR 2000 COMPLIANCE. The Lenders shall be
satisfied that (a) the Borrower, Capital, the Parent Guarantor and the Parent
Guarantor's Subsidiaries are taking all necessary and appropriate steps to
ascertain the extent of, and to quantify and successfully address, business and
financial risks facing the companies as a result of what is commonly referred to
as the "Year 2000 Problem" (i.e., the inability of certain computer applications
to recognize correctly and perform date-sensitive functions involving certain
dates prior to and after December 31, 1999), including risks resulting from the
failure of key vendors and customers of the companies to successfully address
the Year 2000 Problem, and (b) the material computer applications of the
Borrower, Capital, the Parent Guarantor and the Parent Guarantor's Subsidiaries
and those of their key vendors and customers will, on a timely basis, adequately
address the Year 2000 Problem in all material respects.
ARTICLE VI. TRANSFER OF THE LOANS, THE INSTRUMENTS EVIDENCING
SUCH LOANS AND THE SECURITIES; REPRESENTATIONS OF LENDERS; PARTICIPATIONS
SECTION 6.1. TRANSFER OF THE LOANS, THE INSTRUMENTS EVIDENCING
THE LOANS AND THE SECURITIES. Each Lender acknowledges that none of the Loans,
the instruments evidencing such Loans and the Securities have been registered
under the Securities Act and represents and agrees that it is acquiring the
Loans, the instruments evidencing such Loans and the Securities for its own
account and that it will not, directly or indirectly, transfer, sell, assign,
pledge or otherwise dispose of its Loans, the instruments evidencing such Loans
or the Securities (or any interest therein) unless such transfer, sale,
assignment, pledge or other disposition is made (i) pursuant to an effective
registration statement under the Securities Act or (ii) pursuant to an available
exemption from registration under, and otherwise in compliance with, the
Securities Act. Each Lender represents, warrants, covenants and agrees to and
with the Borrower, Capital and the Parent Guarantor that it is either (i) a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act acting for its own account or the account of one or more other
qualified institutional buyers, and is aware that the Borrower, Capital and the
Parent Guarantor may rely upon the exemption from the provisions of Section 5 of
the Securities Act provided by Rule 144A thereunder or (ii) an institutional
"accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act. Each of the Lenders acknowledges that the instruments
evidencing the Loans and the Securities will bear a legend restricting the
transfer thereof in accordance with the Securities Act.
Subject to the provisions of the previous paragraph, the
Borrower, Capital and the Parent Guarantor agree that, with the consent of the
Administrative Agent, each Lender will be free to sell or transfer all or any
part of the Loans, the instruments evidencing the Loans or the Securities
(including, without limitation, participation interest in the Loans) to any
third party and to pledge any or all of the Securities to any commercial bank or
other institutional lender.
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SECTION 6.2. PERMITTED ASSIGNMENTS. Any Lender may, in the
ordinary course of its business and in accordance with applicable law, at any
time assign to one or more banks or other entities ("PURCHASERS") all or any
part of its rights and obligations hereunder and under the Loan Documents. Such
assignment shall be made pursuant to an Assignment and Acceptance substantially
in the form of EXHIBIT A or in such other form as may be agreed to by the
parties thereto. The consent of the Borrower and the Administrative Agent shall
be required prior to an assignment becoming effective with respect to a
Purchaser which is not a Lender or an Affiliate thereof; provided, however, that
if a Default has occurred and is continuing, the consent of the Borrower shall
not be required. Such consent shall not be unreasonably withheld or delayed.
SECTION 6.3. PERMITTED PARTICIPANTS; EFFECT.
(a) Any Lender may, in the ordinary course of its business and
in accordance with applicable law, at any time sell to one or more banks or
other entities ("PARTICIPANTS") participating interests in any Loan owing to
such Lender, any Bridge Note held by such Lender, any Commitment of such Lender
or any other interest of such Lender under the Loan Documents. In the event of
any such sale by a Lender of participating interests to a Participant, such
Lender's obligations under the Loan Documents shall remain unchanged, such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, such Lender shall remain the owner of its Loans
and the holder of any Note issued to it in evidence thereof for all purposes
under the Loan Documents, all amounts payable by the Borrower under this
Agreement shall be determined as if such Lender had not sold such participating
interests, and the Borrower and the Administrative Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under the Loan Documents.
(b) Each Lender shall retain the sole right to approve,
without the consent of any Participant, any amendment, modification or waiver of
any provision of the Loan Documents other than any amendment, modification or
waiver with respect to any Loan or Commitment in which such Participant has an
interest that forgives principal, interest or fees or reduces the interest rate
or fees payable with respect to any such Loan or Commitment, extends the
Maturity Date, postpones any date fixed for any regularly scheduled payment of
principal of, or interest or fees on, any such Loan or Commitment or releases
any guarantor of any such Loan or releases all or substantially all of the
collateral, if any, securing any such Loan.
(c) The Borrower agrees that each Participant shall be deemed
to have the right of setoff provided in Section 2.11 in respect of its
participating interest in amounts owing under the Loan Documents to the same
extent as if the amount of its participating interest were owing directly to it
as a Lender under the Loan Documents, provided that each Lender shall retain the
right of setoff provided in Section 2.11 with respect to the amount of
participating interests sold to each Participant. The Lenders agree to share
with each Participant, and each Participant, by exercising the right of setoff
provided in Section 2.11, agrees to share with each Lender, any amount received
pursuant to the exercise of its right of setoff, such amounts to be shared in
accordance with Section 2.11 as if each Participant were a Lender.
SECTION 6.4. DISSEMINATION OF INFORMATION. The Borrower,
Capital and the Parent Guarantor authorize each Lender to disclose to any
Participant or Purchaser or any other Person acquiring an interest in the Loan
Documents by operation of law (each a "TRANSFEREE") and any prospective
Transferee any and all information in such Lender's possession concerning the
creditworthiness of the Borrower, Capital, the Parent Guarantor and the Parent
Guarantor's Subsidiaries.
SECTION 6.5. TAX TREATMENT. If any interest in any Loan
Document is transferred to any Transferee that is organized under the laws of
any jurisdiction other than the United States or any
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State thereof, the transferor Lender shall cause such Transferee, concurrently
with the effectiveness of such transfer, to comply with the provisions of
Section 2.10.
SECTION 6.6. REPLACEMENT SECURITIES UPON TRANSFER OR EXCHANGE.
Upon surrender of any Securities by any Lender in connection with any permitted
transfer or exchange, the Borrower, Capital and/or the Parent Guarantor, as
applicable, will execute and deliver in exchange therefor a new Security or
Securities of the same aggregate tenor and principal amount, payable to the
order of such Persons and in such denominations as such Lender may request. The
Borrower may require payment by such Lender of a sum sufficient to cover any
stamp tax or governmental charge imposed in respect of any such transfer.
SECTION 6.7. REGISTER. The Administrative Agent on behalf of
the Borrower shall maintain a register of the principal amount of the Loans held
by each Lender and any interest due and payable with respect thereto. The
Administrative Agent will allow any Lender to inspect and copy such register at
the Administrative Agent's principal place of business during normal business
hours.
ARTICLE VII.
EVENTS OF DEFAULT
SECTION 7.1. EVENTS OF DEFAULT. The occurrence of any one or
more of the following events shall constitute an "EVENT OF DEFAULT":
(a) any representation or warranty made or deemed made by the
Borrower, Capital or the Parent Guarantor herein or that is contained in any
certificate, document or financial or other statement furnished by either of
them at any time under or in connection with any Loan Document shall prove to
have been incorrect in any material respect on or as of the date made or deemed
made;
(b) the Borrower defaults in the payment of the principal of
or premium on any of the Loans when the same shall become due and payable,
whether at stated maturity, upon acceleration, upon redemption, or otherwise;
(c) the Borrower defaults in the payment of any interest upon
any of the Loans when the same becomes due and payable and such default
continues for five calendar days;
(d) the Borrower defaults in the payment of any other
Obligations payable under this Agreement or any of the other Loan Documents and
such default continues for five calendar days;
(e) the Borrower, Capital or the Parent Guarantor fails to
observe or perform any of its negative covenants contained in Article IV or any
of its covenants contained in Sections 4.24, 4.28 or 4.29;
(f) the Parent Guarantor fails to deposit any amounts its
receives from obligors, directly or indirectly, from servicing the Borrower's
Consumer Receivables into the Collateral Account created under the Blocked
Account and Lock-Box Agreement within the time limitations set forth in Section
4.28;
(g) the Borrower, Capital or the Parent Guarantor fails to
observe or perform any of its covenants or agreements (other than those set
forth in clauses (e) and (f) above) contained in any of the Loan Documents, and
such failure continues for a period of 30 days;
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(h) a default occurs under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Borrower, Capital or the
Parent Guarantor (or the payment of which is guaranteed by the Borrower, Capital
or the Parent Guarantor), whether such Indebtedness or guarantee now exists, or
is created after the date of this Agreement, PROVIDED, that the principal amount
of any such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a default aggregates $5.0 million;
(i) a final judgment or final judgments for the payment of
money are entered by a court or courts of competent jurisdiction against the
Borrower, Capital or the Parent Guarantor, and such judgment or judgments remain
undischarged for a period (during which execution shall not be effectively
stayed) of 60 days, if the aggregate of all such undischarged judgments exceeds
$5.0 million;
(j) the Parent Guarantor, the Borrower, Capital or any
Material Subsidiary or any group of Subsidiaries that, taken as a whole, would
constitute a Material Subsidiary pursuant to or within the meaning of any
Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it
in an involuntary case,
(iii) consents to the appointment of a Custodian of it or
for all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) admits in writing that it cannot pay its debts as they
become due; or
(k) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against the Parent Guarantor, the
Borrower, Capital or any Material Subsidiary or any group of
Subsidiaries that, taken as a whole, would constitute a Material
Subsidiary in an involuntary case;
(ii) appoints a Custodian of the Parent Guarantor, the
Borrower, Capital or any Material Subsidiary or any group of
Subsidiaries that, taken as a whole, would constitute a Material
Subsidiary or for all or substantially all of the property of the
Parent Guarantor, the Borrower, Capital or any Material Subsidiary or
any group of Subsidiaries that, taken as a whole, would constitute a
Material Subsidiary; or
(iii) orders the liquidation of the Parent Guarantor, the
Borrower, Capital or any Material Subsidiary or any group of
Subsidiaries that, taken as a whole, would constitute a Material
Subsidiary;
and the order or decree remains unstayed and in effect for 60
consecutive days;
(l) The Guarantee Obligations of the Parent Guarantor under
the Parent Guarantee and Collateral Agreement or of Capital under the Guarantee
and Collateral Agreement shall be held in any final judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force
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and effect or the Parent Guarantor, Capital, or any Person acting on behalf of
the Parent Guarantor or Capital, shall deny or disaffirm its Guarantee
Obligations thereunder;
(m) Any of the Security Documents shall cease, for any reason
(other than pursuant to the terms thereof), to be in full force and effect, or
any of the Borrower, Capital or the Parent Guarantor, or any Affiliate of the
Borrower, Capital or the Parent Guarantor, shall so assert, or any Lien created
by any of the Security Documents shall cease to be enforceable and of the same
effect and priority purported to be created thereby; or
(n) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived, shall exist with respect to any
Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower, Capital, the Parent Guarantor or any Commonly Controlled Entity, (iii)
a Reportable Event shall occur with respect to, or proceedings shall commence to
have a trustee appointed, or a trustee shall be appointed, to administer or to
terminate, any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of the
Required Lenders, likely to result in the termination of such Plan for purposes
of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes
of Title IV of ERISA, (v) the Borrower, Capital, the Parent Guarantor or any
Commonly Controlled Entity shall, or in the reasonable opinion of the Required
Lenders is likely to, incur any liability in connection with a withdrawal from,
or the Insolvency or Reorganization of, a Multiemployer Plan, (vi) the Borrower,
Capital, the Parent Guarantor or any Commonly Controlled Entity shall be
required to make during any fiscal year of the Borrower payments pursuant to any
employee welfare benefit plan (as defined in Section 3(1) of ERISA) that
provides benefits to retired employees (or their dependents) that, in the
aggregate, exceed $5.0 million with respect to such fiscal year, (vii) the
Borrower, Capital, the Parent Guarantor or any Commonly Controlled Entity shall
be required to make during any fiscal year of the Borrower contributions to any
defined benefit pension plan subject to Title IV of ERISA (including any
Multiemployer Plan) that, in the aggregate, exceed $5.0 million or (viii) any
other similar event or condition shall occur or exist with respect to a Plan;
and in each case in clauses (i) through (viii) above, such event or condition,
together with all other such events or conditions, if any, could, in the sole
judgment of the Majority Lenders, reasonably be expected to have a Material
Adverse Effect.
SECTION 7.2. ACCELERATION. If any Event of Default (other than
an Event of Default specified in Section 7.1(j) or 7.1(k)) occurs and is
continuing, the Lenders holding at least 50% in aggregate principal amount of
the then outstanding Loans may, by written notice to the Borrower, declare the
unpaid principal of and any accrued and unpaid interest and fees on all of the
Loans to be immediately due and payable. Upon such declaration, all Obligations
in respect of the Loans shall become immediately due and payable immediately. If
an Event of Default specified in Section 7.1(j) or 7.1(k) occurs, all
Obligations in respect of the Loans shall IPSO FACTO become and be immediately
due and payable without any declaration, notice or other act on the part of any
Lender.
SECTION 7.3. RIGHTS AND REMEDIES CUMULATIVE. No right or
remedy herein conferred upon or reserved to the Lenders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent or subsequent assertion or
employment of any other appropriate right or remedy.
SECTION 7.4. DELAY OR OMISSION NOT WAIVER. No delay or
omission by any Lender to exercise any right or remedy accruing upon any Event
of Default shall impair any such right or remedy
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or constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article VII or by law to the Lenders may be
exercised from time to time, and as often as may be deemed expedient, by the
Lenders.
SECTION 7.5. WAIVER OF PAST DEFAULTS. The Majority Lenders by
written notice to the Borrower may rescind an acceleration and its consequences
if the rescission would not conflict with any judgment or decree and if all
existing Events of Default (except nonpayment of principal or interest that has
become due solely because of the acceleration) have been cured or waived.
SECTION 7.6. RIGHTS OF LENDERS TO RECEIVE PAYMENT.
Notwithstanding anything to the contrary contained in this Agreement, the right
of any Lender to receive payment of principal of, premium, if any, and interest
on the Loans and Bridge Notes held by such Lender, on or after the respective
due dates expressed in this Agreement or the Bridge Notes, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of such Lender.
ARTICLE VIII.
TERMINATION
SECTION 8.1. TERMINATION. The Lenders, by notice to the
Borrower, may terminate this Agreement at any time after 5:00 p.m. New York City
time on August 2, 1999 if the Bridge Loans had not been funded at such time.
SECTION 8.2. SURVIVAL OF CERTAIN PROVISIONS. If this Agreement
is terminated pursuant to this Article VIII, such termination shall be without
liability of any party to any other party, except that, whether or not the
transactions contemplated by this Agreement are consummated, (i) the Obligations
of the Borrower, Capital and the Parent Guarantor to reimburse the Lenders and
the Administrative Agent for all of their out-of-pocket expenses pursuant to
Section 11.1 and (ii) the indemnity provisions contained in Article IX shall, in
each case, remain operative and in full force and effect.
ARTICLE IX.
INDEMNITY
SECTION 9.1. INDEMNIFICATION. In the event that the
Administrative Agent, any Lender or any Affected Party or any of their
respective directors, officers, employees, affiliates or agents (the
"INDEMNIFIED PARTIES") becomes involved in any capacity in any action,
proceeding or investigation in connection with any matter contemplated by this
Agreement (including the use of the proceeds of the Loans), the Borrower,
Capital and the Parent Guarantor (and any successors thereto), (collectively,
the "INDEMNIFYING PARTIES"), will reimburse such Indemnified Party for its
reasonable legal and other expenses (including the cost of any investigation and
preparation) as they are incurred. The Indemnifying Parties also agree to
indemnify and hold harmless each Indemnified Party from and against any and all
losses, claims, damages and liabilities, joint or several, related to or arising
out of any matters contemplated by this Agreement (including the use of the
proceeds of the Loans), unless (and only to the extent that) it shall be finally
judicially determined that such losses, claims, damages or liabilities resulted
primarily from the gross negligence or willful misconduct of such Indemnified
Party. The Indemnified Parties will promptly notify the Indemnifying Parties
upon receipt of written notice of any claim or threat to institute a claim;
PROVIDED that any failure by the Indemnified Parties to give such notice shall
not relieve the Indemnifying Parties from the obligation to indemnify the
Indemnified Parties.
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(b)If any action, claim, investigation or other proceeding is
instituted or threatened against any Indemnified Parties in respect of which
indemnity may be sought hereunder, the Indemnifying Parties shall be entitled to
assume the defense thereof with counsel selected by the Indemnifying Parties
(which counsel shall be reasonably satisfactory to such Indemnified Parties) and
after notice from the Indemnifying Parties to such Indemnified Parties of their
election so to assume the defense thereof, the Indemnifying Parties will not be
liable to such Indemnified Parties hereunder for any legal or other expenses
subsequently incurred by such Indemnified Parties in connection with the defense
thereof other than reasonable costs of investigation and such other expenses as
have been approved in advance; PROVIDED that (i) if counsel for such Indemnified
Parties determines in good faith that there is a conflict that requires separate
representation for the Indemnifying Parties, on the one hand, and such
Indemnified Parties, on the other hand, or (ii) the Indemnifying Parties fail to
assume or proceed in a timely and reasonable manner with the defense of such
action or fail to employ counsel reasonably satisfactory to such Indemnified
Parties in any such action, then, in either such event, such Indemnified Parties
shall be entitled to select one primary counsel (in addition to any necessary
local counsel) of their own choice to represent such Indemnified Parties, and
the Indemnifying Parties shall not, or shall no longer, be entitled to assume
the defense thereof on behalf of such Indemnified Parties and such Indemnified
Parties shall be entitled to indemnification for their expenses (including fees
and expenses of such counsel) to the extent provided in the preceding paragraph.
Such counsel shall, to the fullest extent consistent with its professional
responsibilities, cooperate with the Indemnifying Parties and any counsel
designated by the Indemnifying Parties. Nothing contained herein shall preclude
any Indemnified Parties, at their own expense, from retaining additional counsel
to represent such Indemnified Parties in any action with respect to which
indemnity may be sought from the Indemnifying Parties hereunder.
SECTION 9.2. INDEMNITY NOT AVAILABLE. If the indemnification
provided for herein is unavailable to an Indemnified Party in respect of any
losses, claims, damages, liabilities or judgments referred to herein, then the
Indemnifying Parties, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities and expenses (i) in such portion as
is appropriate to reflect the relative benefits received by the Indemnifying
Parties, on the one hand, and such Indemnified Party, on the other, from the
transactions contemplated by this Agreement (whether or not consummated) or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Indemnifying Parties, on the one hand, and such Indemnified Party, on the other,
in connection with the actions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
SECTION 9.3. SETTLEMENT OF CLAIMS. The Indemnifying Parties
shall not be liable under this Agreement for any settlement made by any
Indemnified Parties without the Indemnifying Parties' prior written consent, and
the Indemnifying Parties agree to indemnify and hold harmless any Indemnified
Parties from and against any loss or liability by reason of the settlement of
any claim or action with the consent of the Indemnifying Parties. The
Indemnifying Parties shall not settle any such claim or action without the prior
written consent of the Indemnified Parties unless such settlement provides for a
full release of claims against the Indemnified Parties.
SECTION 9.4. APPEARANCE EXPENSES. If an Indemnified Party is
requested or required to appear as a witness in any action brought by or on
behalf of or against the Borrower, Capital, the Parent Guarantor or any
Affiliate thereof in which such Indemnified Party is not named as a defendant,
the Parent Guarantor, the Borrower and Capital agree to reimburse such
Indemnified Party for all reasonable expenses incurred by it in connection with
such Indemnified Party's appearing and preparing to appear as such a witness,
including, without limitation, the reasonable fees and disbursements of its
legal counsel.
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SECTION 9.5. INDEMNITY FOR TAXES, RESERVES AND EXPENSES. If,
after the date hereof, the adoption of any law or guideline or any amendment or
change in the administration, interpretation or application of any existing or
future law or guideline by any Governmental Authority charged with the
administration, interpretation or application thereof, or the compliance with
any request or directive of any Governmental Authority (whether or not having
the force of law):
(a) subjects any Affected Party to any tax of any kind with
respect to this Agreement or the Bridge Notes or changes the basis of
taxation of payments of amounts due hereunder or thereunder or with
respect to this Agreement or any of the other Loan Documents,
(including, without limitation, any sales, gross receipts, general
corporate, personal property, privilege or license taxes, and including
claims, losses and liabilities arising from any failure to pay or delay
in paying any such tax (unless such failure or delay results solely
from such Affected Party's negligence or willful misconduct), but
excluding (i) federal, state or local taxes based on net income
incurred by such Affected Party arising out of or under this Agreement
or any of the other Loan Documents) and (ii) any taxes, levies,
imposts, deductions, charges or withholding specifically excluded under
Section 2.10(a);
(b) imposes, modifies or deems applicable any reserve
(including, without limitation, any reserve imposed by the Board),
special deposit or similar requirement against assets of the Borrower,
Capital and the Parent Guarantor held by, credit to the Borrower,
Capital and the Parent Guarantor extended by, deposits of the Borrower,
Capital and the Parent Guarantor with or for the account of, or other
acquisition of funds of the Borrower, Capital and the Parent Guarantor
by, any Affected Party;
(c) shall change the amount of capital maintained or requested
or directed to be maintained by an Affected Party; or
(d) imposes upon an Affected Party any other condition or
expense (including, without limitation, (i) loss of margin and (ii)
attorneys' fees and expenses incurred by officers or employees of an
Affected Party (or any successor thereto) and expenses of litigation or
preparation therefor in contesting any of the foregoing) with respect
to this Agreement or any of the other Loan Documents or the purchase,
maintenance or funding of the Loans by an Affected Party,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, reduce the rate of return on capital of, or impose any
expense (including loss of margin) upon, an Affected Party with respect to this
Agreement, any of the other Loan Documents, the obligations hereunder or
thereunder or the funding of the Loans hereunder, the Affected Party may notify
the Indemnifying Party of the amount of such increase, reduction, or imposition,
and the Indemnifying Parties hereby jointly and severally agree to pay to the
Affected Party the amount the Affected Party deems necessary to compensate the
Affected Party for such increase, reduction or imposition which determination
shall be conclusive. Such amounts shall be due and payable by the Indemnifying
Parties 15 days after such notice is given.
SECTION 9.6. SURVIVAL OF INDEMNIFICATION. The provisions
contained in this Article IX shall remain in full force and effect whether or
not any of the transactions contemplated hereby are consummated and
notwithstanding the termination of this Agreement or the payment in full of all
Obligations hereunder.
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SECTION 9.7. LIABILITY NOT EXCLUSIVE; PAYMENTS. The agreements
of each Indemnifying Party in this Article IX shall be in addition to any
liability that each may otherwise have. All amounts due under this Article IX
shall be payable as incurred upon written demand therefor.
ARTICLE X.
THE ADMINISTRATIVE AGENT
SECTION 10.1. APPOINTMENT. Each Lender hereby irrevocably
designates and appoints the Administrative Agent as the agent of such Lender
under this Agreement and the other Loan Documents, and each such Lender
irrevocably authorizes the Administrative Agent, in such capacity, to take such
action on its behalf under the provisions of this Agreement and the other Loan
Documents and to exercise such powers and perform such duties as are expressly
delegated to the Administrative Agent by the terms of this Agreement and the
other Loan Documents, together with such other powers as are reasonably
incidental thereto. The Administrative Agent hereby agrees that it will promptly
provide the written notice to the Escrow Agent referred to in Section 2(a) of
the Escrow Agreement if the Bridge Loans have not been paid in full on or before
May 2, 2000 and that it will promptly deliver the Escrowed Warrants upon receipt
thereof from the Escrow Agent. Notwithstanding any provision to the contrary
elsewhere in this Agreement, the Administrative Agent shall have no duties or
responsibilities, except those expressly set forth herein or in the other Loan
Documents, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or any other Loan Document or otherwise exist
against the Administrative Agent.
SECTION 10.2. DELEGATION OF DUTIES. The Administrative Agent
may execute any of its duties under this Agreement and the other Loan Documents
by or through agents or attorneys-in-fact and shall be entitled to the advice of
counsel concerning all matters pertaining to such duties. The Administrative
Agent shall not be responsible for the negligence or misconduct of any agents or
attorneys in-fact selected by it with reasonable care.
SECTION 10.3. EXCULPATORY PROVISIONS. Neither the
Administrative Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates shall be (i) liable for any action taken or
omitted to be taken by it or such Person under or in connection with this
Agreement or any other Loan Document (except for its own gross negligence or
willful misconduct) or (ii) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by the Borrower,
the Parent Guarantor or Capital or any officer thereof contained in this
Agreement or any other Loan Document or in any certificate, report, statement,
opinion or other document referred to or provided for in, or received by the
Administrative Agent under or in connection with, this Agreement or any other
Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of the Borrower, the Parent Guarantor or Capital to perform its
obligations hereunder or thereunder. The Administrative Agent shall not be under
any obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books or
records of the Borrower, the Parent Guarantor or Capital.
SECTION 10.4. RELIANCE BY THE ADMINISTRATIVE AGENT. The
Administrative Agent shall be entitled to rely, and shall be fully protected in
relying, upon any Bridge Note, writing, resolution, notice, consent,
certificate, affidavit, letter, telecopy, telex or teletype message, statement,
order or other document or conversation believed by it to be genuine and correct
and to have been signed, sent or made
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by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower, the Parent Guarantor or
Capital), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent may deem and treat the payee of
the Bridge Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Majority Lenders as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement and the other Loan Documents in
accordance with a request of the Majority Lenders, and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
Lenders and all future holders of the Loans.
SECTION 10.5. NOTICE OF DEFAULT. The Administrative Agent
shall not be deemed to have knowledge or notice of the occurrence of any Default
or Event of Default hereunder unless the Administrative Agent has received
notice from a Lender, the Borrower, the Parent Guarantor or Capital referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default." In the event that the Administrative Agent
receives such a notice, the Administrative Agent shall give notice thereof to
the Lenders. The Administrative Agent shall take such action with respect to
such Default or Event of Default as shall be reasonably directed by the Majority
Lenders; provided that unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
SECTION 10.6. NON-RELIANCE ON THE ADMINISTRATIVE AGENT AND
OTHER LENDERS. Each Lender expressly acknowledges that neither the
Administrative Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates has made any representations or warranties to it
and that no act by the Administrative Agent hereafter taken, including any
review of the affairs of the Borrower, the Parent Guarantor or Capital, shall be
deemed to constitute any representation or warranty by the Administrative Agent
to any Lender. Each Lender represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent or any other
Lenders, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition, prospects and credit
worthiness of the Borrower, the Parent Guarantor and Capital and made its own
decision to make its Loans hereunder and enter into this Agreement. Each Lender
confirms that it is either a qualified institutional buyer within the meaning of
Rule 144A under the Securities Act or an accredited investor that is not an
individual within the meaning of Regulation D under the Securities Act. Each
Lender also represents that it will, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition, prospects and credit worthiness of the Borrower,
the Parent Guarantor and Capital. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall have no duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, financial or other condition,
prospects or credit worthiness of the Borrower, the Parent Guarantor or Capital,
which may come into the possession of the Administrative Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates.
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SECTION 10.7. INDEMNIFICATION. The Lenders agree to indemnify
the Administrative Agent in its capacity as such (to the extent not reimbursed
by the Borrower, Capital or the Parent Guarantor and without limiting the
obligation of the Borrower, the Parent Guarantor and Capital to do so), ratably
according to their respective Commitments in effect on the date on which
indemnification is sought, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time (include,
without limitation, at any time following the payment of the Loans) be imposed
on, incurred by or asserted against the Administrative Agent in any way relating
to or arising out of, the Commitments, this Agreement, any other Loan Document
or any documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or any action taken or omitted by
the Administrative Agent under or in connection with any of the foregoing,
provided that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the Administrative
Agent's gross negligence or willful misconduct. The agreements in this
subsection shall survive the payment of the Loans and all other Obligations
payable hereunder.
SECTION 10.8. ADMINISTRATIVE AGENT, IN ITS INDIVIDUAL
CAPACITIES. The Administrative Agent and its Affiliates may make loans to,
accept deposits from and generally engage in any kind of business with the
Borrower as though the Administrative Agent were not acting in such capacities
hereunder and under the other Loan Documents. With respect to the Loans made or
renewed by it and the Bridge Note issued to it the Administrative Agent shall
have the same rights and powers under this Agreement and the other Loan
Documents as any Lender and may exercise the same as though it were not the
Administrative Agent, and the terms "Lender" and "Lenders" shall include the
Administrative Agent in its individual capacity.
SECTION 10.9. SUCCESSOR ADMINISTRATIVE AGENT. The
Administrative Agent may resign as Administrative Agent upon 30 days' notice to
the Lenders. If the Administrative Agent shall resign as Administrative Agent
under this Agreement and the other Loan Documents then the Majority Lenders
shall appoint from among the Lenders a successor agent for the Lenders, which
successor agent (provided that it shall have been approved by the Borrower),
shall succeed to the rights, powers and duties of the Administrative Agent,
hereunder. Effective upon such appointment and approval, the term
"Administrative Agent" shall mean and include such successor agent, and the
former Administrative Agent's rights, powers and duties as Administrative Agent
shall be terminated, without any other or further act or deed on the part of
such former Administrative Agent any of the parties to this Agreement or any
holders of the Loans. After any retiring Administrative Agent's resignation as
Administrative Agent the provisions of this Article X shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Administrative
Agent under this Agreement and the other Loan Documents.
ARTICLE XI.
MISCELLANEOUS
SECTION 11.1. EXPENSES; DOCUMENTARY TAXES. The Borrower,
Capital and the Parent Guarantor hereby jointly and severally agree to pay (a)
all reasonable out-of-pocket expenses of the Lenders and the Administrative
Agent (including, without limitation, expenses incurred in connection with due
diligence of the Lenders) associated with the preparation, execution and
delivery, administration, waiver, enforcement or modification and enforcement of
the documentation contemplated hereby and (b) the reasonable fees and
disbursements of legal counsel to the Lenders and the Administrative Agent in
connection with the transactions contemplated herein, including in each case
those incurred prior to the date hereof. The Borrower, Capital and the Parent
Guarantor hereby jointly and severally agree to indemnify the Lenders against
any transfer taxes, documentary taxes, assessments or charges made by any
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Governmental Authority by reason of the execution and delivery, or the terms, of
this Agreement or any of the other Loan Documents.
SECTION 11.2. NOTICES. All notices and other communications
pertaining to this Agreement or any Bridge Note shall be in writing and shall be
delivered (a) in Person (with receipt acknowledged) or (b) by overnight courier,
addressed as follows:
(i) If to the Administrative Agent, to it at:
Norwest Bank Minnesota, National Association
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Administration
(ii) If to any Lender, to it at its address set
forth on EXHIBIT J hereto:
(iii) If to the Borrower, Capital or the Parent
Guarantor, to it at:
Creditrust SPV99-2, LLC
CRDT SPV99-2 Capital, Inc.
Creditrust Corporation
7000 Security Boulevard
Baltimore, Maryland 21244
Attention: Chief Executive Officer
with a copy to:
Hogan & Hartson L.L.P.
111 South Calvert Street
Suite 1600
Baltimore, Maryland 21202
Attention: Henry D. Kahn, Esq.
or to such other Person or address as shall be furnished in writing delivered to
the other parties in compliance with this Section.
SECTION 11.3. CONSENT TO AMENDMENTS AND WAIVERS.
(a) Except as provided in Section 11.3(b) and except with
respect to the provisions of Sections 4.28, 4.29 and 4.30, this Agreement and
the Bridge Notes may be amended or supplemented with the consent of the
Borrower, the Parent Guarantor and the Majority Lenders and any existing default
or compliance with any provision of this Agreement or the Bridge Notes may be
waived with the consent of the Majority Lenders. Sections 4.28, 4.29 and 4.30
may be amended or supplemental with the consent of the Borrower, the Parent
Guarantor and Lenders holding at least 75% of the then aggregate unpaid
principal balance of the Loans. Bridge Notes held by the Borrower or any of its
Affiliates will not be deemed to be outstanding for purposes of this Section
11.3.
(b) Notwithstanding the provisions of Section 11.3(a), without
the consent of each Lender affected thereby, an amendment or waiver may not: (i)
reduce the principal amount of any Loan, (ii) change the fixed maturity of any
Loan, (iii) reduce the rate of or change the time for payment of
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interest on any Loan, (iv) waive a Default or Event of Default in the payment of
principal of, or premium, fees or interest, if any, on the Loans or any other
amounts payable under any of the Loan Documents, (v) make any Loan payable in
money other than that stated in the applicable Loan, (vi) make any change in the
provisions of this Agreement relating to the rights of Lenders to receive (A)
prepayments on, or (B) payments of principal of, premium, if any, or fees or
interest on, the Loans, (vii) release all or substantially all of the Collateral
(except as otherwise specifically provided in this Agreement and the Guarantee
and Collateral Agreements), (viii) release the Parent Guarantor or Capital from
its Guarantee Obligations under the Parent Guarantee and Collateral Agreement or
the Guarantee and Collateral Agreement, as applicable, or (ix) make any change
in the foregoing amendment and waiver provisions. In addition, without the
consent of the Administrative Agent, an amendment or waiver may not release any
Person from its payment, reimbursement or indemnity obligations with respect to
the Administrative Agent.
(c) The Borrower, Capital and the Parent Guarantor shall not,
and the Parent Guarantor shall not permit any of its Subsidiaries to, directly
or indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Lender for or as an inducement to any
consent, waiver or amendment permitted by Section 11.3(a) unless such
consideration is offered to be paid and is paid to all Lenders that consent,
waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or amendment.
SECTION 11.4. PARTIES. This Agreement shall inure to the
benefit of and be binding upon the Borrower, Capital, the Parent Guarantor, the
Affected Parties and each of their respective successors and assigns. Except as
expressly in this Agreement, nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other Person any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
herein contained. Except as expressly provided in this Agreement, this Agreement
and all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Affected Parties and their respective successors and
assigns, and for the benefit of no other Person.
SECTION 11.5. NEW YORK LAW; SUBMISSION TO JURISDICTION; WAIVER
OF JURY TRIAL. THIS AGREEMENT AND THE BRIDGE NOTES SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. THE BORROWER,
CAPITAL, THE PARENT GUARANTOR AND EACH OF THE LENDERS HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY
(EACH, A "NEW YORK COURT") FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF
OR RELATING TO THE BRIDGE NOTES, THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS
OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE BORROWER, THE PARENT GUARANTOR AND
EACH OF THE LENDERS IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
THE BORROWER, THE PARENT GUARANTOR AND EACH OF THE LENDERS IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THE BRIDGE NOTES, THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 11.6. REPLACEMENT NOTES. If any Bridge Note becomes
mutilated and is surrendered by the applicable Lender to the Borrower, or if any
Lender claims that any of its Bridge
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Notes has been lost, destroyed or wrongfully taken, the Borrower shall execute
and deliver to such Lender a replacement Bridge Note, upon the delivery by such
Lender of an indemnity to the Borrower to save it and any agent of it harmless
in respect of such loss, destruction or wrongful taking with respect to such
Bridge Note.
SECTION 11.7. APPOINTMENT OF AGENT FOR SERVICE. The Borrower
designates and appoints Hogan & Hartson L.L.P., 885 Third Avenue, New York, New
York 10022, Attention: Andrew Trubin, Esq. and such other Persons as may
irrevocably agree in writing to serve as their respective agent to receive on
their behalf service of all process in any proceedings in any New York Court,
such service being hereby acknowledged by the Borrower to be effective and
binding in every respect. If any agent appointed by a the Borrower refuses to
receive and forward such service, that the Borrower hereby agrees that service
upon it by mail shall constitute sufficient service.
SECTION 11.8. MARSHALLING; RECAPTURE. Neither the
Administrative Agent nor any Lender shall be under any obligation to marshall
any assets in favor of the Borrower or any other party or against or in payment
of any or all of the Obligations. To the extent any Lender receives any payment
by or on behalf of the Borrower, which payment or any part thereof is
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to the Borrower or its estate, trustee, receiver,
custodian or any other party under any Bankruptcy Law, state or federal law,
common law or equitable cause, then, to the extent of such payment or repayment,
the obligation or part thereof which has been paid, reduced or satisfied by the
amount so repaid shall be reinstated by the amount so repaid and shall be
included within the liabilities of Borrower to such Lender as of the date such
initial payment, reduction or satisfaction occurred.
SECTION 11.9. LIMITATION OF LIABILITY. No claim may be made by
the Borrower, Capital, the Parent Guarantor or any other Person against the
Administrative Agent or any Lender or the Affiliates, directors, officers,
employees, attorneys or agents of any of them for any special, indirect,
consequential or punitive damages in respect of any claim for breach of contract
or any theory of liability arising out of or related to the transactions
contemplated by this Agreement or the other Loan Documents, or any act, omission
or event occurring in connection therewith; and the Borrower, Capital and the
Parent Guarantor hereby waive, release and agree not to sue, and the Parent
Guarantor shall cause each of its Subsidiaries to waive, release or agree not to
sue (if required), upon any claim for any such damages, whether or not accrued
and whether or not known or suspected to exist in its favor.
SECTION 11.10. INDEPENDENCE OF COVENANTS. All covenants
hereunder shall be given independent effect so that if a particular action or
condition is not permitted by any of such covenants, the fact that it would be
permitted by an exception to, or be otherwise within the limitations of, another
covenant shall not avoid the occurrence of a Default or Event of Default if such
action is taken or condition exists.
SECTION 11.11. CURRENCY INDEMNITY. The Borrower acknowledges
and agrees that this is a credit transaction where specification of dollars is
of the essence and dollars shall be the currency of account and payment in all
events. If, pursuant to a judgment or for any other reason, payment shall be
made in another currency and such payment, after prompt conversion to dollars
and transfer to New York City in accordance with normal banking procedures,
falls short of the sum due the Lenders in dollars, the Borrower shall pay the
Lender such shortfall and the Lenders shall have a separate cause of action for
such amount.
SECTION 11.12. WAIVER OF IMMUNITY. To the extent that the
Borrower, Capital or the Parent Guarantor has or hereafter may acquire any
immunity from:
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(a) the jurisdiction of any court of (i) any jurisdiction in
which the Borrower, Capital or the Parent Guarantor owns or leases
property or assets or (ii) the United States, the State of New York or
any political subdivision thereof; or
(b) from any legal process (whether through service of notice,
attachment prior to judgment, attachment in aid of execution, execution
or otherwise) with respect to itself or its property and assets, this
Agreement, any Loan Document or actions to enforce judgments in respect
of any thereof,
it hereby irrevocably waives such immunity in respect of its obligations under
the above-referenced document.
SECTION 11.13. FREEDOM OF CHOICE. The submission to the
jurisdiction of the courts referred to in this Article XI shall not (and shall
not be construed so as to) limit the right of any Lender to take proceedings
against the Borrower, Capital or the Parent Guarantor in the courts of any
country in which the Borrower, Capital or the Parent Guarantor has assets or in
any other court of competent jurisdiction nor shall the taking of proceedings in
any one or more jurisdictions preclude the taking of proceedings in any other
jurisdiction (whether concurrently or not) if and to the extent permitted by
applicable law.
SECTION 11.14. SUCCESSORS AND ASSIGNS. Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants
and agreements of the Borrower, Capital and the Parent Guarantor in this
Agreement shall bind their respective successors and assigns. Neither the
Borrower, Capital nor the Parent Guarantor may assign or transfer any of its
rights or obligations hereunder (by operation of law or otherwise) without the
prior written consent of the Majority Lenders. Any assignment by any Lender must
be made in compliance with Article VI hereof.
SECTION 11.15. MERGER. This Agreement constitutes the entire
contract among the parties relating to the subject matter hereof and supersedes
any and all previous agreements among the parties relating to the subject matter
hereof, except for those provisions in the Fee Letter that are in addition to
the provisions contained herein.
SECTION 11.16. SEVERABILITY CLAUSE. In case any provision in
this Agreement or any Bridge Note shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby and such
provision shall be ineffective in such jurisdiction only to the extent of such
invalidity, illegality or unenforceability.
SECTION 11.17. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO
SURVIVE DELIVERY. All representations, warranties and agreements contained in or
incorporated into this Agreement, or contained in Officers' Certificates
submitted pursuant hereto, shall remain operative and in full force and effect
until all Obligations under all of the Loan Documents have been repaid in full,
regardless of any investigation made by or on behalf of the Lenders or any
controlling Person of the Lenders, or by or on behalf of the Borrower or any
controlling Person of the Borrower, and shall survive delivery of the Bridge
Notes.
SECTION 11.18. CONFIDENTIALITY. Each of the Administrative
Agent and the Lenders agrees to keep confidential all non-public information
provided to it by the Parent Guarantor or any of its Subsidiaries pursuant to
this Agreement that is designated by the Parent Guarantor as confidential;
PROVIDED that nothing herein shall prevent the Administrative Agent or any
Lender from disclosing any
57
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such information (a) to the Administrative Agent, any other Lender or any
affiliate of any thereof (b) to any Transferee or prospective Transferee that
agrees to comply with the provisions of this Section 11.18, (c) to any of its
employees, directors, agents, attorneys, accountants and other professional
advisors, (d) upon the request or demand of any Governmental Authority having
jurisdiction over it, (e) in response to any order of any court or other
Governmental Authority or as may otherwise be required pursuant to any
Requirement of Law, (f) if requested or required to do so in connection with any
litigation or similar proceeding, (g) that has been publicly disclosed other
than in breach of this Section 11.18, (h) to the National Association of
Insurance Commissioners or any similar organization or any nationally recognized
rating agency that requires access to information about a Lender's investment
portfolio in connection with ratings issued with respect to such Lender or (i)
in connection with the exercise of any remedy hereunder or under any other Loan
Document.
[signature pages follow]
58
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
CREDITRUST SPV99-2, LLC
By Creditrust Corporation, its sole member
By: /s/ Joseph K. Rensin
---------------------------------------
Name: Joseph K. Rensin
Title: Chairman, President and CEO
CREDITRUST CORPORATION
By: /s/ Joseph K. Rensin
---------------------------------------
Name: Joseph K. Rensin
Title: Chairman, President and CEO
CRDT SPV99-2 CAPITAL, INC.
By: /s/ Joseph K. Rensin
---------------------------------------
Name: Joseph K. Rensin
Title: Chairman, President and CEO
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Administrative Agent
By: /s/ Timothy P. Mondy
---------------------------
Name: Timothy P. Mondy
Title: Corporate Trust Officer
A-1
Exhibit 10.2
THE SECURITY EVIDENCED OR CONSTITUTED HEREBY HAS BEEN ACQUIRED FOR INVESTMENT
AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS
SECURITY MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE
REGISTRATION PROVISIONS OF SAID ACT (OR AN EXEMPTION THEREFROM) HAVE BEEN
COMPLIED WITH.
