U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 000-15216
AUTOCORP EQUITIES, INC.
(Name of small business issuer in its charter)
Nevada 87-0522501
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5949 Sherry Lane, Suite 525
Dallas, Texas 75225
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (214) 378-8271
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, Par Value of $.001 per Share
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for 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 No X
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $4,098,074.
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common equity
as of a specified date within the past 60 days: $2,152,638, based on the $0.75
per share price at which common equity was sold on June 23, 1999.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 6,087,184 shares of Common
Stock, $.001 par value, as of May 31, 1999.
Transitional Small Business Disclosure Format (check one): Yes No X
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TABLE OF CONTENTS
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THE COMPANY.................................................................................................1
RISK FACTORS................................................................................................1
PART I.....................................................................................................10
Item 1. Description of Business.................................................................10
Item 2. Description of Property.................................................................19
Item 3. Legal Proceedings.......................................................................20
PART II....................................................................................................21
Item 5. Market for Common Equity and Related Stockholder Matters................................21
Item 6. Management's Discussion and Analysis or Plan of Operation...............................23
Item 7. Financial Statements....................................................................26
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.............................................................................27
PART III...................................................................................................27
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act......................................................27
Item 10. Executive Compensation..................................................................28
Item 11. Security Ownership of Certain Beneficial Owners and Management..........................30
Item 12. Certain Relationships and Related Transactions..........................................32
Item 13. Exhibits and Reports on Form 8-K........................................................33
SIGNATURES.................................................................................................36
INDEX TO FINANCIAL STATEMENTS..............................................................................37
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In this report, the words "we", "our", "ours", "us", and "Company",
refer to AutoCorp Equities, Inc. and the subsidiaries we own at May 31, 1999.
They do not include any of the subsidiaries we disposed of on December 30, 1998,
unless we specifically refer to them.
This report includes statements that are based on forecasts and
intentions concerning our operations, capital requirements, economic performance
and financial condition, in particular, statements regarding our intended plans
for future operations and our expectations of future operating performance. Such
statements are subject to various risks and uncertainties. Actual results may
differ, and could differ materially, from those currently anticipated due to a
number of factors, including those under the Risk Factors set forth below.
THE COMPANY
As of May 31, 1999, we are headquartered in Dallas, Texas. We, and our
subsidiaries, own and operate three independent automobile dealerships in Texas
and four loan servicing centers in Texas and Kentucky. Through used car sales,
our dealerships originate non-prime retail installment contracts secured by
automobiles and light-duty trucks. The Company also purchases portfolios of
non-prime automobile receivables. In both cases, we retain the loan servicing
function and service all of the loans either originated or acquired by us (see
Item 1, Description of Business - Development of Our Current Business).
During the fiscal year ended September 30, 1998, we were headquartered
in Phoenix, Arizona and had our business operations in Arizona and New Mexico.
Effective at the end of fiscal 1998, we ceased to operate those businesses and
transferred their management and operation to our controlling shareholders, as
part of a change of control, which was formalized on December 30, 1998. On that
date, we transferred the ownership of those businesses to the shareholders as
part of a restructuring transaction and related business reorganization (see
Item 1, Description of Business - The Business Operations We Had During Fiscal
1998). In addition, at December 30, 1998, we, and our consolidated subsidiaries,
were financially distressed companies. We restructured our Company on that date
in order to create an organizational structure that is efficient and reflects
our business plans (see Item 1, Description of Business - Recent Restructuring
Transaction).
RISK FACTORS
Limited Operating History of Present Business; No Assurance of
Profitability. We commenced our significantly restructured current operations on
December 30, 1998. Our relatively brief operating history of our restructured
operations provides only a limited basis upon which to evaluate our prospects.
Our prospects must be considered in light of the risks, expenses,
difficulties and problems frequently encountered in an industry characterized by
intense competition. For the year ended September 30, 1997, we had a net loss of
approximately $1,520,000. For the year ended September 30, 1998, and the three
months ended December 31, 1998, we had net losses of approximately $12,504,000
and $50,000, respectively.
There can be no assurance that we will be profitable in the future. Our
ability to operate profitably will depend primarily on our ability to:
o generate additional revenue without incurring a proportionate increase
in administrative overhead costs;
o originate automobile receivables with an acceptable level of credit
risk;
o effectively collect payments due on the portfolios of automobile
receivables we service (we have recourse liability on these
receivables even though we no longer own them) and control
delinquencies and losses on our automobile receivables portfolio;
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o obtain financing on acceptable terms to fund the expansion of our
operations;
o continue to sell, on a loan by loan basis, the automobile receivables
generated at our used car dealership operations;
o adapt to the increasingly competitive market in which we operate.
Our failure to achieve and/or maintain any or all of these objectives
could have a materially adverse impact on our business, results of operations
and financial condition.
Capital Intensive Business; Need for Substantial Additional Financing.
Our operations are capital intensive. We will be required to expend substantial
amounts of working capital in order to purchase additional inventory, to
generate retail installment sale contracts and to support our portfolio of
automobile receivables. In order to finance our operations in the ordinary
course and to implement our growth strategy, we believe we may need to obtain
additional bank or similar type financing, sell additional debt or equity (or
hybrid) securities in future private and public financings, and continue to sell
the automobile receivables generated in the ordinary course of our business.
There can be no assurance that any such additional financing will be available
or, if available, that its terms will be satisfactory to us. Failure to obtain
additional financing, if needed, would have a materially adverse effect on our
results of operation. In such event, we may be required to materially curtail
all or a portion of our operations.
Liquidity and Need for Additional Funds. We need to obtain additional
capital in order to increase our asset base and the volume of our operations. We
may pursue various types of debt financing such as additional lines of credit.
However, there can be no assurance that additional funding will be available
when needed or, if available, that its terms will be favorable or acceptable to
us.
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Substantial Leverage. To meet our ongoing working capital
requirements, we have incurred substantial indebtedness, resulting in a highly
leveraged capital structure. At March 31, 1999, we had approximately $3,746,217
of outstanding indebtedness. We expect to incur substantial indebtedness in the
future related to holding additional automobile receivables. Our leveraged
capital structure could have adverse consequences, including:
o limiting our ability to obtain additional financing;
o requiring the use of operating cash flow to meet interest and
principal repayment obligations;
o increasing our vulnerability to changes in general economic conditions
and competitive pressures;
o limiting our ability to realize some or all of the benefits of
significant business opportunities.
In addition, any indebtedness we incur is expected to contain covenants
that limit, among other things, our ability to incur additional indebtedness,
engage in mergers and acquisitions, pay dividends to or take other actions.
These covenants may also require us to meet certain financial tests and to
maintain a certain minimum level of collateral and may give the lender the right
to periodically audit us to ensure our compliance with the terms of the
applicable loan. Non-compliance with any of the terms of such covenants may
result in a suspension of funding, acceleration and consequent demand for
repayment and a foreclosure on collateral, as well as the pursuit of other
rights and remedies, all of which could have a materially adverse effect on our
financial condition, results of operations and prospects.
Interest Rate Fluctuations. Our profitability is based, in part, on the
difference between the interest rate we charge our customers with respect to
automobile receivables and the interest rate we pay on our outstanding
indebtedness (the "spread"). The interest rates we charge our customers are
fixed, and currently range from 13.20% to 35.00%. Interest rates with respect to
outstanding indebtedness or indebtedness we may incur in the future are, or will
be, as the case may be, based on interest rates prevailing in the market at the
time the debt is incurred. In some cases, the rates may be floating rates. As a
result, increases in market interest rates we pay on our outstanding
indebtedness would reduce or, possibly, eliminate the spread. We cannot seek to
limit this risk by increasing the interest rate we charge on our automobile
receivables since the interest charged is at or near the maximum permitted under
the laws of the state(s) in which we operate. Further, increasing competition in
the used car financing market may cause downward pressure on the interest rates
we charge on our automobile receivables. As a result, increases in interest
rates we pay on our outstanding indebtedness would adversely affect our
business, results of operations or financial condition.
Poor Creditworthiness of Borrowers; High Risk of Credit Losses. We
currently sell and service the automobile receivables we generate in connection
with the sale of used cars at our Dallas and Austin, Texas dealerships. In
addition, we own and service a portfolio of loans acquired in the Louisville,
Kentucky area. These receivables are payable by customers with non-prime credit.