No. I- 13 New York, New York
$2,600,000 August 2, 1999
SENIOR SECURED BRIDGE NOTE
FOR VALUE RECEIVED, the undersigned, Creditrust SPV99-2, LLC
(the "BORROWER"), promises to pay to the order of Quantum Emerging Growth
Partners, C.V., or its registered assigns (the "HOLDER"), the principal sum of
Two Million Six Hundred Thousand Dollars ($2,600,000) and to pay interest from
the date hereof on the unpaid principal amount hereof from time to time
outstanding, at the rates per annum and on the dates specified in that certain
Bridge Loan Agreement, dated as of August 2, 1999, among the Borrower, CRDT
SPV99-2 Capital, Inc., a Delaware corporation, as guarantor ("CAPITAL"),
Creditrust Corporation, a Maryland corporation, as guarantor (the "PARENT
GUARANTOR"), Norwest Bank Minnesota, National Association, as Administrative
Agent, and the Lenders set forth on the signature pages thereto (as amended,
restated and/or otherwise modified from time to time, the "BRIDGE LOAN
AGREEMENT"). Terms used herein and not otherwise defined have the meanings
assigned to them in the Bridge Loan Agreement.
The unpaid principal balance of this Bridge Note, together
with all accrued and unpaid interest thereon, shall become due and payable on
the Maturity Date unless the Extension Date occurs, in which case the unpaid
principal balance hereof, together with all accrued and unpaid interest thereon,
shall become due and payable on the date that is five years after the Closing
Date.
The Borrower promises to pay interest on demand, to the extent
permitted by law, on any overdue principal and interest from their due dates at
the rate per annum as specified in Section 2.4 of the Bridge Loan Agreement.
All payments of the principal of and premium and interest on
this Bridge Note shall be made in money of the United States of America that at
the time of payment is legal tender for the payment of public and private debts,
by
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<PAGE>
transfer of immediately available funds into a bank account designated by the
Holder in writing to the Borrower.
The Borrower agrees to pay, upon demand, all reasonable
out-of-pocket expenses (including, without limitation, the reasonable fees and
disbursements of legal counsel to the Holder) associated with the waiver,
enforcement or modification of the Bridge Loan Agreement or this Bridge Note.
This Bridge Note is entitled to the benefits of a joint and
several unconditional and irrevocable guarantee (the "NOTE GUARANTEE") of, inter
alia, the due and punctual payment of the principal of, premium (if any) and
interest on this Bridge Note as set forth the Parent
Guarantee and Collateral Agreement and the Guarantee and Collateral Agreement.
Each of the Parent Guarantor and Capital has acknowledged its liability under
the Note Guarantee by signing this Bridge Note.
The Borrower hereby waives diligence, presentment, demand,
protest and notice of any kind whatsoever. The nonexercise by the Holder of any
of its rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
This Bridge Note is one of the Bridge Notes referred to in the
Bridge Loan Agreement, which Agreement, among other things, contains provisions
for the acceleration of the maturity hereof upon the happening of certain
events, for optional and mandatory prepayment in full of the principal hereof
prior to maturity and for the amendment or waiver of certain provisions of the
Bridge Loan Agreement, all upon the terms and conditions therein specified. In
the event of any conflict between the provisions of this Bridge Note and the
Bridge Loan Agreement, the provisions of the Bridge Loan Agreement shall govern.
THIS BRIDGE NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK.
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<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Bridge Note
to be signed in its corporate name by its duly authorized officer and to be
dated as of the day and year first above written.
CREDITRUST SPV99-2, LLC
By Creditrust Corporation, its sole member
By: /s/ Joseph K. Rensin
------------------------------
Name: Joseph K. Rensin
Title: Chairman, CEO and President
ACKNOWLEDGMENT OF NOTE GUARANTEE:
CREDITRUST CORPORATION
By: /s/ Joseph K. Rensin
-------------------------------------
Name: Joseph K. Rensin
Title: Chairman, CEO and President
CRDT SPV99-2 CAPITAL, INC.
By: /s/ Joseph K. Rensin
-------------------------------------
Name: Joseph K. Rensin
Title: Chairman, CEO and President
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<PAGE>
[Back of Bridge Note]
OPTION OF HOLDER TO ELECT PURCHASE UPON CHANGE OF CONTROL
If you want to elect to have this Bridge Note purchased by the
Borrower pursuant to Section 4.24 of the Bridge Loan Agreement check the box
below.
[ ] Please purchase the entire amount of this Bridge Note.
If you want to elect to have only part of this Bridge Note
purchased by the Borrower pursuant to Section 4.24 of the Bridge Loan Agreement,
state the amount you elect to have purchased: $_____________.
Date:________________________
Your Signature:
______________________________________
(Sign exactly as your name appears on
the face of this Note)
Tax Identification No.______________
Signature Guarantee:
_______________________________________
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Exhibit 10.3
INDENTURE AND SERVICING AGREEMENT
-------------
CREDITRUST SPV99-1, LLC,
as Issuer
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee and Backup Servicer of the Receivables
and
CREDITRUST CORPORATION,
as Servicer of the Receivables
Dated as of August 1, 1999
-------------
CREDITRUST RECEIVABLES-BACKED NOTES, SERIES 1999-1
------------------
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS............................................................1
SECTION 1.01 Definitions...............................................1
SECTION 1.02 Interpretation............................................14
ARTICLE II CREATION OF TRUST ESTATE; CUSTODY OF RECEIVABLE
FILES..................................................................15
SECTION 2.01 Creation of Trust Estate.................................15
SECTION 2.02 Custody Of Receivable Files..............................16
SECTION 2.03 Acceptance By Trustee....................................17
SECTION 2.04 Representations and Warranties of Issuer as to the
Receivables........................................................17
SECTION 2.05 Repayment for Receivables Upon Breach....................18
SECTION 2.06 Duties of Servicer as Custodian..........................19
SECTION 2.07 Instructions; Authority to Act...........................20
SECTION 2.08 Indemnification by Custodian.............................21
SECTION 2.09 Effective Period and Termination.........................21
SECTION 2.10 Agent for Service........................................21
SECTION 2.11 Satisfaction and Discharge of Indenture..................21
ARTICLE III ADMINISTRATION AND SERVICING OF RECEIVABLES....................22
SECTION 3.01 Duties of Servicer.......................................22
SECTION 3.02 Collection of Receivable Payments........................23
SECTION 3.03 Covenants of Servicer....................................24
SECTION 3.04 Repayment in Respect of Receivables Upon Breach and Other
Events.............................................................25
SECTION 3.05 Servicing Fee; Payment of Certain Expenses By
Servicer...........................................................25
SECTION 3.06 Monthly Servicer Report; Servicer's Remittance Date
Certificate........................................................26
SECTION 3.07 Annual Statement as to Compliance........................26
SECTION 3.08 Periodic Accountants Report..............................27
SECTION 3.09 Servicer's Compliance Report.............................27
SECTION 3.10 Access to Certain Documentation and Information..........28
SECTION 3.11 Reports to Noteholders, the Rating Agency and the Placement
Agent..............................................................28
SECTION 3.12 Tax Treatment............................................28
ARTICLE IV THE ACCOUNTS; PAYMENTS; STATEMENTS TO NOTEHOLDERS...............29
SECTION 4.01 Accounts..................................................29
SECTION 4.02 Collections...............................................30
SECTION 4.03 Additional Deposits.......................................30
SECTION 4.04 Allocations and Payments..................................30
SECTION 4.05 Reserve Account..........................................33
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SECTION 4.05A Note Payment Account....................................33
SECTION 4.06 Statements to Noteholders................................34
SECTION 4.07 Application of Trust Money...............................34
ARTICLE V THE NOTES.......................................................34
SECTION 5.01 The Notes................................................34
SECTION 5.02 Authentication and Delivery of the Notes.................35
SECTION 5.03 Registration of Transfer and Exchange of Notes...........35
SECTION 5.04 Mutilated, Destroyed, Lost or Stolen Notes...............38
SECTION 5.05 Persons Deemed Owners....................................38
SECTION 5.06 Access to List of Noteholders' Names and Addresses.......39
SECTION 5.07 Surrendering of Notes....................................39
SECTION 5.08 Maintenance of Office or Agency..........................39
ARTICLE VI THE ISSUER......................................................40
SECTION 6.01 Representations of Issuer................................40
SECTION 6.02 Repayment in Respect of Receivables Upon Breach..........46
SECTION 6.03 Liability of Issuer......................................47
SECTION 6.04 Merger or Consolidation of, or Assumption of the
Obligations of, the Issuer; Certain Limitations....................47
SECTION 6.05 Limitation on Liability of Issuer and Others.............48
SECTION 6.06 Issuer May Own Notes.....................................48
SECTION 6.07 Covenants of Issuer......................................49
ARTICLE VII THE SERVICER...................................................54
SECTION 7.01 Representations of Servicer..............................54
SECTION 7.02 Liability of Servicer; Indemnities.......................56
SECTION 7.03 Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer.......................................57
SECTION 7.04 Limitation on Liability of Servicer and Others...........58
SECTION 7.05 Servicer Not to Resign...................................58
SECTION 7.06 Backup Servicing.........................................59
SECTION 7.07 General Covenants of Servicer............................60
ARTICLE VIII SERVICER DEFAULT; EVENTS OF DEFAULT SERVICER EVALUATION EVENT;
REMEDIES...............................................................65
SECTION 8.01 Servicer Default.........................................65
SECTION 8.02 Consequences of a Servicer Default.......................67
SECTION 8.03 Backup Servicer to Act; Appointment of Successor
Servicer...........................................................69
SECTION 8.04 Notification to Noteholders, Rating Agency and Placement
Agent..............................................................70
SECTION 8.05 Waiver of Past Servicer Defaults.........................71
SECTION 8.06 [Deleted]................................................71
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SECTION 8.07 Subservicers..............................................71
SECTION 8.08 Events of Default........................................72
SECTION 8.09 Acceleration of Maturity; Rescission and Annulment.......73
SECTION 8.10 Collection of Indebtedness and Suits for Enforcement by
Trustee............................................................74
SECTION 8.11 Remedies.................................................75
SECTION 8.12 Trustee May File Proofs of Claim.........................75
SECTION 8.13 Trustee May Enforce Claims without Possession of
Notes..............................................................76
SECTION 8.14 Application of Money Collected...........................76
SECTION 8.15 Limitation on Suits......................................77
SECTION 8.16 Unconditional Rights of Noteholders to Receive Principal and
Interest...........................................................77
SECTION 8.17 Restoration of Rights and Remedies.......................78
SECTION 8.18 Rights and Remedies Cumulative...........................78
SECTION 8.19 Delay or Omission Not Waiver.............................78
SECTION 8.20 Control by Controlling Party.............................78
SECTION 8.21 Waiver of Past Defaults..................................79
SECTION 8.22 Undertaking for Costs....................................79
SECTION 8.23 Waiver of Stay or Extension Laws.........................79
SECTION 8.24 Sale of Trust Estate.....................................80
SECTION 8.25 Action on Notes..........................................81
SECTION 8.26 No Recourse to Other Trust Estates or Other Assets of the
Issuer.............................................................81
SECTION 8.27 License..................................................82
ARTICLE IX THE TRUSTEE.....................................................82
SECTION 9.01 Duties of Trustee........................................82
SECTION 9.02 Trustee's Certificate....................................84
SECTION 9.03 Trustee's Release of Removed Receivables.................84
SECTION 9.04 Certain Matters Affecting the Trustee....................84
SECTION 9.05 Limitation on Trustee's Liability........................86
SECTION 9.06 Trustee May Own Notes....................................87
SECTION 9.07 Trustee's Fees and Expenses.............................87
SECTION 9.08 Indemnity of Trustee, Backup Servicers and Successor
Servicer...........................................................88
SECTION 9.09 Eligibility Requirements for Trustee.....................88
SECTION 9.10 Resignation or Removal of Trustee........................89
SECTION 9.11 Successor Trustee........................................89
SECTION 9.12 Merger or Consolidation of Trustee.......................90
SECTION 9.13 Appointment of Co-Trustee or Separate Trustee............90
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SECTION 9.14 Representations and Warranties of Trustee................92
SECTION 9.15 Tax Returns..............................................92
SECTION 9.16 [Deleted]................................................93
SECTION 9.17 Suit for Enforcement.....................................93
SECTION 9.18 Rights of Controlling Party to Direct Trustee............93
SECTION 9.19 Confidential Information.................................93
ARTICLE X REDEMPTION.........................................................94
SECTION 10.01 Redemption at the Option of the Issuer; Election to
Redeem.............................................................94
SECTION 10.02 Deposit of Redemption Amount............................95
SECTION 10.03 Notice of Redemption by the Trustee.....................95
ARTICLE XI MISCELLANEOUS PROVISIONS........................................95
SECTION 11.01 Amendment...............................................95
SECTION 11.02 Protection of Title to Trust Estate.....................97
SECTION 11.03 Limitation of Rights of Noteholders.....................98
SECTION 11.04 Governing Law...........................................99
SECTION 11.05 Notices.................................................99
SECTION 11.06 Severability of Provisions; Counterparts................99
SECTION 11.07 Assignment..............................................100
SECTION 11.08 No Petition.............................................100
SECTION 11.09 Noteholder Direction....................................100
SECTION 11.10 No Substantive Review of Compliance Documents...........100
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This Indenture and Servicing Agreement, dated as of August 1, 1999 (the
"Agreement") is executed by and among Creditrust SPV99-1, LLC, as issuer (the
"Issuer"), Norwest Bank Minnesota, National Association, as trustee (in such
capacity, the "Trustee"), and as backup servicer (in such capacity, the "Backup
Servicer"), and Creditrust Corporation, as servicer (the "Servicer").
In consideration of the mutual agreements herein contained, each party
agrees as follows for the benefit of the other parties and the Noteholders to
the extent provided herein:
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINITIONS.
Except as otherwise provided in this Agreement, whenever used herein,
the following words and phrases, unless the context otherwise requires, shall
have the following meanings:
"Accounts" means the Collection Account, the Reserve Account and the
Note Payment Account.
"Accredited Investor" shall have the meaning assigned to such term in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
"Adverse Claim" means a lien, security interest, charge, encumbrance or
other right or claim of any Person.
"Affiliate" means, with respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control," when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the term "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement" means this Indenture and Servicing Agreement, relating to
Creditrust Receivables-Backed Notes, Series 1999-1 dated as of August 1, 1999,
among Creditrust SPV99-1, LLC, as Issuer, Norwest Bank Minnesota, National
Association, as Trustee and Backup Servicer and Creditrust
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Corporation, as Servicer, as the same may be amended or supplemented from time
to time.
"Applicants" shall have the meaning specified in Section 5.06.
"Asset Sale Agreement" means each asset sale agreement or receivables
purchase agreement entered into between Creditrust Corporation and each
Originating Institution in connection with the purchase of Receivables from such
Originating Institution.
"Assignment Agreement" means the Assignment Agreement dated as of the
Closing Date by and between Creditrust Funding I LLC and the Issuer.
"Available Funds" means, with respect to any Payment Date and the next
preceding Determination Date, the sum of (i) the Net Proceeds recovered with
respect to each Receivable and received in the Collection Account during the
Collection Period then most recently concluded, plus (ii) all available funds on
deposit in the Collection Account (other than Net Proceeds of Receivables) as of
the opening of business of the Trustee on such Determination Date.
"Backup Servicer" means Norwest Bank Minnesota, National Association,
and its successors and assigns.
"Backup Servicing Fee" means the fee payable to the Backup Servicer on
each Payment Date for services rendered pursuant to this Agreement, which shall
be equal to the greater of (i) the product of one-twelfth of .15% and the Note
Balance as of the immediately preceding Payment Date (after giving effect to
payments in reduction of the Note Balance made on such immediately preceding
Payment Date, if any) and (ii) $1,000 per month; PROVIDED, HOWEVER, that with
respect to the initial Payment Date, the Backup Servicing Fee shall be prorated
based upon a fraction, the numerator of which is the number of days from and
including the Closing Date through September 30, 1999, and the denominator of
which is 30.
"Benefit Plan" means with respect to any Person any employee benefit
plan as defined in Section 3(3) of ERISA in respect of which such Person or any
ERISA Affiliate of such Person is, or at any time during the immediately
preceding six years was, an "employer" as defined in Section 3(5) of ERISA.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions in the State of Maryland, the State of Minnesota
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or the State of New York are required or authorized by law, regulation,
executive order or governmental decree to be closed.
"By-laws" means the bylaws of Issuer.
"Charged-Off Balance" means, with respect to each Receivable, the
original charged-off balance thereof as required to be set forth in the Schedule
of Receivables.
"Closing Date" means August 31, 1999.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collection Account" means the segregated account or accounts, each of
which shall be an Eligible Account, established and maintained pursuant to
Section 4.01 and entitled "Norwest Bank Minnesota, National Association, as
Trustee for Creditrust Receivables-Backed Notes, Series 1999-1 Collection
Account."
"Collection Period" means, with respect to any Remittance Date,
Determination Date or Payment Date, the period beginning on the first day of the
calendar month immediately preceding the month in which such Remittance Date,
Determination Date or Payment Date occurs and ending on the last day of such
calendar month; PROVIDED, HOWEVER, that the initial Collection Period begins on
the Closing Date.
"Consumer Account" means any receivable generated on a credit card
account, revolving account, or installment account.
"Controlling Party" means the Noteholders with Voting Interests in
excess of 50% of all outstanding Voting Interests.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Agreement is located
at Sixth Street and Marquette Avenue, MAC N9311-161, Minneapolis, Minnesota
55479, Attention: Corporate Trust Services/Asset-Backed Administration.
"Customary Procedures" means the customary practices, policies,
standards and procedures of the Servicer relating to the acquisition and
collection of comparable defaulted consumer receivables that it services for
itself or others, in each case as in effect on the Closing Date (or, in the case
of a
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Successor Servicer, the date such Successor Servicer becomes the Servicer)
(which include backup servicing files and disaster recovery plans), as the same
may be modified by the Servicer from time to time thereafter with, in each case,
prompt notice to the Trustee.
"Cut-Off Date" means July 31, 1999.
"Determination Date" means, with respect to any Payment Date, the
second Business Day next preceding such Payment Date.
"Eligible Account" means (A) a segregated account or accounts
maintained with an institution the deposits of which are insured by the Bank
Insurance Fund or the Savings Association Insurance Fund of the FDIC, the
unsecured and uncollateralized debt obligations of which shall be rated "A" or
better by the Required Rating Agencies then providing a long term debt rating
for such institution and in the highest available short term rating category by
the Required Rating Agencies then providing a short term debt rating for such
institution, and that is (i) a federal savings and loan association duly
organized, validly existing and in good standing under the federal banking laws,
(ii) a banking or savings and loan association duly organized, validly existing
and in good standing under the applicable laws of any state, (iii) a national
banking association duly organized, validly existing and in good standing under
the federal banking laws, or (iv) a principal subsidiary of a bank holding
company, or (B) a segregated trust account (which shall be a "special deposit
account") maintained in the trust department of a federal or state chartered
depository institution or trust company, having capital and surplus of not less
than $50,000,000, acting in its fiduciary capacity. Any Eligible Accounts
maintained with the Trustee shall conform to the preceding clause (B). Any
Account maintained at an institution other than the Trustee must be subject to
an agreement with such institution among Servicer, Issuer and Trustee,
substantially similar to the Securities Account Control Agreement (Collection
Account) dated as of the Closing Date, among the Issuer, the Trustee, and
Norwest Bank Minnesota, National Association, as Securities Intermediary.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means with respect to any Person (a) any corporation
which is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Code) as such Person; (b) a trade or business
(whether or not incorporated) under common control (within the meaning of
Section 414(c) of the Code) with such Person, or (c) a member of the same
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affiliated service group (within the meaning of Section 414(m) of the Code) as
such Person, any corporation described in clause (a) above or any trade or
business described in clause (b) above.
"Event of Default" shall have the meaning specified in Section 8.08.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FDIC" means the Federal Deposit Insurance Corporation, and its
successors.
"Final Payment Date" shall mean the earlier of August 15, 2004 or (ii)
the Payment Date which follows the Payment Date on which all proceeds of a sale
of the Trust Estate pursuant to Section 8.24 were distributed.
"FNMA" means the Federal National Mortgage Association, and its
successors.
"GAAP" means generally accepted accounting principles that are (i)
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, as in effect from time to time,
and (ii) consistently applied with past financial statements of the Servicer and
its subsidiaries; provided that a certified public accountant would, insofar as
the use of such accounting principles is pertinent, be in a position to deliver
an unqualified opinion (other than a qualification regarding changes in
generally accepted accounting principles) as to financial statements in which
such principles have been properly applied.
"Independent Member" means a member of the Issuer which is a
corporation and (a) which is not (i) an Affiliate of the Seller or the Servicer
or (ii) a holder (directly or indirectly) of any voting securities of any
Affiliate of the Issuer, and (b) which is a wholly owned Affiliate of a company
that provides, in the ordinary course of its business, advisory, management or
placement services to issuers of securitization or structured finance
instruments, agreements or securities.
"Insolvency Event" means, with respect to a specified Person, (a) the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or the filing of a petition against such Person
in an involuntary case under any applicable bankruptcy, insolvency or other
similar
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law now or hereafter in effect, which case remains unstayed and undismissed
within 30 days of such filing, or the appointing of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official for such Person
or for any substantial part of its property, or the ordering of the winding-up
or liquidation of such Person's business; or (b) the commencement by such Person
of a voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or the consent by such Person to the entry of an
order for relief in an involuntary case under any such law, or the consent by
such Person to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its property, or the making by such
Person of any general assignment for the benefit of creditors, or the failure by
such Person generally to pay its debts as such debts become due or the admission
by such Person of its inability to pay its debts generally as they become due.
"Insolvency Proceeding" means any proceeding of the sort described in
the definition of Insolvency Event.
"Interest Carryover Shortfall" means, with respect to any Payment Date,
the excess, if any, of (i) the Interest Distributable Amount for such Payment
Date and all prior Payment Dates, over (ii) the amount of interest, if any,
actually paid to Noteholders on such Payment Date and all prior Payment Dates.
"Interest Distributable Amount" means, with respect to any Payment
Date, the product of (A) one-twelfth of the Note Rate and (B) the Note Balance
as of the immediately preceding Payment Date (after giving effect to payments in
reduction of the Note Balance made on such immediately preceding Payment Date,
if any) or, in the case of the initial Payment Date, the Original Note Balance;
provided, however, that with respect to the initial Payment Date, the amount
calculated in accordance with the preceding clause shall be multiplied by a
fraction, the numerator of which is the number of days from and including the
Closing Date to but not including the initial Payment Date and the denominator
of which is 30.
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"Issuer" means Creditrust SPV99-1, LLC, in its capacity as issuer of
the Notes pursuant to this Agreement, and each successor thereto (in the same
capacity) pursuant to Section 6.04.
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"Lien" means any security interest, lien, charge, pledge, equity or
encumbrance of any kind.
"LLC Agreement" means the limited liability company agreement of
Issuer.
"Monthly Servicer Report" means an Officer's Certificate of the
Servicer completed and executed pursuant to Section 3.06(a), substantially in
the form attached hereto as Exhibit A.
"Nationally Recognized Statistical Rating Agency" means each of Duff &
Phelps Credit Rating Co., Fitch IBCA, Inc., Moody's Investors Service, Inc. and
Standard & Poor's Ratings Services, or any successor thereto.
"Net Proceeds" means, with respect to a Receivable, all monies in
available funds collected, received or otherwise recovered from or for the
account of the related Obligor on such Receivable. Third-Party Fees and court
costs incurred in connection with collecting a Receivable will be deducted from
collections on such Receivable by such third parties or by the Servicer on their
behalf and will not constitute Net Proceeds.
"Note" means one of the 9.43% Creditrust Receivables-Backed Notes,
Series 1999-1 executed by the Issuer and authenticated by the Trustee in
substantially the form attached hereto as Exhibit C.
"Note Balance" shall initially equal, on the Closing Date, the Original
Note Balance and, as of any subsequent date of determination, shall equal the
Original Note Balance less all amounts paid to Noteholders on previous Payment
Dates and applied in reduction of the Note Balance pursuant to the terms hereof.
"Note Payment Account" means the segregated account or accounts, each
of which shall be an Eligible Account, established and maintained pursuant to
Section 4.01 and entitled "Norwest Bank Minnesota, National Association, as
Trustee for Creditrust Receivables-Backed Notes, Series 1999-1, Note Payment
Account."
"Note Rate" means 9.43% per annum, calculated on the basis of a 360-day
year consisting of twelve 30-day months.
"Note Register" means the register maintained pursuant to Section 5.03.
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"Note Registrar" means the Trustee unless a successor thereto is
appointed pursuant to Section 5.03. The Note Registrar initially designates its
offices at Sixth Street and Marquette Avenue, MAC N9311-161, Minneapolis,
Minnesota 55479 as its offices for purposes of Section 5.07.
"Noteholder" means the Person in whose name a Note is registered in the
Note Register, except that, solely for the purposes of giving certain consents,
waivers, requests or demands pursuant to this Agreement the interests evidenced
by any Note registered in the name of, or in the name of a Person or entity
holding for the benefit of, the Issuer, the Servicer or any Person actually
known to a Responsible Officer of the Trustee to be an Affiliate of the Issuer
or the Servicer, shall not be taken into account in determining whether the
requisite percentage necessary to effect any such consent, waiver, request or
demand shall have been obtained.
"Obligor" on a Receivable means any Person who owes or may be liable
for payments under such Receivable.
"Officer's Certificate" means a certificate signed by a Responsible
Officer of the Issuer or the Servicer, as the case may be, and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be an
employee of or outside counsel to the Person responsible for providing such
opinion, and which opinion shall be reasonably acceptable to the Trustee and the
other recipients thereof.
"Original Note Balance" means $40,000,000.
"Originating Institution" means any of the banking institutions or
merchants that originated any of the Receivables and their assignees.
"Payment Date" means the fifteenth day of each calendar month or, if
such day is not a Business Day, the next succeeding Business Day, commencing
October 15, 1999.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
Person succeeding to the functions thereof.
"Permitted Investments" means, at any time, any one or more of the
following obligations and securities:
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(i) obligations of, and obligations fully guaranteed as to
timely payment of principal and interest by, the United States or any
agency thereof, provided such obligations are backed by the full faith
and credit of the United States;
(ii) general obligations of, or obligations guaranteed by,
FNMA or any state of the United States or the District of Columbia,
which are then rated the highest available credit rating for such
obligations by the Required Rating Agencies then providing such a
rating;
(iii) certificates of deposit issued by any depository
institution or trust company (including the Trustee) incorporated under
the laws of the United States or of any state thereof, the District of
Columbia and subject to supervision and examination by banking
authorities of one or more of such jurisdictions, provided that the
short-term unsecured debt obligations of such depository institution or
trust company are then rated the highest available credit rating for
such obligations by the Required Rating Agencies then providing such a
rating;
(iv) repurchase obligations held by the Trustee that are
acceptable to the Trustee with respect to any security described in
clauses (i) or (ii) hereof or any other security issued or guaranteed
by any other agency or instrumentality of the United States, in either
case entered into with a federal agency or a depository institution or
trust company (acting as principal) described in clause (iii) above,
provided that the party agreeing to repurchase such obligations shall
have the highest available short-term debt rating from the Required
Rating Agencies then providing such a rating; and
(v) freely redeemable shares in money market funds (including
such funds for which the Trustee or an Affiliate of the Trustee serves
as an investment advisor, administrator, shareholder, servicing agent
and/or custodian or subcustodian) which invest solely in the types of
instruments and obligations described in clauses (i) through (iv)
above, so long as such funds are then rated in the highest available
rating category for money market funds by the Required Rating Agencies
then providing such a rating and notwithstanding that (i) the Trustee
or an Affiliate of the Trustee may charge and collect fees and expenses
from such funds for services rendered, (ii) the Trustee charges and
collects fees and expenses for services rendered pursuant to this
Agreement and (iii) services performed for such funds and pursuant to
this Agreement
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may converge at any time. Each of the Issuer and the Servicer hereby
specifically authorizes the Trustee or an Affiliate of the Trustee to
charge and collect all fees and expenses from such funds for services
rendered to such funds, in addition to any fees and expenses the
Trustee may charge and collect for services rendered pursuant to this
Agreement;
PROVIDED that each of the foregoing investments shall mature no later than the
Business Day prior to the Payment Date immediately following the date of
purchase thereof (other than in the case of the investment of monies in
instruments of which the entity at which the related Account is located is the
obligor, which may mature on the related Payment Date), and shall be required to
be held to such maturity; and provided further that each of the Permitted
Investments may be purchased by the Trustee through an Affiliate of the Trustee.
Notwithstanding anything to the contrary contained in this definition,
(a) no Permitted Investment may be purchased at a premium, (b) any of the
foregoing which constitutes a certificated security shall not be considered a
Permitted Investment unless it is registered in the name of the Trustee in its
capacity as such, and (c) any of the foregoing which constitutes an
uncertificated security shall not be considered a Permitted Investment unless
(i) it is registered in the name of the Trustee in its capacity as such or in
the name of its Financial Intermediary, (ii) no notation of the right of the
issuer thereof to a Lien thereon is contained in the initial transaction
statement therefor sent to the Trustee, (iii) a Responsible Officer of the
Trustee does not have notice or actual knowledge of (A) any restriction on the
transfer thereof imposed by the issuer thereof, or (B) any adverse claims, and
in each such case no notation of any such restriction or of any specific adverse
claim as to which the Issuer has a duty under the law of the state in which the
Corporate Trust Office is located at the time of registration is contained in
the initial transaction statement therefor sent to the Trustee; and (iv) to the
actual knowledge of a Responsible Officer of the Trustee, no creditor has served
legal process upon the issuer thereof at its chief executive office in the
United States which legal process attempts to place a Lien thereon prior to the
registration thereof in the name of the Trustee.
"Person" means any legal person, including any individual, corporation,
partnership, limited liability company, joint venture, association, joint stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Placement Agent" means Rothschild Inc.
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"Proprietary Information" shall have the meaning specified in Section
9.19.
"Purchaser" means Creditrust SPV99-1, LLC, in its capacity as
transferee or permitted assignee of the Receivables transferred, sold and
assigned under the Receivables Contribution Agreement.
"Purchase Agreement" means the Purchase Agreement signed by the
Noteholders.
"Qualified Institutional Buyer" have the meaning assigned to such term
in Rule 144A under the Securities Act.
"Rating Agency" means Standard & Poor's Rating Services, a division of
McGraw-Hill Companies, Inc., and any successor thereto.
"Receivable" means any receivable in connection with a Consumer Account
identified in the Schedule of Receivables.
"Receivable File" means the documents described in Section 2.02
pertaining to a particular Receivable.
"Receivables Contribution Agreement" means, the Receivables
Contribution Agreement, dated as of the Closing Date, between the Seller and the
Purchaser.
"Record Date" means, with respect to each Payment Date, the last
Business Day of the calendar month immediately preceding the month in which such
Payment Date occurs. Any amount stated "as of a Record Date" or "on a Record
Date" shall give effect to all applications of collections, and all payments to
any party under this Agreement or to the related Obligor, as the case may be, in
each case as determined as of the opening of business of the Note Registrar on
the related Record Date.
"Redemption Amount" means, with respect to a redemption of the Notes by
the Issuer pursuant to Section 10.01, an amount equal to the sum of (i) the Note
Balance as of the date the Issuer elects to redeem the Notes, (ii) all accrued
and unpaid interest on the Notes through the end of the Collection Period
immediately preceding the Payment Date as of which such redemption will occur,
and (iii) any other amounts owed to the Noteholders hereunder or under the
Purchase Agreement.
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"Release Payment" means, with respect to any Removed Receivable in
respect of which a payment is made by the Issuer or the Servicer under this
Agreement and as of the Remittance Date on which the "Release Payment" must be
made, the excess, if any, of (i) the product of the Original Note Balance and a
fraction, the numerator of which is the Charged-Off Balance of such Receivable
and the denominator of which is the Charged-Off Balance of all the Receivables
over (ii) the product of the aggregate amount of all Net Proceeds collected,
received or otherwise recovered on and after the Closing Date with respect to
such Removed Receivable, and a factor equal to .80 in each case determined as of
such Remittance Date.
"Remittance Date" means, with respect to any Payment Date, the third
Business Day next preceding such Payment Date.
"Removed Receivable" means a Receivable which the Servicer is obligated
to acquire pursuant to Section 3.04, or which the Issuer is obligated to make a
payment in respect of pursuant to Section 2.05 or 6.02, or in the event the
Issuer has elected to make a redemption pursuant to Section 10.01, all of the
Receivables.
"Required Rating Agencies" means with respect to any debtor or
indebtedness, the Rating Agency and one other Nationally Recognized Statistical
Rating Agency; PROVIDED that none of the other such Nationally Recognized
Statistical Rating Agencies has given a lower rating to the relevant debtor or
indebtedness than the Rating Agency and such other Nationally Recognized
Statistical Rating Agency (in which case, for the avoidance of doubt, such other
Nationally Recognized Statistical Rating Agency giving the lower rating shall be
one of the "Required Rating Agencies").
"Required Reserve Amount" means the amount required to be deposited in
the Reserve Account on the Closing Date and thereafter maintained in the Reserve
Account for so long as the Notes are outstanding. The amount is $2,400,000.
"Reserve Account" means the segregated account or accounts, each of
which shall be an Eligible Account, established and maintained pursuant to
Section 4.01 and entitled "Norwest Bank Minnesota, National Association, as
Trustee for Creditrust Receivables-Backed Notes, Series 1999-1, Reserve
Account."
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"Reserve Fund Reimbursement Amount" means, with respect to any Payment
Date, the excess of the Required Reserve Amount over the amount then on deposit
in the Reserve Account.
"Responsible Officer" means,
(i) when used with respect to the Trustee, any officer within
the Corporate Trust Office of the Trustee, including any vice
president, assistant vice president, assistant treasurer, assistant
secretary or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated
officers and also, with respect to a particular matter, any other
officer to whom such matter is referred because of such officer's
knowledge of and familiarity with such particular subject, and
(ii) when used with respect to the Issuer or the Servicer, the
president, the chief financial officer, the chief legal officer, the
chief recovery officer or the chief acquisitions officer of the Issuer
or the Servicer, as the case may be.
"Sale" shall have the meaning specified in Section 8.24.
"Schedule of Receivables" means the CD-ROM containing a true and
complete list of all of the Receivables, delivered to the Trustee and
incorporated by reference herein as Schedule A.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Account Control Agreement" means an agreement among Issuer,
Trustee and Norwest Bank Minnesota, National Association as securities
intermediary, dated as of the Closing Date, relating to an Account.
"Seller" means Creditrust Corporation, in its capacity as transferor of
the Receivables transferred, sold and assigned under the Receivables
Contribution Agreement.
"Servicer" means Creditrust Corporation, in its capacity as servicer of
the Receivables pursuant to this Agreement, and each successor thereto (in the
same capacity) appointed pursuant to Section 8.03.
"Servicer Default" shall have the meaning specified in Section 8.01.
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"Servicer's Remittance Date Certificate" means an Officer's Certificate
of the Servicer completed and executed pursuant to Section 3.06(b) and delivered
to the Trustee, in each case specifying Removed Receivables in respect of which
the making of a Release Payment is required hereunder, prepared by the Servicer
as of the opening of business of the Trustee on each applicable Remittance Date.
"Servicing Fee" means the fee payable to the initial Servicer on each
Payment Date, calculated pursuant to Section 3.05, for services rendered during
the related Collection Period, which shall be, for any Payment Date, equal to
twenty percent (20%) of all Net Proceeds collected, received or otherwise
recovered from or for the account of the Obligors during such Collection Period.
The term "Servicing Fee" for a Successor Servicer shall mean the fee payable to
a Successor Servicer for servicing pursuant to Section 8.03.
"Subservicers" shall have the meaning specified in Section 8.07.
"Successor Servicer" means any entity appointed as a successor to the
Servicer pursuant to Section 8.03.
"Third-Party Fees" means, with respect to a Receivable and any
Collection Period, the amount of any fees or compensation paid or owed to
unrelated third-parties (generally, contingency fee lawyers) retained or
otherwise engaged by the Servicer under fee or compensation arrangements that
are contingent upon, and determined by reference to, amounts recovered in
respect of the related Receivable, and which must be commercially reasonable.
"Transaction Documents" means, collectively, this Agreement, the
Receivables Contribution Agreement, the Assignment Agreement, the Notes, the
Purchase Agreement, Securities Account Control Agreements, and each of the other
documents, instruments and agreements entered into in connection with any of the
foregoing or the transactions contemplated thereby.
"Transferee Certificate" means a certificate in the form of Exhibit D-2
or D-3.
"Transition Fees" shall have the meaning specified in Section 8.02.
"Trust Estate" or "Creditrust Receivables-Backed Notes, Series 1999-1
Trust Estate" means the trust estate established under this Agreement for the
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benefit of the Noteholders, which consists of the property described in Section
2.01(b).
"Trust Property" means the property, or interests in property,
constituting the Trust Estate from time to time.
"Trustee" means Norwest Bank Minnesota, National Association, and any
successor trustee appointed pursuant to Section 9.11.
"Trustee Fee" means the fee payable to the Trustee on each Payment Date
for services rendered under this Agreement, which shall be equal to the greater
of (i) the product of .05% per annum and the Note Balance as of the immediately
preceding Payment Date (after giving effect to payments in reduction of the Note
Balance made on such immediately preceding Payment Date, if any) and (ii) $500
per month, PROVIDED, HOWEVER, that with respect to the initial Payment Date, the
Trustee Fee shall be prorated based upon a fraction, the numerator of which is
the number of days from and including the Closing Date through September 30,
1999, and the denominator of which is 30.
"Trustee's Certificate" means a certificate completed and executed by a
Responsible Officer of the Trustee pursuant to Section 9.02 or 9.03,
substantially in the form attached hereto as Exhibit B.
"UCC" means the Uniform Commercial Code as in effect in the State of
Maryland.
"United States" means the United States of America.
"Vice President" of any Person means any vice president of such Person,
whether or not designated by a number or words before or after the title "Vice
President," who is a duly elected officer of such Person.
"Voting Interests" means the aggregate voting power evidenced by the
Notes, corresponding to the outstanding Note Balance of the Notes held by
individual Noteholders; PROVIDED, HOWEVER, that where the Voting Interests are
relevant in determining whether the vote of the requisite percentage of
Noteholders necessary to effect any consent, waiver, request or demand shall
have been obtained, the Voting Interests shall be deemed to be reduced by the
amount equal to the Voting Interests (without giving effect to this provision)
represented by the interests evidenced by any Note registered in the name of, or
in the name of a Person or entity holding for the benefit of, the Issuer, the
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Servicer or any Person actually known to a Responsible Officer of the Trustee to
be an Affiliate of either or both of the Issuer and the Servicer.
"Year 2000 Compliant" shall have the meaning set forth in section
7.01(i).
SECTION 1.02 INTERPRETATION.
Unless otherwise indicated in this Agreement:
(a) reference to and the definition of any document (including this
Agreement) shall be deemed a reference to such document as it may be amended or
modified from time to time;
(b) all references to an "Article," "Section," "Schedule" or "Exhibit"
are to an Article or Section hereof or to a Schedule or an Exhibit attached
hereto;
(c) defined terms in the singular shall include the plural and vice
versa, and the masculine, feminine or neuter gender shall include all genders;
(d) the words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement;
(e) in the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including" and the words
"to" and "until" each means "to but excluding";
(f) periods of days referred to in this Agreement shall be counted in
calendar days unless Business Days are expressly prescribed and references in
this Agreement to months and years shall be to calendar months and calendar
years unless otherwise specified;
(g) accounting terms not otherwise defined herein and accounting terms
partly defined herein to the extent not defined, shall have the respective
meanings given to them under GAAP; and
(h) the headings in this Agreement are for the purpose of reference
only and do not limit or affect its meaning.
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ARTICLE II
CREATION OF TRUST ESTATE; CUSTODY OF RECEIVABLE FILES
SECTION 2.01 CREATION OF TRUST ESTATE.
(a) Upon the execution of this Agreement by the parties hereto, there
is hereby created for the benefit of the Noteholders the Creditrust
Receivables-Backed Notes, Series 1999-1 Trust Estate. The Issuer, pursuant to
the mutually agreed upon terms contained in this Agreement, shall grant a
security interest to the Trustee on behalf of the Noteholders in all of its
right, title and interest in and to the Trust Estate, including, without
limitation, the Receivables and any proceeds related thereto, and such other
items as shall be specified in this Agreement.
(b) In consideration of the Trustee's delivery to the Issuer of
authenticated Notes, in authorized denominations, in an aggregate amount equal
to the Original Note Balance, the Issuer does hereby grant a security interest
to the Trustee, in trust for the benefit of the Noteholders, in the following
property and rights in property, whether now owned or existing or hereafter
acquired or arising, whether tangible or intangible, and wheresoever located:
(i) all right, title and interest of the Issuer in and to the
Receivables and all monies due thereon or paid thereunder or in respect thereof
(including any fees and charges paid by the Obligors) on and after the Closing
Date (including any Release Payments made with respect to Removed Receivables
for which payment is made by the Issuer pursuant to Section 2.05 or 6.02 or
Removed Receivables acquired by the Servicer pursuant to Section 3.04), net of
any Third-Party Fees;
(ii) the rights of the Issuer as Purchaser under the
Receivables Contribution Agreement to enforce the obligations of the Seller
thereunder;
(iii) the Collection Account, the Note Payment Account and the
Reserve Account, and all monies, "securities," "instruments," "accounts,"
"general intangibles," "chattel paper," "financial assets," "investment
property" (the terms in quotations are defined in the UCC) and other property on
deposit or credited to the Collection Account, the Note Payment Account, and the
Reserve Account from time to time (whether or not constituting or derived from
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payments, collections or recoveries received, made or realized in respect of the
Receivables);
(iv) all right, title and interest of the Purchaser related to
the Receivables in, to and under each Asset Sale Agreement, and all related
documents, instruments and agreements pursuant to which the Seller acquired, or
acquired an interest in, any of the Receivables from an Originating Institution;
(v) all right, title and interest of the Issuer in all books,
records and documents relating to the Receivables in any medium, including
without limitation paper, tapes, disks and other electronic media;
(vi) all other monies, securities, reserves and other property
now or at any time in the possession of the Trustee or its bailee, agent or
custodian and relating to any of the foregoing; and
(vii) all proceeds, products, rents and profits of any of the
foregoing and all other amounts payable in respect of the foregoing, including,
without limitation, proceeds of insurance policies insuring any of the foregoing
or any indemnity or warranty payable by reason of loss or damage to or otherwise
in respect of any of the foregoing.
(c) The parties hereto intend that the security interest granted under
this Agreement shall give the Trustee on behalf of the Noteholders a first
priority perfected security interest in, to and under the Receivables, and all
other property described in this Section 2.01 as a part of the Trust Estate and
all proceeds of any of the foregoing in order to secure the obligations of the
Issuer to the Trustee and the Noteholders, under the Notes, this Agreement, the
Purchase Agreement, and all other Transaction Documents. The Trustee on behalf
of the Noteholders shall have all the rights, powers and privileges of a secured
party under the UCC. The Issuer agrees to execute and file all filings
(including filings under the UCC) and take all other actions reasonably
necessary in any jurisdiction to provide third parties with notice of the
security interest granted pursuant to this Agreement and to perfect such
security interest under the UCC.
(d) The Issuer shall ensure that, from and after the time of the grant
of the security interest in the Trust Estate, the master computer records
(including any back-up archives) maintained by or on behalf of the Issuer that
refer to any Receivable indicate clearly the interest of the Trustee in such
Receivable and that the Receivable is subject to a security interest in favor of
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the Trustee. Indication of the interest of the Trustee in a Receivable shall be
deleted from or modified on such computer records when, and only when, the
Receivable has been paid in full or has been acquired, assigned or released
pursuant to this Agreement.
SECTION 2.02 CUSTODY OF RECEIVABLE FILES.
In order to assure uniform quality in servicing the Receivables and to
reduce administrative costs, the Trustee on behalf of the Noteholders, upon the
execution and delivery of this Agreement, revocably appoints the Servicer, and
the Servicer accepts such appointment, to act as the agent of the Trustee as
custodian of the following documents relating to each Receivable:
(i) the related Asset Sale Agreement;
(ii) any other documents received from or made available by
the related Originating Institution in respect of such Receivable;
(iii) a copy of the marked computer records indicating the
interest of the Trustee on behalf of the Noteholders, as evidenced by the
Schedule of Receivables; and
(iv) any and all other documents that the Issuer or the
Servicer, as the case may be, shall keep on file, in accordance with its
customary procedures, relating to such Receivable or the related Obligor.
SECTION 2.03 ACCEPTANCE BY TRUSTEE.
The Trustee hereby acknowledges its acceptance, on behalf of the
Noteholders, pursuant to this Agreement, of the security interest in and to the
Receivables and the other Trust Property granted by the Issuer pursuant to this
Agreement, and declares and shall declare from and after the date hereof that
the Trustee on behalf of the Noteholders holds and shall hold such security
interest, pursuant to the terms set forth in this Agreement.
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SECTION 2.04 REPRESENTATIONS AND WARRANTIES OF ISSUER AS TO THE
RECEIVABLES.
The Issuer does hereby make the following representations and
warranties as of the Closing Date on which (i) the Trustee is relying in
accepting a grant of a security interest in the Receivables and the other Trust
Property and authenticating the Notes; (ii) the Noteholders are relying in
purchasing the Notes; and (iii) the Rating Agency is relying in providing its
rating of the Notes:
(a) Characteristics of Receivables. Each Receivable is payable in
United States dollars, has been purchased by Creditrust Corporation from the
related Originating Institution under an Asset Sale Agreement with such
Originating Institution in accordance with the Customary Procedures of
Creditrust Corporation, and has been subsequently transferred, assigned and
conveyed by Creditrust Corporation, or a wholly-owned subsidiary of Creditrust
Corporation, to the Issuer.
(b) Schedule of Receivables. The information set forth in the Schedule
of Receivables is true and correct in all material respects as of the close of
business on the Cut-Off Date, and the Issuer owned no other Receivables as of
the Cut-Off Date.
(c) No Government Obligors. None of the Receivables are due from the
United States or any state or local government, or from any agency, department
or instrumentality of the United States or any state or local government.
(d) Employee Obligors. None of the Receivables are due from any
employee of the Seller, the Issuer or any of their respective Affiliates.
(e) Good Title. No Receivable has been transferred, assigned, conveyed
or pledged by the Issuer to any Person other than the Trustee. The Issuer has
good and marketable title to each Receivable, free and clear of all Liens and
rights of others; the Trustee on behalf of the Noteholders has a first priority
perfected security interest in each Receivable, free and clear of all Liens and
rights of others; and such security interest has been perfected under the UCC
and any other applicable law.
(f) No Impairment of Rights. As of the Closing Date, the Issuer has not
taken any action that, or failed to take any action the omission of which, would
impair the rights of the Trustee or the Noteholders with respect to any
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Receivable; PROVIDED, HOWEVER, that the writing down of any Receivable balance
in accordance with Customary Procedures shall not be deemed an impairment of the
rights of any of the Trustee or the Noteholders.
(g) No Fraudulent Use. As of the Closing Date, no Receivable has been
identified by the Issuer or reported to the Issuer by the related Originating
Institution as having resulted from fraud perpetrated by any Person with respect
to the related account.
(h) All Filings Made. All filings (including UCC filings) necessary in
any jurisdiction to provide third parties with notice of the security interest
granted herein, and to give the Trustee on behalf of the Noteholders a first
priority perfected security interest in the Trust Estate, including the
Receivables, shall have been made.
(i) UCC Status. No Receivable is secured by "real property" or
"fixtures" or evidenced by an "instrument" under and as defined in the UCC. Each
Receivable is either an "account" or a "general intangible" as defined in the
UCC.
(j) Location of Receivable Files. As of the Closing Date each
Receivable File is kept by the Servicer at its offices at 7000 Security Blvd.,
Baltimore, MD 21244.
SECTION 2.05 REPAYMENT FOR RECEIVABLES UPON BREACH.
Upon discovery by the Issuer or the Servicer or upon the actual
knowledge of a Responsible Officer of the Trustee of a breach of any of the
representations and warranties of the Issuer set forth in Section 2.04, the
party discovering such breach shall give prompt written notice to the others.
If, as a result of such breach, any Receivable is rendered uncollectible or the
Trustee's rights in, to or under such Receivable or the proceeds thereof are
impaired or such proceeds are not available for any reason to the Trustee free
and clear of any Lien, the Issuer shall pay an amount equal to the Release
Payment related to such Receivable and, if necessary, the Issuer shall enforce
the obligation of the Seller under the Receivables Contribution Agreement to
reacquire such Receivable from the Issuer, unless such breach (and any resulting
uncollectibility, impairment of rights or availability of proceeds) shall have
been cured within 30 days after the earlier to occur of the discovery of such
breach by the Issuer or receipt of written notice of such breach by the Issuer,
such that the relevant representation and warranty shall be true and correct in
all
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material respects as if made on such day, and the Issuer shall have delivered to
the Trustee and each Noteholder an Officer's Certificate describing the nature
of such breach and the manner in which the relevant representation and warranty
became true and correct. This repayment obligation shall pertain to all
representations and warranties of the Issuer contained in Section 2.04, whether
or not the Issuer has knowledge of the breach at the time of the breach or at
the time the representations and warranties were made. The Issuer will be
obligated to make the repayment related to the Receivable as set forth above on
the Remittance Date following the date on which such repayment obligation
arises. In consideration of the release of any such Receivable, on the
Remittance Date immediately following the date on which such repayment
obligation arises, the Issuer shall remit the Release Payment of such Receivable
to the Collection Account in the manner specified in Section 4.03.
Upon any such repayment, the Trustee on behalf of the Noteholders
shall, without further action, be deemed to release its security interest in, to
and under the Removed Receivable so released, all monies due or to become due
with respect thereto after the aforementioned Remittance Date and all proceeds
thereof. The Trustee shall execute such documents and instruments of release and
take such other actions as shall be reasonably requested by the Issuer to effect
the security interest release pursuant to this Section. The sole remedies of the
Trustee and the Noteholders with respect to a breach of the Issuer's
representations and warranties pursuant to Section 2.04 shall be to require the
Issuer to make repayment for the related Receivable pursuant to this Section and
to enforce the Issuer's obligation hereunder to enforce the obligation of the
Seller under the Receivables Contribution Agreement to reacquire such Receivable
from the Issuer. The Trustee shall have no duty to conduct any affirmative
investigation as to the occurrence of any condition requiring the repayment for
any Receivable pursuant to this Section, except as otherwise provided in Section
9.02.
SECTION 2.06 DUTIES OF SERVICER AS CUSTODIAN.
(a) Safekeeping. The Servicer, in its capacity as custodian, shall hold
the Receivable Files in its possession from time to time on behalf of the
Trustee for the use and benefit of all present and future Noteholders, and
maintain such accurate and complete accounts, records and computer systems
pertaining to each Receivable File as shall enable the Trustee to comply with
this Agreement. In performing its duties as custodian, the Servicer shall act
with reasonable care, using that degree of skill and attention that it exercises
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with respect to the receivable files of comparable defaulted receivables that
the Servicer services for itself or others. The Servicer shall conduct, or cause
to be conducted, periodic examinations of the files of receivables owned or
serviced by it, which shall include the Receivable Files held by it under this
Agreement, and of the related accounts, records and computer systems, in such a
manner as shall enable the Trustee to verify the accuracy of the Servicer's
record keeping; PROVIDED, HOWEVER, that the Trustee shall be under no obligation
to verify the accuracy of the Servicer's record-keeping unless requested to do
so in writing by the Noteholders with Voting Interest in excess of 25% or the
Rating Agency. Any such written request shall specify in detail the procedures
to be employed by the Trustee. The Servicer shall promptly report to the Trustee
any failure on its part to hold the Receivable Files and maintain its accounts,
records and computer systems as herein provided and promptly take appropriate
action to remedy any such failure.
(b) Maintenance of and Access to Records. The Servicer shall maintain
each Receivable File at its offices at 7000 Security Blvd., Baltimore, MD 21244,
or at such other office as shall be specified to the Trustee by 30 days' prior
written notice, PROVIDED THAT the Servicer shall have taken all actions
necessary or reasonably requested by the Trustee to amend any existing financing
statements and continuation statements, and file additional financing statements
and take any other steps reasonably requested by the Trustee to further perfect
or evidence the rights, claims or security interests of the Trustee under any of
the Transaction Documents. The Servicer shall make available to the Trustee and
the Noteholders or their duly authorized representatives, attorneys or auditors
the Receivable Files and the accounts, records and computer systems maintained
by the Servicer with respect thereto, and will make available for discussion
about the Receivables, Responsible Officers of the Servicer having knowledge of
such matters, upon not less than two Business Days' prior written notice for
examination during normal business hours.
(c) Release of Documents. Upon written instruction from the Trustee,
the Servicer shall release any document in the Receivable Files to the Trustee
or its agent or designee, as the case may be, at such place or places as the
Trustee may designate, as soon as practicable. Nothing in this Section shall
impair the obligation of the Servicer to observe any applicable law prohibiting
disclosure of information regarding the Obligors, which obligation shall be
evidenced by an Opinion of Counsel to such effect, and the failure of the
Servicer to provide access as provided in this Section as a result of such
obligation shall not constitute a breach of this Section. The Servicer shall not
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be responsible for any loss occasioned by the failure of the Trustee to return
any document or any delay in doing so.
SECTION 2.07 INSTRUCTIONS; AUTHORITY TO ACT.
The Servicer shall be deemed to have received proper instructions with
respect to the Receivable Files upon its receipt of written instructions signed
by a Responsible Officer of the Trustee. A certified copy of a bylaw or of a
resolution of the board of directors of the Trustee shall constitute conclusive
evidence of the authority of any such Responsible Officer to act and shall be
considered in full force and effect until receipt by the Servicer of written
notice to the contrary given by the Trustee.
SECTION 2.08 INDEMNIFICATION BY CUSTODIAN.
The Servicer, as custodian of the Receivable Files, shall indemnify the
Trustee and the Noteholders for any and all liabilities, obligations, losses,
compensatory damages, payments, costs or expenses of any kind whatsoever
(including reasonable attorney's fees and expenses incurred in connection with
defending against any such claim) that may be imposed on, incurred or asserted
against the Trustee as the result of any improper act or omission in any way
relating to the maintenance and custody of the Receivable Files by the Servicer,
as custodian; PROVIDED, HOWEVER, that the Servicer shall not be liable for any
portion of any such amount resulting from the willful misfeasance, bad faith or
negligence of the Trustee.
SECTION 2.09 EFFECTIVE PERIOD AND TERMINATION.
The Servicer's appointment as custodian of the Receivable Files shall
become effective as of the Closing Date and shall continue in full force and
effect so long as it is the Servicer under this Agreement. If the Servicer shall
resign as Servicer pursuant to Section 7.05 or if all of the rights and
obligations of the Servicer have been terminated pursuant to Section 8.02, the
appointment of the Servicer as custodian of the Receivable Files shall
immediately terminate. As soon as practicable after any termination of such
appointment, the Servicer shall deliver the Receivable Files to the Trustee or
its agent at such place or places as the Trustee may reasonably designate.
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SECTION 2.10 AGENT FOR SERVICE.
The agent for service for the Issuer shall be its President whose
address is 7000 Security Boulevard, Baltimore, Maryland 21244, and the agent for
service for the Servicer shall be its Chairman and Chief Executive Officer,
whose address is 7000 Security Boulevard, Baltimore, Maryland 21244.
SECTION 2.11 SATISFACTION AND DISCHARGE OF INDENTURE.
Whenever the following conditions shall have been satisfied:
(a) an amount sufficient to pay and discharge the outstanding Note
Balance, plus accrued and unpaid interest on the Notes, has been paid to the
Noteholders;
(b) the Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer; and
(c) the Issuer has delivered to the Trustee an Officers' Certificate of
the Issuer and an Opinion of Counsel from outside counsel to the Issuer each
stating that all conditions precedent herein provided for the satisfaction and
discharge of this Agreement with respect to the Notes have been complied with;
then this Agreement and the lien, rights and interests created hereby shall
cease to be of further effect with respect to the Notes, and the Trustee shall,
at the expense of the Issuer, (i) execute and deliver all such instruments as
may be necessary to acknowledge the satisfaction and discharge of this Agreement
with respect to the Notes and (ii) pay, or assign or transfer and deliver, to
the Issuer, all cash, securities and other property held by it as part of the
Trust Estate or other assets remaining after satisfaction of the conditions
specified in clauses (a) and (b) above.
Notwithstanding the satisfaction and discharge of this Agreement with
respect to the Notes, the obligations of the Issuer to the Trustee under Section
9.07, the obligations of the Trustee to the Issuer, the Servicer and the
Noteholders under Section 4.04, the obligations of the Trustee to the
Noteholders under Section 4.07, and the rights, privileges and immunities of the
Trustee under Article IX, shall survive.
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ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES
SECTION 3.01 DUTIES OF SERVICER.
The Servicer, as agent for the Trustee, shall manage, service,
administer and make collections on and in respect of the Receivables with
reasonable care, using that degree of skill and attention that the Servicer
exercises with respect to all comparable defaulted consumer receivables that it
services for itself or others (whether or not the Servicer shall then be
servicing comparable defaulted consumer receivables for itself or others). The
Servicer's duties shall include collecting and posting all payments, responding
to inquiries of Obligors or by federal, state or local government authorities
with respect to the Receivables, investigating delinquencies, implementation of
payment plans, sending payment information to Obligors, reporting tax
information to Obligors in accordance with its customary practices, accounting
for collections, publishing monthly and annual statements to the Trustee with
respect to payments, generating federal income tax information and performing
the other duties specified herein. In performing the above-referenced services,
the Servicer shall perform in accordance with Customary Procedures and shall
have full power and authority, acting alone, to do any and all things in
connection with such managing, servicing, administration and collection that it
may deem necessary or desirable.
Without limiting the generality of the foregoing, the Servicer shall be
authorized and empowered by the Trustee to execute and deliver, on behalf of
itself, the Trustee, the Noteholders, or any of them, any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge and all
other comparable instruments, with respect to the Receivables. The Servicer is
hereby authorized to commence, in its own name or in the name of the Issuer or
the Trustee, a legal proceeding to enforce a Receivable or to commence or
participate in a legal proceeding (including without limitation a bankruptcy
proceeding) relating to or involving a Receivable. If the Servicer commences or
participates in such a legal proceeding in its own name, the Trustee and the
Issuer shall thereupon be deemed to have automatically assigned, solely for the
purpose of collection on behalf of the party retaining an interest in such
Receivable, such Receivable and the other property conveyed as part of the Trust
Estate pursuant to Section 2.01 with respect to such Receivable to the Servicer
for purposes of commencing or participating in any such proceeding as a party or
claimant, and the Servicer is authorized and empowered by the
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Trustee and the Issuer to execute and deliver in the Servicer's name any
notices, demands, claims, complaints, responses, affidavits or other documents
or instruments in connection with any such proceeding. If in any enforcement
suit or legal proceeding it shall be held that the Servicer may not enforce a
Receivable on the grounds that it shall not be a real party in interest or a
holder entitled to enforce such Receivable, the Trustee on behalf of the
Noteholders shall, at the Servicer's expense and written direction, take
reasonable steps to enforce such Receivable. The Servicer shall deposit or cause
to be deposited into the Collection Account, within one Business Day of its
receipt thereof, all Net Proceeds realized in connection with any such action
pursuant to Section 4.02. The Trustee and the Issuer shall furnish the Servicer
with any powers of attorney and other documents and take any other steps which
the Servicer may deem reasonably necessary or appropriate to enable the Servicer
to carry out its servicing and administrative duties under this Agreement.
SECTION 3.02 COLLECTION OF RECEIVABLE PAYMENTS.
The Servicer shall make reasonable efforts to collect all payments due
and payable in connection with the Receivables, and shall at all times follow
the Customary Procedures in so doing. The Servicer shall be authorized to write
down the balance of any Receivable in accordance with the Customary Procedures
without the prior consent of the Trustee; PROVIDED HOWEVER, that such write-down
will not affect the rights of the Noteholders to any amounts thereafter
collected with respect to such Receivable. The Servicer may, in accordance with
the Customary Procedures, waive any charges or fees that otherwise may be
collected in the ordinary course of servicing the Receivables.
SECTION 3.03 COVENANTS OF SERVICER.
The Servicer hereby makes the following covenants with respect to each
Receivable on which the Trustee is relying in accepting the Receivables in trust
and authenticating the Notes and on which the Noteholders are relying in
purchasing the Notes:
(a) Fulfillment of Obligations. The Servicer shall duly fulfill all
obligations on its part to be fulfilled under or in connection with the
Receivables pursuant to this Agreement, shall perform such obligations in
accordance with the Customary Procedures, and shall maintain in effect all
licenses and qualifications required in order to service the Receivables and
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shall comply in all respects with all other requirements of law in connection
with servicing the Receivables, the failure to comply with which would have a
material adverse effect on the rights or interests of the Noteholders.
(b) No Rescission or Cancellation. The Servicer shall not permit any
rescission or cancellation of the Receivables except as ordered by a court of
competent jurisdiction or other governmental authority; PROVIDED, HOWEVER, that
the writing down of a Receivables balance in accordance with Customary
Procedures shall not be deemed a rescission or cancellation of such Receivables.
(c) No Impairment. The Servicer shall do nothing to impair the rights
of the Trustee, the Trust Estate or the Noteholders with respect to the
Receivables; PROVIDED, HOWEVER, that the writing down of a Receivable balance in
accordance with Customary Procedures shall not be deemed an impairment of the
rights of the Trustee or the Noteholders. The Servicer shall not engage in any
pattern of conduct under which it intentionally elects (i) to write down a
Receivable balance from an Obligor rather than writing down a Consumer Account
due from the same Obligor which is not a part of the Receivables, or (ii) to
apply a payment received from an Obligor to a Consumer Account which is not a
Receivable rather than to a Receivable (unless expressly instructed to do so by
an Obligor) if the Servicer has actual knowledge that such write-downs or
payment applications discriminate against the Noteholders, or with knowledge
that the effect of such intentional election is to discriminate against the
Noteholders.
(d) No Instruments. Except in connection with its enforcement or
collection of the Receivables, the Servicer shall take no action to cause any
Receivables to be evidenced by any instruments (as defined in the UCC), and if
any Receivable is so evidenced (whether or not in connection with such
enforcement or collection), it shall be assigned to the Servicer as provided in
Section 3.04.
SECTION 3.04 REPAYMENT IN RESPECT OF RECEIVABLES UPON BREACH AND OTHER
EVENTS.
Upon discovery by the Issuer or the Servicer or upon the actual
knowledge of a Responsible Officer of the Trustee of a breach of any of the
covenants of the Servicer set forth in Section 3.03 that materially and
adversely affects the rights or interests of the Noteholders, the party
discovering such breach shall give prompt written notice to the others. If, as a
result of such
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breach, any Receivables are rendered uncollectible or the Trustee's rights in,
to or under such Receivables or the proceeds thereof are impaired or such
proceeds are not available for any reason to the Trustee free and clear of any
Lien, the Servicer shall acquire from the Issuer such Receivables, unless such
breach shall have been cured within 30 days after the earlier to occur of the
discovery of such breach by the Servicer or receipt of written notice of such
breach by the Servicer, such that the Servicer shall be in compliance with the
relevant covenant in all material respects and the material adverse effect shall
be cured, and the Servicer shall have delivered to the Trustee a certificate of
a Responsible Officer of the Servicer describing the nature of such breach and
the manner in which the relevant covenant was complied with. The Servicer will
be obligated to accept the assignment of such Receivables as set forth above on
the Remittance Date following the date on which such assignment obligation
arises. In consideration of the acquisition of any such Receivables, on the
Remittance Date immediately following the date on which such acquisition
obligation arises, the Servicer shall remit the Release Payment of such
Receivables to the Collection Account in the manner specified in Section 4.03.
Upon any such acquisition, and the remitting of the Release Payment to the
Collection Account, the Trustee on behalf of the Noteholders shall, without
further action, be deemed to have released its security interest in, to and
under such Removed Receivables, all monies due or to become due with respect
thereto after the aforementioned Remittance Date and all proceeds thereof. The
Trustee shall execute such documents and take such other actions as shall be
reasonably requested by the Servicer to further evidence such release. The sole
remedy of the Trustee and the Noteholders with respect to a breach pursuant to
Section 3.03 shall be to require the Servicer to acquire the related Receivables
pursuant to this Section, except as otherwise provided in Section 7.02, 8.01 or
8.02. The Trustee shall have no duty to conduct any affirmative investigation as
to the occurrence of any condition requiring the acquisition of any Receivable
pursuant to this Section except as otherwise provided in Section 9.02.
SECTION 3.05 SERVICING FEE; PAYMENT OF CERTAIN EXPENSES BY SERVICER.
As compensation for the performance of its obligations hereunder, the
Servicer shall be entitled to receive on each Payment Date the Servicing Fee as
provided in Section 4.04. Except to the extent otherwise provided herein, the
Servicer shall be required to pay from its servicing compensation all expenses
incurred in connection with servicing the Receivables including, without
limitation, recovery and collection expenses related to the enforcement of the
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Receivables (other than those specified in the following proviso), payment of
the fees and disbursements of the Rating Agency and independent accountants and
all other fees and expenses that are not expressly stated in this Agreement to
be payable by the Trustee, the Noteholders or the Issuer; PROVIDED, HOWEVER,
that the Servicer shall not be liable for any liabilities, costs or expenses of
the Trustee or the Noteholders arising under any tax law, including without
limitation any federal, state or local income or franchise taxes or any other
tax imposed on or measured by income (or any interest or penalties with respect
thereto or arising from a failure to comply therewith), except as otherwise
expressly provided in this Agreement.
SECTION 3.06 MONTHLY SERVICER REPORT; SERVICER'S REMITTANCE DATE
CERTIFICATE.
(a) On or before 11:00 a.m. New York, New York time on each
Determination Date, the Servicer shall deliver to the Trustee a Monthly Servicer
Report executed by a Responsible Officer of the Servicer substantially in the
form attached hereto as Exhibit A (and setting forth such additional information
as requested by the Trustee, the Rating Agency or any Noteholder from time to
time, which information the Servicer is able to reasonably provide) containing
all information necessary to make the payments required by Section 4.04 in
respect of the Collection Period immediately preceding the date of such Monthly
Servicer Report and all information necessary for the Trustee to send statements
to Noteholders pursuant to Section 4.06(a).
(b) On or before 11:00 a.m. New York, New York time on each Remittance
Date on which the Issuer or the Servicer, as applicable, shall be obligated
hereunder to make a payment in respect of, or to acquire, a Removed Receivable,
the Servicer shall deliver to the Trustee a Servicer's Remittance Date
Certificate identifying each such Removed Receivable by reference to the related
Obligor's account number (as specified in the Schedule of Receivables), and the
amount of the Release Payment with respect thereto.
SECTION 3.07 ANNUAL STATEMENT AS TO COMPLIANCE.
(a) The Servicer shall deliver to the Trustee, on or before March 31 of
each calendar year, beginning in March 2000, an Officer's Certificate executed
by the chief financial officer of the Servicer, stating that (i) a review of the
activities of the Servicer during the preceding 12-month period ended December
31 (or, in the case of the first such statement, from the Closing Date
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through December 31, 1999) and of its performance under this Agreement has been
made under the supervision of the officer executing the Officer's Certificate,
and (ii) to such officer's knowledge, based on such review, the Servicer has
fulfilled all its obligations under this Agreement in all material respects
throughout such period or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officer and the
nature and status thereof.
(b) The Servicer shall deliver to the Noteholders and the Trustee,
promptly after having obtained knowledge thereof, but in no event later than
three Business Days thereafter, an Officer's Certificate specifying the nature
and status of any Servicer Default, or Event of Default, or other occurrence
which would have a material adverse effect on the right or interests of the
Noteholders.
SECTION 3.08 PERIODIC ACCOUNTANTS REPORT.
The Servicer, at its own expense, shall cause Grant Thornton LLP or
another firm of nationally recognized independent public accountants acceptable
to the Controlling Party (who may also render other services to the Servicer or
to the Issuer) to deliver to the Trustee a report of agreed upon procedures
substantially in the form attached hereto as Exhibit F with respect to the
Servicer's accounting for matters regarding the Trust Estate including cash
receipts, account posting and remittances to the Accounts during the preceding
reporting period. The first reporting period is from the Closing Date through
December 31, 1999, and thereafter the reporting period shall be every four (4)
months, commencing April 30, 2000. Each such report must be delivered within
forty-five (45) days after the end of each reporting period. Such report shall
also indicate that the firm of accountants is independent with respect to the
Issuer and the Servicer within the meaning of the Code of Professional Ethics of
the American Institute of Certified Public Accountants. In the event such
independent public accountants require the Trustee to agree to the procedures to
be performed by such firm in any of the reports required to be prepared pursuant
to this Section 3.08, the Servicer shall direct the Trustee in writing to so
agree; it being understood and agreed that the Trustee will deliver such letter
of agreement in conclusive reliance upon the direction of the Servicer, and the
Trustee has not made any independent inquiry or investigation as to, and shall
have no obligation or liability in respect of, the sufficiency, validity or
correctness of such procedures.
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SECTION 3.09 SERVICER'S COMPLIANCE REPORT.
The Servicer, at its own expense, shall cause Grant Thornton LLP or
another firm of nationally recognized independent public accountants (who may
also render other services to the Servicer or to the Issuer) to deliver to the
Trustee, within forty-five days after the end of each reporting period,
beginning with the period ending December 31, 1999, a report concerning the
activities of the Servicer during the preceding period to the effect that such
accountants have performed agreed-upon procedures substantially as set forth in
Exhibit F with respect to each of the Monthly Servicer Reports for the period
under review. Thereafter, the reporting period shall be every four (4) months.
The report should specify the procedures performed on such Monthly Servicer
Reports (which procedures should include recalculating all calculations
contained in such Monthly Servicer Reports and taking other pertinent
information from supporting schedules of the Servicer) and any exceptions, if
any, shall be set forth therein. Such report shall also indicate that the firm
of accountants is independent with respect to the Issuer and the Servicer within
the meaning of the Code of Professional Ethics of the American Institute of
Certified Public Accountants. In the event such independent public accountants
require the Trustee to agree to the procedures to be performed by such firm in
any of the reports required to be prepared pursuant to this Section 3.09, the
Servicer shall direct the Trustee in writing to so agree; it being understood
and agreed that the Trustee will deliver such letter of agreement in conclusive
reliance upon the direction of the Servicer, and the Trustee has not made any
independent inquiry or investigation as to, and shall have no obligation or
liability in respect of, the sufficiency, validity or correctness of such
procedures.
SECTION 3.10 ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION.
The Servicer shall provide the Trustee and the Noteholders with access
to the documentation relating to the Receivables as provided in Section 2.06(b).
In each case, access to documentation relating to the Receivables shall be
afforded without charge but only upon reasonable request and during normal
business hours at the offices of the Servicer. Nothing in this Section shall
impair the obligation of the Servicer to observe any applicable law prohibiting
disclosure of information regarding the Obligors, which obligation shall be
evidenced by an Opinion of Counsel to such effect, and the failure of the
Servicer to provide access as provided in this Section as a result of such
obligation shall not constitute a breach of this Section.
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SECTION 3.11 REPORTS TO NOTEHOLDERS, THE RATING AGENCY AND THE
PLACEMENT
AGENT.
The Trustee shall provide to each Noteholder, the Rating Agency and the
Placement Agent, a copy of each (i) Servicer's Remittance Date Certificate, (ii)
Monthly Servicer Report, (iii) Officer's Certificate of annual statement as to
compliance described in Section 3.07, (iv) an Officer's Certificate with respect
to Servicer Defaults and Events of Default, (v) accountants' report described in
Section 3.08, (vi) accountants' report described in Section 3.09, (vii)
statement to Noteholders pursuant to Section 4.06(a), and (viii) Trustee's
Certificate delivered pursuant to Section 9.02 or 9.03. The Trustee shall
provide to each Noteholder a copy of any notice, report or other document
provided by the Trustee to the Rating Agency.
SECTION 3.12 TAX TREATMENT.
Notwithstanding anything to the contrary set forth herein, the Issuer
has entered into this Agreement with the intention that for federal, state and
local income and franchise tax purposes (i) the Notes, which are characterized
as indebtedness at the time of their issuance, will qualify as indebtedness
secured by the Receivables and (ii) the Trust Estate shall not be treated as an
association or publicly traded partnership taxable as a corporation. The Issuer,
by entering into this Agreement, each Noteholder, by its acceptance of a Note
and each purchaser of a beneficial interest therein, by accepting such
beneficial interest, agree to treat such Notes as debt for federal, state and
local income and franchise tax purposes. The Trustee shall treat the Trust
Estate as a security device only, and shall not file tax returns or obtain an
employer identification number on behalf of the Trust Estate. The provisions of
this Agreement shall be construed in furtherance of the foregoing intended tax
treatment.
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ARTICLE IV
THE ACCOUNTS; PAYMENTS;
STATEMENTS TO NOTEHOLDERS
SECTION 4.01 ACCOUNTS.
The Trustee shall establish and maintain, or cause to be established
and maintained, the Collection Account, the Reserve Account and the Note Payment
Account, each of which shall be an Eligible Account, for the benefit of the
Noteholders. All amounts held in the Collection Account, the Reserve Account or
the Note Payment Account shall, to the extent permitted by this Agreement and
applicable laws, rules and regulations, be invested in Permitted Investments by
the depository institution or trust company then maintaining such Account only
upon written direction of the Issuer, PROVIDED, HOWEVER, in the event the Issuer
fails to provide such written direction to the Trustee, and until the Issuer
provides such written direction, the Trustee shall invest in Permitted
Investments satisfying the requirements of clause (v) of the definition thereof.
Investments held in Permitted Investments in the Accounts shall not be sold or
disposed of prior to their maturity except as otherwise provided herein.
Earnings on investment of funds in the Collection Account and Reserve Account
shall remain in such Accounts for disposition in accordance with this Agreement.
Earnings on investment of funds in the Note Payment Account shall be remitted by
the Trustee to the Collection Account promptly upon receipt thereof in the Note
Payment Account. Any losses and investment expenses relating to any investment
of funds in any of the Accounts shall be for the account of the Issuer, which
shall deposit or cause to be deposited the amount of such loss (to the extent
not offset by income from other investments of funds in the related Account) in
the related Account immediately upon the realization of such loss. The taxpayer
identification number associated with each of the Accounts shall be that of the
Issuer and the Issuer will report for federal, state and local income tax
purposes the income, if any, earned on funds in the relevant Account. The Issuer
hereby acknowledges that all amounts on deposit in each Account (including
investment earnings thereon) are held in trust by the Trustee for the benefit of
the Noteholders, subject to any express rights of the Issuer set forth herein,
and shall remain at all times during the term of this Agreement under the sole
dominion and control of the Trustee. Payments from the Collection Account shall
be made only on the Business Day prior to the Payment Date and only to the Note
Payment Account.
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SECTION 4.02 COLLECTIONS.
Each of the Servicer and the Issuer shall remit to the Collection
Account all Net Proceeds it receives or otherwise obtains from or on behalf of
the Obligors from or in respect of the Receivables on the next Business Day
after receipt thereof, by automatic clearing house ("ACH") transfer from the
account into which payments from or on behalf of the Obligors are initially
deposited. Other than as specifically contemplated pursuant to Section 4.03, the
Servicer shall not remit to the Collection Account, and shall take all
reasonable actions to prevent other Persons from remitting to the Collection
Account, amounts which do not constitute payments, collections or recoveries
received, made or realized in respect of the Receivables, and the Trustee will
return to Issuer any such amounts upon receiving written evidence reasonably
satisfactory to the Trustee that such amounts are not a part of the Trust
Estate.
SECTION 4.03 ADDITIONAL DEPOSITS.
(a) The following additional deposits shall be made to the Collection
Account, as applicable: (i) the Issuer shall remit the aggregate Release
Payments with respect to Removed Receivables for which a payment is to be made
pursuant to Section 2.05 or 6.02; and (ii) the Servicer shall remit the
aggregate Release Payments with respect to Removed Receivables for which payment
is to be made pursuant to Section 3.04.
(b) The following deposits shall be made to the Note Payment Account,
as applicable: (i) the Issuer shall remit the Redemption Amount, if any,
pursuant to Section 10.02; and (ii) the Trustee shall transfer all Available
Funds from the Collection Account to the Note Payment Account on the Business
Day prior to each Payment Date.
(c) All deposits required to be made pursuant to this Section by the
Issuer or the Servicer, as the case may be, may be made in the form of a single
deposit.
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SECTION 4.04 ALLOCATIONS AND PAYMENTS.
(a) On each Determination Date, the Servicer shall calculate, (i) the
amount of funds on deposit in each of the Accounts and the amount of Available
Funds, and (ii) as applicable, the Trustee Fee, the Backup Servicing Fee, the
Servicing Fee, the Interest Distributable Amount, the Required Reserve Amount,
the Reserve Fund Reimbursement Amount, and the amount to be paid to Noteholders
in respect of principal, which amounts shall be set forth in the Monthly
Servicer Report for the related Payment Date. The Servicer shall send the
Monthly Servicer Report to the Trustee by 11:00 a.m. New York, New York time on
each such Determination Date.
(b) On each Payment Date, the Trustee shall make the following payments
from the applicable Accounts in the following order of priority and in the
amounts set forth in the Monthly Servicer Report for such Payment Date; PROVIDED
HOWEVER, that such payments shall be made only to the extent of funds then on
deposit in the applicable Account, and provided, further that payments from the
Note Payment Account shall be made only on the Payment Date:
(i) to the Trustee (A) from Available Funds transferred from
the Collection Account to the Note Payment Account, an amount equal to the sum
of the Trustee Fee for such Payment Date, plus all accrued and unpaid Trustee
Fees, if any, for prior Payment Dates, plus all reasonable out of pocket
expenses (but only up to $200,000 during the term of this Agreement) to which
the Trustee is entitled to payment (to the extent expressly set forth under this
Agreement) provided that (B) if Available Funds transferred from the Collection
Account to the Note Payment Account are insufficient to pay the amount described
in clause (A) above, the Trustee will withdraw from the Reserve Account an
amount equal to the lesser of the amount then on deposit in the Reserve Account
and the amount of such shortfall for disbursement to the Trustee in reduction of
such shortfall;
(ii) from Available Funds transferred from the Collection
Account to the Note Payment Account, to the Servicer, an amount equal to the sum
of the Servicing Fee for the related Collection Period, plus all accrued and
unpaid Servicing Fees, if any, for prior Collection Periods, plus an amount
equal to any Transition Fees then owing to the Successor Servicer, if any,
(which expenses and costs, including any amount reimbursed, will not exceed
$100,000 for any Successor Servicer (including the Backup Servicer) during the
term of this Agreement);
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(iii) to the Backup Servicer (A) from Available Funds
transferred from the Collection Account to the Note Payment Account, the Backup
Servicer Fee for such Payment Date, plus all accrued and unpaid Backup Servicer
Fees, if any, for prior Payment Dates, plus all reasonable out of pocket
expenses (but only up to $100,000 during the term of this Agreement) to which
the Backup Servicer is entitled to payment (to the extent expressly set forth
under this Agreement) provided that (B) if Available Funds transferred from the
Collection Account to the Note Payment Account are insufficient to pay the
amount described in clause (A) above, the Trustee will withdraw from the Reserve
Account an amount equal to the lesser of the amount then on deposit in the
Reserve Account and the amount of such shortfall for disbursement to the Backup
Servicer in reduction of such shortfall;
(iv) to the Noteholders, pro rata, based on their respective
Note Balances (A) from Available Funds transferred from the Collection Account
to the Note Payment Account, an amount equal to the sum of the Interest
Distributable Amount for such Payment Date plus any outstanding amount of
Interest Carryover Shortfall, if any, for prior Payment Dates provided that (B)
if Available Funds transferred from the Collection Account to the Note Payment
Account, are insufficient to pay the amount described in clause (A) above, the
Trustee will withdraw from the Reserve Account an amount equal to the lesser of
the amount then on deposit in the Reserve Account and the amount of such
interest shortfall for disbursement to the Noteholders in reduction of such
shortfall;
(v) from Available Funds transferred from the Collection
Account to the Note Payment Account, to the Reserve Account, an amount equal to
the lesser of remaining Available Funds and the Reserve Fund Reimbursement
Amount for such Payment Date, if applicable;
(vi) to the Noteholders, pro rata, based on their respective
Note Balances (A) any remaining Available Funds transferred from the Collection
Account to the Note Payment Account in reduction of the Note Balance of the
Notes, until the Note Balance is reduced to zero, (B) if such Payment Date is
the Payment Date on which the Issuer is effecting an optional redemption of the
Notes pursuant to Section 10.01, and there is an outstanding Note Balance after
payment of the amounts described in clause (A) above, the Trustee will disburse
to the Noteholders for payment on the Note Balance any amounts deposited in the
Note Payment Account by the Issuer in respect of the Redemption Amount pursuant
to Section 10.02, (C) if such Payment Date is the Final Payment Date or the
Payment Date on which the Issuer is effecting an
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optional redemption of the Notes pursuant to Section 10.01, and there is an
outstanding Note Balance (after payment of the amounts described in clauses (A)
and (B) above), the Trustee will withdraw from all remaining funds on deposit in
the Collection Account and remit to the Note Payment Account, an amount equal to
the lesser of the amount then on deposit in the Collection Account and the
amount of the outstanding Note Balance and remit such lesser amount to the
Noteholders in reduction of the outstanding Note Balance and (D) if on the Final
Payment Date there is an outstanding Note Balance (after payment of the amounts
described in clauses (A), (B) and (C) above), the Trustee will withdraw from the
Reserve Account an amount equal to the lesser of the amount then on deposit in
the Reserve Account and the amount of the outstanding Note Balance and remit
such lesser amount to the Noteholders in reduction of the outstanding Note
Balance; and
(vii) remaining amounts in the following order of priority:
(A) any of the Trustee's reasonable out of pocket expenses to which the Trustee
is entitled to payment (to the extent expressly set forth in this Agreement)
which have exceeded $200,000 in the aggregate during the term of this Agreement;
then to (B) any of the Backup Servicer's reasonable out of pocket expenses to
which the Backup Servicer is entitled to payment (to the extent expressly set
forth in this Agreement) which have exceeded $100,000 in the aggregate during
the term of this Agreement; and then to (C) to the Issuer.
(c) The Servicer shall on each Payment Date instruct the Trustee to
distribute to each Noteholder of record on the related Record Date by wire
transfer of immediately available funds, the amount to be paid to such
Noteholder in respect of the related Note on such Payment Date.
SECTION 4.05 RESERVE ACCOUNT.
(a) Pursuant to Section 4.01, the Trustee shall establish and maintain
the Reserve Account which shall be an Eligible Account, for the benefit of the
Noteholders. On or prior to the Closing Date, the Issuer shall deposit an amount
equal to the Required Reserve Amount into the Reserve Account. Thereafter, on
each Payment Date, to the extent of funds then on deposit in the Note Payment
Account an amount equal to the lesser of (x) Available Funds remaining on such
Payment Date after required payments pursuant to Section 4.04(b)(i) through
(iv), and (y) the Reserve Fund Reimbursement Amount, shall be deposited into the
Reserve Account.
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(b) Consistent with the limited purposes for which the Reserve Account
is to be established, (x) on each Payment Date, an amount equal to the aggregate
of amounts described in Sections 4.04(b)(iv)(B) and (vii)(D), if any, shall be
withdrawn from the Reserve Account by the Trustee and remitted to the
Noteholders for payment as described in those Sections and (y) upon payment of
all sums payable hereunder with respect to the Notes, any amounts then on
deposit in the Reserve Account shall be released from the lien of the Trust
Estate and paid to the Issuer.
(c) Amounts held in the Reserve Account shall be invested in Permitted
Investments at the direction of the Issuer as provided in Section 4.01. Such
investments shall not be sold or disposed of prior to their maturity.
(d) The Trustee shall pay to the Issuer on each Payment Date the amount
by which the amount in the Reserve Account exceeds the Required Reserve Amount,
after giving effect to all distributions required to be made from the Reserve
Account or the Note Payment Account on such date.
SECTION 4.05A NOTE PAYMENT ACCOUNT.
(a) Pursuant to Section 4.01, the Trustee shall establish and maintain
the Note Payment Account which shall be an Eligible Account, for the benefit of
the Noteholders. The Note Payment Account shall be funded to the extent that (x)
the Issuer shall remit the Redemption Amount pursuant to Section 10.02 or (y)
the Trustee shall remit the Available Funds from the Collection Account pursuant
to Section 4.03.
(b) On each Payment Date, an amount equal to the aggregate of amounts
described in Section 4.04(b) shall be withdrawn from the Note Payment Account by
the Trustee and remitted to the Noteholders and other persons or Accounts
described therein for payment as described in that Section, and upon payment of
all sums payable hereunder with respect to the Notes, any remaining amounts then
on deposit in the Note Payment Account shall be released from the lien of the
Trust Estate and paid to the Issuer.
(c) Amounts held in the Note Payment Account shall be invested in
Permitted Investments at the direction of the Issuer as provided in Section
4.01. Such investments shall not be sold or disposed of prior to their maturity.
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SECTION 4.06 STATEMENTS TO NOTEHOLDERS.
(a) On each Payment Date, the Trustee shall include with each payment
to each Noteholder of record the Monthly Servicer Report furnished pursuant to
Section 3.06, setting forth for the related Collection Period the information
provided in Exhibit A.
(b) Within a reasonable period of time after the end of each calendar
year, but not later than the latest date permitted by law, the Trustee shall
mail a statement or statements prepared by the Servicer to each Person who at
any time during such calendar year shall have been a Noteholder that provides
the information that the Servicer actually knows is necessary under applicable
law for the preparation of income tax returns.
SECTION 4.07 APPLICATION OF TRUST MONEY.
All money deposited pursuant to Sections 4.02 and 4.03 shall be held in
trust and applied, in accordance with the provisions of the Notes and this
Agreement to the payment, to the Persons entitled thereto, of the principal,
interest, fees, costs and expenses for whose payment such money has been
deposited with the Trustee.
ARTICLE V
THE NOTES
SECTION 5.01 THE NOTES.
(a) The Notes shall be non-recourse obligations of the Issuer and the
Trust Estate shall be the sole source of payments of principal thereof and
interest thereon. Notwithstanding anything else to the contrary contained
herein, the Notes shall not be considered a general obligation of the Issuer for
any purpose.
(b) The Notes shall be issued on the Closing Date and the Note Balance
shall accrue interest at the Note Rate from and including the Closing Date.
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(c) The Notes shall be substantially in the form attached hereto as
Exhibit C, and shall be issuable in minimum denominations of $1,000,000 and
integral multiples of $1,000 in excess thereof. The Notes shall each be executed
by the Issuer and authenticated by the Trustee by the manual or facsimile
signature of a Responsible Officer of the Trustee. Notes bearing the manual or
facsimile signatures of individuals who were, at the time when such signatures
were affixed, authorized to sign on behalf of the Issuer or the Trustee shall be
valid and binding obligations of the Issuer, notwithstanding that such
individuals or any of them have ceased to be so authorized prior to the
authentication and delivery of such Notes or did not hold such offices at the
date of such Notes. The Notes shall be dated the date of their authentication.
SECTION 5.02 AUTHENTICATION AND DELIVERY OF THE NOTES.