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Loans to persons with non-prime credit involve an increased probability
of default and/or delinquency and involve greater servicing costs than loans
made to borrowers with prime credit profiles. Our ability to operate profitably
depends, in part, on our ability to accurately evaluate the creditworthiness of
our customers in Dallas and Austin and to minimize losses following defaults. As
a result, we believe it is likely that delinquency and loss rates in our
portfolio will fluctuate in the near term and may increase as a greater portion
of our portfolio of automobile receivables matures. A significant variation in
the timing of or increases in credit losses we experience on our portfolio of
automobile receivables could have a materially adverse effect on the Company. If
we experience greater credit losses in the future, it will be necessary to
increase our reserves for bad debts, thereby reducing our overall profitability.
There can be no assurance that any loans we make to customers will be repaid in
whole or in part or that we will have adequate reserves for such credit risks.
Any loans that are in default may need to be written off.
The occurrence of any of the foregoing events could adversely affect
our ability to obtain or maintain our financing sources and could have a
materially adverse effect on our business, results of operations and financial
condition.
Risks Inherent in Automobile Finance Business. We intend to purchase
high yield loans, usually made to persons with non-prime credit. Extending
credit to retail used car buyers with such credit standing is inherently risky.
The borrowers on loans we make or those acquired by us will either be first time
buyers or buyers who have previous negative credit. Such buyers may be more
likely to default on their used car loans than buyers with higher credit
ratings.
Enforcement of Vehicle Loan Contracts. Various federal and state laws
impose requirements and restrictions applicable to the origination and servicing
of retail installment vehicle loan contracts. Violations of certain of those
laws may give rise to claims and defenses by a borrower. In addition, a borrower
may be entitled to assert against us claims and defenses that it has against the
seller of the financed vehicle. We cannot attempt to minimize this risk because
we will not be originating every loan at our own dealership operations. Certain
states also impose requirements and restrictions relating to foreclosure sales
of used cars and on obtaining deficiency judgments following such sales. We may
not realize the full amount due on a used car loan because of the application of
those requirements and restrictions, or because of depreciation, damage or loss
to a financed used car, the application of federal and state bankruptcy and
insolvency laws, or other factors.
Risks Relating to Security Interests and Repossession of Collateral.
The automobile receivables we originate, buy, sell or service are secured by
security interests in the financed vehicles. The procedure for perfecting a
security interest on a motor vehicle varies from state to state. In most states,
perfection of security interests in a motor vehicle requires that the lien be
noted on the vehicle's title certificate.
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Failure to properly perfect a lien or to otherwise comply with the
requirements of the relevant statute would impair the priority of our security
interest and our ability to enforce those liens by either collecting a
deficiency judgment or repossessing the financed vehicle and could also subject
us to a claim by the debtor for tortious conversion in our attempt to repossess
the vehicle.
In addition, such security interests may also be subject to a number of
federal and state laws, including the Uniform Commercial Code as in effect in
various states. Under such statutes, liens of third parties for the storage or
repair of financed vehicles or unpaid taxes, which are beyond our control, may
have priority over the security interest granted to us even if such liens arise
subsequent to our security interest and we do not receive notice of such liens.
The value of the vehicle securing an automobile receivable is usually
less than the sum of the balance due on such automobile receivable, the cost of
repossessing, reconditioning and reselling the vehicle and the expense of
obtaining a deficiency judgment. In addition, the value of a vehicle securing an
automobile receivable may depreciate at a rate faster than that at which the
automobile receivable is being repaid.
Further, limitations imposed by bankruptcy laws or other federal or
state laws may limit or delay our ability to (a) repossess and resell used cars
in which we have a validly perfected security interest (b) enforce a deficiency
judgment, or (c) limit our ability to collect the amount due. In addition, we
may determine, at our discretion, that a deficiency judgment is not an
appropriate or economically viable remedy. We may also settle at a significant
discount any claim that we have or any deficiency judgment we obtain. We do not
have, and do not intend to obtain, any insurance covering these risks. In the
event that a deficiency judgment is not obtained, or is not satisfied, or a
claim or deficiency judgment is satisfied at a discount, or is discharged, in
whole or in part in bankruptcy proceedings, the loss may adversely affect our
business, operations or financial condition.
Risk Associated with Expansion. We have recently established the three
independent dealerships we are operating as of May 31, 1999, in Dallas and
Austin, Texas. As part of our growth strategy, we intend to seek to establish
and/or acquire additional dealerships and finance offices. There can be no
assurance that we will successfully integrate the operations of the dealerships
we have recently established, with those we may acquire or establish in the
future, and effectively manage the combined enterprise. We will need to limit
increasing overhead as we acquire additional operations while still maintaining
sufficient staff to effectively collect any additional receivables. Failure to
do so would have a materially adverse effect on our business, financial
condition and results of operations. (see Item 1, Description of Business - Our
Present Business Operations).
Unspecified Acquisitions. Although we presently have no agreements or
understandings to acquire any specific dealerships, we have acquired numerous
automobile receivables from outside sellers and may continue to purchase pools
of contracts from these sellers from time to time. In addition, we intend to
actively seek and investigate other such opportunities as they become available.
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We would likely finance any such transaction with cash; the issuance of
equity or debt securities; by incurring additional indebtedness or any
combination of the foregoing. There is no assurance we will make any such
acquisitions. If we do make one or more acquisitions, there is no assurance we
can make any of them on terms that are favorable to us, or that the acquisition
will prove to be profitable. Failure to make future acquisitions would limit our
growth potential and could cause a failure to support our current operating
conditions
Geographic Concentration. Our direct used car sales are currently
conducted in the Dallas and Austin, Texas metropolitan areas. Our used car
financing and servicing operations are located in Dallas, Austin and Lufkin,
Texas, and in Louisville, Kentucky. Because of this concentration, our business
may be adversely affected in the event of a downturn in the general economic
conditions existing in either Texas or Kentucky. We intend to expand our
operations to other areas, to minimize our risk of an isolated economic
downturn; however, we cannot be assured that we will be successful in expanding
our operations, or that our expansion will have a significant impact on our
overall reliance on limited geographic economies.
Competition. The automobile industry is highly competitive. We compete
with other independent used car dealerships, including ones that make financing
available to their customers; national and regional rental car companies;
franchised new vehicle dealerships, which are directing increased attention to
the used car market; companies selling used cars over the Internet; auction
houses; dealer groups; independent "Buy Here - Pay Here" dealers which sell and
finance sales of used cars to customers with non-prime credit; and individual
buyers and sellers of used cars.
In addition, many new vehicles dealerships are offering attractive
leasing transactions as an alternative to prime and just below prime credit
borrowers. Industry-wide gross profit margins on sales of new and used cars have
been declining and some of the recent market entrants may be capable of
operating on smaller gross margins than we are.
There can be no assurance that we will be able to maintain or increase
our size relative to that of our competitors or to maintain or increase profit
margins in the face of increased competition. We expect there will be increasing
competition in the acquisition of other dealerships as industry participants
become larger, which may make it difficult for us to acquire dealerships on
acceptable terms.
Although recent high-profile losses in non-prime lending have caused
many conventional lenders to pull out of this market, competition for financing
customers with non-prime credit is still quite strong. Our competitors include
local, regional and national automobile dealers, secondary finance companies and
other sources of financing for automobile purchases, such as lease financing and
dealer self-financing. Many of our competitors are larger and have greater
financial and marketing resources than we do. Historically, commercial banks,
savings and loan associations, credit unions, captive finance subsidiaries of
automobile manufacturers and other consumer lenders, many of which have
significantly greater resources than we do, have not competed for financing for
credit-impaired used car buyers. To the extent that such lenders expand their
activities in the credit-impaired market, our financial condition, results of
operations or cash flows could be materially and adversely affected (see Item 1,
Description of Business - Competition).
Risks Associated with Short Term Nature of Leases. Certain of our
leases for used car dealerships are for short occupancy terms. If we are unable
to renew such leases, or continue to occupy premises on a month-to-month basis,
we will be forced to enter into arrangements to occupy new premises. There can
be no assurance that we will be able to identify and enter into arrangements to
occupy new premises, and the failure to do so could have a materially adverse
effect on our business, financial condition and results of operations.
General Economic Conditions. Our business is directly related to sales
of used cars. These are affected by employment rates, prevailing interest rates,
and other general economic conditions. We believe the current economic
conditions favor continued growth in the markets we serve and those in which we
seek to expand. However, a future economic slowdown or recession could lead to
increased delinquencies, repossessions, and credit losses that could hinder our
planned expansion. Because of our focus on non-prime borrowers, our actual rate
of delinquencies, repossessions, and credit losses on contracts could be higher
under adverse conditions than those experienced in the used car sales and
finance industry in general. Economic changes are uncertain, and sluggish sales
of used cars and weakness in the economy could have an adverse effect on our
business and that of the third party dealers from which we purchase contracts.