The Trustee shall cause to be authenticated and delivered to or upon
the order of the Issuer, in consideration of the grant by the Issuer of a
security interest in the Receivables and the other property included in the
Trust Estate to the Trustee and the constructive delivery to the Trustee on
behalf of the Noteholders of the Receivable Files and the other components of
the Trust Estate, the Notes duly authenticated by the Trustee, in authorized
denominations equaling in the aggregate the Note Balance. No Note shall be
entitled to any benefit under this Agreement or be valid for any purpose, unless
there appears thereon a certificate of authentication substantially in the form
set forth in the form of such Note attached hereto as Exhibit C, executed by the
Trustee by manual or facsimile signature, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered under this Agreement.
SECTION 5.03 REGISTRATION OF TRANSFER AND EXCHANGE OF NOTES.
(a) The Note Registrar shall maintain a Note Register in which, subject
to such reasonable regulations as it may prescribe, the Note Registrar shall
provide for the registration of the Notes and transfers and exchanges thereof as
provided in this Agreement. The Trustee is hereby initially appointed Note
Registrar for the purpose of registering the Notes and transfers and exchanges
thereof as provided in this Agreement. In the event that, subsequent to the
Closing Date, the Trustee notifies the Servicer that it is unable to act as Note
Registrar, the Servicer shall appoint another bank or trust company, agreeing to
act in accordance with the provisions of this Agreement applicable to it, and
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otherwise acceptable to the Trustee, to act as successor Note Registrar under
this Agreement.
(b) Upon surrender for registration of transfer of any Note at the
Corporate Trust Office, the Issuer shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes in authorized denominations of a like
aggregate principal amount.
(c) Notes may be exchanged for other Notes of authorized denominations
of a like aggregate principal amount, at the option of the related Noteholder
upon surrender of the Note to be exchanged at any such office or agency.
Whenever any Note is so surrendered for exchange, the Issuer shall execute and
the Trustee shall authenticate and deliver the Note that the Noteholder making
the exchange is entitled to receive. Every Note presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Trustee and the Note
Registrar duly executed by the Noteholder thereof or its attorney duly
authorized in writing.
(d) No service or other charge shall be made for any registration of
transfer or exchange of Notes by the Trustee or the Servicer, but the Trustee
may require payment of a sum sufficient to cover any tax or governmental charge
that may be imposed in connection with any transfer or exchange of Notes.
(e) Any Notes surrendered for registration of transfer or exchange
shall be canceled and subsequently destroyed by the Trustee.
(f) Each purchaser of a Note or of a beneficial interest therein shall
be deemed to have represented and warranted, by accepting such Note or
beneficial interest as follows:
(i) it is acquiring the Notes for its own account or for an
account with respect to which it exercises sole investment discretion, and that
it or such account is a Qualified Institutional Buyer or an Accredited Investor
acquiring the Notes for investment purposes and not for distribution;
(ii) it acknowledges that the Notes have not been registered
under the Securities Act and may not be sold except as permitted below;
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(iii) it understands and agrees that such Notes are being
offered only in a transaction not involving any public offering within the
meaning of the Securities Act, such Notes may be resold, pledge or transferred
only (1) to a person who has certified that it is a Qualified Institutional
Buyer that purchases for its own account or for the account of a Qualified
Institutional Buyer to whom notice is given that the resale, pledge or transfer
is being made in reliance on Rule 144A or (2) to an institution that is an
Accredited Investor who has certified to the Issuer and the Trustee that such
transferee is an institutional Accredited Investor;
(iv) it understands that the notification requirements
referred to in clause (iii) above will be satisfied by virtue of the fact that
the following legend will be placed on the Notes, unless otherwise agreed by the
Issuer:
"THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES
LAWS, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS. THE TRANSFER OF THIS NOTE IS SUBJECT
TO CERTAIN RESTRICTIONS AND CONDITIONS SET FORTH IN THE INDENTURE AND
SERVICING AGREEMENT UNDER WHICH THIS NOTE IS ISSUED (A COPY OF WHICH IS
AVAILABLE FROM THE TRUSTEE UPON REQUEST)."
(v) it (x) has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of its
prospective investment in the Notes; and (y) has the ability to bear the
economic risks of its prospective investment and can afford the complete loss of
such investment; and
(vi) it understands that the Issuer, the Placement Agent, and
others will rely upon the truth and accuracy of the foregoing acknowledgments,
representations, warranties and agreements and agrees that if any of the
acknowledgments, representations, warranties and agreements deemed to have been
made by it by its purchase of the Notes are no longer accurate, it shall
promptly notify the Issuer and the Placement Agent. If it is acquiring the Notes
as a fiduciary or agent for one or more investor accounts, it represents that it
has sole investment discretion with respect to each such account and it has full
power to make the foregoing acknowledgments, representations, warranties and
agreements on behalf of each such account.
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(g) No transfer of any Notes shall be made unless that transfer is made
pursuant to an effective registration statement under the Securities Act, and
effective registration or qualification under applicable state securities laws,
or is made in a transaction that does not require such registration or
qualification. If such a transfer is made without registration under the
Securities Act (other than in connection with the initial issuance thereof by
the Issuer), then the Note Registrar shall refuse to register such transfer
unless it receives (and upon receipt, may conclusively rely upon) either: (i) a
certificate from the Noteholder desiring to effect such transfer substantially
in the form attached as Exhibit D-1 hereto, and a certificate from such
Noteholder's prospective transferee substantially in the form attached as either
Exhibit D-2 hereto or as Exhibit D-3 hereto; or (ii) an Opinion of Counsel
reasonably satisfactory to the Note Registrar to the effect that such transfer
may be made without registration under the Securities Act (which Opinion of
Counsel shall not be an expense of the Trust Estate or of the Issuer, the
Servicer, the Trustee or the Note Registrar in their respective capacities as
such), together with the written certification(s) as to the facts surrounding
such transfer from the Noteholder desiring to effect such transfer and/or such
Noteholder's prospective transferee on which such Opinion of Counsel is based.
None of the Issuer, the Trustee or the Note Registrar is obligated to register
or qualify the Notes under the Securities Act or any other securities law or to
take any action not otherwise required under this Agreement to permit the
transfer of any Note without registration or qualification. Any holder of a Note
desiring to effect such a transfer shall, and upon acquisition of such a Note
shall be deemed to have agreed to, indemnify the Trustee, the Note Registrar and
the Issuer against any liability that may result if the transfer is not so
exempt or is not made in accordance with such federal and state laws. In
connection with the transfer of the Notes, the Issuer shall furnish upon request
of a Noteholder to such holder and any prospective purchaser designated by such
Noteholder the information required to be delivered under paragraph (d)(4) of
Rule 144A of the Securities Act.
(h) To the extent permitted under applicable law, the Trustee shall be
under no liability to any Person for any registration of transfer of any Note
that is in fact not permitted by this Section 5.03 or for making any payments
due to the Noteholder thereof or taking any other action with respect to such
Noteholder under the provisions of this Agreement so long as the transfer was
registered by the Trustee in accordance with the requirements of this Agreement.
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SECTION 5.04 MUTILATED, DESTROYED, LOST OR STOLEN NOTES.
If (i) any mutilated Note is surrendered to the Note Registrar, or the
Note Registrar receives evidence to its satisfaction of the destruction, loss or
theft of any Note, and (ii) there is delivered to the Note Registrar, the Issuer
and the Trustee such security or indemnity as may be required by them to save
each of them harmless (the general obligation of an institutional investor that
is investment grade rated being sufficient indemnity), then, in the absence of
notice that such Note has been acquired by a bona fide purchaser, the Issuer
shall execute and the Trustee shall authenticate and deliver, in exchange for or
in lieu of any such mutilated, destroyed, lost or stolen Note, a new Note of
like tenor and denomination or ownership interest, as applicable. In connection
with the issuance of any new Note under this Section, the Issuer or the Trustee
may require the payment by the Noteholder thereof of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto.
If, after the delivery of such replacement Note or payment with respect
to a destroyed, lost or stolen Note, a bona fide purchaser of the original Note
in lieu of which such replacement Note was issued presents for payment such
original Note, the Issuer and the Trustee shall be entitled to recover such
replacement Note (or such payment) from the Person to whom it was delivered or
any Person taking such replacement Note from such Person to whom such
replacement Note was delivered or any assignee of any such Person, except a bona
fide purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense incurred by
the Issuer or the Trustee in connection therewith.
SECTION 5.05 PERSONS DEEMED OWNERS.
Prior to due presentation of a Note for registration of transfer, the
Trustee, the Note Registrar and any of their respective agents may treat the
Person in whose name any Note is registered as the owner of such Note for the
purpose of receiving payments pursuant to Section 4.04 and for all other
purposes whatsoever, and neither the Trustee, the Note Registrar nor any of
their respective agents shall be affected by any notice to the contrary.
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SECTION 5.06 ACCESS TO LIST OF NOTEHOLDERS' NAMES AND ADDRESSES.
The Note Registrar shall furnish or cause to be furnished to the
Servicer, within 15 days after receipt by the Note Registrar of a written
request therefor from the Servicer, a list of the names and addresses of the
Noteholders as of the most recent Record Date. If three or more Noteholders, or
one or more Noteholders evidencing not less than 25% of the Voting Interests
(hereinafter referred to as "Applicants"), apply in writing to the Trustee, and
such application states that the Applicants desire to communicate with other
Noteholders with respect to their rights under this Agreement or under the Notes
and such application is accompanied by a copy of the communication that such
Applicants propose to transmit, then the Trustee shall, within five Business
Days after the receipt of such application, afford such Applicants access,
during normal business hours, to the current list of Noteholders as reflected in
the Note Register. Every Noteholder, by receiving and holding a Note, agrees
with the Servicer and the Trustee that neither the Servicer nor the Trustee
shall be held accountable by reason of the disclosure of any such information as
to the names and addresses of the Noteholders under this Agreement, regardless
of the source from which such information was derived.
SECTION 5.07 SURRENDERING OF NOTES.
Each Noteholder shall surrender its Note within 14 days after receipt
of the final payment received in connection therewith, whether by optional
redemption by the Issuer or otherwise. Each Noteholder, by its acceptance of the
final payment of principal with respect to its Note, will be deemed to have
relinquished any further right to receive payments under this Agreement and any
interest in the Trust Estate. Each Noteholder shall indemnify and hold harmless
the Issuer, the Trustee and any other Person against whom a claim is asserted in
connection with such Noteholder's failure to tender the Note to the Trustee for
cancellation.
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SECTION 5.08 MAINTENANCE OF OFFICE OR AGENCY.
The Trustee shall maintain in the City of Minneapolis, Minnesota, an
office or offices or agency or agencies where Notes may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Trustee in respect of the Notes and this Agreement may be served. The
Trustee initially shall designate the Corporate Trust Office as its office for
such purposes. The Trustee shall give prompt written notice to the Issuer, the
Servicer and the Noteholders of any change in the location of the Note Register
or any such office or agency.
ARTICLE VI
THE ISSUER
SECTION 6.01 REPRESENTATIONS OF ISSUER.
The Issuer hereby makes the following representations on which the
Trustee is relying in accepting the grant of a security interest in the
Receivables and authenticating the Notes, and on which the Noteholders are
relying in purchasing the Notes. The representations shall speak as of the
execution and delivery of this Agreement and shall survive the grant of a
security interest in the Receivables to the Trustee.
(a) Organization and Good Standing. The Issuer is duly organized and
validly existing as a limited liability company in good standing under the laws
of the State of Delaware, with power and authority to own its properties and to
conduct its business as such properties are currently owned and such business is
presently conducted, and had at all relevant times, and now has, power,
authority and legal right to acquire, own, hold, transfer, assign and convey the
Receivables.
(b) Due Qualification. The Issuer is duly qualified to do business as a
foreign limited liability company in good standing, and has obtained all
necessary licenses and approvals in Maryland and in all other jurisdictions in
which the ownership or lease of property or the conduct of its business requires
such qualifications, licenses or approvals.
(c) Power and Authority. The Issuer has the power and authority to
execute and deliver this Agreement and the other Transaction Documents to
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which it is a party, and to carry out their respective terms; the Issuer has
full power and authority to grant a security interest in the Trust Estate and
has duly authorized such grant to the Trustee by all necessary action; and the
execution, delivery and performance by the Issuer of this Agreement and each of
the other Transaction Documents to which it is a party has been duly authorized
by all necessary action of the Issuer.
(d) Valid Grant; Binding Obligations. This Agreement evidences a valid
grant of a first priority perfected security interest under the UCC in the
Receivables, and such other of the Trust Estate as to which a security interest
may be perfected under UCC, which is effective for so long as the Notes remain
outstanding, enforceable against creditors of and purchasers from the Issuer,
and each of the Transaction Documents to which the Issuer is a party constitutes
a legal, valid and binding obligation of the Issuer enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting creditors' rights
generally or by general equity principles.
(e) No Violation. The consummation of the transactions contemplated by
this Agreement and the other Transaction Documents and the fulfillment of the
terms of this Agreement and the other Transaction Documents do not conflict
with, result in any breach of any of the terms or provisions of, nor constitute
(with or without notice or lapse of time) a default under, the LLC Agreement or
Bylaws of the Issuer or any indenture, agreement or other instrument to which
the Issuer is a party or by which it shall be bound, nor result in the creation
or imposition of any Lien upon any of its properties pursuant to the terms of
any such indenture, agreement or other instrument (other than this Agreement),
nor violate any law, order, rule or regulation applicable to the Issuer of any
court or of any federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Issuer or its
properties, which breach, default, conflict, Lien or violation would have a
material adverse effect on the rights or interests of the Noteholders.
(f) No Proceedings. There is no action, suit or proceeding before or by
any court or governmental agency or body, domestic or foreign, now pending, or
to the Issuer's knowledge, threatened, against or affecting the Issuer: (i)
asserting the invalidity of this Agreement, the Notes or any of the other
Transaction Documents to which the Issuer is a party, (ii) seeking to prevent
the issuance of the Notes or the consummation of any of the transactions
contemplated by this Agreement or any of the other Transaction Documents, (iii)
seeking any determination or ruling that might materially and adversely
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affect the performance by the Issuer of its obligations under, or the validity
or enforceability of, this Agreement, the Notes or any of the other Transaction
Documents, or (iv) relating to the Issuer and which might adversely affect the
federal income tax attributes of the Notes.
(g) No Subsidiaries. The Issuer has no subsidiaries.
(h) Not an Investment Company. Neither the Issuer nor the Trust Estate
is an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act, and none of the issuance of
the Notes, the execution and delivery of the Transaction Documents to which the
Issuer is a party, or the performance by the Issuer of its obligations under the
Transaction Documents, or the use of the proceeds of the Notes by the Issuer
will violate any provision of the Investment Company Act, or any rule,
regulation or order issued by the Securities and Exchange Commission thereunder.
(i) No Violation of Securities Act. The Issuer has not offered or sold,
and will not offer or sell, any Notes in any manner that would render the
issuance and sale of the Notes a violation of the Securities Act, or any state
securities or "blue sky" laws or require registration pursuant thereto, nor has
it authorized, nor will it authorize, any Person to act in such manner. No
registration under the Securities Act is required for the sale of the Notes as
contemplated hereby, assuming the accuracy of the Noteholder's representations
and warranties set forth in the Purchase Agreement.
(j) Truth and Completeness of Private Placement Memorandum. As of the
Closing Date, the Private Placement Memorandum does not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(k) No Violation of Exchange Act or Regulations T, U or X. None of the
transactions contemplated in the Transaction Documents (including the use of the
proceeds from the sale of the Notes) will result in a violation of Section 7 of
the Exchange Act, or any regulations issued pursuant thereto, including
Regulations T, U and X of the Board of Governors of the Federal Reserve System,
12 C.F.R., Chapter II. The Issuer does not own nor does it intend to carry or
purchase any "margin security" within the meaning of said Regulation U,
including margin securities originally issued by it or any "margin stock" within
the meaning of said Regulation U.
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(l) No Tax Returns. No tax returns were required to be filed by the
Issuer by the Closing Date.
(m) No Restriction on Issuer Affecting its Business. The Issuer is not
a party to any contract or agreement, or subject to any charter or other
restriction which materially and adversely affects its business nor has it
agreed or consented to cause any of its properties to become subject to any Lien
other than the Lien created hereby.
(n) Perfection of Security Interest. All filings and recordings as may
be necessary to perfect the interest of the Issuer in the Receivables and such
other portion of the Trust Estate as to which a security interest may be
perfected under the UCC, have been accomplished and are in full force and
effect. All filings and recordings against the Issuer required to perfect the
Lien of the Trustee on such Receivables and such other portion of the Trust
Estate as to which a security interest may be perfected under the UCC, have been
accomplished and are in full force and effect. The Issuer will from time to
time, at its own expense, execute and file such additional financing statements
(including continuation statements) as may be necessary to ensure that at any
time, the interest of the Issuer in all of the Receivables and such other
portion of the Trust Estate as to which a security interest may be perfected
under the UCC, and the Lien of the Trustee on all of the Receivables and such
other portion of the Trust Estate as to which a security interest may be
perfected under the UCC are fully protected.
(o) All Taxes, Fees and Charges Relating to Transaction and Transaction
Documents Paid. Any taxes, fees and other governmental charges in connection
with the execution and delivery of the Transaction Documents and the execution
and delivery and sale of the Notes have been or will be paid by the Issuer at or
prior to the Closing Date.
(p) No Requirement that Issuer File a Registration Statement. There are
no contracts, agreements or understandings between the Issuer and any person
granting said person the right to require the Issuer to file a registration
statement under the Securities Act with respect to any Notes owned or to be
owned by such person.
(q) No Broker, Finder or Financial Adviser Other Than Rothschild.
Neither the Issuer nor any of its officers, directors, employees or agents has
employed any broker, finder or financial adviser other than Rothschild Inc. or
incurred any liability for fees or commissions to any person other than
Rothschild Inc. in connection with the offering, issuance or sale of the Notes.
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(r) Notes Authorized, Executed, Authenticated, Validly Issued and
Outstanding. The Notes have been duly and validly authorized and, when duly and
validly executed and authenticated by the Trustee in accordance with the terms
of this Agreement and delivered to and paid for by each Noteholder as provided
herein, will be validly issued and outstanding and entitled to the benefits
hereof.
(s) Location of Principal Executive Office and Records. The principal
place of business and principal executive office of the Issuer, and the office
where Issuer maintains all of its records, is located at 7000 Security Blvd.,
Baltimore, MD 21244; PROVIDED that, at any time after the Closing Date, upon 30
days' prior written notice to each of the Servicer and the Trustee, the Issuer
may relocate its principal place of business and principal executive office,
and/or the office where it maintains all of its records, to another location
within the United States to the extent that the Issuer shall have taken all
actions necessary or reasonably requested by the Servicer, the Trustee or the
Controlling Party to amend its existing financing statements and continuation
statements, and file additional financing statements and to take any other steps
reasonably requested by the Servicer or the Trustee to further perfect or
evidence the rights, claims or security interests of the Servicer or the Trustee
under any of the Transaction Documents.
(t) Ownership of the Issuer. One hundred percent (100%) of the Units of
the Issuer are directly owned (both beneficially and of record) by Creditrust
Corporation. Such Units are validly issued, fully paid and nonassessable and no
one other than Creditrust Corporation has any options, warrants or other rights
to acquire Units from the Issuer.
(u) Solvency. The Issuer (i) is not "insolvent" (as such term is
defined in ss. 101(32)(A) of the Bankruptcy Code); (ii) is able to pay its debts
as they become due; and (iii) does not have unreasonably small capital for the
business in which it is engaged or for any business or transaction in which it
is about to engage.
(v) Reporting and Accounting Treatment. For reporting and accounting
purposes, and in its books of account and records, the Issuer will treat the
transfer of the Receivables pursuant to the Receivables Contribution Agreement
as an absolute assignment of Creditrust Corporation's full right, title and
ownership interest in the Receivables and the Issuer has not in any other manner
accounted for or treated the transactions.
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(w) Governmental and Other Consents. No consents, approvals,
authorization or orders of, registration or filing with, or notice to any
governmental authority or court is required for the execution, delivery and
performance of, or compliance with, the Transaction Documents by the Issuer,
except such consent, approvals, authorizations, filings and notices that have
already been made or obtained.
(x) Accuracy of Information. The representations and warranties of the
Issuer in the Transaction Documents are true and correct in all material
respects as of the Closing Date.
(y) Separate Identity. The Issuer is operated as an entity separate
from Creditrust Corporation. In addition, the Issuer:
(i) has its own board of managers,
(ii) has at least one Independent Member, who is not a direct,
indirect, or beneficial stockholder, officer, director, employee,
affiliate, associate, customer or supplier of any of the Servicer or
its Affiliates (other than, in the case of the Issuer, managers
thereof) or relatives of any thereof,
(iii) maintains its assets in a manner which facilitates their
identification and segregation from those of the Servicer,
(iv) has all office furniture, fixtures and equipment
necessary to operate its business,
(v) conducts all intercompany transactions with the Servicer
on terms which the Issuer reasonably believes to be on an arm's-length
basis,
(vi) has not guaranteed any obligation of the Servicer or any
of its Affiliates, nor has it had any of its obligations guaranteed by
any such entities and has not held itself out as responsible for debts
of any such entity or for the decisions or actions with respect to the
business affairs of any such entity,
(vii) has not permitted the commingling or pooling of its
funds or other assets with the assets of the Servicer or any of its
Affiliates (other than in respect of items of payment and funds
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which may be commingled until deposited into the Collection Account in
accordance with this Agreement),
(viii) has separate deposit and other bank accounts to which
neither the Servicer nor any of its Affiliates has any access and does
not at any time pool any of its funds with those of the Servicer or any
of its Affiliates, except for such funds which may be commingled until
deposited into the Collection Account in accordance with this
Agreement,
(ix) maintains financial records which are separate from those
of the Servicer or any of its Affiliates,
(x) compensates all employees, consultants and agents, or
reimburses the Servicer from the Issuer's own funds, for services
provided to the Issuer by such employees, consultants and agents,
(xi) conducts all of its business (whether in writing or
orally) solely in its own name,
(xii) is not, directly or indirectly, named as a direct or
contingent beneficiary or loss payee on any insurance policy covering
the property of the Servicer or any of its Affiliates and has entered
into no agreement to be named as such a beneficiary or payee,
(xiii) acknowledges that the Trustee and the Noteholders are
entering into the transactions contemplated by this Agreement and the
other Transaction Documents in reliance on the Issuer's identity as a
separate legal entity from the Servicer, and
(xiv) practices and adheres to company formalities such as
complying with its By-laws and resolutions and the holding of regularly
scheduled board of managers meetings.
(z) ERISA Compliant. The Issuer and all ERISA Affiliates are in
compliance with all applicable federal or state laws, including the rules and
regulations promulgated thereunder, relating to discrimination in the hiring,
promotion or pay of employees, any applicable federal or state wages and hours
law, and the provisions of the ERISA applicable to its business, except where
such noncompliance would not, individually or in the aggregate, have a Material
Adverse Effect. The employee benefit plans, including employee
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welfare benefit plans (the "Employee Plans") of the Issuer and all ERISA
Affiliates have been operated in compliance with the Code, all regulations,
rulings and announcements promulgated or issued thereunder and all other
applicable governmental laws and regulations (except to the extent such
noncompliance would not, individually or in the aggregate, have a Material
Adverse Effect). No reportable event under Section 4043(b) of ERISA or any
prohibited transaction under Section 406 of ERISA has occurred with respect to
any Employee Plan maintained by the Issuer or any ERISA Affiliate. There are no
pending or, to the Issuer's best knowledge, threatened, claims by or on behalf
of any Employee Plan, by any employee or beneficiary covered under any such plan
or by any governmental authority or otherwise involving such plans or any of
their respective fiduciaries (other than for routine claims for benefits). All
Employee Plans that are group health plans have been operated in compliance with
the group health plan continuation coverage requirements of Section 4980B of the
Code in all material respects. "Material Adverse Effect" means, when used in
connection with the Issuer, any development, change or effect that is materially
adverse to the business, properties, assets, net worth, condition (financial or
other), or results of operations of the Issuer or that reasonably could be
expected to be materially adverse to the prospects of the Issuer. Neither the
Issuer nor any of its ERISA Affiliates have a "defined benefit plan" as defined
in ERISA.
SECTION 6.02 REPAYMENT IN RESPECT OF RECEIVABLES UPON BREACH.
Upon discovery by the Issuer or the Servicer (which discovery shall be
deemed to have occurred upon the receipt of notice by a Responsible Officer of
the Issuer or the Servicer) or upon the actual knowledge of a Responsible
Officer of the Trustee of a breach of any of the representations and warranties
of the Issuer set forth in Section 6.01, the party discovering such breach shall
give prompt written notice to the others. If such breach has or would have a
material adverse effect on the rights or interests of the Noteholders with
respect to all or a portion of the Receivables, the Issuer shall pay an amount
equal to the Release Payment related to such Receivables and, if necessary, the
Issuer shall enforce the obligation of the Seller under the Receivables
Contribution Agreement to reacquire the Receivables from the Issuer, unless such
breach (and the resulting material adverse effect) shall have been cured within
30 days after the earlier to occur of the discovery of such breach by the Issuer
or receipt of written notice of such breach by the Issuer, such that the
relevant representation and warranty shall be true and correct in all material
respects as if made on such day, and the Issuer shall have delivered to the
Trustee a certificate of any Responsible Officer of the Issuer describing the
nature of such
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breach and the manner in which the relevant representation and warranty became
true and correct. This repayment obligation shall pertain to all representations
and warranties of the Issuer contained in Section 6.01, whether or not the
Issuer has knowledge of the breach at the time of the breach or at the time the
representations and warranties were made. The Issuer will be obligated to make
the repayment related to such Receivables as set forth above on the Remittance
Date next succeeding the date on which such repayment obligation arises. In
consideration of the release of the Receivables, on such Remittance Date, the
Issuer shall remit the aggregate Release Payments of the Receivables to the
Collection Account in the manner specified in Section 4.03.
Upon any such repayment, the Trustee on behalf of the Noteholders
shall, without further action, be deemed to have released its security interest
in, to and under the Removed Receivables, all monies due or to become due with
respect thereto after the aforementioned Remittance Date and all proceeds
thereof. The Trustee shall execute such documents and instruments and take such
other actions as shall be reasonably requested by the Issuer to effect the
security interest release pursuant to this Section. Notwithstanding the
foregoing, the Controlling Party may by delivery of prior written notice waive
any breach and repayment obligation of the Issuer pursuant to this Section 6.02.
The Trustee shall have no duty to conduct any affirmative investigation as to
the occurrence of any condition requiring the repayment for any Receivables
pursuant to this Section, except as otherwise provided in Section 9.02.
SECTION 6.03 LIABILITY OF ISSUER.
The Issuer shall be liable in accordance with this Agreement only to
the extent of the obligations in this Agreement specifically undertaken by the
Issuer in such capacity under this Agreement and shall have no other obligations
or liabilities hereunder.
SECTION 6.04 MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE ISSUER; CERTAIN LIMITATIONS.
(a) Merger, Etc. Any corporation or limited liability company (i) into
which the Issuer may be merged or consolidated, (ii) which may result from any
merger, conversion or consolidation to which the Issuer shall be a party, or
(iii) which may succeed to all or substantially all of the business of the
Issuer,
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which corporation or limited liability company in any of the foregoing cases
executes an agreement of assumption to perform every obligation of the Issuer
under this Agreement, shall be the successor to the Issuer under this Agreement
without the execution or filing of any document or any further act on the part
of any of the parties to this Agreement, except that if the Issuer in any of the
foregoing cases is not the surviving entity, then the surviving entity shall
execute an agreement of assumption to perform every obligation of the Issuer
hereunder, and the surviving entity shall have taken all actions necessary or
reasonably requested by the Issuer or the Trustee or the Controlling Party to
amend its existing financing statements and continuation statements, and file
additional financing statements and to take any other steps reasonably requested
by the Issuer, the Trustee or the Controlling Party to further perfect or
evidence the rights, claims or security interests of any of the Issuer or the
Trustee under any of the Transaction Documents. The Issuer (1) shall provide
notice of any merger, consolidation or succession pursuant to this Section to
the Rating Agency, the Trustee, the Noteholders and the Placement Agent, (2) for
so long as the Notes are outstanding, shall receive from the Rating Agency a
letter to the effect that such merger, consolidation or succession will not
result in a qualification, downgrading or withdrawal of the then-current rating
on the Notes, and (3) shall receive from the Controlling Party its prior written
consent to such merger, consolidation or succession, absent which consent, the
Issuer shall not become a party to such merger, consolidation or succession.
(b) Certain Limitations. (i) The business, activities and purpose of
the Issuer shall be limited as specified in its LLC Agreement.
(ii) So long as any outstanding debt of the Issuer or the
Notes is rated by the Rating Agency, the Issuer shall not issue unsecured notes
or otherwise borrow money unless (A) the Issuer has made a written request to
the Rating Agency to issue unsecured notes or incur indebtedness and such notes
or borrowings are rated by the Rating Agency the same as or higher than the
rating afforded any outstanding rated debt (including the Notes), and (B) such
notes or borrowings (1) are fully subordinated (and which shall provide for
payment only after payment in respect of all outstanding rated debt and/or the
Notes) or are nonrecourse against any assets of the Issuer other than the assets
pledged to secure such notes or borrowings, or (2) do not constitute a claim
against the Issuer in the event such assets are insufficient to pay such notes
or borrowings.
(iii) The Issuer shall not issue unsecured notes or otherwise
borrow money, or otherwise grant any consensual Lien in favor of any Person
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(other than the Lien granted pursuant hereto) absent the prior written consent
of the Controlling Party.
(c) Unanimous Consent. Notwithstanding any other provision of this
Section and any provision of law, the Issuer shall not do any of the following
without the affirmative unanimous vote of all Members of the Issuer (which
includes the Independent Member),
(i) (A) dissolve or liquidate, in whole or in part, or
institute proceedings to be adjudicated bankrupt or insolvent, (B) consent to
the institution of bankruptcy or insolvency proceedings against it, (C) file a
petition seeking or consent to reorganization or relief under any applicable
federal or state law relating to bankruptcy, (D) consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the limited liability company or a substantial part of its
property, (E) make any assignment for the benefit of creditors, (F) admit in
writing its inability to pay its debts generally as they become due, or (G) take
any action in furtherance of the actions set forth in clauses (A) through (F)
above;
(ii) merge or consolidate with or into any other person or
entity or sell or lease its property and all or substantially all of its assets
to any person or entity; or
(iii) modify any provision of its LLC Agreement or By-laws.
SECTION 6.05 LIMITATION ON LIABILITY OF ISSUER AND OTHERS.
The Issuer and any manager or officer or employee or agent of the
Issuer may rely in good faith on the advice of counsel or on any document of any
kind, prima facie properly executed and submitted by any proper Person
respecting any matters arising under this Agreement. The Issuer shall not be
under any obligation to appear in, prosecute or defend any legal action that is
not incidental to its obligations as Issuer under this Agreement or as the
Purchaser under the Receivables Contribution Agreement and that in its opinion
may involve it in any expense or liability.
SECTION 6.06 ISSUER MAY OWN NOTES.
The Issuer and any Affiliate thereof may, in its individual or any
other capacity, become the owner or pledgee of one or more Notes with the same
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rights as it would have if it were not the Issuer or an affiliate thereof,
except as otherwise specifically provided in the definition of the term
"Noteholder." The Notes so owned by or pledged to the Issuer or such Affiliate
shall have an equal and proportionate benefit under the provisions of this
Agreement, without preference, priority or distinction as among any of the
Notes, except as set forth herein with respect to, among other things, certain
rights to vote, consent or give directions to the Trustee as a Noteholder. The
Issuer may not pledge any Note acquired by the Issuer.
SECTION 6.07 COVENANTS OF ISSUER.
(a) LLC Agreement and By-laws. The Issuer hereby covenants not to
change, or agree to any change of, its LLC Agreement or By-laws without notice
to the Trustee and the Rating Agency, and (ii) the prior written consent of the
Controlling Party.
(b) Merger of the Issuer, Asset Sales and Purchases. Without the prior
written consent of the Controlling Party, the Issuer shall not merge with or
into, or transfer or sell all or substantially all of its assets to, or buy all
or substantially all the assets of, any person.
(c) Preservation of Existence. The Issuer hereby covenants to do or
cause to be done all things necessary on its part to preserve and keep in full
force and effect its existence as a limited liability company, and to maintain
each of its licenses, approvals, registrations or qualifications in all
jurisdictions in which its ownership or lease of property or the conduct of its
business requires such licenses, approvals, registrations or qualifications,
except for failures to maintain any such licenses, approvals, registrations or
qualifications which, individually or in the aggregate, would not have a
material adverse effect on the ability of Issuer to perform its obligations
hereunder or under any of the other Transaction Documents.
(d) Compliance with Laws. The Issuer hereby covenants to comply in all
material respects with all applicable laws, rules and regulations and orders of
any governmental authority, the noncompliance with which would have a material
adverse effect on the business, financial condition or results of operations of
the Issuer or on the ability of the Issuer to repay the Notes, or perform any of
its other obligations under this Agreement or the other Transaction Documents.
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(e) Payment of Taxes. The Issuer hereby covenants to pay and discharge
promptly or cause to be paid and discharged promptly all taxes, assessments and
governmental charges or levies imposed upon the Issuer or upon its income and
profits, or upon any of its property or any part thereof, before the same shall
become in default, provided that the Issuer shall not be required to pay and
discharge any such tax, assessment, charge or levy so long as the validity or
amount thereof shall be contested in good faith by appropriate proceedings and
the Issuer shall have set aside on its books adequate reserves with respect to
any such tax, assessment, charge or levy so contested, or so long as the failure
to pay any such tax, assessment, charge or levy would not have a material
adverse effect on the ability of the Issuer to perform its obligations
hereunder.
(f) Exercise of Rights Under the Transaction Documents. The Issuer
hereby covenants to exercise its rights as the Purchaser under the Receivables
Contribution Agreement and take such other action in connection with the
Transaction Documents as may be appropriate or desirable, taking into account
the associated costs, to maximize the collection of amounts payable to the Trust
Estate.
(g) Investments. The Issuer hereby covenants that it will not without
the prior written consent of the Controlling Party, acquire or hold any
indebtedness for borrowed money of another person, or any capital stock,
debentures, partnership interests or other ownership interests or other
securities of any Person, other than the Receivables acquired under the
Receivables Contribution Agreement.
(h) Keeping Records and Books of Account. The Issuer hereby covenants
and agrees to maintain and implement administrative and operating procedures
(including, without limitation, an ability to recreate records evidencing the
Receivables in the event of the destruction or loss of the originals thereof)
and keep and maintain, all documents, books, records and other information
reasonably necessary or advisable for the collection of all Receivables
(including, without limitation, records adequate to permit the daily
identification of all collections with respect to, and adjustments of amounts
payable under, each Receivable).
(i) Benefit Plan. The Issuer hereby covenants and agrees to comply in
all material respects with the provisions of ERISA, the Code, and all other
applicable laws, and the regulations and interpretations thereunder to the
extent applicable, with respect to each Benefit Plan. Issuer covenants that it
will not, and it will cause any ERISA Affiliate to not:
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(i) engage in any non-exempt prohibited transaction (within the
meaning of Code Section 4975 or ERISA Section 406) with respect to any Benefit
Plan which would result in a material liability to the Issuer or the Servicer;
(ii) permit to exist any accumulated funding deficiency, as
defined in Section 302(a) of ERISA and Section 412(a) of the Code, with respect
to any Benefit Plan of the Issuer or any ERISA affiliate which is subject to
Section 302(q) of ERISA or 412 of the Code;
(iii) terminate any Benefit Plan of the Issuer or any ERISA
Affiliate so as to result in any material liability to the Issuer or an ERISA
Affiliate; or
(iv) create any defined benefit plan (as defined in ERISA).
(j) No Release. The Issuer shall not take any action and shall use its
best efforts not to permit any action to be taken by others that would release
any Person from any of such Person's covenants or obligations under any
document, instrument or agreement included in the Trust Estate, or which would
result in the amendment, hypothecation, subordination, termination or discharge
of, or impair the validity or effectiveness of, any such document, instrument or
agreement.
(k) Separate Identity. The Issuer hereby covenants and agrees to take
all actions required to maintain the Issuer's status as a separate legal entity.
Without limiting the foregoing, the Issuer shall:
(i) conduct all of its business, and make all communications to
third parties (including all invoices (if any), letters, checks and other
instruments) solely in its own name (and not as a division of any other Person),
and require that its employees, if any, when conducting its business identify
themselves as such (including, without limitation, by means of providing
appropriate employees with business or identification cards identifying such
employees as the Issuer's employees);
(ii) compensate all employees, consultants and agents directly
or indirectly through reimbursement of the Servicer, from the Issuer's bank
accounts, for services provided to the Issuer by such employees, consultants and
agents and, to the extent any employee, consultant or agent of the Issuer is
also an employee, consultant or agent of the Servicer, allocate the compensation
of such employee, consultant or agent between the Issuer and
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the Servicer on a basis which reflects the respective services rendered to the
Issuer and the Servicer;
(iii) (A) pay its own incidental administrative costs and
expenses from its own funds, and (B) allocate all other shared overhead expenses
(including, without limitation, telephone and other utility charges, the
services of shared employees, consultants and agents, and reasonable legal and
auditing expenses) which are not reflected in the Servicing Fee, and other items
of cost and expense shared between the Issuer and the Servicer, on the basis of
actual use to the extent practicable, and to the extent such allocation is not
practicable, on a basis reasonably related to actual use or the value of
services rendered;
(iv) at all times have at least one Independent Member, with at
least one independent director, and have at least one officer responsible for
managing its day-to-day business and manage such business by or under the
direction of its board of managers;
(v) maintain its books and records separate from those of any
Affiliate;
(vi) prepare its financial statements separately from those of
its Affiliates and ensure that any consolidated financial statement have notes
to the effect that the Issuer is a separate entity whose creditors have a claim
on its assets prior to those assets becoming available to its equity holders and
therefore to any creditors, as the case may be;
(vii) not commingle its funds or other assets with those of any
of its Affiliates (other than in respect of items of payment or funds which may
be commingled until deposited into the Collection Account in accordance with
this Agreement), and not to hold its assets in any manner that would create an
appearance that such assets belong to any such Affiliate, not maintain bank
accounts or other depository accounts to which any such Affiliate is an account
party, into which any such Affiliate makes deposits or from which any such
Affiliate has the power to make withdrawals, and not act as an agent or
representative of any of its Affiliates in any capacity;
(viii) not permit any of its Affiliates to pay the Issuer's
operating expenses;
(ix) not guarantee any obligation of any of its Affiliates nor
have any of its obligations guaranteed by any such Affiliate (either directly or
by
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seeking credit based on the assets of such Affiliate), or otherwise hold itself
out as responsible for the debts of any Affiliate;
(x) maintain at all times stationery separate from that of any
Affiliate and have all its officers and employees conduct all of its business
solely in its own name;
(xi) hold regular meetings of its board of managers in
accordance with the provisions of its LLC Agreement and otherwise take such
actions as are necessary on its part to ensure that all corporate procedures
required by its LLC Agreement and By-laws are duly and validly taken;
(xii) respond to any inquiries made to it with respect to
ownership of a Receivable by stating that it is the owner of such Receivable,
and, if requested to do so, that the Trustee has been granted a security
interest in such Receivable;
(xiii) on or before March 31 of each year, beginning in 2000,
the Issuer shall deliver to the Trustee and each of the Noteholders an Officer's
Certificate stating that Issuer has, during the preceding year, observed all of
the requisite company formalities and conducted its business and operations in
such a manner as required for the Issuer to maintain its separate company
existence from any other entity; and
(xiv) take such other actions as are necessary on its part to
ensure that the facts and assumptions set forth in the non-consolidation opinion
delivered by Issuer's counsel remain true and correct at all times.
(l) Compliance with all Transaction Documents. The Issuer hereby
covenants and agrees to comply in all material respects with the terms of,
employ the procedures outlined in and enforce the obligations of the parties to
all of the Transaction Documents to which the Issuer is a party, and take all
such action to such end as may be from time to time reasonably requested by the
Trustee, and/or the Controlling Party, maintain all such Transaction Documents
in full force and effect and make to the parties thereto such reasonable demands
and requests for information and reports or for action as the Issuer is entitled
to make thereunder and as may be from time to time reasonably requested by the
Trustee.
(m) No Sales, Liens, Etc. Against Receivables and Trust Property. The
Issuer hereby covenants and agrees, except for releases contemplated hereunder,
not to sell, assign (by operation of law or otherwise) or otherwise
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dispose of, or create or suffer to exist, any Lien (other than the Lien created
hereby) upon or with respect to, any Receivables or Trust Estate, or any
interest in either thereof, or upon or with respect to any Account, or assign
any right to receive income in respect thereof. The Issuer shall immediately
notify the Trustee of the existence of any Lien on any Receivables or Trust
Estate, and the Issuer shall defend the right, title and interest of each of the
Issuer and the Trustee in, to and under the Receivables and Trust Estate,
against all claims of third parties.
(n) No Change in Business. The Issuer covenants that it shall not make
any change in the character of its business.
(o) No Change in Name, Etc. The Issuer covenants that it shall not make
any change to its corporate name, or use any trade names, fictitious names,
assumed names or "doing business as" names.
(p) No Institution of Insolvency Proceedings. The Issuer covenants that
it shall not institute Insolvency Proceedings with respect to the Issuer or any
Affiliate thereof or consent to the institution of Insolvency Proceedings
against the Issuer or any affiliate thereof or take any action in furtherance of
any such action, or seek dissolution or liquidation in whole or in part of the
Issuer or any Affiliate thereof.
(q) No Change in Principal Executive Office or Location of Records. The
Issuer covenants that it shall maintain its principal place of business and
principal executive office, and the office where it maintains all of its
records, at 7000 Security Blvd., Baltimore, MD 21244; PROVIDED that, at any time
after the Closing Date, upon 30 days' prior written notice to each of the
Servicer and the Trustee, the Issuer may relocate its principal place of
business and principal executive office, and/or the office where it maintains
all of its records, to another location within the United States to the extent
that the Issuer shall have taken all actions necessary or reasonably requested
by the Servicer, the Trustee or the Controlling Party to amend its existing
financing statements and continuation statements, and file additional financing
statements and to take any other steps reasonably requested by the Servicer or
the Trustee to further perfect or evidence the rights, claims or security
interests of any of the Servicer or the Trustee under any of the Transaction
Documents. As of the Closing Date, each Receivable File shall be kept by the
Servicer at its offices at 7000 Security Blvd., Baltimore, MD 21244.
(r) Access to Certain Documentation and Information. The Issuer shall
provide the Trustee and the Noteholders with access to the
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documentation relating to the Receivables required to be maintained at the
location described in Section 6.07(q), and will make available for discussion
about the Receivables, Responsible Officers of the Issuer having knowledge of
such matters. In each case, access to documentation relating to the Receivables
shall be afforded without charge but only upon reasonable request and during
normal business hours at the offices of the Issuer. Nothing in this Section
shall impair the obligation of the Issuer to observe any applicable law
prohibiting disclosure of information regarding the Obligors, which obligation
shall be evidenced by an Opinion of Counsel to such effect, and the failure of
the Issuer to provide access as provided in this Section as a result of such
obligation shall not constitute a breach of this Section.
ARTICLE VII
THE SERVICER
SECTION 7.01 REPRESENTATIONS OF SERVICER.
The Servicer hereby makes the following representations on which the
Trustee is relying in accepting the grant of a security interest in the
Receivables and authenticating the Notes, and on which the Noteholders are
relying in purchasing the Notes. The representations shall speak as of the
execution and delivery of this Agreement and shall survive the grant of a
security interest to the Trustee.
(a) Organization and Good Standing. The Servicer is duly organized and
validly existing as a corporation in good standing under the laws of the State
of Maryland, with corporate power and authority to own its properties and to
conduct its business as such properties are currently owned and such business is
presently conducted, and had at all relevant times, and now has, corporate
power, authority and legal right to acquire, own, hold, transfer, convey and
service the Receivables and to hold the Receivable Files as custodian on behalf
of the Issuer and the Trustee.
(b) Due Qualification. The Servicer is duly qualified to do business as
a foreign corporation in good standing, and has obtained all necessary licenses
and approvals in all jurisdictions in which the ownership or lease of property
or the conduct of its business (including the servicing of the Receivables as
required by this Agreement) requires such qualification, licenses and approvals,
except where the failure to be qualified or to obtain such
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qualifications, licenses and approvals would not materially and adversely affect
the rights or interests of any of the Noteholders or the Trust Estate.
(c) Power and Authority. The Servicer has the corporate power and
authority to execute and deliver this Agreement and each of the other
Transaction Documents to which it is a party, and to carry out its terms; and
the execution, delivery and performance of this Agreement has been duly
authorized by the Servicer by all necessary corporate action.
(d) Binding Obligations. This Agreement and each of the other
Transaction Documents to which the Servicer is a party constitutes a legal,
valid and binding obligation of the Servicer enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting creditors' rights
generally or by general principles of equity.
(e) No Violation. The consummation of the transactions contemplated by
this Agreement and each of the other Transaction Documents and the fulfillment
of the terms of this Agreement and each of the other Transaction Documents does
not conflict with, result in any breach of any of the terms and provisions of,
nor constitute (with or without notice or lapse of time) a default under, the
articles of incorporation, as amended and restated, or bylaws of the Servicer,
or conflict with or breach any of the material terms or provisions of, or
constitute (with or without notice or lapse of time) a default under, any
indenture, agreement or other instrument to which the Servicer is a party or by
which it shall be bound; nor result in the creation or imposition of any Lien
upon any of its properties pursuant to the terms of any such indenture,
agreement or other instrument (other than this Agreement); nor violate, any law,
order, rule or regulation applicable to the Servicer of any court or of any
federal or state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Servicer or its properties; which
breach, default, conflict, Lien or violation would have, or would have, a
material adverse effect on the rights or interests of the Noteholders.
(f) No Proceedings. There is no action, suit or proceeding before or by
any court or governmental agency or body, domestic or foreign, now pending, or
to the Servicer's knowledge, threatened, against or affecting the Servicer: (i)
asserting the invalidity of this Agreement, the Notes, or any of the other
Transaction Documents, (ii) seeking to prevent the issuance of the Notes or the
consummation of any of the transactions contemplated by this Agreement or any of
the other Transaction Documents, (iii) seeking any determination or ruling that
might materially and adversely affect the performance by the
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Servicer of its obligations under, or the validity or enforceability of, this
Agreement, the Notes or any of the other Transaction Documents, or (iv) relating
to the Servicer and which might adversely affect the federal income tax
attributes of the Notes.
(g) No Subsidiaries. As of the Closing Date, Servicer has no
subsidiaries, other than the Issuer, Creditrust Mortgage Corporation, Creditrust
Card Services Corporation, Creditrust SPV99-2, LLC, and other limited liability
companies formed solely for the purpose of securitization transactions,
including Creditrust SPV2, LLC, Creditrust Funding I LLC and Creditrust SPV98-2,
LLC.
(h) Not an Investment Company. The Servicer is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act, and none of the issuance of the Notes, the
execution and delivery of the Transaction Documents to which the Servicer is a
party, or the performance by the Servicer of its obligations thereunder, will
violate any provision of the Investment Company Act, or any rule, regulation or
order issued by the Securities and Exchange Commission thereunder.
(i) Year 2000. The Servicer has replaced or modified all of its
critical computer systems and business applications software so that its
computer systems would properly utilize dates beyond December 31, 1999 ("Year
2000 Compliant") and does not believe that any further material expenditures
will be necessary to make these systems Year 2000 Compliant.
(j) Ownership of the Issuer. One hundred percent (100%) of the Units of
the Issuer are directly owned (both beneficially and of record) by the Servicer.
Such Units are validly issued, fully paid and nonassessable and no one other
than the Servicer has any options, warrants or other rights to acquire Units
from the Issuer.
(k) Solvency. The Servicer is, and shall remain, after giving effect to
the transactions contemplated by this Agreement, Solvent. For purposes of this
definition, "Solvent" means, with respect to the Servicer on a particular date,
that on such date (a) the fair market value of the Servicer's assets is greater
than the total amount of liabilities, including contingent liabilities, of the
Servicer; (b) the Servicer does not intend to, and does not believe that it
will, incur debts or liabilities beyond the Servicer's ability to pay as such
debts and liabilities mature; and (c) the Servicer is not engaged in a business
or
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transaction, and is not about to engage in a business or transaction, for which
the Servicer's property would constitute an unreasonably small capital.
(l) Arm's Length Transaction. The Servicer has entered into the
transactions contemplated by this Agreement (including, in the case of
Creditrust Corporation, in its capacity as Seller under the other Transaction
Documents) on an arm's length basis, and has made its own analysis and decisions
in entering into such transactions.
SECTION 7.02 LIABILITY OF SERVICER; INDEMNITIES
(a) Obligations. The Servicer shall be liable in accordance herewith
only to the extent of the obligations specifically undertaken by the Servicer
under this Agreement and shall have no other obligations or liabilities under
this Agreement. Such obligations shall include the following:
(i) the Servicer shall indemnify, defend and hold harmless the
Trustee, the Noteholders and the Trust Estate from and against any taxes that
may at any time be asserted against the Trustee, the Noteholders or the Trust
Estate with respect to the transactions contemplated in this Agreement or any of
the other Transaction Documents, including, without limitation, any sales, gross
receipts, general corporation, tangible or intangible personal property,
privilege or license taxes (but not including any taxes asserted with respect
to, and as of the date of, the transfer of the Receivables to the Trust, the
issuance and original sale of the Notes, or asserted with respect to ownership
of the Receivables, or federal or other income taxes arising out of payments on
the Notes) and costs and expenses in defending against the same;
(ii) the Servicer shall indemnify, defend and hold harmless
the Trustee, the Trust Estate and the Noteholders from and against any and all
costs, expenses, losses, claims, damages and liabilities to the extent that such
cost, expense, loss, claim, damage or liability arose out of, and was imposed
upon the Trustee, the Trust Estate or any Noteholder through the negligence,
willful misfeasance or bad faith of the Servicer in connection with the
transactions contemplated by this Agreement and the other Transaction Documents,
or by reason of the breach by the Servicer of any of its representations,
warranties or covenants hereunder or under any of the other Transaction
Documents; and
(iii) the Servicer shall indemnify, defend and hold harmless
the Trustee from and against all costs, expenses, losses, claims, damages and
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liabilities arising out of or incurred in connection with the acceptance or
performance of the trusts and duties contained in this Agreement, except to the
extent that such cost expense, loss, claim, damage or liability: (A) shall be
due to the willful misfeasance, bad faith or negligence of the Trustee, (B)
shall arise from the breach by the Trustee of any of its representations or
warranties set forth in Section 9.14, (C) relates to any tax other than the
taxes with respect to which either the Issuer or the Servicer shall be required
to indemnify the Trustee, or (D) shall arise out of or be incurred in connection
with the performance by the Trustee of the duties as the Backup Servicer under
this Agreement.
(b) Expenses. Indemnification under this Section shall include, without
limitation, reasonable fees and expenses of counsel and expenses of litigation.
If the Servicer has made any indemnity payments pursuant to this Section and the
recipient thereafter collects any of such amounts from others, the recipient
shall promptly repay such amounts collected to the Servicer, without interest,
so long as no amounts are outstanding to the Trustee.
(c) Survival. The provisions of this Section shall survive the
resignation or removal of the Servicer or the Trustee and the termination of
this Agreement.
(d) Successor Servicer Liability. Notwithstanding anything to the
contrary contained in this Agreement, the Successor Servicer shall have no
liability or obligation with respect to any Servicer indemnification obligations
of any prior Servicer. Upon assuming its role as Successor Servicer, the
Successor Servicer shall be responsible only for the indemnification obligations
set forth in Section 7.02(a)(ii).
SECTION 7.03 MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE SERVICER.
Any corporation (i) into which the Servicer may be merged or
consolidated, (ii) which may result from any merger, conversion or consolidation
to which the Servicer shall be a party, or (iii) which may succeed to all or
substantially all of the business of the Servicer, which corporation in any of
the foregoing cases executes an agreement of assumption to perform every
obligation of the Servicer under this Agreement, shall be the successor to the
Servicer under this Agreement without the execution or filing of any paper or
any further act on the part of any of the parties to this Agreement; PROVIDED,
HOWEVER, that (i) such merger, consolidation or conversion shall not cause a
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Servicer Default, and (ii) prior to any such merger, consolidation or conversion
the Servicer shall have provided to the Trustee and the Noteholders a letter
from the Rating Agency indicating that such merger, consolidation or conversion
will not result in the qualification, reduction or withdrawal of the rating then
assigned to the Notes by the Rating Agency. The Servicer shall provide notice of
any merger, consolidation or succession pursuant to this Section to the Trustee,
the Noteholders, the Rating Agency and the Placement Agent.
SECTION 7.04 LIMITATION ON LIABILITY OF SERVICER AND OTHERS.
(a) Neither the Servicer nor any of its directors, officers, employees
or agents shall be under any liability to the Trustee or the Noteholders, except
as provided in this Agreement, for any action taken or for refraining from the
taking of any action pursuant to this Agreement, or for errors in judgment;
PROVIDED HOWEVER, that this provision shall not protect the Servicer or any such
person against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence of the Servicer in connection with
the transactions contemplated by this Agreement and any of the other Transaction
Documents, or the breach by the Servicer of any of its representations,
warranties or covenants hereunder or under any of the other Transaction
Documents. The Servicer and any director, officer, employee or agent of the
Servicer may rely in good faith on any document of any kind prima facie properly
executed and submitted by any Person respecting any matters arising under this
Agreement.
(b) Except as provided in this Agreement, the Servicer shall not be
under any obligation to appear in, prosecute, or defend any legal action that
shall not be incidental to its duties to service the Receivables in accordance
with this Agreement, and that in its opinion may involve it in any expense or
liability; PROVIDED, HOWEVER, that the Servicer may undertake any reasonable
action that it may deem necessary or desirable in respect of this Agreement and
the rights and duties of the parties to this Agreement and the interests of the
Noteholders under this Agreement.
(c) The Servicer and any director, officer, employee or agent of the
Servicer may rely in good faith on the advice of counsel or on any document of
any kind, prima facie properly executed and submitted by any Person respecting
any matters arising under this Agreement.
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SECTION 7.05 SERVICER NOT TO RESIGN.
Subject to the provisions of Section 7.03, neither Creditrust
Corporation nor any Successor Servicer shall resign from the obligations and
duties hereby imposed on it as Servicer under this Agreement except upon
determination that the performance of its duties under this Agreement shall no
longer be permissible under applicable law. Notice of any such determination
permitting the resignation of Creditrust Corporation shall be communicated to
the Trustee, the Noteholders and the Rating Agency at the earliest practicable
time and any such determination shall be evidenced by an Opinion of Counsel to
such effect delivered to the Trustee and the Noteholders concurrently with or
promptly after such notice. No such resignation shall become effective until the
Backup Servicer or a Successor Servicer shall have assumed the responsibilities
and obligations of Creditrust Corporation in accordance with Sections 8.02 or
8.03.
SECTION 7.06 BACKUP SERVICING.
(a) Norwest Bank Minnesota, National Association is hereby appointed to
act as Backup Servicer with respect to this Agreement and the transactions
contemplated hereby and by the other Transaction Documents. The Backup Servicer
hereby acknowledges that the format of and information contained on the computer
diskette or other acceptable data to be supplied by the Servicer pursuant to
Section 7.06(b) below is compatible with and can be read by the computer systems
maintained by the Backup Servicer and that all tests necessary to confirm such
compatibility and readability have been made.
(b) The Servicer agrees to provide monthly to the Backup Servicer a
computer diskette with all information necessary for the Backup Servicer to
perform all of the servicing obligations of the Servicer under this Agreement.
However, during the continuation of either a Servicer Default, or any event
which with the passage of time or the giving of notice or both, would become a
Servicer Default, the Servicer will provide such a diskette up to three times
per month if reasonably requested by Backup Servicer, but Backup Servicer's use
thereof shall be limited as set forth in Section 9.19. The Servicer further
agrees to provide all updates with respect to its computer processing necessary
for the Backup Servicer to maintain a continuous ability to fulfill the role of
Successor Servicer under this Agreement.
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(c) The Backup Servicer shall assume its duties as Successor Servicer
in accordance with Sections 8.02 and 8.03 except upon determination that the
Backup Servicer is legally unable to perform the duties of the Servicer under
this Agreement as provided in Section 8.03.
(d) On or before 11 a.m., New York, New York time on each Determination
Date, the Servicer will deliver to the Backup Servicer a computer diskette (or
other electronic transmission) in a format acceptable to the Backup Servicer
containing the fields listed in Exhibit E hereto, which fields contain
information with respect to the Receivables as of the close of business on the
last day of the related Collection Period. The Backup Servicer shall not be
obligated to verify the information contained in such transmission or the
Monthly Servicer Report.
(e) Other than the duties specifically set forth in this Agreement, the
Backup Servicer shall have no obligations hereunder, including without
limitation to supervise, verify, monitor or administer the performance of the
Servicer. The Backup Servicer shall have no liability for any actions taken or
omitted by the Servicer. The duties and obligations of the Backup Servicer shall
be determined solely by the express provisions of this Agreement and no implied
covenants or obligations shall be read into this Agreement against the Backup
Servicer. The Backup Servicer shall not be required to expend or risk its own
funds or otherwise incur financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers (other than
in the ordinary course of the performance of such duties or the exercise of such
rights or powers), if the repayment of such funds or adequate written indemnity
against such risk or liability is not reasonably assured to it in writing prior
to the expenditure or risk of such funds or incurrence of financial liability.
(f) Neither the Backup Servicer nor any of its directors, officers,
employees or agents shall be under any liability to any of the parties hereto,
except as specifically provided in this Agreement, for any action taken or for
refraining from the taking of any action pursuant to this Agreement or for
errors in judgment; PROVIDED HOWEVER, that this provision shall not protect the
Backup Servicer against any misfeasance, bad faith or negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties under this Agreement. The Backup Servicer and any of its directors,
officers, employees or agents may rely in good faith on the advice of counsel or
on any document of any kind prima facie properly executed and submitted by any
Person respecting any matters arising under this Agreement.
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SECTION 7.07 GENERAL COVENANTS OF SERVICER.
Creditrust Corporation covenants and agrees that from the Closing Date
until it is no longer the Servicer hereunder:
(a) Related Person Transaction. Without the prior written consent of
the Controlling Party, Servicer shall not enter into any Related Person
Transaction other than on terms that are no less favorable to Servicer than
those that would have been obtained in a comparable transaction by Servicer with
a non-Related Person. The term "Related Person" means, as to Servicer, any
stockholder, director, officer or employee thereof or any relative thereof. The
term "Related Person Transaction" means, (i) any sale, lease, transfer or other
disposition of Servicer's property to any Related Person, or (ii) the purchase,
lease or other acquisition by Servicer of any property from any Related Person,
or (iii) the making of any contract, agreement, understanding, loan, advance,
guarantee, or other credit support with or for the benefit of any Related
Person.
(b) Sale of Assets. Without the prior written consent of the
Controlling Party, Servicer shall not convey, sell, lease, license, transfer or
otherwise dispose of, in one transaction or in a series of transactions, all or
substantially all of its assets, other than with respect to securitization
transactions of its receivables.
(c) Bankruptcy. Servicer shall not take any action in any capacity to
file any bankruptcy, reorganization or Insolvency Proceedings against Issuer, or
cause Issuer to commence any reorganization, bankruptcy proceedings or
Insolvency Proceedings under any applicable state or federal law, including
without limitation any readjustment of debt, or marshaling of assets or
liabilities or similar proceedings.
(d) Legal Existence. Servicer shall do or cause to be done all things
necessary on its part to preserve and keep in full force and effect its
existence as a corporation in the jurisdiction of its incorporation, and to
maintain each of its licenses, approvals, registrations or qualifications in all
jurisdictions in which its ownership or lease of property or the conduct of its
business requires such licenses, approvals, registrations or qualifications;
except for failures to maintain any such licenses, approvals, registrations or
qualifications which, individually or in the aggregate, would not have a
material adverse effect on the
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ability of Servicer to perform its obligations hereunder or under any of the
other Transaction Documents.
(e) Compliance With Laws. Servicer shall comply in all material
respects, with all laws, rules and regulations and orders of any governmental
authority applicable to its operation, the noncompliance with which would have a
material adverse effect on the business, financial condition or results of
operations of the Servicer or on the ability of the Servicer to perform its
obligations hereunder or under any of the other Transaction Documents.
(f) Taxes. Servicer shall pay and discharge all taxes, assessments and
governmental charges or levies imposed upon Servicer or upon its income and
profits, or upon any of its property or any part thereof, before the same shall
become in default, provided that Servicer shall not be required to pay and
discharge any such tax, assessment, charge or levy so long as the validity or
amount thereof shall be contested in good faith by appropriate proceedings and
Servicer shall have set aside on its books adequate reserves with respect to any
such tax, assessment, charge or levy so contested, or so long as the failure to
pay any such tax, assessment, charge or levy would not have a material adverse
effect on the ability of the Servicer to perform its obligations hereunder.
(g) Financial Statements. Servicer shall maintain its financial books
and records in accordance with GAAP. Servicer shall furnish to the Noteholders
and the Backup Servicer:
(i) Quarterly Statements. As soon as available and in any
event within 45 days after the end of each of the calendar quarters of each
fiscal year of the Servicer, the consolidated balance sheet of the Servicer and
the related statements of income, shareholders' equity and cash flows, each for
the period commencing at the end of the preceding fiscal year and ending with
the end of such fiscal quarter, prepared in accordance with GAAP consistently
applied;
(ii) Annual Statements. As soon as available and in any event
within 90 days after the end of each fiscal year of the Servicer, the balance
sheets of the Servicer and the related statements of income, shareholder's
equity and cash flows for the fiscal year then ended, each prepared in
accordance with GAAP consistently applied and reported on by a firm of
nationally recognized independent public accountants; and
(iii) Other Filings. Promptly after the filing thereof, copies
of each Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current
Report on Form 8-K and proxy statement of Servicer.
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(h) Compliance with all Transaction Documents. The Servicer hereby
covenants and agrees to comply in all material respects with the terms of,
employ the procedures outlined in and enforce the obligations of the parties to
all of the Transaction Documents to which the Servicer is a party, and take all
such action to such end as may be from time to time reasonably requested by the
Trustee, maintain all such Transaction Documents in full force and effect and
make to the parties thereto such reasonable demands and requests for information
and reports or for action as the Servicer is entitled to make thereunder and as
may be from time to time reasonably requested by the Trustee.
(i) No Change in Principal Executive Office or Location of Records. The
Servicer covenants that it shall maintain its principal place of business and
principal executive office, and the office where it maintains all of its
records, at 7000 Security Blvd., Baltimore, MD 21244; PROVIDED that, at any time
after the Closing Date, upon 30 days' prior written notice to each of the Issuer
and the Trustee, the Servicer may relocate its principal place of business and
principal executive office, and/or the office where it maintains all of its
records, to another location within the United States to the extent that the
Servicer shall have taken all actions necessary or reasonably requested by the
Issuer, the Trustee or the Controlling Party to amend its existing financing
statements and continuation statements, and file additional financing statements
and to take any other steps reasonably requested by the Issuer or the Trustee to
further perfect or evidence the rights, claims or security interests of any of
the Issuer or the Trustee under any of the Transaction Documents. As of the
Closing Date, each Receivable File shall be kept by the Servicer at its offices
at 7000 Security Blvd., Baltimore, MD 21244.
(j) Maintenance of Insurance. The Servicer hereby covenants and agrees
to maintain one or more policies of "all-risk" property and general liability
insurance with financially sound and reputable insurers, providing coverage in
scope and amount which is at least consistent with the scope and amount of such
insurance coverage obtained by prudent and similarly situated Persons in the
same jurisdiction and the same business as Servicer.
(k) Separate Identity. The Servicer hereby covenants and agrees to take
all actions required to maintain the Issuer's status as a separate legal entity.
Without limiting the foregoing, the Servicer shall:
(i) cause Issuer to conduct all of its business, and make all
communications to third parties (including all invoices (if any), letters,
checks and other instruments) solely in its own name (and not as a division of
any other Person), and require that its employees, if any, when conducting its
business identify themselves as such;
(ii) cause Issuer to compensate all employees, consultants and
agents directly or indirectly through reimbursement of the Servicer, from the
Issuer's bank accounts, for services provided to the Issuer by such employees,
consultants and agents and, to the extent any employee, consultant or agent of
the Issuer is also an employee, consultant or agent of the Servicer, allocate
the compensation of such employee, consultant or agent between the Issuer
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and the Servicer on a basis which reflects the respective services rendered to
the Issuer and the Servicer;
(iii) cause Issuer to (A) pay its own incidental
administrative costs and expenses from its own funds, and (B) allocate all other
shared overhead expenses (including, without limitation, telephone and other
utility charges, the services of shared employees, consultants and agents, and
reasonable legal and auditing expenses) which are not reflected in the Servicing
Fee, and other items of cost and expense shared between the Issuer and the
Servicer, on the basis of actual use to the extent practicable, and to the
extent such allocation is not practicable, on a basis reasonably related to
actual use or the value of services rendered;
(iv) cause Issuer to at all times have at least one
Independent Member, with at least one independent director, and have at least
one officer responsible for managing its day-to-day business and manage such
business by or under the direction of its board of managers;
(v) cause Issuer to maintain its books and records separate
from those of any Affiliate;
(vi) cause Issuer to prepare its financial statements
separately from those of its Affiliates and ensure that any consolidated
financial statement have notes to the effect that the Issuer is a separate
entity whose creditors have a claim on its assets prior to those assets becoming
available to its equity holders and therefore to any creditors, as the case may
be;
(vii) cause Issuer to not commingle its funds or other assets
with those of any of its Affiliates (other than in respect of items of payment
or funds which may be commingled until deposited into the Collection Account in
accordance with this Agreement), and not to hold its assets in any manner that
would create an appearance that such assets belong to any such Affiliate, not
maintain bank accounts or other depository accounts to which any such Affiliate
is an account party, into which any such Affiliate makes deposits or from which
any such Affiliate has the power to make withdrawals, and not act as an agent or
representative of any of its Affiliates in any capacity;
(viii) not permit any of its Affiliates to pay the Issuer's
operating expenses;
(ix) not permit Issuer to guarantee any obligation of any of
its Affiliates nor have any of its obligations guaranteed by any such Affiliate
(either directly or by seeking credit based on the assets of such Affiliate), or
otherwise hold itself out as responsible for the debts of any Affiliate;
(x) cause Issuer to maintain at all times stationery separate
from that of any Affiliate and have all its officers and employees conduct all
of its business solely in its own name;
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(xi) cause Issuer to hold regular meetings of its board of
managers in accordance with the provisions of its LLC Agreement and otherwise
take such actions as are necessary on its part to ensure that all company
procedures required by its LLC Agreement and By-laws are duly and validly taken;
(xii) cause Issuer to respond to any inquires made directly to
it with respect to ownership of a Receivable by stating that it is the owner of
such contributed Receivable, and, if requested to do so, that the Trustee has
been granted a security interest in such Receivable; and
(xiii) cause Issuer to take such other actions as are
necessary on its part to ensure that the facts and assumptions set forth in the
non-consolidation opinion delivered by Issuer's counsel remain true and correct
at all times.
(l) Benefit Plan. The Servicer hereby covenants and agrees to comply in
all material respects with the provisions of ERISA, the Code, and all other
applicable laws, and the regulations and interpretations thereunder to the
extent applicable, with respect to each Benefit Plan. Servicer covenants that it
will not, and it will cause any ERISA Affiliate to not:
(i) engage in any non-exempt prohibited transaction (within the
meaning of Code Section 4975 or ERISA Section 406) with respect to any Benefit
Plan which would result in a material liability to the Servicer;
(ii) permit to exist any accumulated funding deficiency, as
defined in Section 302(a) of ERISA and Section 412(a) of the Code, with respect
to any Benefit Plan of the Servicer or any ERISA affiliate which is subject to
Section 302(q) of ERISA or 412 of the Code;
(iii) terminate any Benefit Plan of the Servicer or any ERISA
Affiliate so as to result in any material liability to the Servicer or an ERISA
Affiliate; or
(iv) create any defined benefit plan (as defined in ERISA).
(m) Stockholders' Equity. Servicer shall not permit its stockholders'
equity as required to be shown on its financial statements in accordance with
GAAP to be less than $50,000,000.
(n) Board. Servicer will maintain an independent board of directors
with a majority of "qualified outside directors" (as defined in the NASD Rules
for National Market Designations).
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In the case of each of subsections 7.07(a) and (b) above, the consent of the
Controlling Party referred to therein shall not be unreasonably delayed or
unreasonably withheld.
ARTICLE VIII
SERVICER DEFAULT; EVENTS OF DEFAULT
SERVICER EVALUATION EVENT; REMEDIES
SECTION 8.01 SERVICER DEFAULT.
For purposes of this Agreement, each of the following shall constitute
a "Servicer Default":
(a) Any failure by the Servicer to deliver to the Trustee the Monthly
Servicer Report for the related Collection Period, or any failure by the
Servicer to make any payment, transfer or deposit, or deliver to the Trustee any
proceeds or payment required to be so delivered under the terms of the Notes,
this Agreement or any of the other Transaction Documents to which it is a party,
in each case that continues unremedied for a period of one Business Day after
the earlier to occur of (x) discovery by a Responsible Officer of the Servicer,
or (y) the date on which written notice has been given to the Servicer by the
Trustee or the Controlling Party or to the Trustee and the Servicer by any
Noteholder;
(b) Any failure on the part of the Servicer duly to observe or perform
any other covenants or agreements of the Servicer set forth in the Notes, this
Agreement, or any of the other Transaction Documents to which the Servicer is a
party, which failure (i) would have a material adverse effect on the rights or
interests of the Noteholders, the Trustee or the Trust Estate and (ii) continues
unremedied for a period of 30 days after the earlier to occur of (x) discovery
by a Responsible Officer of the Servicer or (y) the date on which written notice
of such failure, requiring the same to be remedied, shall have been given to the
Servicer by the Controlling Party or the Trustee, or to the Trustee and the
Servicer by Noteholders evidencing not less than 25% of the Voting Interests; or
the Servicer delegates its duties under the Notes, this Agreement, or any of the
other Transaction Documents to which it is a party (except as specifically
permitted pursuant to Section 8.07), and such delegation continues unremedied
for a period of 15 days after written notice, requiring such delegation to be
remedied, shall have been given to the Servicer by the Trustee
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or the Controlling Party, or to the Trustee and the Servicer by Noteholders
evidencing not less than 25% of the Voting Interests;
(c) The entry of a decree or order by a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of a trustee
in bankruptcy, conservator, receiver or liquidator for the Servicer in any
bankruptcy, insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings, or for the winding up or liquidation of
their respective affairs, and the continuance of any such decree or order
unstayed and in effect for a period of 30 consecutive days;
(d) The consent by the Servicer to the appointment of a trustee in
bankruptcy, conservator or receiver or liquidator in any bankruptcy, insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings of or relating to the Servicer or substantially all of its property,
or the Servicer shall admit in writing its inability to pay its debts generally
as they become due, file a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the benefit of its
creditors, or voluntarily suspend payment of its obligations;
(e) Any representation, warranty or certification made by Creditrust
Corporation in any capacity or any Successor Servicer in this Agreement or in
any other Transaction Document to which it is a party, or in any certificate
delivered pursuant to this Agreement or in any other Transaction Document to
which it is a party, proves to have been incorrect when made, which (i) would
have a material adverse effect on the rights of the Noteholders or the Trust
Estate, respectively (without regard to any amount deposited in the Reserve
Account), and (ii) if capable of remedy, continues unremedied for a period of 30
days after the earlier to occur of (x) discovery by a Responsible Officer of the
Servicer or (y) the date on which written notice thereof, requiring the same to
be remedied, shall have been given to the Servicer by the Controlling Party or
the Trustee or to the Trustee and the Servicer by Noteholders evidencing not
less than 25% of the Voting Interests;
(f) Commencing February 29, 2000, and on the last day of each February
and August thereafter, the cumulative amount of Net Proceeds in respect of all
Receivables from the Closing Date to such date is less than the amounts
specified in Schedule B;
(g) Servicer suffers the loss, suspension or other material impairment
of any required license or permit in any state or commonwealth of the United
States (or the District of Columbia) where Obligors are located which, in the
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aggregate for such state or commonwealth (or the District of Columbia), accounts
for more than $50,000,000 in the initial Charged-Off Balances of Receivables,
unless such loss, suspension or impairment is cured within 60 days after any
Responsible Officer of the Servicer has knowledge of such loss, suspension or
material impairment;
(h) Either Joseph K. Rensin or Richard J. Palmer terminates or shall
have terminated his respective employment with the Servicer, or become disabled
for a period of three consecutive months or more, or die and a replacement
reasonably satisfactory to the Controlling Party has not been appointed within
90 days after such death, termination or disability;
(i) Joseph K. Rensin shall (i) cease to be Chief Executive Officer or
Chairman of the Board of Servicer, unless a replacement reasonably satisfactory
to the Controlling Party is appointed within 90 days thereafter, or (ii) engage
in material business activities other than the management of Servicer;
(j) There occurs any reduction of Joseph K. Rensin's personal
investment in Servicer below an amount equal to 35% of the outstanding common
stock of Servicer, or such lesser amount as may be acceptable to the Controlling
Party;
(k) Servicer sells, transfers, pledges or otherwise disposes of any of
its membership interest in Issuer, whether voluntarily or by operation of law,
foreclosure or other enforcement by a Person of its remedies against the
Servicer, except pursuant to a merger, consolidation or a sale of all or
substantially all the assets of Servicer in a transaction not prohibited by this
Agreement; PROVIDED, HOWEVER, that the Servicer may pledge its membership
interest in the Issuer to a secured lender (x) in connection with a pledge of
all or substantially all of the assets of the Servicer to secure indebtedness
owed to such lender for borrowed money, or (y) with the prior written consent of
the Controlling Party; or
(l) The existence of an Event of Default (or similar event which
permits the acceleration of the obligations) and the expiration of any
applicable cure period in (i) any securitization transactions to which
Creditrust Corporation or any of its Affiliates is a party or (ii) any
obligation of Creditrust Corporation or any of its Affiliates for the repayment
of borrowed money with a principal balance then exceeding $100,000.
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Notwithstanding the foregoing, the cure periods referred to in each of
clauses (a), (g) and (h) above may be extended for an additional period of five
Business Days each, or such longer period not to exceed 30 Business Days as may
be acceptable to the Controlling Party, if such delay or failure was caused by
an act of God or other similar occurrence. Upon the occurrence of any such event
the Servicer shall not be relieved from using its best efforts to perform its
obligations in a timely manner in accordance with the terms of this Agreement
and the Servicer shall provide the Trustee, the Rating Agency, the Placement
Agent and the Noteholders prompt notice of such failure or delay by it, together
with a description of its effort to so perform its obligations. The Servicer
shall notify the Trustee in writing of any Servicer Default that it discovers
within one Business Day of such discovery. The Trustee shall have no duty or
obligation to determine whether or not a Servicer Default has occurred.
SECTION 8.02 CONSEQUENCES OF A SERVICER DEFAULT.
(a) If a Servicer Default shall occur and be continuing, so
long as such Servicer Default has not been cured or waived pursuant to Section
8.05, the Trustee shall, upon the direction of the Controlling Party, and may
(with the written consent of the Controlling Party), at its discretion, by
notice then given in writing to the Servicer terminate all (but not less than
all) of the rights and obligations of the Servicer, as Servicer under this
Agreement and the other Transaction Documents, in and to the Receivables and
proceeds thereof. On or after the receipt by the Servicer of such written
notice, all authority and power of the Servicer under this Agreement, whether
with respect to the Notes, the Receivables, the Transaction Documents or
otherwise, shall, without further action, pass to and be vested in the Backup
Servicer pursuant to and under this Section or such Successor Servicer as may be
appointed under Section 8.03; and, without limitation, the Backup Servicer or
such Successor Servicer shall be hereby authorized and empowered to execute and
deliver, on behalf of the predecessor Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments, and to do or accomplish
all other acts or things necessary or appropriate to effect the purposes of such
notice of termination, whether to complete the transfer and endorsement of the
Receivables and related documents, or otherwise. The predecessor Servicer shall
cooperate with the Backup Servicer or the Successor Servicer, as applicable, in
effecting the termination of the responsibilities and rights of the predecessor
Servicer under this Agreement, including, without limitation, the transfer to
the Backup Servicer or the Successor Servicer, as applicable, for administration
by it of all cash amounts that shall at the time be held by the predecessor
Servicer for deposit with respect to the Receivables, or have been
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deposited by the predecessor Servicer in the Accounts with respect to the
Receivables or thereafter received by the predecessor Servicer with respect to
the Receivables. All reasonable costs and expenses (including attorneys' fees)
incurred in connection with transferring the Receivable Files to the Backup
Servicer or the Successor Servicer, as applicable, and amending this Agreement
to reflect such succession as Servicer pursuant to this Section shall be paid
first, pursuant to Section 4.04(b)(ii), and second, by the predecessor Servicer
upon presentation of reasonable documentation of such costs and expenses;
PROVIDED, HOWEVER, that the amount of such costs and expenses shall not exceed
$100,000 (the amount of such costs and expenses are referred to herein as the
"Transition Fees").
(b) In addition to the remedial provisions set forth in clause
(a) above, and not by way of limitation of any remedies to which any of the
Trustee or the Noteholders are entitled upon the occurrence of a Servicer
Default, the Issuer and the Servicer acknowledge and agree that, so long as a
Servicer Default shall occur and be continuing, and such Servicer Default has
not been cured or waived pursuant to Section 8.05, the Trustee shall, upon the
direction of the Controlling Party and may (with the written consent of the
Controlling Party), at its discretion, by notice then given in writing to the
Servicer, direct the Servicer (or Backup Servicer or Successor Servicer as the
case may be) to (x) deposit all checks and other items of collections received
in respect of Receivables directly into an Account immediately upon receipt,
and/or (y) instruct each Obligor to remit all collections in respect of
receivables directly to an Account designated for such purpose.
SECTION 8.03 BACKUP SERVICER TO ACT; APPOINTMENT OF SUCCESSOR SERVICER.
On and after the time the Servicer receives a notice of termination
pursuant to Section 8.02 or tenders its resignation pursuant to Section 7.05,
the Backup Servicer shall, by an instrument in writing, assume the rights and
responsibilities of the Servicer in its capacity as Servicer under this
Agreement and the transactions set forth or provided for in this Agreement, and
shall be subject to all the responsibilities, restrictions, duties and
liabilities relating thereto placed on the Servicer by the terms and provisions
of this Agreement; PROVIDED, HOWEVER, that the Backup Servicer shall not be
liable for any acts, omissions or obligations of the Servicer that occurred
prior to such succession or for any breach by the Servicer of any of its
representations and warranties contained in this Agreement or in any related
Transaction Document. In addition, the Backup Servicer, shall have (i) no
obligation to perform any
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repurchase or advancing obligations, if any, of the Servicer, (ii) no obligation
to pay any taxes required to be paid by the Servicer, (iii) no obligation to pay
any of the fees and expenses of any other party involved in this transaction
(other than of any agent of the Backup Servicer or of persons owed Third Party
Fees) and (iv) no liability or obligation with respect to any Servicer
indemnification obligations of any prior Servicer including the original
Servicer. Furthermore, notwithstanding anything contained in this Agreement to
the contrary, the Backup Servicer as Servicer is authorized to accept and rely
on all of the accounting, records and work of the prior Servicer relating to the
Receivables (collectively, "Predecessor Servicer Work Product") without any
audit or other examination thereof, and the Backup Servicer as Servicer shall
have no duty, responsibility, obligation or liability for the acts and omissions
of any prior Servicer. If any error, inaccuracy or omission (collectively,
"Errors") exist in any Predecessor Servicer Work Product received by the Backup
Servicer from the prior Servicer and such Errors should cause or materially
contribute to the Backup Servicer as Servicer making or continuing any Errors
(collectively, "Continued Errors"), the Backup Servicer as Servicer shall have
no duty, responsibility, obligation or liability for such Continued Errors;
provided, however, that the Backup Servicer agrees to perform its duties as
Successor Servicer in accordance with the standard of care set forth in Section
3.04. In the event that the Backup Servicer as Servicer becomes aware of Errors
or Continued Errors, the Backup Servicer shall give notice thereof to the
Noteholders and the Trustee and shall use its best efforts to reconstruct and
reconcile such data as is commercially reasonable to correct such Errors and
Continued Errors and to prevent future Continued Errors. The Backup Servicer as
Servicer shall be entitled to recover from the Trust its costs thereby expended
solely pursuant to Section 4.04(b)(vii). As compensation therefor, the Backup
Servicer shall be entitled to such compensation (whether payable out of the
Collection Account or otherwise) as the Successor Servicer would have been
entitled to under this Agreement, determined in the manner set forth below but
shall no longer be entitled to receive the Backup Servicer Fee. Notwithstanding
anything herein to the contrary, Norwest Bank Minnesota, National Association
shall not resign from the obligations and duties imposed on it as Backup
Servicer under this Agreement except upon determination that the performance of
its duties under this Agreement shall no longer be permissible under applicable
law. Notice of any such determination permitting the resignation of Norwest Bank
Minnesota, National Association shall be communicated to the Issuer, the
Trustee, the Noteholders, and the Rating Agency at the earliest practicable time
and any such determination shall be evidenced by an Opinion of Counsel to such
effect delivered to the Trustee and the Noteholders concurrently with or
promptly after such notice. In the event the Backup Servicer is unable or
unwilling so to act, it shall appoint or petition
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a court of competent jurisdiction to appoint any established institution having
a net worth of not less than $50,000,000 and whose regular business includes the
servicing of consumer receivables as a successor servicer (a "Successor
Servicer"). In connection with such appointment and assumption, or the
assumption by the Backup Servicer of the status of Successor Servicer, the
Backup Servicer may make such arrangements for the compensation of such
Successor Servicer (including itself) out of payments on or in respect of the
Receivables as provided in the second succeeding sentence. Any Successor
Servicer appointed pursuant to this Section 8.03 must have, and must certify
that it has, the experience and ability to service the Receivables in accordance
with the obligations of the Servicer hereunder, and the ability to make the same
relevant representations regarding the servicing of the Receivables as the
Servicer makes hereunder, including being Year 2000 Compliant. The Successor
Servicer shall be entitled to compensation equal to a fee calculated in
accordance with the first sentence in the definition of "Servicing Fee" except
that the percentage in that sentence shall be deemed to be thirty-seven and
one-half percent (37.5%) rather than twenty percent (20%). The Backup Servicer
and such Successor Servicer shall take such action, consistent with this
Agreement, as shall be necessary to effectuate any such succession. The Backup
Servicer shall not be relieved of its duties as Successor Servicer under this
Section until the newly appointed Successor Servicer shall have assumed the
responsibilities and obligations of the Servicer under this Agreement.
The parties expressly acknowledge and consent to Norwest Bank
Minnesota, National Association acting in the possible dual capacity of Backup
Servicer or successor Servicer and in the capacity as Trustee. Norwest Bank
Minnesota, National Association may, in such dual capacity, discharge its
separate functions fully, without hindrance or regard to conflict of interest
principles, duty of loyalty principles or other breach of fiduciary duties to
the extent that any such conflict or breach arises from the performance by
Norwest Bank Minnesota, National Association of express duties set forth in this
Agreement in any of such capacities, all of which defenses, claims or assertions
are hereby expressly waived by the other parties hereto except in the case of
negligence (other than errors in judgment) and willful misconduct by Norwest
Bank Minnesota, National Association.
SECTION 8.04 NOTIFICATION TO NOTEHOLDERS, RATING AGENCY AND PLACEMENT
AGENT.
Upon a Responsible Officer of the Trustee obtaining actual knowledge of
(i) the occurrence of a Servicer Default or (ii) any termination of, or
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appointment of a successor to, the Servicer pursuant to this Agreement, the
Trustee shall give prompt written notice thereof to Noteholders at their
respective addresses appearing in the Note Register and to the Rating Agency and
the Placement Agent.
SECTION 8.05 WAIVER OF PAST SERVICER DEFAULTS.
The Trustee shall at the direction of the Controlling Party waive any
Servicer Default or other default by the Servicer in the performance of its
obligations hereunder and its consequences, except a default in making any
required deposits to or payments from the Accounts in accordance with this
Agreement or in respect of a covenant or provision of this Agreement that under
Section 11.01 cannot be modified or amended without the consent of each
Noteholder. Upon any such waiver of a past default, such default shall cease to
exist, and any Servicer Default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereon except to the
extent expressly so waived.
SECTION 8.06 [DELETED]
SECTION 8.07 SUBSERVICERS.
(a) The Backup Servicer, in its capacity as either Backup Servicer or
Successor Servicer, may, at its own expense, enter into subservicing agreements
with subservicers (the "Subservicers") for the servicing and administration of
all or any part of the Receivables. References in this Agreement to actions
taken or to be taken by the Backup Servicer in servicing and managing the
Receivables include actions taken by a Subservicer on behalf of the Backup
Servicer. Each Subservicer shall be authorized to transact business in the state
or states in which the related Receivables it is to service or manage are
situated, if and to the extent required by applicable law to enable the
Subservicer to perform its obligations hereunder and under the applicable
subservicing agreement. Each subservicing agreement shall be upon such terms and
conditions as are not inconsistent with this Agreement and as to which the
Backup Servicer and the Subservicer have agreed. For purposes of this Agreement,
the Backup Servicer shall be deemed to have received any payment when the
Subservicer receives such payment. The
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Backup Servicer shall notify the Trustee, the Issuer, and the Rating Agency in
writing promptly upon the appointment of any Subservicer.
(b) As part of its servicing activities hereunder, the Backup Servicer,
for the benefit of the Trustee and the Noteholders, shall enforce the
obligations of each Subservicer under the related subservicing agreement. Such
enforcement, including, without limitation, the legal prosecution of claims,
termination of subservicing agreements and pursuit of other appropriate
remedies, shall be in accordance with the servicing standards set forth herein.
The Backup Servicer shall pay the costs of such enforcement at its own expense
and shall be reimbursed therefor only from (i) a general recovery resulting from
such enforcement only to the extent, if any, that such recovery exceeds all
amounts due in respect of the related Receivables, or (ii) a specific recovery
of costs, expenses or attorneys' fees against the party against whom such
enforcement is directed.
(c) Notwithstanding any subservicing agreement, any of the provisions
of this Agreement relating to agreements or arrangements between the Backup
Servicer and a Subservicer, or reference to actions taken through a Subservicer
or otherwise, the Backup Servicer shall remain obligated and liable to the
Trustee and the Noteholders for the servicing, managing, collecting and
administering of the Receivables and the other assets included in the Trust
Estate in accordance with the provisions of Section 2.01 without diminution of
such obligation or liability by virtue of such subservicing agreement or
arrangements or by virtue of indemnification from a Subservicer and to the same
extent and under the same terms and conditions as if the Backup Servicer alone
were servicing, managing, collecting and administering the Receivables and the
other assets included in the Trust Estate.
SECTION 8.08 EVENTS OF DEFAULT.