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Seasonality; Variability of Quarterly Operating Results. The automobile
industry is subject to substantial seasonal variations in revenues. Demand for
used cars is generally lower in the winter than in other seasons. In addition,
our experience has been that sales tend to be lower and payment delinquency
rates higher during the holiday and back-to-school seasons, while sales tend to
be higher during the late spring and through the summer months. Furthermore, our
growth strategy may subject us and our operating results to substantial
variables and changes each quarter. Accordingly, given the possibility of such
fluctuations, we believe that quarterly comparisons of the results of our
operations during any fiscal year are not necessarily meaningful and that
results for any one fiscal quarter should not be relied upon as an indication of
future performance.
Supervision, Regulation and Licensing. Our industry is subject to
extensive regulation, supervision and licensing under various federal, state and
local laws. Among other things, these laws require that our dealership
operations obtain and maintain certain licenses and qualifications; limit or
prescribe terms of the contracts that we originate or purchase; require
specified disclosures to customers and borrowers; impose finance charge
ceilings; limit our right to repossess and resell collateral; and restrict where
we may locate our used car sales operations.
There can be no assurance we will continue to be able to obtain any
required licenses and qualifications, or, if obtained, that we will be able to
remain in compliance with the laws, rules and regulations under which such
licenses and qualifications were obtained. Although we intend to comply with all
laws, rules and regulations applicable to its operations, failure to so comply
and future adoptions of additional laws, rules and regulations could have a
materially adverse effect on our business, financial condition and results of
operations.
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Under most state vehicle dealer licensing laws, sellers of automobiles
and light-duty trucks are required to be licensed to sell vehicles at retail
sale. In addition, with respect to used cars, the Federal Trade Commission's
Rule on Sale of Used Vehicles requires that all sellers of used cars prepare,
complete and display a "Buyer's Guide" which explains the warranty coverage for
such vehicles. Furthermore, Federal Odometer Regulations promulgated under the
Motor Vehicle Information and Cost Savings Act and the motor vehicle title laws
of most states require that all sellers of used cars furnish a written statement
signed by the seller certifying the accuracy of the odometer reading. If a
seller is not properly licensed or if either a Buyer's Guide or Odometer
Disclosure Statement was not provided to the purchaser of a vehicle, the
purchaser may be able to assert a defense against the seller of the vehicle. Any
losses relating to any such claims would result in losses to us and could have a
materially adverse effect on our ability to meet our obligations and could
materially and adversely affect our business, results of operations and
financial condition.
Consumer Protection and Usury Laws. Numerous federal and state consumer
protection laws impose requirements upon the origination and collection of
retail installment contracts. State laws impose finance charge ceilings and
other restrictions on consumer transactions and may require certain contract
disclosures in addition to those required under federal law. These requirements
impose specific statutory liabilities upon creditors who fail to comply with
these provisions. Further, to the extent that we acquire retail installment
contracts from third parties, we may be liable for any violations of law
committed by such third parties as a successor-in-interest. Currently, we charge
a maximum fixed interest rate of approximately 26% per annum on contracts
originated at our dealerships. At May 31, 1999, all three of our dealerships are
located in Texas. This state imposes limits on the interest rate a lender may
charge. There can be no assurance that Texas and any other applicable states
will not lower their usury limits or that these states or other jurisdictions
into which we may expand will not (i) by judicial decision change the
interpretation of existing precedents and/or (ii) adopt additional laws, rules
and regulations that could adversely affect our business, financial condition
and results of operations.
Dependence on Management Information Systems; Year 2000 Compliance. Our
future success depends in part on our ability to continue to adapt our
technology, on a timely and cost-effective basis, to meet changing customer and
industry standards and requirements. We depend on our loan servicing and
collection software to monitor our portfolio of automobile receivables. Any
failure in our loan servicing hardware or software could cause a lapse in the
Company's ability to promptly address delinquent accounts. The failure by the
Company to meet changing customer and industry requirements, or to promptly
resolve all technology issues, could have a materially adverse effect on our
business, operations and financial condition. We are working to address and
prepare for the potential impact of the year 2000 on the ability of our
computerized information systems to accurately process information that may be
date-sensitive. Any of our programs that recognize a date using "00" as the year
1900 rather than the year 2000 could result in errors or system failures. We
utilize a number of computer programs across our entire operation.
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We have not completed our assessment, but currently we believe that the
costs of addressing this issue will not have a materially adverse impact on our
financial position. However, if we and/or third parties upon which we rely are
unable to address and adequately resolve this issue in a timely manner, it could
result in a material financial risk to us. In order to assure that this does not
occur, we plan to devote all resources required to resolve any significant year
2000 issues in a timely manner.
Continued Control by an Insider. Approximately 52.8% of our outstanding
voting securities are controlled by Mr. Charles W. Norman, as Trustee under
three voting trusts (see Item 11, Security Ownership of Certain Beneficial
Owners and Management). Mr. Norman is the President and Chief Executive Officer
and a Director, of our Company. Accordingly, Mr. Norman will retain the power to
approve or disapprove matters submitted to a vote of the shareholders and to
elect the entire Board of Directors who shall, in turn, have the power to
appoint the officers of our Company and to determine the direction, objectives
and policies of our Company.
Dependence on Key Personnel. We are highly dependent on the services of
Mr. Charles W. Norman, the Company's President and Chief Executive Officer. We
have not entered into an employment agreement with Mr. Norman. In addition, we
do not have any key-man life insurance on Mr. Norman. The loss of Mr. Norman's
services could have a materially adverse effect on our business and operations
(see Item 9, Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act). In addition, we believe our
future success depends upon our ability to attract and retain qualified
personnel, including managers for each of our dealerships. Competition to
attract and retain such personnel within the vehicle sales industry is intense.
There can be no assurance we will be successful in attracting and retaining
qualified personnel in the future.
Risks From Commitment to Maintain Value on Certain Preferred Stock. On
December 30, 1998, as part of the Transaction described in Item 1, "Description
of Business - Recent Restructuring Transaction," we issued 3,500,000 shares of a
new issue of Series "A" Preferred Stock. We issued these shares at a value of
$1.00 per share and agreed to maintain their value at not less than that amount.
This agreement could result in us issuing additional shares of Series "A"
Preferred Stock or issuing other securities without receiving any additional
consideration. This would dilute the holders of Common Stock accordingly and
could dilute them substantially. We might also choose to provide additional
value by paying cash or transferring assets without receiving any additional
consideration. This could theoretically deplete our assets by as much as
$3,500,000.
The December 30, 1998 Transaction. Certain of our Preferred and Common
Shares were tendered to AutoPrime in the December 30, 1998, Transaction (see
Item 1, Description of Business - How the Purpose of the Restructuring Was
Achieved). AutoPrime is majority owned by a regulated financial institution and
can lawfully own our stock only after receiving approval from the Office of
Thrift Supervision and perhaps other governmental regulatory agencies. The
Transaction also allowed AutoPrime to defer taking ownership of any of our stock
until receipt of approval from the Office of Thrift Supervision and any other
governmental approval that may be necessary.
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If approval is not received by December 31, 1999, and AutoPrime
determines not to accept the tender, then the tender is rejected. In this case,
the credits AutoPrime issued on December 30, 1998, as part of the Transaction
will be withdrawn.
In addition, the debts for which credit was given will be reinstated
and will be immediately due and payable, with interest at 10% per year from
December 31, 1998. We and AutoPrime have agreed to renegotiate the Transaction
if this event occurs. There is no assurance as to the outcome of any such
renegotiation, and it could have a materially adverse effect on our Company.
Market for Common Stock; Volatility of Prices. There has been a
limited public trading market for our Common Shares. There can be no assurance
that a regular trading market for the Common Shares will ever develop or, if
developed, that it will be sustained. No assurance can be given that the Common
Shares will continue to be listed on the Bulletin Board. The market price of the
Common Shares could also be subject to significant fluctuations in response to
such factors as variations in the anticipated or actual results of operations of
our company or other companies in the used car sales and finance industry,
changes in conditions affecting the economy generally, analyst reports, general
trends in the industry, and other political or socioeconomic events or factors.
Lack of Prospective Dividends. We have not paid any dividends on our
Common Stock and anticipate that future earnings, if any, will be used to reduce
our debt or finance future growth and that dividends will not be paid to
shareholders. There can be no assurance that our operations will result in
sufficient revenues to enable us to operate at profitable levels or to generate
a positive cash flow. In addition, the 6,578,485 shares of Series "A" Preferred
Stock issued on December 30, 1998, have an annual non-cumulative dividend
preference of $328,924 (5% of $6,578,485). Accordingly, we anticipate we will
not pay any dividends on Common Stock for the foreseeable future (see Item 5,
Market for Common Equity and Related Stockholder Matters).