"Event of Default" wherever used herein, means, with respect to Notes
issued hereunder, any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) default in the payment of any amount due and owing on any Note
(which default continues for a period of two Business Days) or failure to pay
the Notes in full on or before the Final Payment Date;
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(b) if the Issuer shall breach or default in the due observance of the
covenants of the Issuer set forth in Section 6.07;
(c) if the Issuer shall breach, or default in the due observance or
performance of, any other of its covenants in this Agreement, which breach or
default would have a material adverse effect on the rights or interests of the
Noteholders, and such default shall continue for a period of 30 days after the
earlier to occur of (x) discovery by a Responsible Officer of the Servicer or
(y) the date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer by the Trustee, or to the
Trustee and the Servicer by Noteholders evidencing not less than 25% of the
Voting Interests;
(d) if any representation or warranty of the Issuer made in this
Agreement or any certificate or other writing delivered pursuant hereto or in
connection herewith shall prove to have been breached in any material respect as
of the time when the same shall have been made or deemed made, which breach
would have a material adverse effect on the rights or interests of the
Noteholders, and such breach shall continue for a period of 30 days after the
earlier to occur of (x) discovery by a Responsible Officer of the Servicer or
(y) the date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer by the Trustee, or to the
Trustee and the Servicer by Noteholders evidencing not less than 25% of the
Voting Interests;
(e) the entry of a decree or order for relief by a court having
jurisdiction in respect of the Issuer in an involuntary case under the federal
bankruptcy laws, as now or hereafter in effect, or any other present or future
federal or state bankruptcy, insolvency or similar law, or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Issuer or of any substantial part of its property, or
ordering the winding up or liquidation of the affairs of the Issuer and the
continuance of any such decree or order unstayed and in effect for a period of
30 consecutive days;
(f) the commencement by the Issuer of a voluntary case under the
federal bankruptcy laws, as now or hereafter in effect, or any other present or
future federal or state bankruptcy, insolvency or similar law, or the consent by
the Issuer to the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Issuer or of any substantial part of its property or the making by the Issuer of
an assignment for the benefit of creditors or the failure by the Issuer
generally to
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pay its debts as such debts become due or the taking of corporate action by the
Issuer in furtherance of any of the foregoing;
(g) the occurrence and continuation of a Servicer Default;
(h) the IRS or the PBGC shall have filed notice of one or more Adverse
Claims against the Servicer, the Issuer or any of their ERISA Affiliates under
ERISA or the Code, which constitutes a Lien on the Receivables, and such notice
shall have remained in effect for more than thirty (30) Business Days unless,
prior to the expiration of such period, such Adverse Claims shall have been
adequately bonded by such Servicer, Issuer, or the ERISA Affiliate (as the case
may be) in a transaction with respect to which the Controlling Party has given
its prior written approval; or
(i) the Issuer or the Trust Estate shall have become subject to
registration as an "investment company" within the meaning of the Investment
Company Act as determined by a court of competent jurisdiction in a final and
non-appealable order.
SECTION 8.09 ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default occurs and is continuing, then and in
every such case, so long as such Event of Default has not been cured or waived
pursuant hereto, the Trustee shall, upon the direction of the Controlling Party,
and may with the written consent of the Controlling Party, at its discretion, by
notice then given in writing to the Issuer and the Servicer, declare all of the
Notes to be immediately due and payable and upon any such declaration such
Notes, in an amount equal to the Note Balance of such Notes, together with
accrued and unpaid interest thereon to the date of such acceleration, any other
amount payable to the Noteholders hereunder or under the Purchase Agreement, and
together with all unpaid Trustee Fees, Backup Servicing Fees, Transition Fees
and Servicing Fees, shall become immediately due and payable; provided that upon
the occurrence of an Event of Default described in Section 8.08(e) or Section
8.08(f), such acceleration shall be deemed to occur automatically without any
action by the Controlling Party.
At any time after such a declaration of acceleration of maturity of the
Notes has been made and before a judgment or decree for payment of the money due
has been obtained by the Trustee as hereinafter in this Article provided, the
Controlling Party by written notice to the Issuer and the Trustee, may rescind
and annul such declaration and its consequences if:
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(a) the Issuer has paid or deposited with the Trustee a sum sufficient
to pay:
(i) all payments of principal of, and interest on, all Notes
and all other amounts which would then be due hereunder or upon such Notes if
the Event of Default giving rise to such acceleration had not occurred; and
(ii) all sums paid by the Trustee hereunder and the reasonable
compensation, expenses and disbursements of the Trustee, its agents and counsel;
and
(b) all Events of Default, other than the nonpayment of the principal
of Notes which have become due solely by such acceleration, have been cured or
waived as provided in Section 8.21.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
SECTION 8.10 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
Subject to the following sentence, if an Event of Default occurs and is
continuing, the Trustee may in its discretion proceed to protect and enforce its
rights and the rights of the Noteholders by any proceedings the Trustee deems
appropriate to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Agreement or in aid of the
exercise of any power granted herein, or enforce any other proper remedy. Any
proceedings brought by the Trustee on behalf of the Noteholders or by any
Noteholder against the Issuer shall be limited to the preservation, enforcement
and foreclosure of the liens, assignments, rights and security interests under
this Agreement and the other Transaction Documents and no attachment, execution
or other suit or process shall be sought, issued or levied upon any assets,
properties or funds of the Issuer, other than the Trust Estate. If there is a
foreclosure of any such liens, assignments, rights and security interests under
this Agreement, by private power of sale or otherwise, no judgment for any
deficiency upon the indebtedness represented by the Notes may be sought or
obtained by the Trustee or any Noteholder against the Issuer. The Trustee shall
be entitled to recover the costs and expenses expended by it pursuant to this
Section 8.10 including reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
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SECTION 8.11 REMEDIES.
If an Event of Default shall have occurred and be continuing
and the Notes have been declared due and payable and such declaration and its
consequences have not been rescinded and annulled, the Trustee (subject to
Section 8.24, to the extent applicable) shall, at the direction of the
Controlling Party, and may (with the written consent of the Controlling Party)
at its discretion, do one or more of the following:
(a) institute proceedings for the collection of all amounts then
payable on the Notes, under this Agreement or under any of the other Transaction
Documents, whether by declaration or otherwise, enforce any judgment obtained,
and collect from the Issuer monies adjudged due, subject in all cases to the
provisions of Section 8.10;
(b) in accordance with Section 8.24, sell the Trust Estate or any
portion thereof or rights or interest therein, at one or more public or private
Sales called and conducted in any manner permitted by law;
(c) institute proceedings from time to time for the complete or partial
foreclosure of this Agreement with respect to the Trust Estate;
(d) exercise any remedies of a secured party under the UCC and take any
other appropriate action to protect and enforce the rights and remedies of the
Trustee or the Noteholders hereunder; and
(e) refrain from selling the Trust Estate and apply all Available Funds
pursuant to Section 8.14.
SECTION 8.12 TRUSTEE MAY FILE PROOFS OF CLAIM
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, composition or other judicial
proceeding relative to the Issuer or any other obligor upon any of the Notes or
the property of the Issuer or of such other obligor or their creditors, the
Trustee (irrespective of whether the Notes shall then be due and payable as
therein expressed or by declaration or otherwise and irrespective of whether the
Trustee shall have made any demand on the Issuer for the payment of any overdue
principal or interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise to:
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(a) file and prove a claim for the whole amount of principal and
interest owing and unpaid in respect of the Notes and file such other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and of the
Noteholders allowed in such Proceeding, and
(b) collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any receiver,
assignee, trustee, liquidator, or sequestrator (or other similar official) in
any such proceeding is hereby authorized by each Noteholder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Noteholders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 9.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Noteholder any plan
of reorganization, arrangement, adjustment or composition affecting any of the
Notes or the rights of any Noteholder, or to authorize the Trustee to vote in
respect of the claim of any Noteholder in any such Proceeding.
SECTION 8.13 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES.
All rights of action and claims under this Agreement or any of the
Notes or any of the other Transaction Documents may be prosecuted and enforced
by the Trustee without the possession of any of the Notes or the production
thereof in any proceeding relating thereto, and any such proceeding instituted
by the Trustee shall be brought in its own name as trustee of an express trust,
and any recovery of judgment shall be for the ratable benefit of the Noteholders
in respect of which such judgment has been recovered and shall be paid as
provided in Section 8.14.
SECTION 8.14 APPLICATION OF MONEY COLLECTED.
If the Notes have been declared due and payable following an Event of
Default and such declaration and its consequences have not been rescinded
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and annulled, any money collected by the Trustee with respect to such Notes
pursuant to this Article or otherwise and any other monies that may then be held
or thereafter received by the Trustee as security for such Notes shall be
treated like Available Funds and applied as provided in Section 4.04(b).
SECTION 8.15 LIMITATION ON SUITS.
No Noteholder shall have any right to institute any proceedings,
judicial or otherwise, with respect to this Agreement, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:
(a) such Noteholder has previously given written notice to the Trustee
of a continuing Event of Default;
(b) The Controlling Party shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(c) such Noteholders have offered to the Trustee indemnity in full
against the costs, expenses and liabilities to be incurred in compliance with
such request;
(d) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Controlling Party;
it being understood and intended that no one or more Noteholders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Agreement to affect, disturb or prejudice the rights of any other
Noteholders or to obtain or to seek to obtain priority or preference over any
other Noteholders or to enforce any right under this Agreement, except in the
manner herein provided and for the equal and ratable benefit of all the
Noteholders.
In the event the Trustee shall receive conflicting or inconsistent
requests and indemnity from two or more groups of Noteholders, each representing
less than 50% of the Voting Interests, the Trustee in its sole discretion may
determine what action, if any, shall be taken notwithstanding any other
provision herein to the contrary.
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SECTION 8.16 UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL
AND INTEREST.
Subject to the provisions in this Agreement (including Section 8.10)
limiting the right to recover amounts due on a Note to recovery from amounts in
the Trust Estate, the Noteholder shall have the right to the extent permitted by
applicable law, which right is absolute and unconditional, to receive payment of
principal of and interest on such Note on the Final Payment Date and to
institute suit for the enforcement of any such payment and such right shall not
be impaired without the consent of such Noteholder.
SECTION 8.17 RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Noteholder has instituted any proceeding to
enforce any right or remedy under this Agreement and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Noteholder, then and in every such case the Issuer, the
Trustee and the Noteholders shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the
Noteholders shall continue as though no such proceeding had been instituted.
SECTION 8.18 RIGHTS AND REMEDIES CUMULATIVE.
No right or remedy herein conferred upon or reserved to the Trustee or
to the Noteholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 8.19 DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Noteholder to exercise
any right or remedy accruing upon any Event of Default shall impair any such
right
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or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Noteholders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Noteholders, as the
case may be.
SECTION 8.20 CONTROL BY CONTROLLING PARTY.
The Controlling Party shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee; PROVIDED that:
(a) such direction shall not be in conflict with any rule of law or
with this Agreement;
(b) any direction by Noteholders to the Trustee to undertake a Sale of
the Trust Estate shall be by the Controlling Party; and
(c) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction; PROVIDED, HOWEVER, that, subject
to Section 9.01, the Trustee need not take any action which it determines might
involve it in liability or be unjustly prejudicial to the Noteholders not
consenting.
SECTION 8.21 WAIVER OF PAST DEFAULTS.
The Controlling Party may on behalf of all the Noteholders waive any
past default hereunder and its consequences, except a default:
(a) in the payment of any installment of principal of or interest on,
any Note; or
(b) in respect of a covenant or provision hereof which under Section
11.01 cannot be modified or amended without the consent of all of the
Noteholders.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured for every
purpose of this Agreement; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
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SECTION 8.22 UNDERTAKING FOR COSTS.
All parties to this Agreement agree, and each Noteholder by his
acceptance of a Note hereunder shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or
remedy under this Agreement, or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 8.22 shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Noteholder, or group of Noteholders
representing more than 10% of the Voting Interests, or to any suit instituted by
any Noteholder for the enforcement of the payment of principal of or interest on
any Note on the Final Payment Date.
SECTION 8.23 WAIVER OF STAY OR EXTENSION LAWS.
The Issuer covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension of law wherever enacted,
now or at any time hereafter in force, which may affect the covenants in, or the
performance of, this Agreement; and the Issuer (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 8.24 SALE OF TRUST ESTATE.
(a) The power to effect any sale (a "Sale") of any portion of the Trust
Estate pursuant to Section 8.11 shall not be exhausted by any one or more Sales
as to any portion of the Trust Estate remaining unsold, but shall continue
unimpaired until the entire Trust Estate shall have been sold or all amounts
payable on the Notes and under this Agreement with respect thereto
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shall have been paid. The Trustee may from time to time postpone any public Sale
by public announcement made at the time and place of such Sale.
(b) To the extent permitted by law, the Trustee shall not in any
private Sale sell or otherwise dispose of the Trust Estate, or any portion
thereof, unless the Controlling Party shall consent to, or direct the Trustee to
make such Sale.
(c) Unless the Controlling Party has otherwise consented or directed
the Trustee, at any public Sale of all or any portion of the Trust Estate at
which a minimum bid equal to or greater than the entire amount that would be
distributable to the Noteholders in full payment of the Notes in accordance with
Section 8.14 has not been established by the Trustee and no Person bids an
amount equal to or greater than such amount, the Trustee shall prevent such sale
and bid an amount at least $1.00 more than the highest other bid in order to
preserve the Trust Estate. The purchase by the Trustee of all or any portion of
the Trust Estate at a private Sale shall not be deemed a Sale or disposition
thereof for purposes of this Section 8.24(c).
(d) In connection with a Sale of all or any portion of the Trust
Estate:
(i) any of the Noteholders may bid for and purchase the
property offered for Sale, and upon compliance with the terms of sale may hold,
retain and possess and dispose of such property, without further accountability,
and may, in paying the purchase money therefor, deliver any of the Notes or
claims for interest thereon in lieu of cash up to the amount which shall, upon
distribution of the net proceeds of such Sale, be payable thereon, and such
Notes, in case the amounts so payable thereon shall be less than the amount due
thereon, shall be returned to the holders thereof after being appropriately
stamped to show such partial payment;
(ii) the Trustee may bid for and acquire the property offered
for Sale in connection with any public Sale thereof, and, in lieu of paying cash
therefor, may make settlement for the purchase price by crediting the gross Sale
price against the sum of (A) the amount which would be distributable to the
Noteholders as a result of such Sale in accordance with Section 8.14 on the
Payment Date next succeeding the date of such Sale and (B) the expenses of the
Sale and of any proceedings in connection therewith which are reimbursable to
it, without being required to produce the Notes in order to complete any such
Sale or in order for the net Sale price to be credited against such Notes and
any property so acquired by the Trustee shall be held and dealt with by it in
accordance with the provisions of this Agreement;
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(iii) the Trustee shall execute and deliver an appropriate
instrument of conveyance transferring its interest in any portion of the Trust
Estate in connection with a Sale thereof;
(iv) the Trustee is hereby irrevocably appointed the agent and
attorney-in-fact of the Issuer to transfer and convey its interest in any
portion of the Trust Estate in connection with a Sale thereof, and to take all
action necessary to effect such Sale; and
(v) no purchaser or transferee at such a Sale shall be bound
to ascertain the Trustee's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any moneys.
(e) Notwithstanding anything in this Agreement to the contrary, if an
Event of Default specified in Section 8.08(a) is the Event of Default, or one of
the Events of Default, on the basis of which the Notes have been declared due
and payable, then the Trustee shall, at the direction of the Controlling Party,
or may, in its discretion (together with the written consent of the Controlling
Party), sell the Trust Estate without compliance with this Section 8.24.
SECTION 8.25 ACTION ON NOTES.
The Trustee's right to seek and recover judgment under this Agreement
shall not be affected by the seeking, obtaining or application of any other
relief under or with respect to this Agreement. Neither the Lien of this
Agreement nor any rights or remedies of the Trustee or the Noteholders shall be
impaired by the recovery of any judgment by the Trustee against the Issuer or by
the levy of any execution under such judgment upon any portion of the Trust
Estate.
SECTION 8.26 NO RECOURSE TO OTHER TRUST ESTATES OR OTHER ASSETS OF THE
ISSUER.
The Trust Estate granted to the Trustee as security for the Notes
serves as security only for the Notes. Holders of the Notes shall have no
recourse against the trust estate granted as security for any other series of
notes issued by the Issuer, and no judgment against the Issuer for any amount
due with respect to the Notes may be enforced against either the trust estate
securing any other series or any other assets of the Issuer, nor may any
prejudgment lien or other attachment be sought against any such other trust
estate or any other assets of the Issuer.
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SECTION 8.27 LICENSE.
Servicer hereby licenses to each "Qualified Successor
Servicer" (hereinafter defined) on a non-exclusive basis, a copy of Servicer's
"Mozart" software currently in use by Servicer for the collection of accounts by
Servicer, solely for the limited purpose of collecting the Receivables. The
licensee shall have no right to copy the software or sub-license or assign this
license except to another "Qualified Successor Servicer". The licensee shall not
be obligated to pay any royalty or other fee to Servicer for such license. The
term "Qualified Successor Servicer" means any Successor Servicer (or Subservicer
thereof) which has not, nor has any Affiliate thereof, within the two year
period immediately prior to its appointment as Successor Servicer (or
Subservicer, as the case may be), purchased accounts for the purpose of
collecting them and retaining all or a portion of the proceeds for itself. The
Qualified Successor Servicer shall sign a confidentiality agreement reasonably
satisfactory to Servicer in form and substance under which it agrees to maintain
the confidentiality of the software. The Servicer hereby represents that it has
all right, title and interest in and to its "Mozart" software necessary to grant
a royalty-free license to the Qualified Successor Servicer as provided herein.
ARTICLE IX
THE TRUSTEE
SECTION 9.01 DUTIES OF TRUSTEE.
(a) The Trustee, both prior to and after the occurrence of a Servicer
Default, undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement. The Trustee shall exercise such of the
rights and powers vested in it by this Agreement and use the same degree of care
and skill in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs; PROVIDED, HOWEVER, that
if the Trustee in its capacity as Backup Servicer assumes the duties of the
Servicer pursuant to Section 8.02 or 8.03, the Trustee in performing such duties
shall use the degree of skill and attention customarily exercised by a servicer
with respect to defaulted consumer receivables that it services for itself or
others.
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(b) The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee that shall be specifically required to be furnished pursuant to
any provision of this Agreement shall examine them to determine whether they
conform to the requirements of this Agreement.
(c) No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, its own bad faith or its own willful misfeasance; PROVIDED, HOWEVER,
that:
(i) prior to the occurrence of a Servicer Default actually
known to a Responsible Officer of the Trustee, and after the curing or waiving
of all such Servicer Defaults that may have occurred, the duties and obligations
of the Trustee shall be determined solely by the express provisions of this
Agreement, the Trustee shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this Agreement, no
implied rights or obligations shall be read into this Agreement against the
Trustee, the permissive right of the Trustee to do things enumerated in this
Agreement shall not be construed as a duty and, in the absence of bad faith on
the part of the Trustee, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Agreement;
(ii) the Trustee shall not be personally liable for an error
of judgment made in good faith by a Responsible Officer of the Trustee, unless
it shall be proved that the Trustee was negligent in performing its duties in
accordance with the terms of this Agreement; and
(iii) the Trustee shall not be personally liable with respect
to any action taken, suffered or omitted to be taken in good faith in accordance
with the direction of Noteholders evidencing not less than 25% of the Voting
Interests (unless a different percentage is otherwise specifically set forth
herein with respect to any applicable action);
in each case relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Agreement.
(d) The Trustee shall not be required to expend or risk its own funds
or otherwise incur financial liability in the performance of any of its duties
under this Agreement, or in the exercise of any of its rights or powers, if
there
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shall be reasonable grounds for believing that the repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it, and none of the provisions contained in this Agreement shall in any event
require the Trustee to perform, or be responsible for the manner of performance
of, any of the obligations of the Servicer under this Agreement except during
such time, if any, as the Trustee in its capacity as Backup Servicer shall be
the successor to, and be vested with the rights, duties, powers and privileges
of, the Servicer in accordance with the terms of this Agreement.
(e) Except for actions expressly authorized by this Agreement, the
Trustee shall take no action reasonably likely to impair the security interests
created or existing under any Receivable or to impair the value of any
Receivable.
(f) All information obtained by the Trustee regarding the Obligors and
the Receivables, whether upon the exercise of its rights under this Agreement or
otherwise, shall be maintained by the Trustee in confidence and shall not be
disclosed to any other Person, unless such disclosure is required by this
Agreement or any applicable law or regulation.
SECTION 9.02 TRUSTEE'S CERTIFICATE.
On or as soon as practicable after each date on which the Servicer or
Issuer acquires Removed Receivables, the Trustee, upon receipt of written notice
of such acquisition, shall submit to the Servicer or the Issuer, as applicable,
a Trustee's Certificate (substantially in the form attached hereto as Exhibit
B), identifying the acquirer and the Receivables so acquired, executed by the
Trustee and completed as to its date and the date of this Agreement, and
accompanied by a copy of the Monthly Servicer Report and the Servicer's
Remittance Date Certificate for the related Collection Period. The Trustee's
Certificate submitted with respect to such Payment Date shall operate, as of
such Payment Date, as an assignment without recourse, representation or
warranty, to the Issuer or the Servicer, as the case may be, of all the
Trustee's right, title and interest in and to such Removed Receivable and to the
other property conveyed to the Trust Estate pursuant to Section 2.01 with
respect to such Removed Receivable, and all security and documents relating
thereto, such assignment being an assignment outright and not for security.
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SECTION 9.03 TRUSTEE'S RELEASE OF REMOVED RECEIVABLES.
With respect to all Removed Receivables, the Trustee shall, by a
Trustee's Certificate (substantially in the form attached hereto as Exhibit B),
release all the Trustee's right, title and interest in and to each Removed
Receivable and the other property included in the Trust Estate pursuant to
Section 2.01 with respect to such Removed Receivable, and all security and any
documents relating thereto; and the Issuer or the Servicer, as applicable, shall
thereupon own each such Removed Receivable, and all such related security and
documents, free of any further obligation to the Trustee or the Noteholders with
respect thereto. If in any enforcement suit or legal proceeding it is held that
the Servicer may not enforce a Removed Receivable on the ground that it is not a
real party in interest or a holder entitled to enforce such Removed Receivable,
the Trustee on behalf of the Noteholders shall, at the Servicer's written
direction and expense, take such reasonable steps as the Trustee deems necessary
to enforce the Removed Receivable, including bringing suit in the Trustee's name
or the names of the Noteholders.
SECTION 9.04 CERTAIN MATTERS AFFECTING THE TRUSTEE.
Except as otherwise provided in Section 9.01:
(i) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officer's Certificate, certificate
of auditors or any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond or other paper or document
reasonably believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(ii) the Trustee may consult with counsel and any advice of
counsel or Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted by it under
this Agreement in good faith and in accordance with such advice of counsel or
Opinion of Counsel;
(iii) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Agreement, or to institute, conduct
or defend any litigation under this Agreement or in relation to this Agreement,
at the request, order or direction of any of the Noteholders pursuant to the
provisions of this Agreement, unless such Noteholders shall have offered to the
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Trustee reasonable security or indemnity against the costs, expenses and
liabilities that may be incurred therein or thereby (the general obligation of
an institutional investor that is investment grade rated being sufficient
indemnity); nothing contained in this Agreement shall, however, relieve the
Trustee of the obligations, upon the occurrence of a Servicer Default actually
known to a Responsible Officer of the Trustee (that shall not have been cured or
waived), to exercise such of the rights and powers vested in it by this
Agreement, and to use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs;
(iv) the Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it by
this Agreement;
(v) prior to the occurrence of a Servicer Default or Event of
Default and after the curing or waiving of all Servicer Defaults or Event of
Defaults that may have occurred, the Trustee shall not be bound to make any
investigation into the facts of matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
approval, bond or other paper or document, unless requested in writing to do so
by the Noteholders evidencing not less than 25% of the Voting Interests;
PROVIDED, HOWEVER, that if the payment within a reasonable time to the Trustee
of the costs, expenses or liabilities likely to be incurred by it in the making
of such investigation is, in the opinion of the Trustee, not reasonably assured
to the Trustee by the security afforded to it by the terms of this Agreement,
the Trustee may require reasonable indemnity against such cost, expense or
liability as a condition to so proceeding; the reasonable expense of every such
examination shall be paid by the Issuer or, if paid by the Trustee, shall be
reimbursed by the Issuer upon demand; and nothing in this clause shall derogate
from the obligation of the Servicer to observe any applicable law prohibiting
disclosure of information regarding the Obligors; and
(vi) the Trustee may execute any of the trusts or powers under
this Agreement or perform any duties under this Agreement either directly or by
or through agents or attorneys or a custodian and shall not be liable or
responsible for the misconduct or negligence of any of its agents or attorneys
or a custodian appointed with due care by the Trustee.
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SECTION 9.05 LIMITATION ON TRUSTEE'S LIABILITY.
The Trustee makes no representations as to the validity or sufficiency
of this Agreement or of the Notes (other than the certificate of authentication
thereon, as applicable), or of any Receivable or related document. The Trustee
shall have no obligation to perform any of the duties of the Issuer or the
Servicer unless explicitly set forth in this Agreement. The Trustee shall at no
time have any responsibility or liability for or with respect to the legality,
validity and enforceability of any security interest in any Receivable, or the
perfection and priority of such a security interest or the maintenance of any
such perfection and priority, or for or with respect to the efficacy of the
Trust Estate or its ability to generate the payments to be paid to Noteholders
under this Agreement, including without limitation the existence and contents of
any Receivable or any computer file or other record thereof; the validity of the
assignment of any Receivable to the Trustee or of any intervening assignment;
the completeness of any Receivable; the performance or enforcement of any
Receivable; the compliance by the Issuer or the Servicer with any covenant or
the breach by the Issuer or the Servicer of any warranty or representation made
under this Agreement or in any related document and the accuracy of any such
warranty or representation prior to the Trustee's receipt of notice or other
discovery of any noncompliance therewith or any breach thereof, any investment
of monies by the Issuer or any loss resulting therefrom (it being understood
that the Trustee shall remain responsible as Trustee for any property that it
may hold as part of the Trust Estate); the acts or omissions of the Issuer, the
Servicer or any Obligor; any action of the Servicer taken in the name of or as
the agent of the Trustee; or any action by the Trustee taken at the instruction
of the Servicer; PROVIDED HOWEVER, that the foregoing shall not relieve the
Trustee of its obligation to perform its duties under this Agreement. Except
with respect to a claim based on the failure of the Trustee to perform its
duties under this Agreement or based on the Trustee's negligence, willful
misconduct or bad faith, no recourse shall be had for any claim based on any
provision of this Agreement, the Notes or any Receivable or assignment thereof
against the institution serving as Trustee in its individual capacity. The
Trustee shall not have any personal obligation, liability or duty whatsoever to
any Noteholder or any other Person with respect to any such claim, and any such
claim shall be asserted solely against the Trust Estate or any indemnitor who
shall furnish indemnity as provided in this Agreement. The Trustee shall not be
accountable for the use or application by the Issuer of the Notes or the
proceeds thereof, if any, or for the use or application of any funds paid to or
collected by the Servicer in respect of the Receivables. The Trustee shall have
no responsibility for filing any financing or continuation statement in any
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public office at any time or to otherwise perfect or maintain the perfection of
any security interest or lien granted to it hereunder (unless the Trustee in its
capacity as Backup Servicer shall have become the Successor Servicer) or to
prepare or file any Securities and Exchange Commission filing with respect to
the Notes or to record this Agreement.
The recitals contained in this Agreement and in the Notes, except the
certificates of authentication on the Notes, shall be taken as the statements of
the Issuer, and the Trustee assumes no responsibility for their correctness or
completeness. The Trustee makes no representations as to the validity or
condition of any Trust Estate or any part thereof, or as to the title of the
Issuer thereto or as to the security afforded thereby or hereby, or as to the
validity or genuineness of any securities at any time pledged and deposited with
the Trustee hereunder or as to the validity or sufficiency of this Agreement or
the Notes. The Trustee shall not be accountable for the use or application by
the Issuer of the Notes or the proceeds thereof or of any money paid to the
Issuer under any provisions hereof.
The Trustee will not be responsible for any losses incurred in
connection with investments in Permitted Investments made in accordance with the
terms of this Agreement, other than losses arising out of the Trustee's
negligence, bad faith or willful misconduct.
SECTION 9.06 TRUSTEE MAY OWN NOTES.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes. The Trustee in its individual or any other capacity
may deal with the Issuer and the Servicer in banking transactions, with the same
rights as it would have if it were not the Trustee.
SECTION 9.07 TRUSTEE'S FEES AND EXPENSES.
The Trustee shall be entitled to reasonable compensation (which shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust) for all services rendered by it in the execution of
the trusts created by this Agreement and in the exercise and performance of any
of the powers and duties of the Trustee under this Agreement, which shall equal
the Trustee Fee, paid as provided in Section 4.04, and payment or reimbursement
for all reasonable expenses and disbursements (including the reasonable
compensation and the expenses and disbursements of its counsel
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and of all persons not regularly in its employ) incurred or made by the Trustee
in defense of any action brought against it in connection with this Agreement
except any such expense or disbursement as may arise from its negligence,
willful misfeasance or bad faith or that is the responsibility of Noteholders
under this Agreement. Additionally, the Servicer, pursuant to Section 7.02,
shall indemnify the Trustee with respect to certain matters.
SECTION 9.08 INDEMNITY OF TRUSTEE, BACKUP SERVICERS AND SUCCESSOR
SERVICER.
Upon the appointment of a Backup Servicer or a Successor Servicer
pursuant to Section 8.02 or 8.03, such Backup Servicer, Successor Servicer and
the Trustee and their respective agents and employees shall be indemnified by
the Trust Estate and held harmless against any loss, liability, or expense
(including reasonable attorney's fees and expenses) arising out of or incurred
in connection with the acceptance of performance of the trusts and duties
contained in this Agreement to the extent that (i) the Successor Servicer,
Backup Servicer or the Trustee, as the case may be, shall not be indemnified for
such loss, liability or expense by the Servicer pursuant to Section 8.02 or
8.03; (ii) such loss, liability, or expense shall not have been incurred by
reason of the Successor Servicer's, the Backup Servicer's or the Trustee's
willful misfeasance, bad faith or negligence; and (iii) such loss, liability or
expense shall not have been incurred by reason of the Successor Servicer's, the
Backup Servicer's or the Trustee's breach of its respective representations and
warranties pursuant to Sections 8.02, 8.03, 9.09 and 9.14, respectively.
The Successor Servicer, the Backup Servicer and/or the Trustee shall be
entitled to the indemnification provided by this Section only to the extent all
amounts due the Servicer and all Noteholders pursuant to Section 4.04 have been
paid in full and all amounts required to be deposited in the Reserve Account
with respect to any Payment Date pursuant to Section 4.05 have been so
deposited.
SECTION 9.09 ELIGIBILITY REQUIREMENTS FOR TRUSTEE.
Except as otherwise provided in this Agreement, the Trustee under this
Agreement shall at all times be a Person having its corporate trust office in
the same state (or the District of Columbia or the Commonwealth of Puerto Rico)
as the location of the Corporate Trust Office as specified in this Agreement;
organized and doing business under the laws of such state (or the District of
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Columbia or the Commonwealth of Puerto Rico) or the United States; authorized
under such laws to exercise corporate trust powers; having a combined capital
and surplus of at least $50,000,000 and subject to supervision or examination by
federal or state authorities; and shall have the highest available long-term
unsecured debt rating by the Required Rating Agencies then providing such a
rating or be otherwise acceptable to the Rating Agency and the Controlling
Party, as evidenced by a letter to such effect from the Rating Agency (which
acceptance may be evidenced in the form of a letter, dated on or shortly before
the Closing Date, assigning an initial rating to the Notes).
If the Trustee shall publish reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or examining
authority, then for the purpose of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, the Trustee shall resign immediately in the manner
and with the effect specified in Section 9.10.
SECTION 9.10 RESIGNATION OR REMOVAL OF TRUSTEE.
(a) The Trustee may at any time resign and be discharged from the
trusts created by this Agreement by giving at least 30 days' prior written
notice thereof to the Servicer and the Noteholders. Upon receiving such notice
of resignation, the Servicer shall promptly appoint a successor Trustee
acceptable to the Noteholders by written instrument, in duplicate, one copy of
which instrument shall be delivered to the resigning Trustee and one copy to the
successor Trustee. If no successor Trustee shall have been so appointed and have
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(b) If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 9.09, or shall breach its representations or
duties hereunder in any material respect, and shall fail to resign after written
request therefor by the Servicer, or the Controlling Party, or if at any time
the Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be appointed,
or any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the
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Controlling Party may remove the Trustee. If the Trustee is removed under the
authority of the immediately preceding sentence, the Servicer shall promptly
appoint a successor Trustee acceptable to the Controlling Party, by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor Trustee, and pay all fees owed
to the outgoing Trustee.
(c) Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor Trustee as
provided in Section 9.11. The Servicer shall give the Rating Agency, the
Placement Agent and the Noteholders notice of any such resignation or removal of
the Trustee and appointment and acceptance of a successor Trustee.
SECTION 9.11 SUCCESSOR TRUSTEE.
Any successor Trustee appointed as provided in Section 9.10 shall
execute, acknowledge and deliver to the Servicer and to its predecessor Trustee
an instrument accepting such appointment under this Agreement, and thereupon the
resignation or removal of the predecessor Trustee shall become effective and
such successor Trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor under this Agreement, with like effect as if originally named as
Trustee. The predecessor Trustee shall deliver to the successor Trustee all
documents and statements held by it under this Agreement; and the Servicer and
the predecessor Trustee shall execute and deliver such instruments and do such
other things as may reasonably be required for fully and certainly vesting and
confirming in the successor Trustee all such rights, powers, duties and
obligations. No successor Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Trustee shall be
eligible under the provisions of Section 9.09. Upon acceptance of appointment by
a successor Trustee as provided in this Section, the Servicer shall mail notice
of the successor of such Trustee under this Agreement to all Noteholders at
their addresses as shown in the Note Register and shall give notice by mail to
the Rating Agency and the Placement Agent. If the Servicer fails to mail such
notice within ten days after acceptance of appointment by the successor Trustee,
the successor Trustee shall cause such notice to be mailed at the expense of the
Servicer.
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SECTION 9.12 MERGER OR CONSOLIDATION OF TRUSTEE.
Any Person (i) into which the Trustee may be merged or consolidated,
(ii) which may result from any merger, conversion, or consolidation to which the
Trustee shall be a party or (iii) which may succeed to all or substantially all
the corporate trust business of the Trustee, which Person executes an agreement
of assumption to perform every obligation of the Trustee under this Agreement,
shall be the successor of the Trustee hereunder, provided such Person shall be
eligible pursuant to Section 9.09, without the execution or filing of any
instrument or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding. Notice of any such merger shall be given
by the Trustee to the Rating Agency, the Placement Agent and the Noteholders.
SECTION 9.13 APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
Notwithstanding any other provisions of this Agreement, at any time,
for the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Trust Estate may at the time be located, the Servicer and the
Trustee acting jointly shall have the power and shall execute and deliver all
instruments to appoint one or more Persons approved by the Trustee to act as
co-trustee, jointly with the Trustee or separate trustee or separate trustees,
of all or any part of the Trust Estate, and to vest in such Person, in such
capacity and for the benefit of the Noteholders, such title to the Trust Estate,
or any part thereof, and, subject to the other provisions of this Section, such
powers, duties, obligations, rights and trusts as the Servicer and the Trustee
may consider necessary or desirable. If the Servicer shall not have joined in
such appointment within 15 days after the receipt by it of a request so to do,
or in the case a Servicer Default shall have occurred and be continuing, the
Trustee alone shall have the power to make such appointment. No co-trustee or
separate trustee under this Agreement shall be required to meet the terms of
eligibility as a successor trustee pursuant to Section 9.09 and no notice of a
successor Trustee pursuant to Section 9.11 and no notice to the Noteholders of
the appointment of any co-trustee or separate trustee shall be required pursuant
to Section 9.11.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
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(i) all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred upon and exercised or performed by
the Trustee and such separate trustee or co-trustee jointly (it being understood
that such separate trustee or co-trustee is not authorized to act separately
without the Trustee joining in such act), except to the extent that under any
law of any jurisdiction in which any particular act or acts are to be performed
(whether as Trustee under this Agreement or as successor to the Servicer under
this Agreement), the Trustee shall be incompetent or unqualified to perform such
act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust Estate or any portion thereof in
any such jurisdiction) shall be exercised and performed singly by such separate
trustee or co-trustee, but solely at the direction of the Trustee;
(ii) no trustee under this Agreement shall be personally
liable by reason of any act or omission of any other trustee under this
Agreement;
(iii) the Servicer and the Trustee acting jointly (or during
the continuation of a Servicer Default, the Trustee alone) may at any time
accept the resignation of or remove any separate trustee or co-trustee; and
(iv) the Trustee shall remain primarily liable for the actions
of any separate trustees and co-trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Section. Each separate trustee and co-trustee, upon its acceptance of
the powers conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
including, but not limited to, every provision of this Agreement relating to the
conduct of, affecting the liability of, or affording protection to, the Trustee.
Each such instrument shall be filed with the Trustee and a copy thereof given to
the Servicer.
Any separate trustee or co-trustee may at any time appoint the Trustee
its agent or attorney-in-fact with full power and authority, to the extent not
prohibited by law, to do any lawful act under or in respect of this Agreement on
its behalf and in its name. If any separate trustee or co-trustee shall die,
become incapable of acting, resign or be removed, all of its estates,
properties,
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rights, remedies and trusts shall vest in and be exercised by the Trustee, to
the extent permitted by law, without the appointment of a new or successor
trustee. Notwithstanding anything to the contrary in this Agreement, the
appointment of any separate trustee or co-trustee shall not relieve the Trustee
of its obligations and duties under this Agreement.
SECTION 9.14 REPRESENTATIONS AND WARRANTIES OF TRUSTEE.
The Trustee hereby makes the following representations and warranties
on which the Issuer and the Noteholders are relying:
(i) Organization and Good Standing. The Trustee is a national
banking association duly organized, validly existing and in good standing;
(ii) Power and Authority. The Trustee has full power,
authority and right to execute, deliver and perform this Agreement and has taken
all necessary action to authorize the execution, delivery and performance by it
of this Agreement;
(iii) No Violation. The execution, delivery and performance by
the Trustee of this Agreement (a) shall not violate any provision of any law
governing the banking and trust powers of the Trustee or, to the best of the
Trustee's knowledge, any order, writ, judgment, or decree of any court,
arbitrator, or governmental authority applicable to the Trustee or any of its
assets, (b) shall not violate any provision of the charter or by-laws of the
Trustee, and (c) shall not violate any provision of, or constitute, with or
without notice or lapse of time, a default under, or result in the creation or
imposition of any Lien on any properties included in the Trust Estate pursuant
to the provisions of any mortgage, indenture, contract, agreement or other
undertaking to which it is a party, which violation, default or Lien could
reasonably be expected to materially and adversely affect the Trustee's
performance or ability to perform its duties under this Agreement or the
transactions contemplated in this Agreement;
(iv) No Authorization Required. The execution, delivery and
performance by the Trustee of this Agreement shall not require the
authorization, consent, or approval of, the giving of notice to, the filing or
registration with, or the taking of any other action in respect of, any
governmental authority or agency regulating the banking and corporate trust
activities of the Trustee; and
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(v) Duly Executed. This Agreement shall have been duly
executed and delivered by the Trustee and shall constitute the legal, valid, and
binding agreement of the Trustee, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting creditors' rights
generally or by general principles of equity.
SECTION 9.15 TAX RETURNS.
In the event the Trustee shall be required to file tax returns on
behalf of the Trust Estate, the Servicer shall prepare or shall cause to be
prepared any tax returns required to be filed by the Trust Estate and shall
remit such returns to the Trustee for signature at least five days before such
returns are due to be filed. The Trustee, upon request, shall furnish the
Servicer with all such information known to the Trustee as may be reasonably
required in connection with the preparation of all tax returns of the Trust
Estate, and shall, upon request, execute such returns.
SECTION 9.16 [DELETED]
SECTION 9.17 SUIT FOR ENFORCEMENT.
If a Servicer Default shall occur and be continuing, the Trustee, in
its discretion may, subject to the provisions of Section 9.01, proceed to
protect and enforce its rights and the rights of the Noteholders under this
Agreement by a suit, action or proceeding in equity or at law or otherwise,
whether for the specific performance of any covenant or agreement contained in
this Agreement or in aid of the execution of any power granted in this Agreement
or for the enforcement of any other legal, equitable or other remedy as the
Trustee, being advised by counsel, shall deem most effectual to protect and
enforce any of the rights of the Trustee or the Noteholders.
SECTION 9.18 RIGHTS OF CONTROLLING PARTY TO DIRECT TRUSTEE.
The Controlling Party shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred on the Trustee; PROVIDED, HOWEVER,
that
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subject to Section 9.01, the Trustee shall have the right to decline to follow
any such direction if the Trustee being advised by counsel determines that the
action so directed may not lawfully be taken, or if the Trustee in good faith
shall, by a Responsible Officer of the Trustee, determine that the proceedings
so directed would be illegal or subject it to personal liability or be unduly
prejudicial to the rights of the Noteholders not parties to such direction;
PROVIDED, FURTHER, HOWEVER, that nothing in this Agreement shall impair the
right of the Trustee to take any action deemed proper by the Trustee and which
is not inconsistent with such direction by the Noteholders.
SECTION 9.19 CONFIDENTIAL INFORMATION.
The Trustee acknowledges that, in the course of meeting its respective
duties and obligations under this Agreement, it may obtain information relating
to the Servicer or the Issuer which is of a confidential and proprietary nature
("Proprietary Information"). Such Proprietary Information may include, but is
not limited to, non-public trade secrets, know how, invention techniques,
processes, programs, schematics, software source documents, data, and financial
information. The Trustee shall at all times, both during the term of this
Agreement and for a period of three (3) years after its termination, keep in
trust and confidence all such Proprietary Information, and shall not use such
Proprietary Information other than in the course of its duties under this
Agreement, nor shall the Trustee disclose any such Proprietary Information
without the written consent of the Servicer or the Issuer unless legally
required to disclose such information. The Trustee further agrees to immediately
return all Proprietary Information (including copies thereof) in its possession,
custody, or control upon termination of this Agreement for any reason.
The Trustee shall not disclose, advertise or publish the existence or
the terms or conditions of this Agreement without prior written consent of the
Servicer or the Issuer. Notwithstanding any provision of this Agreement to the
contrary, this Section 9.19 shall not prohibit disclosure of information that is
required to be disclosed by the Trustee (i) pursuant to federal or state laws or
regulation, or (ii) in a judicial, administrative or governmental proceeding, or
(iii) to a Person which is then acting as Trustee's agent in servicing
activities hereunder, but only (notwithstanding any other provision of this
Agreement) to the extent necessary for such agent to carry out such activities,
and only if such person has signed a confidentiality agreement with Creditrust
Corporation, and only if such disclosure occurs during the continuation of an
Event of Default or Servicer Default In particular the Trustee agrees that it
shall not, without the prior consent of the Servicer or the Issuer, disclose the
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existence of this Agreement or any of the terms herein to any Person other than
counsel to the Trustee or an employee or director of the Trustee with a need to
know in order to implement this Agreement and only if such employee or director
or counsel agrees to maintain the confidentiality of this Agreement. The parties
hereto agree that the Servicer and/or the Issuer shall have the right to enforce
these nondisclosure provisions by an action for specific performance filed in
any court of competent jurisdiction in the State of Maryland.