Forward-Looking Information May Prove Inaccurate. This report contains
various forward-looking statements that are based on our beliefs as well as
assumptions made by and information currently available to us. When used in this
report, the words "believe," "expect," "anticipate," "estimate," and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks, uncertainties, and assumptions, including those
identified under this "Risk Factors" section. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected. In addition to the other risk factors set forth above, among the key
factors that may have a direct bearing on our results are competitive practices
in the used car financing and sales industry, our ability to meet our existing
financial obligations in the event of adverse industry or economic conditions or
to obtain additional capital to fund future commitments and expansion, and the
impact of current and future laws and governmental regulations affecting our
operations.
Possible Other Risks. In addition to the above risks, businesses are
often subject to risks not foreseen or fully appreciated by management. In
reviewing this report, investors and potential investors should keep in mind
other possible risks that could be important.
PART I
Item 1. Description of Business
Organization and History
We were originally incorporated in Colorado on January 2, 1986 under
the name Vivatae, Inc. and completed an initial public offering in May 1986. In
November 1986, we acquired all of the outstanding stock of Eagle Entertainment,
Inc. and changed our name to Eagle Entertainment, Inc. Through subsidiaries, we
then provided performance guarantees for motion picture productions. In
September 1990, we divested our subsidiaries and acquired Arizona based
corporations engaged in the retailing and financing of motor vehicles.
On January 3, 1992, we changed our name to Eagle Holdings, Inc. On
October 20, 1993, we changed our corporate domicile from Colorado to Nevada.
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We did this by forming a Nevada corporation named Eagle Automotive Enterprises,
Inc. and merging "downstream" into it. At that time, the subsidiary was a shell
corporation without any substantial assets or equity.
On March 28, 1994, we divested our automotive subsidiaries and acquired
Diamond Entertainment II, Inc., a Utah corporation licensed by the Samuel
Goldwyn Company to produce live productions of "American Gladiators". On April
6, 1994, we changed our company name to Chariot Entertainment, Inc.
On December 31, 1994, the Goldwyn Licensing Agreement expired and we
divested our subsidiaries to seek business combination candidates as we
re-entered the business development stage.
On September 30, 1996, we changed our name to AutoCorp Equities, Inc.
On July 21, 1997, we acquired 100% of the outstanding stock of Consumer
Investment Corporation, Consumer Insurance Services, Inc. (including Consumer
Insurance Services Cayman Island subsidiary), and Lenders Liquidation Centers,
Inc. in exchange for 3,677,500 shares of Common Shares to the shareholders of
the acquired companies and 300,000 Common Shares to CIC Fund V, a related
company. Our former president also received 303,500 Common Shares in conjunction
with this transaction. This transaction resulted in the shareholders of the
acquired companies becoming the majority shareholders of our Company. The
acquired companies were engaged in the sale, financing and insurance of used
cars.
During the fiscal year ended September 30, 1998, we were headquartered
in Phoenix, Arizona and operated a combined used car finance and sales business
in Arizona and New Mexico. We concentrated on used cars purchased by non-prime
credit purchasers (persons with low incomes and previous credit problems) and
the retail installment sales contracts evidencing non-prime used car loans (see
Item 1, Description of Business - The Business Operation We Had During Fiscal
1998).
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Effective at the end of fiscal 1998, we ceased to operate those
businesses and transferred the management and operation of them to all or some
of the Merritt Group. We transferred the ownership of those businesses to them
on December 30, 1998, as part of a restructuring Transaction and related
business reorganization (see Item 1, Description of Business - Recent
Restructuring Transaction).
We, AutoCorp Equities, Inc., are a holding company and have been since
July 1997. In August 1998, we formed Suburba Acquisition Company. In November
1998 Suburba split its finance servicing activities into a new corporation named
AutoCorp Financial Services, Inc. ("AFS") and changed the name of its used
automobile retail sales operations to ACE Motor Company ("ACE") in November,
1998.
In December 1998, ACE acquired certain assets related to the present
Austin dealership on December 30, 1998, from a corporation owned by William O.
Merritt and Dennis W. Miller. This transaction was separate from, but related
to, the restructuring Transaction that took place on the same date. This
transaction is a related party transaction and is described in Item 12, "Certain
Relationships and Related Transactions."
As of May 31, 1999, ACE owns and operates three used car dealerships in
Texas - two in Dallas and one in Austin. Through used car sales, these
dealerships originate non-prime used car loan contracts. In addition, through
AFS, we buy portfolios of non-prime used car loan contracts and operate loan
servicing centers. In all cases, we retain the loan servicing function of all of
the loans we originate or purchase.
Recent Restructuring Transaction
At December 30, 1998, we and our consolidated subsidiaries were
financially distressed companies. We restructured our Company on that date in
order to create an organizational structure that is efficient and reflects our
business plans.
We accomplished the following through the restructuring:
o disposed of non-productive subsidiaries not consistent with our future
plans.
o substantially reduced our debt and made arrangements to reduce our
exposure to further liability.
o acquired new management systems and software to enhance our loan
servicing ability.
o changed the control of our Company.
In this report, we usually refer to the restructuring as the
"Transaction" because it is defined that way in the documents providing for it.
How the Purpose of the Restructuring Was Achieved
The purpose of the restructuring was achieved by the following:
The disposition of non-productive subsidiaries not consistent with our
future plans
This was achieved by transferring them, along with other
interests, to Merritt and Miller in exchange for the redemption
of 2,653,500 Common Shares. These represent 43.6% of the Common
Shares now outstanding. Merritt and Miller (or their assignees)
combined still own 600,000 Common Shares ( 9.9% of the
outstanding).
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o The substantial reduction of our debt and the arrangements to reduce our
exposure to further liability
This was accomplished in the manner described in detail in Item 1,
"How the Purpose of the Restructuring Was Achieved" of our Form 8-K which we
filed on March 11, 1999.
o The acquisition of new management systems and software to enhance our loan
servicing ability
After assessing the needs of our operations for both sales and
collections, and addressing our concerns for Year 2000 compliance, we determined
that the AutoStar 2000 system would meet our needs for all aspects of our
operations.
o The change of control of our Company
This took place through:
(a) The redemption of the 2,653,500 Common Shares previously owned by
Merritt and Miller
(b) The re-issuance of the redeemed Common Shares, as well as another
563,500 Common Shares that were already in our treasury.
(c) The establishment of the three trusts, and the transfer to them of the
reissued 3,217,000 Common Shares. These represent 52.8% of the Common
Shares now outstanding.
(d) AutoPrime is majority owned by a regulated financial institution and
can lawfully own our stock only after receiving approval from the
Office of Thrift Supervision and perhaps other governmental regulatory
agencies. The Transaction also allowed AutoPrime to defer taking
ownership of any of our stock until receipt of approval from the
Office of Thrift Supervision and any other governmental approval that
may be necessary. The Transaction is based on the assumption that any
necessary approval can be obtained. The deferral was accomplished by
the following:
o We tendered Preferred and Common Shares to AutoPrime in exchange
for AutoPrime releasing us from liability on a substantial
portion of our indebtedness.
o AutoPrime declined to accept the tender until after receipt of
any necessary regulatory approvals (There is no assurance they
will be received);
o We placed these securities in the Exchange Trust pending the
outcome of the tender. If the necessary approvals are not
received, the parties to the Transaction presently intend to
renegotiate some of the debt release portions of its terms.
In addition, the parties anticipate that some number of Common Shares
will remain in the Exchange Trust after the earlier to occur of the
retirement of the CIC notes or December 31, 1999. These shares will
first be available to AutoPrime for satisfaction of our and/or CIC's
obligations to AutoPrime. However, the Trustee will not transfer these
shares to AutoPrime unless the tender has been accepted.
If approval is not received by December 31, 1999 and AutoPrime determines not to
accept the tender, then the tender is rejected. In this case, the credits will
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be withdrawn and the debts for which credit was given will be reinstated and
will be immediately due and payable, with interest at 10% per year from December
31, 1998. We and AutoPrime have agreed to renegotiate the Transaction if this
event occurs. There is no assurance as to the outcome of any such renegotiation
and it could have a materially adverse effect on our Company.
Development of Our Present Businesses
In November 1998, AFS acquired certain assets of Buyers Acceptance
Corporation of Louisville, Kentucky, a loan servicing center. The assets
included a portfolio of loans originated in a five-state area surrounding the
Louisville servicing center.
As of May 31, 1999, ACE operates three used car dealerships in Texas,
two in Dallas and one in Austin. These were established as a result of
negotiations with the owners of three operating dealerships to acquire certain
assets of nominal value from them. We then opened our own dealership operations
at these three locations, and they are now operated by ACE.
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Our subsidiary, ACE Motor Company, acquired certain assets related to
the present Austin dealership on December 30, 1998, from Lenders Auto Resale
Centers of Texas, Inc., a corporation owned by William O. Merritt and Dennis W.
Miller. This transaction was separate from, but related to, the restructuring
Transaction that took place on the same date. This transaction is a related
party transaction and is described in Item 12, "Certain Relationships and
Related Transactions."
Our Present Business Operations
As of May 31, 1999, we own and operate three used car dealerships in
Texas. Through used car sales, these dealerships originate non-prime used car
loan contracts. We also buy portfolios of non-prime used car loan contracts. In
both cases, we retain the loan servicing function and service the loans we
originate or acquired. As the loan servicer, we are responsible for record
keeping and collection of payments, and general enforcement of the used car loan
contracts.
Our subsidiary, ACE Motor Company owns and operates three used car
dealerships in Texas-two in Dallas and one in Austin. It sells used cars to
non-prime purchasers and originating non-prime used car loans as a result of
those sales. Non-prime purchasers are usually persons with low incomes and a
poor credit history. AFS then retains the loan servicing function on the
portfolios.
Our subsidiary, AutoCorp Financial Services, Inc.("AFS"), buys
portfolios of loan contracts at a discount from net principal balance, usually
ranging between 35% and 45%. Since we and AFS do not have the necessary capital
to carry a portfolio of contracts ourselves, AFS re-sells the loans, with
recourse, to AutoPrime at a lower discount from net principal value. A sale
"with recourse" means that if a loan contract becomes delinquent, the seller
becomes obligated to pay the purchaser an amount equal to the purchaser's
unrecovered purchase price, plus accrued interest on that amount. AFS also
retains the loan servicing function. AFS operates four loan servicing centers -
three in Texas and one in Kentucky.
ACE and AFS have each entered into a Master Purchase and Sale Agreement
with AutoPrime. ACE entered into this on January 12, 1999, and AFS also entered
into their agreement on January 12, 1999. We are a guarantor on both agreements
to AutoPrime. AutoPrime is engaged in the business of purchasing retail
installment contracts secured by automobiles and light duty-trucks, which
include contracts for non-prime credit customers. Under these agreements, ACE
and AFS sell contracts to AutoPrime, with recourse, at an average price equal to
approximately 75% of the current net principal balance of the contract. We, ACE
and AFS have joint and several liability to AutoPrime for the recourse liability
on all contracts the three of us sell to AutoPrime Like many investors,
AutoPrime does not want to be in the business of servicing the contract loans in
its investment portfolio. Therefore, we ACE and AFS have each entered into a
Servicing Agreement with AutoPrime. We did this on the same dates as the Master
Purchase and Sale Agreements were signed. Under these agreements, ACE and AFS
each retain the servicing of the contracts we have sold to AutoPrime. We do this
for a fee of 20% of the cash we collect from servicing contracts. As the loan
servicer, we collect the payments due, retain an amount equal to 20% of the
gross amounts collected as a servicing fee, and remit the balance to AutoPrime.
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In the event payments on a contract become delinquent, the loan
servicer is responsible to make the collections and, if necessary, repossess the
used car involved. We recondition the car and attempt to resell it, generally,
through one of the three dealerships. If the net recoupment on this delinquency
collection/recovery process (collection efforts on the contract after
delinquency, repossessing the used car and disposing of it) is less than what
AutoPrime was paid on the recourse liability, we experience a loss on our
recourse liability obligation.
In addition, we have additional Servicing Agreements with AutoPrime
under which we service portfolios, owned by AutoPrime, for a fee. The servicing
fee we retain on payments collected ranges between 12% to 20%. We intend to
actively seek and investigate other such servicing opportunities as they become
available. Our staffing infrastructure and systems will allow us to service
multiple portfolios for outside lenders. Because the collection of retail
consumer loans is highly regulated, we and our subsidiaries employ experienced
collection managers and staff.
Satisfactory collection performance depends largely on the maintenance
of a balanced collection effort, personal interaction with the customers, and
the exercise of good judgment in the selection of the action to be taken on any
individual account. Since each of the successive steps is more expensive, a
proper administration of collection procedures concentrates the emphasis on the
early steps as essential to the success of the total collection effort. All of
our collections personnel follow our policies as outlined in the Company's
complete Manual for Collections.
At March 31, 1999, we were the servicing agent for approximately
$8,720,000 of automobile receivables. Accordingly, the results of our operations
and our financial condition depends, in part, on our ability to properly service
automobile receivables in order to reduce credit losses.
Our computer system is designed to promptly identify customers whose
accounts have become past due. Upon identification of a customer with a
delinquent account, that customer is immediately contacted by telephone to
demand payment, or, if the customer cannot be reached by this means, a Company
employee is dispatched to the customer's home or place of employment to collect
payment. If payment cannot be obtained from the customer at that time, the
Company will seek to make alternative arrangements for payment. Early detection
of a customer's delinquencies, as well as a commitment to working with customers
to resolve payment issues, reduces credit loss and promotes customer
satisfaction. Many finance companies serving the prime market, in contrast,
including credit card companies, may wait up to 30 days before contacting a
customer in connection with a delinquent payment.
If a customer's account becomes more than 30 days past due, we seek to
protect the collateral. In certain instances, a customer will work with the
Company to coordinate a "voluntary repossession" of the vehicle. In the case of
an "involuntary repossession," we retain an independent firm to repossess the
vehicles pursuant to prescribed legal procedures. If we repossess a vehicle, we
allow the customer a minimum ten days to redeem the vehicle. In some
circumstances, we may allow the customer the opportunity to redeem at any time
until the vehicle has been sold to a third party. After repossessing a vehicle,
we will have the vehicle reconditioned by a third party. We will then sell it at
retail through one of our dealerships or in the wholesale market.
Having retail capability allows us to quickly resell vehicles that we
repossess and avoid certain expenses that a stand-alone finance company would
incur in connection with repossessing and reselling a vehicle. Vehicles that
cannot be sold retail, are sold at auction or to wholesalers. We estimate that
we recover approximately 95% of the vehicles we attempt to repossess.
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ACE has a revolving line of credit with AutoPrime for the purpose of
purchasing inventory of used vehicles, a "floor plan," which we have guaranteed.
Previously we had a floorplan with Auto Finance Corporation (AFC), which is
affiliated with Adesa Auto Auction. Our floorplan limit with AFC was $1,500,000.
During the Transition we changed our floorplan. The floorplan with AutoPrime was
initially established on October 26, 1998, with a limit of $750,000 and a
variable rate of interest of 6.5% over the index known as the Wall Street
Journal Prime Rate. The rate was initially set at 15%. The floor plan note was a
demand note that matured on April 26, 1999. On that date it was renewed and
extended at the same variable rate of interest, initially 14.25%. By changing to
this floorplan source, we were able to reduce our floor fees.
The amount of the floorplan was increased to $1,000,000 on June 17,
1999, at the same variable rate of interest, initially 14.25%. The new note is
also a demand note and matures on January 17, 2000, if no demand is made before
then. Interest is payable monthly beginning July 1, 1999. All principal together
with accrued interest is due on demand or at maturity.
Competition
We will be competing largely with other independent used car
dealerships, including ones that make financing available to their customers,
and "Buy Here - Pay Here" dealers that provide the financing themselves. In
addition, many new vehicle dealerships are competing for used car buyers with
non-prime credit and are offering attractive leasing transactions as an
alternative to prime and just below prime credit borrowers.
Generally, the captive finance arms of major automotive manufacturers
increase their marketing efforts in the non-prime segment only when inventory
control and/or production scheduling requirements of their parent organizations
dictate a need to focus on this market. They then exit this market once these
sale volumes are satisfied. In addition, the focus of these captive finance
companies remains on new car financing, which is not commonly the purchase of
the higher-risk buyer. Moreover, many financial organizations electing to remain
in the automotive finance business have migrated toward higher credit quality
customers to reduce their processing and collection costs.
As a result of these conditions, the non-prime consumer automotive
finance market is highly fragmented, and primarily serviced by smaller finance
organizations that solicit business when and as their capital resources permit.
Due to such a lack of a major, consistent financing source, a number of lenders,
including well-capitalized public companies, have abandoned this market in
recent years.