ARTICLE X
REDEMPTION
SECTION 10.01 REDEMPTION AT THE OPTION OF THE ISSUER; ELECTION TO
REDEEM.
The Issuer shall have the option to redeem the Notes in full on any
Payment Date on or after the Payment Date on which the Note Balance is less than
10% of the Original Note Balance. The election of the Issuer to redeem the Notes
pursuant to this Section shall be evidenced by delivery to the Trustee no later
than the tenth day of the month preceding the month in which the Payment Date as
of which such redemption will be effected occurs of an Officer's Certificate of
the Issuer stating the Issuer's intention to redeem the Notes and specifying the
Redemption Amount therefor. No prepayment premium or penalty is payable with
respect to any such redemption.
SECTION 10.02 DEPOSIT OF REDEMPTION AMOUNT.
In the case of any redemption pursuant to Section 10.01, the Issuer
shall, on or before the Remittance Date preceding the Payment Date on which such
redemption is to be effected, deposit in the Note Payment Account pursuant to
Section 4.03 an amount equal to the Redemption Amount (plus any additional
amount necessary, after taking into account all amounts in the Collection
Account, Note Payment Account and Reserve Account, to pay all due but unpaid
Trustee expenses, Transition Fees and Trustee Fees, collectively, the
"Supplemental Redemption Amount") and shall thereafter succeed to all interests
in and to the Trust Estate subject to Section 2.11. The Redemption Amount and
the Supplemental Redemption Amount shall be paid as provided in Section 4.04(b).
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SECTION 10.03 NOTICE OF REDEMPTION BY THE TRUSTEE.
Upon receipt of notice from the Issuer of its election to redeem the
Notes pursuant to Section 10.01 and deposit by the Issuer of the Redemption
Amount and the Supplemental Redemption Amount pursuant to Section 10.02, the
Trustee shall provide notice of redemption of the Notes by first class mail,
postage prepaid, mailed no later than the Business Day following the date on
which such deposit was made to each Noteholder at such Noteholder's address as
listed in the Note Register. Notice of redemption of Notes shall be given by the
Trustee in the name and at the expense of the Issuer, as applicable.
ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.01 AMENDMENT.
(a) Without notice to or the consent of the Noteholders, the Servicer,
the Issuer and the Trustee may at any time or from time to time supplement,
modify or amend this Agreement for one or more of the following purposes:
(i) to grant to or confer upon the Trustee for the benefit of
the Noteholders any additional rights, remedies, powers, authority or
security that may lawfully be granted to or conferred upon the Trustee
for the benefit of such Noteholders;
(ii) to add to the covenants and agreements of the Servicer or
the Issuer contained in this Agreement;
(iii) to surrender any right, power or privilege reserved to
or conferred upon the Servicer or Issuer by this Agreement;
(iv) to cure any ambiguity or to cure or correct any defect or
inconsistent provisions contained in this Agreement or to make such
provisions in regard to matters or questions arising under this
Agreement as may be necessary or desirable and not contrary to or
inconsistent with this Agreement, or to add or provide any credit
enhancement; or
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(v) to make any other change in this Agreement which the
Issuer determines shall not prejudice in any material respect the
rights of the Noteholders at the date as of which such change shall
become effective.
(b) With the prior written consent of the Controlling Party, the
Servicer, the Issuer and the Trustee may at any time and from time to time
supplement, modify or amend any of the terms or provisions of this Agreement;
PROVIDED, HOWEVER, that nothing contained herein shall permit (i) a change in
any terms of redemption of any Note, the payment of the principal of or interest
on any Note or any reduction in the principal, prepayment or redemption price or
purchase price of or interest rate on any Note, (ii) a preference or priority of
any Note over any other Note or (iii) a reduction in the percentage of Voting
Interests that is required for any supplement, modification or amendment of this
Agreement without the consent of all Noteholders affected thereby.
(c) Prior to the execution of any amendment or consent thereto pursuant
to this Section 11.01, the Trustee shall furnish written notification of the
substance of such amendment or consent to the Rating Agency and the Placement
Agent.
(d) Promptly after the execution of any amendment or consent thereto
pursuant to Section 11.01(b), the Trustee shall furnish written notification of
the substance of such amendment or consent to each Noteholder. It shall not be
necessary for the consent of Noteholders pursuant to Section 11.01(b) to approve
the particular form of any proposed amendment or consent, but it shall be
sufficient if such consent shall approve the substance thereof. The manner of
obtaining such consents and of evidencing the authorization by Noteholders of
the execution thereof shall be subject to such reasonable requirements as the
Trustee may prescribe.
(e) Prior to the execution of any amendment to this Agreement, the
Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating
that the execution of such amendment is authorized or permitted by this
Agreement. The Trustee may, but shall not be obligated to, enter into any such
amendment which affects the Trustee's own rights, duties or immunities under
this Agreement or otherwise. Any amendment pursuant to subsection (a) shall be
effective only upon receipt by the Trustee of an Opinion of Counsel to the
effect that such amendment will not have a material adverse effect upon the
interests of the Noteholders.
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(f) There will be no change in the identity of the Servicer, the Backup
Servicer or the Trustee without the prior written consent of the Controlling
Party, subject to the rights of the Backup Servicer and the Trustee to resign in
accordance with the provisions of this Agreement.
SECTION 11.02 PROTECTION OF TITLE TO TRUST ESTATE.
(a) Either of the Issuer or the Servicer or both shall execute and file
such financing statements and cause to be executed and filed such continuation
and other statements, all in such manner and in such places as may be required
by law fully to preserve, maintain and protect the interests of the Noteholders
and the Trustee under this Agreement in the Receivables and in the proceeds
thereof and any other Trust Property. Each of the Issuer and the Servicer shall
deliver (or cause to be delivered) to the Trustee file-stamped copies of, or
filing receipts for, any document filed as provided, above, as soon as available
following such filing.
(b) Neither the Issuer nor the Servicer shall change its name, identity
or organizational structure in any manner that would, could or might make any
financing statement or continuation statement filed in accordance with paragraph
(a) above seriously misleading within the meaning of Section 9-402(7) of the
UCC, unless it shall have given the Trustee at least 10 days' prior written
notice thereof and shall have filed within 30 days after such change appropriate
amendments to all such previously filed financing statements or continuation
statements.
(c) The Servicer shall maintain accounts and records as to each
Receivable accurately and in sufficient detail to permit (i) the reader thereof
to know at any time the status of such Receivable, including payments and
recoveries made and payments owing (and the nature of each, if applicable) and
(ii) reconciliation between payments or recoveries on (or with respect to) each
Receivable and the amounts from time to time deposited in the Accounts (or any
of them) in respect of such Receivables.
(d) The Servicer shall maintain its computer records so that, from and
after the time of the grant of a security interest in the Receivables and other
Trust Property under this Agreement to the Trustee for the benefit of the
Noteholders, the Servicer's master computer records (including any back-up
archives) that refer to any Receivables indicate clearly the interest of the
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Trustee in such Receivables. Indication of the Trustee's interest in a
Receivable shall be deleted from or modified on the Servicer's computer records
when, and only when, the Receivable has been paid in full, acquired or assigned
pursuant to this Agreement.
(e) If at any time Issuer or Servicer propose to assign, convey, grant
a security interest in, or otherwise transfer any interest in defaulted consumer
receivables to any prospective purchaser, lender or other transferee, the
Servicer shall give to such prospective acquirer, lender or other transferee
computer tapes, records or print-outs (including any restored from back-up
archives) that, if they refer in any manner whatsoever to any Receivable,
indicate clearly that such Receivable is subject to a security interest in favor
of the Trustee unless such Receivable has been paid in full, acquired or
assigned pursuant to this Agreement.
(f) The Servicer shall permit the Trustee and its agents, upon not less
than two Business Days' prior written notice and during normal business hours,
to inspect, audit and make copies of and abstracts from the Servicer's records
regarding any Receivables then or previously included in the Trust Estate.
Nothing in this Section shall impair the obligation of the Servicer to observe
any applicable law prohibiting disclosure of information regarding the Obligors,
and the failure of the Servicer to provide access as provided in this Section as
a result of such obligation shall not constitute a breach of this Section.
(g) Upon request, the Servicer shall furnish to the Trustee, within
five Business Days of such request, a list of all Receivables (by account number
and name of Obligor) then held as part of the Trust Estate.
(h) The Servicer shall deliver to the Trustee, promptly after the
execution and delivery of each amendment to any financing statement, an Opinion
of Counsel stating that, in the opinion of such Counsel, either (i) all
financing statements and continuation statements have been executed and filed
that are necessary fully to preserve and protect the interest of the Trustee in
the Receivables, and reciting the details of such filings or referring to prior
Opinions of Counsel in which such details are given, or (ii) no such action is
necessary to preserve and protect such interest.
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SECTION 11.03 LIMITATION OF RIGHTS OF NOTEHOLDERS.
(a) The death or incapacity of any Noteholder shall not operate to
terminate this Agreement or the Trust Estate, nor entitle its legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the Trust
Estate, nor otherwise affect the rights, obligations and liabilities of the
parties to this Agreement or any of them.
(b) No Noteholder shall have any right to vote (except as expressly
provided in this Agreement) or in any manner otherwise control the operation and
management of the Trust Estate, or the obligations of the parties to this
Agreement, nor shall anything set forth in this Agreement, or contained in the
terms of the Notes, be construed so as to constitute the Noteholders from time
to time as partners or members of an association; nor shall any Noteholder be
under any liability to any third person by reason of any action pursuant to any
provision of this Agreement.
SECTION 11.04 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York and the obligations, rights and remedies of
the parties under this Agreement shall be determined in accordance with such
laws, including Section 5-1401 of the General Obligation Law of New York, but
otherwise without regard to conflict of laws provisions.
SECTION 11.05 NOTICES.
All demand, notices and communications under this Agreement shall be in
writing, and either personally delivered, mailed by certified mail, return
receipt requested, or sent by facsimile transmission, and shall be deemed to
have been duly given upon receipt (i) in the case of the Issuer or the Servicer,
to the agent for service as specified in Section 2.10 of this Agreement, or at
such other address as shall be designated by the Issuer or the Servicer in a
written notice to the Trustee; (ii) in the case of the Backup Servicer or
Trustee, at the Corporate Trust Office; and (iii) in the case of the Rating
Agency at 25 Broadway, New York, New York, 10004. Any notice required or
permitted to be mailed to a Noteholder shall be given by first class mail,
postage prepaid, at the address of such Noteholder as shown in the Note
Register. Any notice so
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mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not the Noteholder shall receive
such notice.
SECTION 11.06 SEVERABILITY OF PROVISIONS; COUNTERPARTS.
(a) If any one or more of the covenants, agreements, provisions or
terms of this Agreement shall be for any reason whatsoever held invalid or
unenforceable in any jurisdiction, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or the Notes, or the
rights of the Noteholders.
(b) This Agreement may be executed simultaneously in any number of
counterparts, each of which shall be deemed to be an original, and all of which
shall constitute but one and the same instrument.
SECTION 11.07 ASSIGNMENT.
Notwithstanding anything to the contrary contained in this Agreement,
except as provided in Sections 6.04 and 7.03 and as provided in the provisions
of this Agreement concerning the resignation of the Servicer, this Agreement may
not be assigned by the Issuer or the Servicer without the prior written consent
of the Noteholders evidencing not less than 66 2/3% of the Voting Interests.
SECTION 11.08 NO PETITION.
Each of the Servicer and the Trustee covenants and agrees that prior to
the date which is one year and one day after the termination of this Agreement,
it will not institute against, or join any other Person in instituting against,
the Issuer any bankruptcy, reorganization arrangement, insolvency or liquidation
proceeding or other proceedings under any federal or state bankruptcy or similar
law. Notwithstanding the foregoing, nothing herein shall be deemed to prohibit
the Trustee from filing proofs of claim or otherwise participating in any such
proceeding instituted by another person. This Section 11.08 shall survive
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the termination of this Agreement or the termination of the Servicer or the
Trustee, as the case may be, under this Agreement.
SECTION 11.09 NOTEHOLDER DIRECTION.
Notwithstanding anything to the contrary contained in this Agreement,
provided the Trustee has sent out notices to Noteholders in accordance with this
Agreement, the Trustee may act as directed by a majority of the outstanding
Noteholders (but only to the extent the Noteholders are entitled under this
Agreement to so direct the Trustee with respect to such action) responding in
writing to the request contained in such notice; PROVIDED, HOWEVER, that
Noteholders representing at least 66 2/3% of the outstanding principal balance
of the Notes as of the time such notice is sent to Noteholders must have
responded to such notice from the Trustee. In addition, the Trustee shall not
have any liability to any Noteholder with respect to any action taken pursuant
to such notice if the Noteholder does not respond to such notice within the time
period set forth in such Notice.
SECTION 11.10 NO SUBSTANTIVE REVIEW OF COMPLIANCE DOCUMENTS.
Other than as specifically set forth in this Agreement, any reports,
information or other documents provided to the Trustee are for purposes only of
enabling the sending party to comply with its document delivery requirements
hereunder and the Trustee's receipt of any such information shall not constitute
constructive or actual notice of any information contained therein or
determinable from any information contained therein, including the Issuer or the
Servicer's compliance with any of its covenants, representations or warranties
hereunder.
****
[ signatures appear on next page ]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Indenture and
Servicing Agreement to be duly executed by their respective officers as of the
day and year first above written.
CREDITRUST SPV99-1, LLC,
as Issuer
By: /s/ Joseph K. Rensin
--------------------------------
Name: Joseph K. Rensin
Title: President
CREDITRUST CORPORATION,
as Servicer
By: /s/ Joseph K. Rensin
--------------------------------
Name: Joseph K. Rensin
Title: Chairman and
Chief Executive Officer
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, not in its
individual capacity, but solely as
Trustee and as Backup Servicer
By: /s/ Bruce C. Wandersee
--------------------------------
Name: Bruce C. Wandersee
Title: Assistant Vice President
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<PAGE>
EXHIBIT A
Creditrust Corporation
FORM OF Monthly Servicer Report
Collection Period:
Payment Date:
Determination Date:
Pursuant to the Indenture and Servicing Agreement dated as of August 1,
1999 (the "Indenture and Servicing Agreement") among Creditrust SPV99-1, LLC, as
Issuer, Creditrust Corporation, as servicer (the "Servicer"), and Norwest Bank
Minnesota, National Association, as trustee (in such capacity, the "Trustee")
and as backup servicer, the Servicer is required to provide the Trustee with
certain information each Determination Date with respect to the Creditrust
Receivables-Backed Notes, Series 1999-1. Capitalized terms used in this
certificate have the meanings set forth in the Indenture and Servicing
Agreement.
<TABLE>
<CAPTION>
<S> <C> <C>
A. Collections $
Third Party Fees ________
Net Proceeds $
Repurchases
Sales
Interest on Collections Account
Interest on Note Account ________
Available Funds received for the related Collection Period $
Total funds in the Collection Account as of Determination Date ===============
Customer refunds due to servicer
Accrued legal and court costs due to servicer
Non Collection Period Net Proceeds in the Collection Account
Interest on Note Account ________
Available Funds $
===============
B. Information Regarding the Trustee Fee and Backup Servicing Fee
(I) the total amount of the Trustee Fee and Backup Servicing
Fee accrued with respect to such Payment Date $_______
(II) the total amount of the accrued and past due Trustee Fee
and Backup Servicing Fee with respect to prior Payment Date
$_______
(III) the total amount of payments made on such Payment Date
with respect to the Trustee Fee and Backup Servicing Fee $_______
(IV) the total amount of the accrued and unpaid Trustee Fee and Backup
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Servicing Fee to be carried forward to subsequent Payment Dates
$_______
C. Information Regarding the Servicing Fee
(I) the total amount of the Servicing Fee accrued with respect to
such Payment Date $_______
(II) the total amount of the accrued and past due Servicing Fee
with respect to prior Payment Dates $_______
(III) the total amount of payments made on such Payment Date
with respect to the Servicing Fee $_______
(IV) the total amount of the accrued and unpaid Servicing Fee to
be carried forward to subsequent Payment Dates $_______
D. Amount of Transition Fees $_______
E. Information Regarding Payments With Respect to Notes
(I) the total Interest Distributable Amount for such Payment Date $_______
(a) the total amount of accrued interest for such Payment Date $_______
(b) the total amount of Interest Carryover Shortfall from
the immediately proceeding Payment Date $_______
(II) the total amount of payments made on such Payment Date
with respect to the Interest Distributable Amount $_______
(III) the total amount from clause (II) derived from withdrawal
from the Reserve Account $_______
(IV) the total amount of the reduction of the Note Balance made
on such Payment Date $_______
(V) the total amount from clause (IV) derived from a withdrawal
from the Reserve Account $_______
(VI) the outstanding Note Balance after payments made in respect
thereof on such Payment Date $_______
F. Information Regarding the Reserve Account
(I) the Reserve Fund Reimbursement Amount for such Payment
Date, to be deposited in the Reserve Account $_______
(II) the total amount of any deposits to the Reserve Account on
such Payment Date $_______
(III) the total amount required in the Reserve Account after
withdrawals, if any, from such account made on such payment Date $_______
(IV) Interest credited to the account due Issuer $_______
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(V) Current Reserve Account Balance $_______
(VI) Excess Reserve Fund Balance due Issuer $_______
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
G. Information Regarding Removed Receivables
(I) the account number of each Removed Receivables with
respect to such Payment Date $_______
(II) the amount of the Release Payment with respect to the
Removed Receivables described in clause (I) $_______
H. The Company's stockholder's equity meets the requirements
of Section 7.07(m) of the Indenture and Servicing Agreement
Stockholder's Equity at [date] $_______
I. Number of account officers and number of active accounts at
end of Collection Period $_______
</TABLE>
$
===========
Creditrust Corporation,
as Servicer
----------------------------------
Richard J. Palmer,
Vice President and Chief Financial Officer
Dated: _________________
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EXHIBIT B
FORM OF TRUSTEE'S CERTIFICATE
Norwest Bank Minnesota, National Association, as trustee (the
"Trustee") of Creditrust Receivables Backed Notes, Series 1999-1 Trust created
pursuant to the Indenture and Servicing Agreement dated as of August 1, 1999
(the "Indenture and Servicing Agreement") among Creditrust SPV99-1, LLC, as
Issuer, Creditrust Corporation, as Servicer, and Norwest Bank Minnesota,
National Association, as trustee and backup servicer, does hereby release its
security interest in and to all of the Receivables identified in the attached
Servicer's Remittance Date Certificate as "Removed Receivables," for which [the
Issuer has a repayment obligation pursuant to Section 2.05 or 6.02] [the
Servicer has a repayment obligation pursuant to Section 3.04] of the Indenture
and Servicing Agreement, and all security and documents relating thereto.
Capitalized terms used herein that are not otherwise defined shall have
the meanings ascribed thereto in the Indenture and Servicing Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of
___________, ____.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Trustee
By: _______________________________
Name:
Title:
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<PAGE>
EXHIBIT C
FORM OF NOTE
Creditrust SPV99-1, LLC
Creditrust Receivables - Backed Notes, Series 1999-1
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES
LAWS, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS. THE TRANSFER OF THIS NOTE IS SUBJECT
TO CERTAIN RESTRICTIONS AND CONDITIONS SET FORTH IN THE INDENTURE AND
SERVICING AGREEMENT UNDER WHICH THIS NOTE IS ISSUED (A COPY OF WHICH IS
AVAILABLE FROM THE TRUSTEE UPON REQUEST).
Note Number: U.S. $__________
CUSIP #_____________________
Creditrust SPV99-1, LLC, a limited liability company organized under
the laws of Delaware, (the "Issuer"), for value received, hereby promises to pay
[ ] or registered assigns, (a) upon presentation and surrender of this Note
(except as otherwise permitted by the Indenture referred to below), the
principal sum of _______________________________ United States Dollars (U.S.
$____________) on ______ 15, 2004 (the "Final Payment Date") unless the unpaid
principal of this Note becomes due and payable at an earlier date by declaration
of acceleration, call for redemption or otherwise, (b) interest on the fifteenth
day of each month, commencing October 15, 1999, at the rate equal to [ %] per
annum on the unpaid principal amount hereof until the principal hereof is paid
or duly provided for. Interest shall be computed on the basis of a 360-day year
consisting of twelve 30-day months. The interest so payable on any Payment Date
will, as provided in the Indenture hereinafter referred to, be paid to the
Person in whose name this Note is registered at the close of business on the
Record Date for such interest payment.
Payments in respect of principal and interest due on any Payment Date
of this Note shall be payable by wire transfer in immediately available funds to
a Dollar account maintained by the Noteholder or, if a wire transfer cannot be
effected, by Dollar check delivered to the Noteholder. Notwithstanding the
foregoing, the final payment of interest and principal due on
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this Note shall be made (except as otherwise provided in the Indenture) only
upon presentation and surrender of this Note at the Corporate Trust Office of
the Trustee. The person in whose name this Note is registered shall be treated
as the owner hereof for all purposes.
Except as specifically provided herein and in the Indenture, the Issuer
shall not be required to make any payment with respect to any tax, assessment or
other governmental charge imposed by any government or any political subdivision
or taxing authority thereof or therein.
Unless the certificate of authentication hereon has been executed by
the Trustee by the manual signature of one of its Responsible Officers, this
Note shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
This Note is one of a duly authorized issue of Creditrust Receivables -
Backed Notes, Series 1999-1 of the Issuer (the "Notes"), limited in principal
amount to U.S. $[_______] issued and to be issued under an indenture dated as of
August 1, 1999 (the "Indenture") between (among others) the Issuer and Norwest
Bank Minnesota, National Association (the "Trustee," which term includes any
successor trustee as permitted under the Indenture). Reference is hereby made to
the Indenture for a statement of the respective rights, limitations of rights,
duties and immunities thereunder of the Issuer, the Trustee and the Noteholders
and the terms upon which the Notes are, and are to be, authenticated and
delivered.
Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Indenture.
The Notes are issuable only in definitive, fully registered form
without coupons, in minimum denominations of $1,000,000 and integral multiples
of $1,000 in excess thereof.
The principal of each Note shall be payable at the Final Payment Date
thereof unless the unpaid principal of such Note becomes due and payable on an
earlier date by declaration of acceleration, call for redemption, or otherwise.
Title to Notes shall pass by registration in the Note Register kept at
the Corporate Trust Office. No service charge shall be made for exchange or
registration of transfer of this Note.
If an Event of Default shall occur and be continuing, the Notes may
become or be declared due and payable in the manner and with the effect provided
in the Indenture. The remedies of the Noteholder hereof, as provided herein or
in the Indenture, shall be cumulative and concurrent and may be pursued solely
against the assets of the Issuer consisting of the Trust Estate. No failure on
the part of the Noteholder in exercising any right or remedy hereunder shall
operate as a waiver or release thereof, nor shall any single or partial exercise
of any such right or remedy preclude any other further exercise thereof or the
exercise of any other right or remedy hereunder.
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AS PROVIDED IN THE INDENTURE, THE INDENTURE AND THE NOTES SHALL BE
CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN WITHOUT REGARD TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF.
IN WITNESS WHEREOF, the Issuer has caused this Note to be duly
executed.
Dated as of: August ____, 1999
Creditrust SPV99-1, LLC
By:
-----------------------------
Name: Joseph K. Rensin
Title: President
CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned Indenture.
Norwest Bank Minnesota, National Association
as Trustee
By:
----------------------------------
Responsible Officer
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EXHIBIT D-1
FORM OF TRANSFEROR CERTIFICATE
______ __, 199_
Norwest Bank Minnesota, National Association
Norwest Center
Sixth and Marquette
MAC N9311-161
Minneapolis, MN 55479
Attention: Corporate Trust Operations (Creditrust Receivables-Backed Notes,
Series 1999-1)
Re: Creditrust Receivables-Backed Notes, Series 1999-1
(the "Notes")
Ladies and Gentlemen:
This letter is delivered to you in connection with the
transfer by ____________________ (the "Transferor") to _______________________
(the "Transferee") of a Note (the "Transferred Note") [having an initial
principal balance as of August __, 1999 (the "Closing Date") of $_____________].
The Notes were issued pursuant to the Indenture and Servicing Agreement (the
"Indenture and Servicing Agreement"), dated as of August 1, 1999, among
Creditrust SPV99-1, LLC, as issuer, Creditrust Corporation, as servicer, and
Norwest Bank Minnesota, National Association, as trustee. All terms used herein
and not otherwise defined shall have the meanings set forth in the Indenture and
Servicing Agreement. The Transferor hereby certifies, represents and warrants to
you, as Note Registrar, that:
1. The Transferor is the lawful owner of the Transferred Note
with the full right to transfer such Note free from any and all claims
and encumbrances whatsoever.
2. Neither the Transferor nor anyone acting on its behalf has
(a) offered, transferred, pledged, sold or otherwise disposed of any
Note, any interest in any Note or any other similar security to any
person in any manner, (b) solicited any offer to buy or accepted a
transfer, pledge or other disposition of any Note, any interest in any
Note or any other similar security from any person in any manner, (c)
otherwise approached or negotiated with respect to any Note, any
interest in any Note or any other similar security with any person in
any manner, (d) made any general solicitation by means of general
advertising or in any other manner, or (e) taken any other action,
which (in the case of any of the acts described in clauses (a) through
(d) hereof) would constitute a distribution of any Note under the
Securities Act of 1933, as amended (the "Securities Act"), or would
render the disposition of any Note a violation of Section 5 of the
Securities Act or any state securities laws, or would require
registration or qualification of any Note pursuant to the Securities
Act or any state securities laws.
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Very truly yours,
------------------------------
(Transferor)
By:___________________________
Name:_________________________
Title:________________________
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EXHIBIT D-2
FORM OF TRANSFEREE CERTIFICATE
______ __, 199_
Norwest Bank Minnesota, National Association
Norwest Center
Sixth and Marquette
MAC N9311-161
Minneapolis, MN 55479
Attention: Corporate Trust Operations (Creditrust Receivables-Backed Notes,
Series 1999-1)
Re: Creditrust Receivables-Backed Notes, Series 1999-1
(the "Notes")
Ladies and Gentlemen:
This letter is delivered to you in connection with the
transfer by ____________________ (the "Transferor") to _______________________
(the "Transferee") of a Note (the "Transferred Note") [having an initial
principal balance as of August __, 1999 (the "Closing Date") of $_____________].
The Notes were issued pursuant to the Indenture and Servicing Agreement (the
"Indenture and Servicing Agreement"), dated as of August 1, 1999, among
Creditrust SPV99-1, LLC, as issuer, Creditrust Corporation, as servicer and
Norwest Bank Minnesota, National Association, as trustee. All terms used herein
and not otherwise defined shall have the meanings set forth in the Indenture and
Servicing Agreement. The Transferee hereby certifies, represents and warrants to
you, as Note Registrar, that:
1. The Transferee is acquiring the Transferred Note for its
own account for investment and not with a view to or for sale or transfer in
connection with any distribution thereof, in whole or in part, in any manner
which would violate the Securities Act of 1933, as amended (the "Securities
Act"), or any applicable state securities laws.
2. The Transferee understands that (a) the Notes have not been
and will not be registered under the Securities Act or registered or qualified
under any applicable state securities laws, (b) neither the Issuer nor the
Trustee is obligated so to register or qualify the Notes and (c) the Notes may
not be resold or transferred unless they are (i) registered pursuant to the
Securities Act and registered or qualified pursuant to any applicable state
securities laws or (ii) sold or transferred in transactions which are exempt
from such registration and qualification and the Note Registrar has received
either (A) certifications from both the Transferor and the Transferee
(substantially in the forms attached to the Indenture and Servicing Agreement)
setting forth the facts surrounding the transfer or (B) an Opinion of Counsel
satisfactory to the Note Registrar with respect to the availability of such
exemption, together with copies of the certification(s) from the Transferor
and/or Transferee setting forth the facts surrounding the transfer upon which
such opinion is based.
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3. The Transferee understands that it may not sell or
otherwise transfer any portion of its interest in the Transferred Note except in
compliance with the provisions of Section 5.03 of the Indenture and Servicing
Agreement, which provisions it has carefully reviewed, and that the Transferred
Note will bear a legend substantially to the following effect:
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT IN
COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. THE
TRANSFER OF THIS NOTE IS SUBJECT TO CERTAIN RESTRICTIONS AND CONDITIONS SET
FORTH IN THE INDENTURE AND SERVICING AGREEMENT UNDER WHICH THIS NOTE IS ISSUED,
A COPY OF WHICH IS AVAILABLE FROM THE TRUSTEE UPON REQUEST.
4. Neither the Transferee nor anyone acting on its behalf has
(a) offered, pledged, sold, disposed of or otherwise transferred any Note, any
interest in any Note or any other similar security to any person in any manner,
(b) solicited any offer to buy or accept a pledge, disposition or other transfer
of any Note, any interest in any Note or any other similar security from any
person in any manner, (c) otherwise approached or negotiated with respect to any
Note, any interest in any Note or any other similar security with any person in
any manner, (d) made any general solicitation by means of general advertising or
in any other manner, or (e) taken any other action, that (in the case of any of
the acts described in clauses (a) through (d) hereof) would constitute a
distribution of any Note under the Securities Act, would render the disposition
of any Note a violation of Section 5 of the Securities Act or any state
securities law or would require registration or qualification of any Note
pursuant thereto. The Transferee will not act, nor has it authorized or will it
authorize any person to act, in any manner set forth in the foregoing sentence
with respect to any Note.
5. The Transferee has been furnished with all information
regarding (a) the Issuer, (b) the Notes and distributions thereon, (c) the
Indenture and Servicing Agreement, and (d) all related matters, that it has
requested.
6. The Transferee is an "accredited investor" as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act and has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of an investment in the Notes; the Transferee has sought
such accounting, legal and tax advice as it has considered necessary to make an
informed investment decision; and the Transferee is able to bear the economic
risks of such an investment and can afford a complete loss of such investment.
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Very truly yours,
------------------------------
(Transferee)
By:___________________________
Name:_________________________
Title:________________________
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EXHIBIT D-3
FORM OF TRANSFEREE CERTIFICATE
FOR QIBs
______ __, 199_
Norwest Bank Minnesota, National Association
Norwest Center
Sixth and Marquette
MAC N9311-161
Minneapolis, MN 55479
Attention: Corporate Trust Operations (Creditrust Receivables-Backed Notes,
Series 1999-1)
Re: Creditrust Receivables-Backed Notes, Series 1999-1
(the "Notes")
Ladies and Gentlemen:
This letter is delivered to you in connection with the
transfer by ____________________ (the "Transferor") to _______________________
(the "Transferee") of a Note (the "Transferred Note") [having an initial
principal balance as of August __, 1999 (the "Closing Date") of $_____________].
The Notes were issued pursuant to the Indenture and Servicing Agreement (the
"Indenture and Servicing Agreement"), dated as of August 1, 1999, among
Creditrust SPV99-1, LLC, as issuer, Creditrust Corporation, as servicer, and
Norwest Bank Minnesota, National Association, as trustee. All terms used herein
and not otherwise defined shall have the meanings set forth in the Indenture and
Servicing Agreement. The Transferee hereby certifies, represents and warrants to
you, as Note Registrar, that:
1.The Transferee is a "qualified institutional buyer" as that
term is defined in Rule 144A ("Rule 144A") under the Securities Act of
1933, as amended (the "Securities Act"), and has completed one of the
forms of certification to that effect attached hereto as Annex 1 and
Annex 2. The Transferee is aware that the sale to it is being made in
reliance on Rule 144A. The Transferee is acquiring the Transferred Note
for its own account or for the account of a qualified institutional
buyer, and understands that such Note may be resold, pledged or
transferred only (i) to a person reasonably believed to be a qualified
institutional buyer that purchases for its own account or for the
account of a qualified institutional buyer to whom notice is given that
the resale, pledge or transfer is being made in reliance on Rule 144A,
or (ii) pursuant to another exemption from registration under the
Securities Act.
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2. The Transferee has been furnished with all information
regarding (a) the Notes and distributions thereon, (b) the nature,
performance and servicing of the Receivables, (c) the Indenture and
Servicing Agreement, and (d) any credit enhancement mechanism
associated with the Notes, that it has requested.
Very truly yours,
------------------------------
(Transferee)
By:___________________________
Name:_________________________
Title:________________________
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<PAGE>
ANNEX 1 TO EXHIBIT D-3
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Transferees Other Than Registered Investment Companies]
The undersigned hereby certifies as follows to [name of Transferor]
(the "Transferor") and Norwest Bank Minnesota, National Association, as Note
Registrar, with respect to the Note being transferred (the "Transferred Note")
as described in the Transferee Note to which this certification relates and to
which this certification is an Annex:
1. As indicated below, the undersigned is the chief financial officer,
a person fulfilling an equivalent function, or other executive officer of the
entity purchasing the Transferred Note (the "Transferee").
2. The Transferee is a "qualified institutional buyer" as that term is
defined in Rule 144A under the Securities Act of 1933 ("Rule 144A") because (i)
the Transferee owned and/or invested on a discretionary basis $ / in
securities (other than the excluded securities referred to below) as of the end
of the Transferee's most recent fiscal year (such amount being calculated in
accordance with Rule 144A) [Transferee must own and/or invest on a discretionary
basis at least $100,000,000 in securities unless Transferee is a dealer, and, in
that case, Transferee must own and/or invest on, a discretionary basis at least
$10,000,000 in securities.] and (ii) the Transferee satisfies the criteria in
the category marked below.
(0) Corporation, etc. The Transferee is a corporation (other than
a bank, savings and loan association or similar institution),
business trust, partnership, or any organization described in
Section 501(c)(3) of the Internal Revenue Code of 1986.
(0) Bank. The Transferee (a) is a national bank or a banking
institution organized under the laws of any State, U.S.
territory or the District of Columbia, the business of which
is substantially confined to banking and is supervised by the
State or territorial banking commission or similar official or
is a foreign bank or equivalent institution, and (b) has an
audited net worth of at least $25,000,000 as demonstrated in
its latest annual financial statements, a copy of which is
attached hereto, as of a date not more than 16 months
preceding the date of sale of the Note in the case of a U.S.
bank, and not more than 18 months preceding such date of sale
for a foreign bank or equivalent institution.
(0) Savings and Loan. The Transferee (a) is a savings and loan
association, building and loan association, cooperative bank,
homestead association or similar institution, which is
supervised and examined by a State or Federal authority having
supervision over any such institutions or is a foreign savings
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<PAGE>
and loan association or equivalent institution and (b) has an
audited net worth of at least $25,000,000 as demonstrated in
its latest annual financial statements, a copy of which is
attached hereto, as of a date not more than 16 months
preceding the date of sale of the Note in the case of a U.S.
savings and loan association, and not more than 18 months
preceding such date of sale for a foreign savings and loan
association or equivalent institution.
(0) Broker-dealer. The Transferee is a dealer registered pursuant
to Section 15 of the Securities Exchange Act of 1934 and we
owned and invested, on a discretionary basis, for our own
account or the accounts of other qualified institutional
buyers, in the aggregate at least the amount of securities
specified below (not less than $10 million), calculated as
provided in Rule 144A, as of the date specified below.
(0) Insurance Company. The Transferee is an insurance company
whose primary and predominant business activity is the writing
of insurance or the reinsuring of risks underwritten by
insurance companies and which is subject to supervision by the
insurance commissioner or a similar official or agency of a
State, U.S. territory or the District of Columbia.
(0) State or Local Plan. The Transferee is a plan established and
maintained by a State, its political subdivisions, or any
agency or instrumentality of the State or its political
subdivisions, for the benefit of its employees.
(0) ERISA Plan. The Transferee is an employee benefit plan within
the meaning of Title I of the Employee Retirement Income
Security Act of 1974.
(0) Investment Advisor. The Transferee is an investment advisor
registered under the Investment Advisers Act of 1940.
(0) Other. (Please supply a brief description of the entity and a
cross-reference to the paragraph and subparagraph under
subsection (a)(1) of Rule 144A pursuant to which it qualifies.
Note that registered investment companies should complete
Annex 2 rather than this Annex 1.)
--------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
3. The term "securities" as used herein does not include (i securities
of issuers that are affiliated with the Transferee, (ii) securities that are
part of an unsold allotment to or subscription by the Transferee, if the
Transferee is a dealer, (iii) bank deposit notes and certificates of deposit,
(iv) loan participations, (v) repurchase agreements, (vi) securities owned
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but subject to a repurchase agreement and (vii) currency, interest rate and
commodity swaps. For purposes of determining the aggregate amount of securities
owned and/or invested on a discretionary basis by the Transferee, the Transferee
did not include any of the securities referred to in this paragraph.
4. For purposes of determining the aggregate amount of securities
owned and/or invested on a discretionary basis by the Transferee, the Transferee
used the cost of such securities to the Transferee, unless the Transferee
reports its securities holdings in its financial statements on the basis of
their market value, and no current information with respect to the cost of those
securities has been published, in which case the securities were valued at
market. Further, in determining such aggregate amount, the Transferee may have
included securities owned by subsidiaries of the Transferee, but only if such
subsidiaries are consolidated with the Transferee in its financial statements
prepared in accordance with generally accepted accounting principles and if the
investments of such subsidiaries are managed under the Transferee's direction.
However, such securities were not included if the Transferee is a
majority-owned, consolidated subsidiary of another enterprise and the Transferee
is not itself a reporting company under the Securities Exchange Act of 1934.
5. The Transferee acknowledges that it is familiar with Rule 144A
and understands that the parties to which this certification is being made are
relying and will continue to rely on the statements made herein because one or
more sales to the Transferee may be in reliance on Rule 144A.
--- -- Will the Transferee be purchasing
Yes No the Transferred Note only for the
Transferee's own account?
6. If the answer to the foregoing question is "no", then in each
case where the Transferee is purchasing for an account other than its own, such
account belongs to a third party that is itself a "qualified institutional
buyer" within the meaning of Rule 144A, and the "qualified institutional buyer"
status of such third party has been established by the Transferee through one or
more of the appropriate methods contemplated by Rule 144A.
7. The Transferee will notify each of the parties to which this
certification is made of any changes in the information and conclusions herein.
Until such notice is given, the Transferee's purchase of the Transferred Note
will constitute a reaffirmation of this certification as of the date of such
purchase. In addition, if the Transferee is a bank or savings and loan as
provided above, the Transferee agrees that it will furnish to such parties any
updated annual financial statements that become available on or before the date
of such purchase, promptly after they become available.
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<PAGE>
-------------------------------------------
Print Name of Transferee or Adviser
-------------------------------------------
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
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<PAGE>
ANNEX 2 TO EXHIBIT D-3
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Transferees That Are Registered Investment Companies]
The undersigned hereby certifies as follows to [name of Transferor]
(the "Transferor") and Norwest Bank Minnesota, National Association, as Note
Registrar, with respect to the mortgage pass-through certificate being
transferred (the "Transferred Note") as described in the Transferee Note to
which this certification relates and to which this certification is an Annex:
1. As indicated below, the undersigned is the chief financial
officer, a person fulfilling an equivalent function, or other executive officer
of the entity purchasing the Transferred Note (the "Transferee") or, if the
Transferee is a "qualified institutional buyer" as that term is defined in Rule
144A under the Securities Act of 1933 ("Rule 144A") because the Transferee is
part of a Family of Investment Companies (as defined below), is an executive
officer of the investment adviser (the "Adviser").
2. The Transferee is a "qualified institutional buyer" as defined in
Rule 144A because (i) the Transferee is an investment company registered under
the Investment Company Act of 1940, and (ii) as marked below, the Transferee
alone owned and/or invested on a discretionary basis, or the Transferee's Family
of Investment Companies owned, at least $100,000,000 in securities (other than
the excluded securities referred to below) as of the end of the Transferee's
most recent fiscal year. For purposes of determining the amount of securities
owned by the Transferee or the Transferee's Family of Investment Companies, the
cost of such securities was used, unless the Transferee or any member of the
Transferee's Family of Investment Companies, as the case may be, reports its
securities holdings in its financial statements on the basis of their market
value, and no current information with respect to the cost of those securities
has been published, in which case the securities of such entity were valued at
market.
(0) The Transferee owned and/or invested on a discretionary basis
$ in securities (other than the excluded securities referred
to below) as of the end of the Transferee's most recent fiscal
year (such amount being calculated in accordance with Rule
144A).
(0) The Transferee is part of a Family of Investment Companies
which owned in the aggregate $______in securities (other than
the excluded securities referred to below) as of the end of
the Transferee's most recent fiscal year (such amount being
calculated in accordance with Rule 144A).
3. The term "Family of Investment Companies" as used herein means
two or more registered investment companies (or series thereof) that have the
same investment adviser or
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<PAGE>
investment advisers that are affiliated (by virtue of being majority owned
subsidiaries of the same parent or because one investment adviser is a majority
owned subsidiary of the other).
4. The term "securities" as used herein does not include (i)
securities of issuers that are affiliated with the Transferee or are part of the
Transferee's Family of Investment Companies, (ii) bank deposit notes and
certificates of deposit, (iii) loan participations, (iv) repurchase agreements,
(v) securities owned but subject to a repurchase agreement and (vi) currency,
interest rate and commodity swaps. For purposes of determining the aggregate
amount of securities owned and/or invested on a discretionary basis by the
Transferee, or owned by the Transferee's Family of Investment Companies, the
securities referred to in this paragraph were excluded.
5. The Transferee is familiar with Rule 144A and understands tha
the parties to which this certification is being made are relying and will
continue to rely on the statements made herein because one or more sales to the
Transferee will be in reliance on Rule 144A.
--- --- Will the Transferee be
Yes No purchasing the Transferred
Note only for the
Transferee's own account?
6. If the answer to the foregoing question is "no", then in each
case where the Transferee is purchasing for an account other than its own, such
account belongs to a third party that is itself a "qualified institutional
buyer" within the meaning of Rule 144A, and the "qualified institutional buyer"
status of such third party has been established by the Transferee through one or
more of the appropriate methods contemplated by Rule 144A.
7. The undersigned will notify the parties to which this
certification is made of any changes in the information and conclusions herein.
Until such notice, the Transferee's purchase of the Transferred Note will
constitute a reaffirmation of this certification by the undersigned as of the
date of such purchase.
-----------------------------------------
Print Name of Transferee or Adviser
-----------------------------------------
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
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<PAGE>
IF AN ADVISER:
----------------------------------------
Print Name of Transferee
Date:
----------------------------------
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<PAGE>
EXHIBIT E
BACKUP SERVICER FIELDS
Customer Information Fields Receivable Information Fields
- --------------------------- -----------------------------
Primary Debtor's Name Type of Account
Primary Debtor's Social Security Number Date Purchased
Primary Debtor's Mailing Address Charged-off Balance
Secondary Debtor's Name Charged-off Date
Secondary Debtor's Social Security Number Name of Seller
Account Home Phone Number Seller Assigned Account Number
Account Work Phone Number Negotiated Settlement Amount
Debtor ID Last Payment Date
Total Amount Paid to Date
Next Payment Amount
Total Amount Outstanding
Package ID
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<PAGE>
EXHIBIT F
With respect to Creditrust Receivables-Backed Notes, Series 1999-1, pursuant to
Sections _____ and _____ of the related Indenture and Servicing Agreement dated
August ___, 1999, we will:
For the period ended December 31, 1999, and for every four month period
thereafter by the 60th day after month end,
1. Test for daily transfer of funds from First Union Deposit Account
________________ into First Union Trust Department Collections
Account _________________ (the blocked account).
2. Trace daily deposit from Mozart receivables ledger to First Union
deposit account.
3. Select randomly for each month, 30 customer payment items from the
Mozart daily deposit summaries for Pool 1999-1 and:
A) Trace individual payment item to timely posting in Mozart
receivables ledger.
B) Verify that the individual payment item was properly applied to
Pool 1999-1.