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Despite the enormous income potential in the non-prime consumer market,
many traditional financing sources, such as banks, savings and loans, credit
unions, captive finance companies and leasing companies do not consistently
provide financing to, or have from time to time withdrawn from, this market.
However, many of these same institutions will buy loans on this type of buyer
once the initial, high-risk period of the first three months have passed.
The Business Operations We Had During Fiscal 1998
Effective at the end of fiscal 1998, we ceased to operate the
businesses we had operated during fiscal 1998. We transferred the management and
operation of those businesses to all or part of the Merritt Group on September
30, 1998. We transferred the ownership of those businesses to them on December
30, 1998 as part of our restructuring via the Transaction.
During fiscal 1998, we operated a combined used car finance and sales
business, concentrating on used cars purchased by non-prime credit purchasers.
Through our subsidiary, Consumer Investment Corporation ("CIC"), we engaged in
non-prime used car financing activities. Through our subsidiary, Lenders
Liquidation Centers, Inc. ("LLCI"), we reconditioned and marketed repossessed
used cars.
Consumer Investment Corporation. CIC was licensed in Arizona and New
Mexico as a sales finance company. During fiscal 1998, it engaged in the
business of originating, purchasing, reselling and servicing used car loans.
CIC primarily purchased contracts originated by LLCI in Arizona and New
Mexico. CIC purchased them at a discount from face value, usually ranging
between 15% and 35%. Since we did not have the necessary capital to carry a
portfolio of contracts ourselves, CIC typically re-sold the loans, with
recourse, at a discount to investors. CIC sold the contracts to investors who
did not want to service the loans in the portfolio themselves and then serviced
the loans.
Lenders Liquidation Centers, Inc. LLCI was originally formed late in
January 1997 by the Merritt Group for the remarketing of repossessed used cars.
LLCI acted as a reconditioning center and resale outlet for used cars
repossessed by CIC and other lenders on a consignment basis. LLCI was to operate
in coordination with our loan insurance program (which was intended to remedy
defaulted CIC loans). The concept of LLCI was to have a single reconditioning
center that served our company-owned resale lots. During fiscal 1998, LLCI
operated four facilities located in the Maricopa County, Arizona, cities of
Mesa, Phoenix, Scottsdale and Glendale. It also operated one facility in
Albuquerque, New Mexico and another one in Santa Fe, New Mexico.
CIC entered into a Master Purchase and Sale Agreement with AutoPrime on
October 6, 1997. Under this agreement, LLCI would sell contracts to CIC. CIC
would in turn sell those contracts to AutoPrime, with recourse, at an average
price equal to approximately 70% of the outstanding contract balance. We and CIC
had joint and several liability to AutoPrime for the recourse liability on all
contracts sold to AutoPrime.
CIC would service the loans for a servicing fee of 20% of the gross
amounts collected. In the event payments on a contract would become delinquent,
CIC was responsible to make the collections and, if necessary, repossess the
financed vehicle involved. This relationship was governed by a Servicing
Agreement dated October 6, 1997, between CIC and AutoPrime.
After payment to AutoPrime of its unrecovered purchase price, plus
accrued interest on that amount, the three of us would become the owner of the
repossessed used car. LLCI would recondition the car and attempt to resell it,
generally, through one of LLCI's resale centers.
CIC had also purchased, and assumed recourse liability with respect
to, a portfolio of non-prime loan contracts from AutoPrime in October 1997,
which had been originated by a dealer that had gone out of business. AutoPrime
had no mechanism to service or collect these loans. The loan contracts in that
portfolio had originated from sales of used cars in Austin, Texas. Due to the
recourse obligation, CIC then needed an operation in Austin similar to the one
provided by LLCI in Arizona and New Mexico. Some or all of the Merritt Group
formed a corporation that established a similar business in Austin to act as a
reconditioning center and resale outlet for used cars repossessed by CIC. The
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corporation was Lenders Auto Resale Centers of Texas, Inc., and it did business
under the assumed name of "Lenders Auto Resale Centers" ("Lenders of Texas").
During fiscal 1998, Lenders of Texas established and operated four dealerships
and one reconditioning center in Austin to re-market used cars repossessed as a
result of delinquent loans in that portfolio as well as to originate its own
automobile receivables.
Lenders also entered into a Master Purchase and Sale Agreement with
AutoPrime dated January 22, 1998, for the sale of contracts, with recourse,
generated by the retail sales of Lenders. The terms of the sales to AutoPrime
under this Master Agreement were the same as under the other Master Agreement
CIC had with AutoPrime. We, CIC, LLCI and Lenders all undertook joint and
several liability to AutoPrime for the recourse liability on all contracts any
of the four of us sold to AutoPrime.
These contract loans were originated and serviced by Lenders of Texas.
This relationship was governed by a Servicing Agreement dated January 22, 1998,
between Lenders and AutoPrime.
Our subsidiary, ACE Motor Company, acquired certain assets of Lenders
of Texas on December 30, 1998. This transaction was separate from, but related
to, the restructuring Transaction that took place on the same date. This
transaction is a related party transaction and is described in Item 12, "Certain
Relationships and Related Transactions." We subsequently closed the Austin
locations that were not profitable, consolidated our sales staff into one
dealership location sufficient to also house the collection staff, thus reducing
our operating overhead. In addition, as the portfolio stabilized, we were able
to eliminate the service center operating in Austin, and instead contract with
outside service vendors to service and recondition our financed and repossessed
vehicles at a lower cost to us.
Employees. At the beginning of fiscal 1998, our corporate headquarters
were located in Phoenix, Arizona. Until October 1998, we employed 60 persons, of
which 10 were employed at our Phoenix headquarters.
In October 1998, we moved our corporate headquarters to Dallas, Texas.
This reduced the number of employees we had, as we divested ourselves of all of
the Arizona and New Mexico operations and had not yet acquired many of our
present locations. At May 31, 1999, we had 57 employees, of which, seven were
employed at our Dallas headquarters. We have no employees covered by a
collective bargaining agreement. We consider our relations with our employees to
be good.
Seasonality. We have not experienced any significant differences in
revenues reflecting any seasonal buying or borrowing patterns. Although
collections and sales on used cars do fluctuate during the last quarter of the
calendar year, we were able to avoid a significant impact due to acquisitions
and our ability to manage delinquencies.
Inflation. Higher interest rates, which generally occur with inflation,
would tend to increase the cost of credit used by us and would thus, decrease
our profits. Such effects can be limited by us increasing the prices of used
cars sold, and negotiating purchases of loans contracts from third parties with
a higher discount or interest rate (APR). Inflation has not had any noticeable
effect on our operations.
Item 2. Description Property
Our principal executive offices have been located at 5949 Sherry Lane,
Suite 525, Dallas, Texas 75225, since November 1998. We occupy approximately
2,500 square feet of leased premises at this location. The rent is $ 58,315 per
year, and the lease expires on June 30, 1999.
We have sub-leased approximately 2,600 square feet of new office space
in an office building also occupied by AutoPrime. The address is 2740 North
Dallas Parkway, Suite 110, Plano, Texas 75093. We anticipate moving to this new
location on or about June 28, 1999. The rent is $ 56,760 per year, and the new
lease will expire on May 31, 2002.
As of April 30, 1999, we leased five properties in addition to our
corporate headquarters. We leased them for ACE and AFS operations. They are
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listed in the following table together with the year the lease expires:
1. 3821 So. Buckner Blvd, Dallas, Texas 2,500 sq ft 2001
2. 212 So. Buckner Blvd, Dallas, Texas 3,300 sq ft 2002
3. 6318 Burnet Rd, Austin, Texas 2,800 sq ft 2004
4. 9922 Linn Station Rd, Louisville, Kentucky 3,000 sq ft 2004
5. 2101 So. First St, Lufkin, Texas 750 sq ft 2000
We believe our facilities and equipment are in good repair and are
adequate for our current needs.
Until October 1998, our corporate headquarters were located at 2980 E.
Northern Avenue, Suite B-1. We occupied approximately 1,500 square feet of space
there. That lease commenced in November, 1995 and was scheduled to expire in
1999. We transferred that lease to some or all of the Merritt Group when we
moved our headquarters to Dallas.
During fiscal 1998, we leased six additional properties in Arizona and
New Mexico. We leased them for LLCI's operations. They are listed in the
following table together with the year the leases expire:
1. 9650 N. Cave Creek Road, Phoenix, Arizona 3,800 sq. ft. 1999
2. 1244 W. Broadway, Mesa, Arizona 3,000 sq. ft. 2000
3. 502 N. Scottsdale Road, Scottsdale, Arizona 3,500 sq. ft. 1999
4. 5201 W. Glendale, Glendale, Arizona 4,000 sq. ft. 2000
5. 8813 Central Avenue, Albuquerque, New Mexico 3,000 sq. ft. 2001
6. 1918 Cerrillos Road, Santa Fe, New Mexico 2,500 sq. ft. 2000
Item 3. Legal Proceedings
On August 10, 1998, the Securities and Exchange Commission (the "SEC")
filed suit against us, Michael Carnicle, Robert Cord Beatty, Hillel Sher, Amotz
Frenkel and Nili Frenkel. It does not name, as a defendant, anyone who is an
officer or Director of our Company. The complaint was filed in the United States
District Court for the District of Utah. The Docket number is: 2:98CV-0562S.
The suit involves activities that took place during 1994. At that time
we were under different management and control and known as Chariot
Entertainment, Inc. ("Chariot").
In 1994 Chariot had a license to stage live performances of "American
Gladiators" behind the Imperial Palace Hotel in Las Vegas. The SEC's complaint
alleges that Chariot and several individuals violated the anti-fraud, securities
registration and corporate record keeping provisions of the federal securities
laws in an effort to market the securities of Chariot and maintain Chariot's
listing on NASDAQ. The SEC's complaint seeks to enjoin us and the other
defendants permanently from violating specified laws in the future and seeks
additional relief against the other defendants.
We have denied the allegations of the complaint and believe the relief
sought against our Company is inappropriate. It would be a permanent injunction
against our Company for activities allegedly occurring in 1994. At that time, we
had totally different business operations, management and control than we do at
the present time. We intend to vigorously defend against the relief the SEC is
seeking against our Company in this lawsuit.
There are no other material legal proceedings.
Item 4. Submission of Matter to Vote of Security Holders
Not Applicable.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Our Common Stock is quoted on the NASD Electronic Bulletin Board and
traded in the over-the-counter market under the symbol "ACOR". Trading is only
sporadic and there is no established trading market. The tables below list the
high and low bid prices for each quarter of the last two fiscal years, as best
we can determine by combining information from several sources.
Bid Quotations*
----------------
Low High
Fiscal 1999:
First Quarter $0.25 $ 0.63
Second Quarter 0.56 1.75
Fiscal 1998:
First Quarter 0.72 2.88
Second Quarter 0.88 2.38
Third Quarter 0.88 2.63
Fourth Quarter 0.38 0.81
Fiscal 1997:
First Quarter 0.12 0.12
Second Quarter 0.12 0.12
Third Quarter 0.12 0.12
Fourth Quarter 0.25 4.00
- ------------------
*These quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission and thus may not represent actual transactions.
At May 31, 1999, we had approximately 380 holders of record of our Common
Shares.
The Company has not paid any dividends on its Common Stock and
anticipates that future earnings, if any, will be retained to finance future
growth. In addition, the 6,578,485 shares of Series "A" Preferred Stock, issued
on December 30, 1998, have an annual non-cumulative dividend preference of
$328,924 (5% of $6,578,485). Accordingly, the Company does not anticipate paying
any dividends on Common Stock for the foreseeable future.
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From October 1, 1997 through September 30, 1998, we sold the following
securities without registration under the Securities Act of 1933:
(1) On several occasions from January 13 to September 30, 1998, a
total of 490,076 Common Shares were delivered to approximately 46
of the approximately 115 holders of CIC notes, in return for the
cancellation of those notes. As a result of those exchanges, CIC
notes in the principal amount of $1,400,570, together with
accrued interest of $255,297, were canceled. We issued these
Common Shares under the Section 4(2) exemption of the Securities
Act.
(2) 216,969 Common Shares, in April, May, June and September, 1998,
for accounting and consulting services valued at $200,302. We
issued these Common Shares under the Section 4(2) exemption of
the Securities Act.
(3) 172,000 Common Shares, in March and in June, 1998, to Stanley F.
Wilson, as part of our severance agreement with him. Mr. Wilson
had served as a Vice President and a Director from December 1997
to August 1998. We issued these shares under the Section 4(2)
exemption of the Securities Act.
Summary of the Terms of Convertibility of the Series "A" Preferred
Shares. As part of the Transaction, we established a series of 9,000,000
authorized shares of Series "A" Non-Cumulative Convertible Preferred Stock.
Then, we issued a total of 6,578,485 new Preferred Shares as part of the
Transaction.
The terms of the Series "A" Preferred Shares are:
o They pay non-cumulative dividends at the rate of 5% per year;
o They have a liquidation preference of $1.00 per share;
o They have no voting rights, sinking fund provisions or redemption
rights;
o They are convertible into Common Shares on a 1-for-1 basis at any
time starting January 1, 2002. They will also become convertible
prior to that date if any of certain specified events take place.
Here is a summary of the events that can accelerate
convertibility:
(a) If we issue any shares of any kind of capital stock, or any
securities convertible into, exchangeable for, or
exercisable to purchase any shares of capital stock, without
AutoPrime's consent. (We also made a specific covenant not
to do any of these things before January 1, 2002, without
AutoPrime's consent.)
(b) If anyone other than our current Board of Directors is
elected to our Board of Directors, without AutoPrime's
consent.
(c) If CIC or LLCI default in the payment or performance of any
of a number of obligations to AutoPrime or to us.
(d) If Merritt or Miller breach any representation or warranty
made by them.
We issued 3,237,956 (of the 6,578,485) new Preferred Shares to CIC as
part of the December 30, 1998, Transaction. CIC then pledged the 3,237,956
Preferred Shares to AutoPrime to secure certain debt. So that Auto Prime's
pledge is protected, we also agreed in the "Agreement to Issue Additional
22
<PAGE>
Preferred Stock" that we will not issue any kind of preferred stock to any one
other than CIC/LLCI until after February 1, 2002. Before that date, we can only
issue Preferred Shares to CIC/LLCI in amounts required by the Agreement, and we
can only issue them for the benefit of AutoPrime, our primary creditor.
Item 6. Management's Discussion and Analysis or Plan of Operation
Overview
The Company operates "Buy Here-Pay Here" used car dealerships
and underwrites, finances and services retail installment contracts generated by
sales of used cars by the Company's dealerships. In addition, the Company
purchases portfolios of loan contracts purchased from third party dealerships
and services these loan portfolios. The Company targets the non-prime borrowing
segment of the automobile financing industry. The Company financed much of its
operations by selling the contracts to various lending sources on a full
recourse basis. The contracts were sold at a 20% to 30% discount and the Company
retains certain servicing income from collection of the contracts.
The Company began its used car operations in 1996 with the acquisition
for a car lot in Phoenix, Arizona. By 1997, the Company had seven car lots, five
in Arizona and two in New Mexico. The Company had opened a reconditioning
facility to service cars both purchased by the Company as well as by others. The
Company also began to establish an insurance subsidiary in the Cayman Islands to
offer insurance to customers.
1997
During 1997, the Company began to expand its operations significantly.
By the end of the year, the Company had five auto resale lots in the greater
Phoenix area and 2 lots in northern New Mexico. As a result, revenue increased
from approximately $150,000 in 1996 to over $3,000,000 in 1997. The Company
opened a reconditioning center, not only to service its own vehicles, but also
to service those of other dealers. By late 1997, the Company also began to offer
insurance to its customers through a subsidiary company established in the
Cayman Islands.
23
<PAGE>
In addition to vehicle sales, the Company began to purchase notes
from other automobile dealers at a discount, with the intention of reselling
them to outside finance companies at a profit. The Company also sold notes
generated by their own retail sales operations. The majority of the notes were
sold to Travelers Acceptance Corp. (TAC), for which the Company received
approximately 70% of the net principal balance at the time of the sale. In
return, the agreement provided that the Company would receive 20% of payments
received by TAC. If a note became delinquent beyond 90 days, the Company was
responsible for repurchasing the note from TAC. The Company had recourse
liability for the notes at TAC and the default rate increased over the course of
the year from approximately 25% to over 50%. This had a negative impact on the
Company's cash flow as notes were repurchased and the servicing fees from TAC
were withheld and applied to the outstanding liability. The Company repossessed
certain vehicles, reconditioned them when possible, and resold the vehicles.
However, the Company did not pursue default judgments on the difference between
the balance of the note and the net amount realized on the resale of the
vehicle. By the end of 1997, the Company switched financing companies from TAC
to AutoPrime
Although sales increased significantly during 1997, the Company was not
profitable and therefore needed cash for inventory and operating expenses
(including labor costs and reconditioning of vehicles). In addition, the
expansion of operations required the Company to spend in excess of $100,000 for
capital expenditures to support its growth. Selling, general and administrative
expenses exceeded gross profit by over $1,200,000.