4. Select randomly for each month, 30 customer payment items from the
Company's receivables ledger (i.e. Mozart database) and:
A) Trace total for the day to First Union Deposit Account deposit
slip.
B) Agree the following to the Mozart daily deposit summary for that
day
1) Amount of payment.
2) Date of payment (must be within one business day of posting to
the receivables ledger (i.e. Mozart database)).
5. Agree Mozart receivables daily postings to Mozart monthly summary of
daily deposits.
6. Select the last two days of each month and three random dates
during each month and verify the prior ending day balances to
beginning day cumulative payments received.
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<PAGE>
7. If any exceptions are found in either sample, expand that sample to
60 items and report all exceptions.
8. Recalculate all calculations on each monthly servicer report.
9. Agree all other amounts that are greater than or equal to $1,000 in
the four month servicer reports for each four month period to the
Company's bank statements, subsidiary ledgers, Norwest investment
revenue summaries, the Indenture and Servicing Agreement (dated August
___, 1999), or prior period servicer report, as appropriate.
10. Report all exceptions.
-145-
<PAGE>
SCHEDULE A
SCHEDULE OF RECEIVABLES
[See CD-ROM delivered to Trustee]
-146-
<PAGE>
<TABLE>
<CAPTION>
(EXECUTION COPY)
SCHEDULE B
MINIMUM CUMULATIVE NET PROCEEDS
Period Ending Minimum Cumulative Net Proceeds
($)
<S> <C> <C>
February 2000 *
August 2000 *
February 2001 *
August 2001 *
February 2002 *
August 2002 *
February 2003 *
August 2003 *
February 2004 *
August 2004 *
*Text omitted pursuant to a request for confidential treatment filed separately
with the Securities and Exchange Commission.
</TABLE>
-147-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 15,461
<SECURITIES> 31,517
<RECEIVABLES> 166,392
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 8,551
<DEPRECIATION> 1,208
<TOTAL-ASSETS> 222,912
<CURRENT-LIABILITIES> 4,684
<BONDS> 0
0
0
<COMMON> 104
<OTHER-SE> 100,085
<TOTAL-LIABILITY-AND-EQUITY> 226,912
<SALES> 0
<TOTAL-REVENUES> 24,170
<CGS> 0
<TOTAL-COSTS> 12,575
<OTHER-EXPENSES> (518)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,820
<INCOME-PRETAX> 10,293
<INCOME-TAX> 3,998
<INCOME-CONTINUING> 6,295
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,295
<EPS-BASIC> .60
<EPS-DILUTED> .58
</TABLE>
Exhibit 99
- ------------------------------------------------------------------------------
LIMITED LIABILITY COMPANY AGREEMENT
OF
CREDITRUST SPV99-1, LLC
-----------
DATED AS OF AUGUST 25, 1999
-----------
THE UNITS OF LLC INTEREST DESCRIBED IN THIS AGREEMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR UNDER THE
SECURITIES LAWS OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION (THE "STATE
ACTS"). CONSEQUENTLY, UNITS IN THE COMPANY MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE
WITH THE PROVISIONS OF THE 1933 ACT, THE STATE ACTS AND THIS AGREEMENT.
- -----------
- ----------
-1-
<PAGE>
==============================================================================
LIMITED LIABILITY COMPANY AGREEMENT
OF
CREDITRUST SPV99-1, LLC
==============================================================================
THIS LIMITED LIABILITY COMPANY AGREEMENT (this "AGREEMENT"), dated as
of August 25, 1999, is made and executed by CREDITRUST CORPORATION, a Maryland
corporation ("CREDITRUST"), and GSS HOLDINGS II, INC., a Delaware corporation
("GLOBAL"), as members (the "MEMBERS").
PRELIMINARY STATEMENTS:
The Members have caused Creditrust SPV99-1, LLC (the "COMPANY") to be
formed as a limited liability company under the laws of the State of Delaware
for the purposes set forth herein. The Members now desire to enter into this
Agreement in order to establish the manner in which the business and affairs of
the Company shall be managed and to determine the respective rights, duties and
obligations of the members of the Company.
NOW THEREFORE, the parties hereto hereby agree that the Limited
Liability Company Agreement of the Company shall be as follows:
ARTICLE I
FORMATION; NAME; REGISTERED OFFICE;
PURPOSE; TERM
SECTION 1.1 FORMATION.
The Members have caused Creditrust SPV99-1, LLC to be formed as a
limited liability company under the Delaware Limited Liability Company Act,
6 DEL. C. ss. 18-101, ET Seq. (the "LLC Act").
SECTION 1.2 REGISTERED OFFICE AND REGISTERED AGENT; PRINCIPAL
OFFICE AND PRINCIPAL EXECUTIVE OFFICE.
A. The initial address of the registered office of the Company in
the State of Delaware and the name and address of the initial resident agent of
the Company in the State of Delaware are as set forth in the Certificate of
Formation (as defined below).
B. The principal office and principal executive office of the
Company shall, at all times during the term of the Indenture (as such term is
defined in Section 4.2) be maintained in
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<PAGE>
the State of Maryland. The present address of the principal office and principal
executive office of the Company in the State of Maryland is 7000 Security
Boulevard, Baltimore, Maryland 21244.
SECTION 1.3PURPOSE.
The purposes for which the Company is formed and the business and
objects to be carried on and promoted by it are limited solely to the following:
(1) To acquire, own, hold, sell, transfer, pledge or otherwise
dispose of, interests in consumer loan receivables generated on credit
card accounts and installment accounts ("RECEIVABLES") acquired by
Creditrust and/or any Affiliate (as hereinafter defined), and any other
property related thereto, pursuant to the terms of a Receivables
Contribution Agreement by and between the Company and Creditrust
substantially in the form attached hereto as Exhibit A (the
"RECEIVABLES CONTRIBUTION AGREEMENT"), and of an Assignment Agreement
by and between Creditrust Funding I LLC and the Company substantially
in the form attached hereto as Exhibit B (the "ASSIGNMENT AGREEMENT")
and to enter into, comply and perform under such Receivables
Contribution Agreement and Assignment Agreement;
(2) To authorize, issue, hold, retain an interest (including a
subordinated or ownership interest) in, sell, deliver or otherwise deal
with notes or other obligations secured by the Receivables
("RECEIVABLES-BACKED NOTES") and, in connection therewith, to pledge or
otherwise grant security interests in the Receivables, and any other
assets as determined by the Company's Board of Managers;
(3) To maintain, enforce, protect and service (or arrange for
an agent to so maintain, enforce, protect and service) the Receivables;
(4) To finance the acquisition of the Receivables by selling
interests in the Receivables to, and/or borrow from, one or more
trusts, banks, financial institutions, commercial paper issuers,
insurance companies or similar entities, and in connection with any
such financing arrangement, to pledge as security all or substantially
all of its assets, including, without limitation, all of its right,
title and interest in and to the Receivables;
(5) To loan or otherwise invest, or to distribute to its
Members, the proceeds derived from the sale, pledge or ownership of the
Receivables as determined by the Company's Board of Managers;
(6) To make investments in equity mutual funds; and
(7) To engage in any lawful act or activity and to exercise
any powers permitted to limited liability companies organized under the
LLC Act that, in either case, are incidental to and necessary or
convenient for the accomplishment of the above mentioned purposes.
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<PAGE>
SECTION 1.4 Certificate oF Formation.
The Members have caused a certificate of formation of the Company (the
"CERTIFICATE OF FORMATION") to be executed by an authorized person and filed for
record with the Delaware Secretary of State as of the date of this Agreement, a
copy of which is attached hereto as Exhibit C. The Officers and Managers shall
take all necessary action to maintain the Company in good standing as a limited
liability company under the LLC Act, including (without limitation) the filing
of any certificates of correction, articles of amendment and such other
applications and certificates as may be necessary to protect the limited
liability of the Members and to cause the Company to comply with the applicable
laws of any jurisdiction in which the Company owns property or does business.
SECTION 1.5 Term.
The term of the Company commenced on the date that the Certificate of
Formation was filed and received by the Secretary of State of the State of
Delaware. The Company shall have perpetual existence; PROVIDED, however, that
the Company may be dissolved in accordance with Section 6.1 of this Agreement.
SECTION 1.6 Tax Characterization.
At all times during which all of the outstanding Units (as defined
below) or other equity interests in the Company are held by a single person, the
Company shall, for federal and state income tax purposes, be disregarded as a
separate entity such that all the assets and liabilities of the Company shall be
treated as the assets and liabilities of the holder of all its Units. At all
times during which two or more persons hold Units in the Company, the Company
shall, for federal and state income tax purposes, be classified as a partnership
rather than an association taxable as a corporation. Each Member, by its
execution or acceptance of this Agreement, covenants and agrees that it will
file its own federal and state income and other tax returns in a manner that its
consistent with the Company being classified as a partnership and will not take
any action which is inconsistent with the classification of the Company as a
partnership.
ARTICLE II
MEMBERS; INTERESTS IN THE COMPANY; CAPITAL CONTRIBUTIONS
MEMBERS AND INITIAL CAPITAL CONTRIBUTIONS.
SECTION 2.1
A. The Members shall be divided into Class A Members and Class B
Members. Unless otherwise expressly provided in this Agreement to the contrary,
(i) Creditrust and each subsequent holder of one or more Units who has been
admitted to the Company as a Member shall be referred to herein as a "CLASS A
MEMBER" and Global, and any successor thereto, shall be referred to as the
"CLASS B MEMBER" and (ii) any reference to "Members" or a "Member"
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<PAGE>
shall include the Class A Members and the Class B Member. The Members, their
respective Class designations, capital contributions, addresses and number of
Units (if any) are set forth on Schedule A hereto. Schedule A shall be amended
from time to time to reflect any changes to the information set forth thereon.
B. Pursuant to the terms of the Receivables Contribution Agreement,
Creditrust shall make an initial capital contribution to the Company by
assigning and transferring to the Company those certain Receivables which are
identified on the Schedule of Receivables. In exchange for such transfer and
contribution, the Company shall issue to Creditrust 100 Units of ownership
interest in the Company, which, as of the date such Units are issued, shall
represent all the issued and outstanding Units in the Company.
C. The Company shall have at all times one Class B Member. The Class B
Member shall be a special class of Member the sole rights of which are limited
to voting on certain actions and decisions by the Company as provided herein.
The Class B Member (i) shall have no obligation to make any capital
contributions to the Company, (ii) will not be issued any Units in the Company,
(iii) will not be entitled to receive any distributions from the Company and
(iv) will not be entitled to participate in the business and affairs of the
Company or vote on any matters requiring the consent or approval of the Members,
except as expressly provided herein. The Class B Member shall at all times be a
corporation which shall have at least one Independent Director and shall at all
times be an Independent Member.
For purposes of this Agreement, the term "AFFILIATE" shall mean, (i) Creditrust,
(ii) any stockholder, partner, director, manager, officer, agent or employee of
Creditrust or (iii) other Person that directly or indirectly controls, is
controlled by, or is under common control with Creditrust or the Company, and
the term "INDEPENDENT DIRECTOR" shall mean an individual
(a) who is not (i) a stockholder (whether direct, indirect or
beneficial, other than indirect stock ownership in Creditrust or any
Affiliate by any person through a mutual fund or similar diversified
investment pool), customer, advisor or supplier of Creditrust or any
Affiliate; (ii) a director, officer or employee of Creditrust or any
Affiliate (other than as an Independent Director of any Affiliates)
(Creditrust and Affiliates, other than the Company, being hereinafter
referred to as the "PARENT GROUP"); (iii) a person related to any
person referred to in clauses (i) and (ii); and (iv) a trustee,
conservator or receiver for any member of the Parent Group; and
(b) who has (i) prior experience as an independent director
for a corporation or similar entity whose organic documents require the
unanimous written consent of all independent directors or managers
thereof before such entity could consent to the institution of
bankruptcy or insolvency proceedings against it or could file a
petition seeking relief under any applicable federal or state law
relating to bankruptcy, and (ii) at least three years of employment
experience with one or more entities that provide, in the ordinary
course of their respective businesses, advisory, management or
placement services to issuers of securitization or structured finance
instruments, agreements or securities.
-5-
<PAGE>
Notwithstanding anything in this Agreement to the contrary, in addition to any
requirements under the charter and by-laws of the Class B Member, the
affirmative vote of the Independent Director shall be required for the Class B
Member to authorize (i) any of the matters specified in Section 4.1.E hereof,
(ii) any amendment of this Agreement for which the consent of the Class B Member
is required or (iii) any other actions or decisions under this Agreement for
which the consent of the Class B Member is required. In the event that the
Independent Director resigns as a director of the Class B Member, or such
position is otherwise vacated, no action requiring the affirmative vote of the
Class B Member shall be taken until a successor Independent Director is elected
to the board of directors of the Class B Member and such Independent Director
approves such action. No Independent Director shall be a trustee in bankruptcy
for the Company or any Affiliate of the Company or any significant customer of
or supplier to the Company.
SECTION 2.2AdditionaL Capital Contributions.
A. Other than the initial contribution of Receivables by
Creditrust to the Company pursuant to Section 2.1, no Member shall be required
to make any capital contributions to the Company or to lend any funds to the
Company.
B. [Reserved].
C. Subject to the other provisions of this Agreement, the Board
of Managers, on behalf of the Company, may from time to time seek and accept
from one or more Class A Members selected by the Board of Managers additional
capital contributions of cash or in-kind contributions of property on such terms
and subject to such conditions as may be determined by the Board of Managers in
its sole discretion.
SECTION 2.3Additional Members.
A. Except as provided in Sections 5.1.B and 5.3.B, no individual,
corporation, partnership, limited liability company, joint venture, association,
joint stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof (or any other person) may be admitted to
the Company as an additional or substitute Member without the prior approval of
the Board of Managers.
B. In addition to any other requirements set forth in this
Agreement, no person shall be admitted to the Company as an additional or
substitute Member unless and until such person has accepted and agreed to all
the provisions of this Agreement by executing a counterpart signature page
hereto or an amendment to this Agreement.
SECTION 2.4Issuance and Classification of Units.
Each Class A Member's ownership interest in the Company shall be
represented by units of membership interest ("UNITS"). An unlimited number of
Units are authorized. Units shall not be certificated. The Units shall be of a
single class.
-6-
<PAGE>
SECTION 2.5Capital Accounts.
An individual capital account (the "CAPITAL ACCOUNT") shall be
maintained for each Class A Member. The Capital Account of a Class A Member
shall be INCREASED BY (a) the amount of cash or the agreed fair market value of
any property contributed by such Class A Member (net of any liabilities assumed
by the Company and any liabilities to which such property is subject) and (b)
the amount of all Profits (and any item thereof) allocated to such Class A
Member, and DECREASED BY (c) the amount of all distributions to such Class A
Member and (d) the amount of all Losses (and any item thereof) allocated to such
Class A Member. The Capital Accounts shall be determined, maintained and
adjusted in accordance with the Internal Revenue Code of 1986, as amended (the
"CODE") and the Treasury Regulations issued thereunder, including the capital
account maintenance rules in Treasury Regulations ss.1.704-(1)(b)(2)(iv).
SECTION 2.6General Rules Relating to Capital of the Company.
A. No Member shall be personally liable for the return of the
capital contributions of the Members, or any portion thereof, it being expressly
understood that any such return of contributions shall be made solely from the
Company assets.
B. Except as expressly provided herein, no Member shall have the
right to withdraw or receive a return of all or any part of such Member's
capital contributions. No Member shall have any right to demand or receive
property (other than cash) in return of capital contributions.
ARTICLE III
ALLOCATIONS AND DISTRIBUTIONS
SECTION 3.1Distributions to Members.
A. The net cash proceeds from the issuance of the Receivables-
Backed Notes or any other sources of cash not required to be retained by the
Company under the Indenture or other documents and agreements entered into by
the Company in connection with the Receivables-Backed Notes, may be distributed
to the Class A Members at such times and in such amounts as may be determined by
the Board of Managers in its discretion. Other than such distributions, the
Company shall not make any distributions to its Members.
B. No distributions shall be made to the Class B Member.
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SECTION 3.2Allocations of Profits and Losses.
Profits and Losses for each fiscal year (or other portion thereof) of
the Company shall be allocated among the Class A Members in proportion to the
number of Units held by each. No Profits or Losses shall be allocated to the
Class B Member.
SECTION 3.3Allocation of Taxable Income and Taxable Loss.
A. Except as otherwise provided herein, each item of taxable
income, gain, loss, deduction, preference or recapture entering into the
computation of Profits or Losses hereunder shall be allocated to each Class A
Member in the same proportion as Profits or Losses are allocated and in
accordance with the provisions of Section 704(b) of the Code and the Treasury
Regulations thereto.
B. In accordance with Code Section 704(c) and the Treasury
Regulations thereunder, income, gain, loss, and deduction with respect to any
property contributed to the capital of the Company or with respect to which the
value has been adjusted on the books of the Company shall, for tax purposes (but
not for purposes of maintaining the Members' respective Capital Accounts), be
allocated among the Members so as to take account of any variation between the
adjusted basis of such property to the Company for federal income tax purposes
and its fair market value using such method as may be selected by the Board of
Managers.
C. Allocations pursuant to this Section 3.3 are for purposes of
federal, state, and local taxes and shall not affect, or in any way be taken
into account in computing, any Member's Capital Account or share of Profits,
Losses, other items, or distributions pursuant to any provision of this
Agreement.
SECTION 3.4Distributions Upon Dissolution and Termination
Upon the dissolution and termination of the Company, the assets
remaining after satisfaction (whether by payment or by establishment of reserves
therefor) of creditors shall be distributed to the Class A Members in accordance
with the number of Units held by each.
ARTICLE IV
MANAGEMENT OF BUSINESS AND AFFAIRS OF THE COMPANY
SECTION 4.1Management of Business and Affairs of the Company.
A. Except as otherwise provided herein, the exclusive authority to
manage, control and operate the Company shall be vested in the Board of Managers
of the Company, consisting of individuals, who need not be members, elected by
the members as Managers in accordance with the Certificate of Formation and this
Agreement. The number of Managers of the
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Company shall be three (3), which number may be increased or decreased in
accordance with the By-Laws of the Company and the terms of this Agreement.
The names of the Managers who will serve until the first annual meeting and
until successor(s) are elected and qualify are as follows:
Joseph K. Rensin
John L. Davis
Richard J. Palmer
B. For purposes of carrying out the business of the Company, the
Members hereby adopt as the By-Laws of the Company the By-Laws attached hereto
as Exhibit D and incorporated by this reference as if set forth fully herein
(the "BY-LAWS").
C. The Board of Managers shall appoint Officers of the Company for
the purpose of managing the day-to-day operations of the Company, who shall be
elected and shall have the powers as set forth in the By-Laws. The names of the
Officers initially serving the Company and the capacities in which they serve
are as follows:
Name Office(s)
---- ---------
Joseph K. Rensin President
Richard J. Palmer Vice President and Treasurer
John L. Davis Secretary
D. Notwithstanding the general grant of authority to the Board of
Managers under the foregoing provisions of this Section 4.1, the Managers shall
cause the Company:
(1) To maintain books and records separate from its
Affiliates and from any other person or entity;
(2) To maintain its bank accounts separate from those of
its Affiliates and those of any other person or entity;
(3) Not to commingle its assets with those of any
other person or entity and to hold all of its assets in its own name;
(4) To conduct its own business in its own name;
(5) To maintain separate financial statements, showing
its assets and liabilities separate and apart from those of its
Affiliates and from those of any other person or entity and to cause
such financial statements to be prepared in accordance with generally
accepted accounting principles;
(6) To pay its own liabilities and expenses only out of
its own funds;
(7) To observe all corporate and other organizational
formalities;
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(8) To maintain an arm's length relationship with its
Affiliates and to enter into transactions with Affiliates only on a
commercially reasonable basis;
(9) Not to assume, guarantee or become obligated for the
debts of any other entity or person;
(10) To allocate fairly and reasonably any overhead expenses
that are shared with any Affiliate, including paying for office space
and services performed by any employee of an Affiliate;
(11) To use separate stationery, invoices, and checks
bearing its own name;
(12) To hold itself out as a separate entity;
(13) To correct any known misunderstanding regarding its
separate identity;
(14) Not to guaranty or become obligated for the debts of
any other entity or hold out its credit as being available to satisfy
the obligations of others;
(15) Except in connection with the Receivables-Backed
Notes, not to pledge the Receivables or any of its other assets for its
benefit or the benefit of any other entity;
(16) Not to incur or assume any indebtedness except for
such indebtedness that may be incurred by the Company in connection
with the issuance of Receivables-Backed Notes;
(17) To cause any of the Company's financial statements which
are consolidated with those of Creditrust to contain footnotes or other
disclosures which describe the Company's business and otherwise inform
Creditrust's creditors that the Company is a separate entity whose
creditors have a claim on its assets prior to those assets becoming
available to its equity holders and therefore to any creditors of
Creditrust or any of its Affiliates; and
(18) Take such other actions to ensure that the factual
assumptions set forth in, and forming the basis of the legal opinions
of Piper & Marbury L.L.P., counsel to Creditrust, which have or are
expected to be issued in connection transactions contemplated by the
Indenture and relating to the issues of substantive consolidation and
true sale of the Receivables are true and correct at all times.
E. Notwithstanding anything to the contrary set forth in the
Certificate of Formation or this Agreement, the unanimous consent of all of the
Members (including the Class B Member) shall be required for the Company to:
(1) (a) File or consent to a voluntary petition or otherwise
initiate proceedings for the Company to be adjudicated bankrupt or
insolvent or seeking an order for relief as a debtor under the
Bankruptcy Code; (b) file or consent to the filing of, or cause the
filing of, any petition seeking any composition, bankruptcy,
reorganization, readjustment, liquidation, dissolution or similar
relief for the Company under any applicable state or
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federal bankruptcy laws or any other present or future applicable
federal, state or other statue or law relative to bankruptcy,
insolvency or other relief for debtors; (c) seek or consent to the
appointment of a trustee, receiver, conservator, assignee,
sequestrator, custodian, liquidator (or other similar official) of the
Company or of all or any substantial part of the properties and assets
of the Company; (d) make or consent to any general assignment for the
benefit of creditors; (e) admit in writing its inability to pay its
debts generally as they become due, or declare or effect a moratorium
on its debt; or (f) take any action in furtherance of any of the
actions set forth in the preceding clauses (a) through (e) of this
paragraph; or
(2) Dissolve or liquidate, in whole or in part, consolidate or
merge with or into any other entity or convey, sell or transfer all or
substantially all of its properties or assets substantially as an
entirety to any entity; or acquire all or substantially all of the
properties, assets or capital stock or other ownership interests of any
other entity; PROVIDED, that the foregoing shall not be construed as
limiting the ability of the Company to make distributions to its
members in accordance with this Agreement; or
(3) Incur or assume any indebtedness for borrowed money except
for the indebtedness which is represented by the Receivables-Backed
Notes and is incurred pursuant to the terms of the Indenture for the
purchase or other acquisition of the Receivables; or
(4) Acquire any Receivables, other than the Receivables
acquired in connection with the issuance of the Receivables-Backed
Notes and the transactions contemplated by the Indenture.
By its signature below, the Class B Member acknowledges that, when voting on
whether the Company will take any action described in this Section 4.1.E, the
Class B Member shall owe its primary obligation to the Company (including,
without limitation, the Company's creditors) and not to the Members (except to
the extent as may specifically be required by applicable law). Every Member of
the Company shall be deemed to have consented to the foregoing provisions of
this Section 4.1.E, specifically and without limitation, the waiver of his, her
or its right to cause a dissolution of the Company under applicable law by
virtue of such Member's acquisition of Units of the Company and admission to the
Company as a Member.
Notwithstanding the foregoing and so long as any Receivables-Backed Notes remain
outstanding, the Managers shall have no authority to take any action enumerated
in this Section 4.1.E without the written consent of the Controlling Party (as
such term is defined in the Indenture).
SECTION 4.2Approval of Certain Agreements and Transactions
A. Each Member, by its execution or acceptance of this Agreement,
hereby ratifies and approves the execution and delivery by the Company of, and
the performance of the obligations of the Company under, the following documents
and agreements that are to be
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executed and delivered concurrently with the closing of the transactions
contemplated by the Receivables Contribution Agreement:
(i) the Receivables Contribution Agreement;
(ii) the Assignment Agreement;
(iii) the Indenture and Servicing Agreement by and among
the Company, as Issuer, Creditrust, as Servicer, and Norwest Bank
Minnesota, National Association, as Trustee and as Backup Servicer,
substantially in the form attached hereto as Exhibit E (the
"INDENTURE"), relating to, among other things, the grant of a security
interest in the Receivables to the trustee named therein as security
for the obligations of the Company under the Receivables-Backed Notes
and the servicing of the Receivables by Creditrust;
(iv) separate purchase agreements with the purchasers of
the Receivables-Backed Notes on such terms as may be determined by the
Board of Managers and Officers of the Company; and
(v) all other Transaction Documents (as defined in the
Indenture).
B. Each Member, by its execution or acceptance of this
Agreement, hereby authorizes and directs the Company to borrow money on the
terms set forth in the Indenture, to issue the Receivables-Backed Notes to
evidence such indebtedness and, in connection therewith, grant a security
interest in the Receivables to the trustee in accordance with the terms of the
Indenture.
SECTION 4.3No Participation of Members in Business and Affairs
of the company.
A. No Member, in its capacity as such, shall have any authority
or right to act for or bind the Company or to participate in or have any control
over Company business, except for such rights to consent to or approve of the
actions and decisions of the Board of Managers as are expressly provided for in
this Agreement or the Certificate of Formation.
B. Except for such right and any other rights to consent to or
approve of actions and decisions of the Company expressly provided for in this
Agreement, the Class B Member shall not be entitled to vote on the election of
Managers of the Company or on any other matter submitted to a vote by the
Members.
SECTION 4.4Other Businesses of Members; Covenants regarding
Noncompetition and NonDisclosure.
A. Any Member and any Affiliate of any Member may engage in or possess
an interest in other business ventures of any nature or description
independently or with others, and neither the Company nor any Member shall have
any rights in or to such independent
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ventures or the income or profits derived therefrom, and such activities shall
not be construed as a breach of any duty of loyalty or other duty to the other
Members or the Company.
B. The Class B Member, by its execution or acceptance of this
Agreement, (i) acknowledges that it may obtain information relating to the
Company and Creditrust that is of a confidential and proprietary nature
("PROPRIETARY INFORMATION"), including, but is not limited to, non-public trade
secrets, invention techniques, processes, programs, schematics, software source
documents, data, and financial information and (ii) agrees at all times, both
during the period in which it is a Member and for a period of three (3) years
after the complete termination of its interest in the Company as a Class B
Member for any reason (including the dissolution and termination of the
Company), keep in trust and confidence all such Proprietary Information, and
shall not use such Proprietary Information other than in connection with the
exercise of its rights under this Agreement, nor shall any Class B Member
disclose any such Proprietary Information of the Company or Creditrust without
the written consent of Creditrust unless legally required to disclose such
information. Each Class B Member further agrees to immediately return all
Proprietary Information of the Company and Creditrust (including copies thereof)
in its possession, custody, or control upon the complete termination of its
interest in the Company as a Class B Member for any reason.
C. The Class B Member acknowledges and agrees that since a remedy at
law for any breach or attempted breach of the restrictive covenants of this
Section 4.4 shall be inadequate, the non-breaching party shall have the right to
enforce the provisions of this Section 4.4 by an action for specific performance
and injunctive or other equitable relief, filed in any court of competent
jurisdiction in the State of Delaware, without the necessity of proving actual
damages, in case of any such breach or attempted breach, in addition to whatever
other remedies may exist at law. The parties also waive any requirement for
securing or posting any bond in connection with obtaining any such injunctive or
other equitable relief. The parties hereto recognize that the laws and public
policies of the various states of the United States may differ as to the
validity and enforceability of agreements similar to those contained in Section
4.4. It is the intention of the parties that the provisions of this Section 4.4
shall be enforced to the fullest extent permissible under the laws and public
policies of the State of Delaware or any other jurisdiction in which enforcement
may be sought. In the event that this Section 4.4 shall be determined to be
invalid or unenforceable, either in whole or in part, Section 4.4 shall be
deemed amended to delete or modify, as necessary, the offending provisions and
to alter the balance of this Section 4.4 in order to render the same valid and
enforceable to the fullest extent permissible as aforesaid.
SECTION 4.5Indemnification.
A. The Company shall indemnify (i) its Managers and Officers to the
fullest extent permitted or authorized by the laws of the State of Delaware now
or hereafter in force applied as if the Company were a Delaware corporation,
including (without limitation) the advance of expenses, under the procedures
(ii) the Class B Member and its directors, officers, employees, representatives
and agents to the fullest extent permitted or authorized by the laws of the
State of Delaware now or hereafter in force, including (without limitation) the
advance of expenses,
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and (iii) other employees and agents of the Company to such extent as shall be
authorized by the Board of Managers and is permitted by law. The foregoing
rights of indemnification shall not be exclusive of any other rights to which
those seeking indemnification may be entitled. The Board of Managers may take
such action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such
resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law. No amendment of the
Certificate of Formation or this Agreement or repeal of any of the provisions
thereof shall limit or eliminate the right to indemnification provided hereunder
with respect to acts or omissions occurring prior to such amendment or repeal.
The indemnification shall (x) be payable solely from the assets of the Company
and no Member shall have any personal or corporate liability therefor and (y) be
expressly subordinate to any obligations of the Company on or with respect to
the Receivables-Backed Notes and the distributions to the Class B Member set
forth in Section 3.2 hereof.
B. To the fullest extent permitted by Delaware statutory or decisional
law, as amended or interpreted, no Manager, Officer or Class B Member of the
Company shall be personally liable to the Company or any Members for money
damages. No amendment of the Certificate of Formation or this Agreement, or
repeal of any of their respective provisions shall limit or eliminate the
limitation on liability provided to Managers, Officers and Class B Members
hereunder with respect to any act or omission occurring prior to such amendment
or repeal.
ARTICLE V
RESTRICTIONS ON TRANSFERS OF UNITS AND
WITHDRAWALS BY MEMBERS
SECTION 5.1TRANSFER OF UNITS.
A. Except as provided in this Section 5.1, (i) no Class A Member shall
endorse, sell, give, assign, transfer or otherwise dispose of, voluntarily or
involuntarily or by operation of law (hereinafter referred to as "TRANSFER") all
or any part of such Class A Member's Units without the prior written consent of
the Board of Managers and (ii) prior to the date on which all Receivables-Backed
Notes have been satisfied in full, without the prior written consent of the
Controlling Party (as such term is defined in the Indenture).
B. Any Class A Member may sell or assign (for any consideration or no
consideration) all of its Units to an Affiliate of the Class A Member that (i)
holds 100% of the ownership and effective control over the transferring Class A
Member, (ii) 100% of the ownership and effective control over which is held by
the transferring Class A Member or (iii) is under common 100% control with the
transferring Class A Member. A permitted transferee of a Class A Member under
this Section 5.1.B shall be admitted to the Company as a substitute Class A
Member with respect to the Units transferred to it upon the satisfaction of all
of the following conditions:
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(i) an executed or authenticated copy of the written
instrument of assignment or Transfer is delivered to the Company;
(ii) the transferor Class A Member grants to the transferee
the right to be admitted to the Company as a substitute Class A Member;
(iii) the transferee agrees to be bound by all of the terms of
this Agreement by executing a counterpart signature page to this
Agreement; and
(iv) the Units acquired by the transferee consist of all the
Units of the transferor Class A Member in the Company.
C. No Class B Member shall have any right to assign or Transfer any of
its rights under this Agreement and any purported assignment or Transfer shall
be void ab initio.
SECTION 5.2 ADDITIONAL RESTRICTIONS ON TRANSFERS
A. The Units described in this Agreement have not been registered under
the Securities Act of 1933, as amended (the "1933 ACT") or under the securities
laws of the State of Delaware or any other jurisdiction (the "STATE ACTS").
Consequently, in addition to any and all other restrictions on transferability
set forth herein, the Units may not be sold, assigned, pledged, hypothecated or
otherwise disposed of or Transferred, except in accordance with the provisions
of the 1933 Act and the State Acts.
B. In addition to any and all other restrictions on Transfers set forth
herein, no Units may be sold, assigned, pledged, hypothecated or otherwise
disposed of if such Transfer would cause or result in an Event of Default under
the Indenture.
SECTION 5.3 WITHDRAWAL OR REMOVAL OF MEMBERS.
A. No Class A Member shall have any right to withdraw from the Company
as a Member without the prior consent of the Board of Managers.
B. At any time after the date that is 90 days following the date on
which all Receivables-Backed Notes have been paid in full, the Class B Member
may withdraw as a Member by delivery of written notice to the Company, effective
immediately upon delivery of such written notice. At any time prior to such
date, the Class B Member may only withdraw upon the first to occur of (i) 90
days after the date on which written notice of its withdrawal is delivered to
the Company and all Noteholders or (ii) the admission of a substitute Class B
Member selected by the Board of Managers with the consent of all Noteholders
(such consent not to be unreasonably withheld, conditioned or delayed). Upon the
withdrawal of the Class B Member hereunder, the Class B Member shall, except for
the indemnification provisions of Section 4.5 hereof, have no further rights
under this Agreement.
C. At any time after the date that is 60 days following the date on
which all Receivables-Backed Notes have been paid in full, the Board of Managers
may remove the
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Class B Member as a member of the Company by delivery of written notice thereof
to the Class B Member. Upon the sending of such notice, the Class B Member shall
automatically and without the requirement of any further action by the Company
or any other Member, be deemed to have withdrawn from the Company as a Member
and, except for the indemnification provisions of Section 4.5 hereof, shall have
no further rights under this Agreement.
SECTION 5.4 EFFECT OF BANKRUPTCY, DISSOLUTION, LIQUIDATION OR
TERMINATION OF A MEMBER.
The bankruptcy, dissolution, liquidation or termination of a Member
shall not cause a termination or dissolution of the Company, and the business of
the Company shall continue. Upon any such occurrence with respect to a Class A
Member, the trustee, receiver, executor, administrator, committee or conservator
of such Class A Member shall have only the rights of an assignee of the Units of
the former Class A Member for the purpose of settling or managing the former
Class A Member's estate or property. The Transfer by such trustee, receiver,
executor, administrator, committee or conservator of any Unit shall be subject
to all of the restrictions hereunder to which such Transfer would have been
subject if such Transfer had been made by the bankrupt, dissolved, liquidated or
terminated Class A Member.
ARTICLE VI
DISSOLUTION OF THE COMPANY
SECTION 6.1 DISSOLUTION
A. The Company shall not dissolve and terminate prior to the date that
is one year and one day after the date on which all Receivables-Backed Notes
have been paid in full. At any time thereafter, the Company may be dissolved by
action of the Board of Managers.
B. The Company shall not be dissolved upon a person ceasing to be a
Member, including the occurrence, with respect to any Member, of any of the
events specified under Section 18-801(b) of the LLC Act.
SECTION 6.2 LIQUIDATION AND TERMINATION.
A. Upon the dissolution of the Company, the Officers and Managers of
the Company shall cause the Company to liquidate by converting the assets of the
Company to cash or its equivalent and arranging for the affairs of the Company
to be wound up with reasonable speed but with a view towards obtaining fair
value for Company assets, and, after satisfaction (whether by payment or by
establishment of reserves therefor) of creditors shall distribute the remaining
assets to and among the Class A Members in accordance with the provisions of
Section 3.5 hereof.
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B. Each Member shall look solely to the assets of the Company for all
distributions with respect to the Company and such Member's capital contribution
thereto and share of profits, gains and Losses thereof and shall have no
recourse therefor (upon dissolution or otherwise) against any other Member.
ARTICLE VII
BOOKS AND RECORDS; ACCOUNTING,
TAX ELECTIONS, ETC.
SECTION 7.1 BOOKS, RECORDS AND REPORTS.
A. The Company shall keep correct and complete books and records of its
accounts and transactions and minutes of the proceedings of its Members and
Board of Managers and of any executive or other committee when exercising any of
the powers of the Board of Managers. The books and records of the Company may be
in written form or in any other form which can be converted within a reasonable
time into written form for visual inspection. Minutes shall be recorded in
written form, but may be maintained in the form of a reproduction. The original
or a certified copy of this Agreement shall be kept at the principal office of
the Company. The books and records of the Company shall be maintained by the
Secretary of the Company and shall be available for examination by any Member,
or its duly authorized representatives, during regular business hours.
B. The President or chief financial officer shall prepare or cause to
be prepared and shall furnish to the Members within ninety (90) days of the end
of each fiscal year (i) a balance sheet and report of the receipts,
disbursements, Profits or Loss of the Company, and each Member's share of such
items for the fiscal year, and (ii) information sufficient for the Members to
report their respective shares of the profits and losses of the Company for
income tax purposes. The cost of such financial and tax reports shall be an
expense of the Company.
SECTION 7.2 BANK ACCOUNTS CHECKS, DRAFTS, ETC.
The bank accounts of the Company shall be maintained in accounts in the
name of and under the tax identification number for the Company in such banking
institutions as the Managers shall determine. All checks, drafts and orders for
the payment of money, notes and other evidences of indebtedness, issued in the
name of the Company, shall be signed by such Officers as may be authorized by
the Board of Managers from time to time.
SECTION 7.3 FISCAL YEAR; METHODS OF ACCOUNTING.
The fiscal year of the Company shall be the year ending December 31,
unless otherwise determined by the Board of Managers. The method of accounting
to be used in keeping the books of the Company shall be determined by the Board
of Managers in accordance with applicable law.
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SECTION 7.4. TAX MATTERS PARTNER.
If, at any time, the Company has more than one Member and is required
to identify one of the Members as the "Tax Matters Partner" of the Company for
federal income tax purposes, Creditrust shall be designated as the Tax Matters
Partner. If the Company receives from the Internal Revenue Service a Final
Company Administration Adjustment pursuant to Section 6223 of Code, the Tax
Matters Partner agrees to notify the Members of such receipt within ten (10)
days thereof. If it is determined to seek judicial review of such IRS action
pursuant to Section 6226 of Code, then the Tax Matters Partner shall select the
judicial forum for such review in accordance with the recommendation of counsel.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 BINDING PROVISIONS.
The covenants and agreements contained herein shall be binding upon and
inure to the benefit of the successors and assigns of the respective parties
hereto.
SECTION 8.2 SEPARABILITY OF PROVISIONS.
Each provision of this Agreement shall be considered separable and if
for any reason any provision or provisions herein are determined to be invalid
and contrary to any existing or future law, such invalidity shall not impair the
operation of or affect any other provisions of this Agreement.
SECTION 8.3 RULES OF CONSTRUCTION.
Unless the context clearly indicates to the contrary, the following
rules apply to the construction of this Agreement:
(i) References to the singular include the plural, and
references to the plural include the singular.
(ii) Words of the masculine gender include correlative words
of the feminine and neuter genders.
(iii) The headings or captions used in this Agreement are for
convenience of reference and do not constitute a part of this
Agreement, nor affect its meaning, construction, or effect.
(iv) References to a person include any individual,
corporation, partnership, limited liability company, joint venture,
association, joint stock company, trust, unincorporated organization or
government or agency or political subdivision thereof.
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(v) Any reference in this Agreement to a particular "Article,"
"Section" or other subdivision shall be to such Article, Section or
subdivision of this Agreement unless the context shall otherwise
require.
(vi) Any use of the word "including" in this Agreement shall
not be construed as limiting the phrase so modified to the particular
items or actions enumerated.
(vii) When any reference is made in this document or any of
the schedules or exhibits attached to the Agreement, it shall mean this
Agreement, together with all other schedules and exhibits attached
hereto, as though one document.
SECTION 8.4 APPLICABLE LAW.
This Agreement shall be construed and enforced in accordance with the
laws of the State of Delaware, without regard to conflict of law principles.
SECTION 8.5 ENTIRE AGREEMENT; AMENDMENTS.
A. This Agreement constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof.
B. This Agreement and the Certificate of Formation may be modified,
altered, changed, repealed or amended only pursuant to a written amendment
adopted by the Board of Managers and approved by Class A Members holding a
majority of the Units. Once an amendment to this Agreement and/or the
Certificate of Formation has been adopted as provided in this Section 8.5, the
proper Officers of the Company shall authorize the preparation and filing, if
necessary, of a written amendment to this Agreement and/or the Certificate of
Formation, as applicable.
C. Notwithstanding the foregoing, so long as any Receivables-Backed
Notes are outstanding, neither this Agreement nor the Certificate of Formation
may be modified, altered, changed, repealed or amended without the prior consent
of (i) the Class B Member and (ii) the Controlling Party (as such term is
defined in the Indenture). Each Member and Manager agrees that it shall not
cause or permit any action to be taken to amend this Agreement or the
Certificate of Formation in contravention of this Section 8.5.C.
SECTION 8.6 COVENANT OF MEMBERS REGARDING BANKRUPTCY PETITION.
Each Member hereby covenants and agrees, for itself and its Affiliates,
that prior to the date that is one year and one day after the date on which all
Receivables-Backed Notes have been satisfied in full, the Member shall not,
directly or indirectly, file or consent to a voluntary petition or otherwise
initiate proceedings for the Company to be adjudicated bankrupt or insolvent or
seeking an order for relief as a debtor under the Bankruptcy Code or file or
consent to the filing of, or cause the filing of, any petition seeking any
composition, bankruptcy, reorganization, readjustment, liquidation, dissolution
or similar relief for the
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<PAGE>
Company under any applicable state or federal bankruptcy laws or any other
present or future applicable federal, state or other statue or law relative to
bankruptcy, insolvency or other relief for debtors.
SECTION 8.7 COUNTERPARTS.
This Agreement may be executed in several counterparts and all so
executed shall constitute one agreement binding on all parties hereto,
notwithstanding that all the parties have not signed the original or the same
counterpart. Any counterpart hereof signed by a party against whom enforcement
of this Agreement is sought shall be admissible into evidence as an original
hereof to prove the contents hereof.
[ signatures appear on next page ]
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed or caused this
Limited Liability Company Agreement of Creditrust SPV99-1, LLC to be executed on
this 25 day of August, 1999, but effective as of the year and date first above
written.
WITNESS: MEMBER:
- -------- -------
CLASS A MEMBER:
--------------
CREDITRUST CORPORATION
_______________________
By: /s/ Joseph K. Rensin
---------------------------
Joseph K. Rensin
Chairman and Chief Executive Officer
CLASS B MEMBER:
GSS HOLDINGS II, INC.
_______________________ By: ____
Name:
Title:
_______________________
IDENTIFICATION OF SCHEDULES AND EXHIBITS
- ----------------------------------------
Schedules
- ---------
A Names, Addresses, Units and Capital Contributions of Members
Exhibits
- --------
A Receivables Contribution Agreement
B Assignment Agreement
C Certificate of Formation
D By-Laws
E Form of Indenture
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<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
OF
CREDITRUST SPV99-1, LLC
Names, Addresses, Units and Capital Contributions of Members
Schedule A
<TABLE>
<CAPTION>
--------------------------------------- ------------------------------------ -------------------------
NAME AND ADDRESS OF MEMBER CAPITAL CONTRIBUTIONS UNITS
--------------------------------------- ------------------------------------ -------------------------
<S> <C> <C> <C>
CLASS A MEMBER
---------------
Creditrust Corporation Receivables pursuant to 100 Units
7000 Security Boulevard Receivables Contribution
Baltimore, Maryland 21244 Agreement
--------------------------------------- ------------------------------------ -------------------------
CLASS B MEMBER NA None
---------------
GSS Holdings II, Inc.
25 West 43rd Street, Suite 704
New York, New York 10036
--------------------------------------- ------------------------------------ -------------------------
</TABLE>
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