The Company primarily obtained cash from debt financing of over
$2,700,000 and approximately $380,000 from the issuance of common stock. Loans
from independent investors were obtained at rates varying from 8% to 14%, with
the majority in the 12-14% range. As a result of the increased debt, interest
expense increased by approximately $240,000 in 1998.
1998
With seven lots operating at the beginning of 1998, the Company's sales
increased significantly during the first nine months of fiscal 1998. Sales for
the entire fiscal year increased by approximately $960,000. Substantially all
notes generated by sales of used cars were sold to AutoPrime during 1998, with
full recourse. Due to poor credit underwriting, the Company continued to
experience a high rate of default on these notes. The Company was unable to meet
the lenders' requirements for repurchasing the defaulted notes and was unable to
increase sales sufficiently to replace the defaulted loans with performing
contracts.
With increasing losses, the Company obtained additional funds by
incurring debt of approximately $990,000 during 1998. Debt was obtained from
AutoPrime and individual outside investors. Interest expense on the debt
increased by approximately $195,000 to over $475,000. The resulting losses also
prevented the Company from paying its vendors in a timely manner. As a result,
trade payables and accrued expenses increased by over $900,000 by September 30,
1998. By June 1998, Management had decided that it had lost control over its
underwriting and credit decisions and closed the sales lots. The reconditioning
facility and the insurance subsidiary were also closed. Upon closure of the
lots, a small staff was left in Phoenix to continue to service and collect on
the notes for AutoPrime and transition the record keeping.
The Company was a guarantor on loans made by other car lots owned by
certain officers. As those lots were also closed, the lenders looked to the
Company as a repayment source. By year end, the Company was contingently liable
for over $7,730,000 in used car contracts and had direct debts of over
$4,000,000 to the various financing sources and bond holders.
Effective at the end of fiscal 1998, we ceased to operate the
locations we had operated during fiscal 1998. We transferred the management and
24
<PAGE>
operation of those locations to some or all of the Merritt Group on September
30, 1998. In August 1998, we asked Charles Norman to assume day-to-day
management of our Company. The Board of Directors hired Mr. Norman, elected him
as President and a Director, and gave him the necessary authority to restructure
our Company. In addition, during August 1998, the Company acquired certain
assets of Suburba Auto Sales, an independent automobile dealer located in
Dallas, Texas. As a result we acquired assets, inventory, equipment and
automobile receivables owned by Suburba. We formed Suburba Acquisition Company
to facilitate the sale of used cars and the servicing of automobile receivables.
In November 1998 Suburba split its finance servicing business into a new
corporation named AutoCorp Financial Services, Inc. ("AFS") and changed the name
of the used automobile retail sales operation to ACE Motor Company ("ACE"). ACE
Motor Company continues to operate the vehicle sales and finance operation of
the dealership, and the existing and resulting loans are serviced by AFS.
Effective October 1, 1998, AFS began its business of buying, selling
and servicing non-prime retail installment loan contracts secured by automobiles
and light-duty trucks. ACE owns and operates our independent automobile
dealerships and originates retail installment contracts secured by used
automobiles and light-duty trucks.
Our subsidiary, ACE Motor Company, acquired certain assets related to
the Austin dealership on December 30, 1998, from Lenders Auto Resale Centers of
Texas, Inc., a corporation owned by William O. Merritt and Dennis W. Miller.
As a result of the uncertainty of the collections and the recent weak
history of the portfolios, the Company has recorded a an estimated recourse
liability of 30% of the total recourse portfolio outstanding. Management expects
that rate to decline as better collection efforts are made and controls are
tightened over delinquency reporting and repossession efforts.
The automobile industry is subject to substantial seasonal variations
in revenues. Demand for used cars is generally lower in the winter than in other
seasons. In addition, our experience has been that sales tend to be lower and
payment delinquency rates higher during the holiday and back-to-school seasons,
while sales tend to be higher during the spring and through the summer months.
We were able to avoid a significant impact through the holiday season of 1998
due to acquisitions and our ability to manage delinquencies.
Year 2000 Compliance
We are working to address and prepare for the potential impact of the
year 2000 on the ability of our computerized information systems to accurately
process information that may be date-sensitive. Any of our programs that
recognize a date using "00" as the year 1900 rather than the year 2000 could
result in errors or system failures. We utilize a number of computer programs
across our entire operation. We have not completed our assessment, but currently
we believe that the costs of addressing this issue will not have a materially
adverse impact on our financial position.
Liquidity
As of September 30, 1998, the Company has a working capital deficit of
$8,200,000. The Company is reliant on outside financing sources, such as
AutoPrime, to provide the working capital needed for near term operations as
well as to meet its mid term goals. As the Company rebuilds, it will need to
fund an increase in inventory to a level sufficient to support operations, the
acquisition of operating assets, and the working capital needed to support the
sales cycle. Management believes the line of credit secured by the inventory
(the flooring plan) will provide enough financing for the necessary number of
used cars to be held on the lots. The Company believes the agreement to sell
both the bulk portfolios and the internally generated auto contracts, with full
recourse, to AutoPrime will support the operations until sales volume reaches a
sufficient level. The longer term goals of the Company will be dependent on
attaining profitable operations in order to generate sufficient cash flow to
meet those obligations. The Company's current agreement with AutoPrime is due
for review by December 31, 1999. Should the December 30, 1998 debt-for-stock
transaction with AutoPrime not be approved by regulators, then the Company would
have significantly more debt to retire.
Discontinued operations
The Company recorded a charge of $174,354 to reflect the discontinuance of its
entertainment operations in 1996 when it entered into the automobile sales and
financing businesses. The Company has continued in the used car sales and
financing business since then despite the closing of certain lots and operations
and the change in management.
Income taxes
The Company has a significant net operating loss carryforward. However, the
Company's ability to utilize the tax benefits of the prior losses is limited by
the amount of profit generated from operations and further limited due to
certain statutory restrictions created by the change in ownership. Management
has fully reserved any future tax benefits due to the uncertainty regarding
utilization.
25
<PAGE>
Item 7. Financial Statements
The following financial statements are attached to and filed as part of
this report:
Consolidated Balance Sheets - September 30, 1998 and 1997
Consolidated Statements of Operations For the Years Ended
September 30, 1998, 1997 and 1996
Consolidated Statement of Changes in Shareholders' Equity For
the Years Ended September 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows For the Years Ended
September 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On February 2, 1999, we engaged Hurley & Company as our independent
auditors to conduct audits of our consolidated financial statements for the
fiscal years ended September 30, 1996, 1997 and 1998. On the same date, we and
Evers & Company, LTD, terminated our previous audit relationship, and we engaged
Evers & Company, LTD. to assist us with our internal accounting for the audits.
There were no disagreements with Evers & Company, LTD. on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure during our two most recent fiscal years and any subsequent
interim period preceding such resignation.
We have previously reported this in our Form 8-K filed on February 17,
1999.
26
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
Our current executive officers and Directors, as of May 31, 1999, are:
Name Age Position Director Since
Charles Norman 41 President and Chief Executive 1998
Officer; Director*
Darr Heath 39 Director** 1999
Hunter Ennis 29 Secretary and Treasurer;
Director*** 1999
- ----------------
* Elected President and a Director in August 1998.
** Elected a Director in April 1999.
*** Elected Secretary and Treasurer in December 1998 and a Director in
April 1999.
A brief statement setting forth the principal occupation and certain
other information for each of them is set forth below.
Charles Norman has been engaged in various aspects of working with and
making successful, financially distressed companies. Mr. Norman was formerly the
Director of Asset Management for AutoPrime from March 1998 until September 1998.
In this capacity, he developed a risk-management department to design and
implement work-out and exit strategies for distressed dealer portfolios owned by
AutoPrime. >From January 1997 until March 1998 he was the Chief Executive
Officer of Windsor Holdings, Inc, a non-prime indirect consumer lending
institution. As CEO, Mr. Norman negotiated with financing sources, and secured
outside financing for the company's operations, he wrote and developed all
underwriting criteria and marketing materials, and was directly involved in the
direction of all administrative and executive staff. Before 1997, Mr. Norman was
the President of Allied Auto Credit from 1995 until 1997. His duties included
working directly with the company ownership to develop programs, design
procedures and oversee all phases of operations. In 1994, Mr. Norman owned and
operated a non-prime finance consulting company, Dumont, Norman & Associates.
This company was contracted by multiple non-prime lenders to design finance
models, train finance staff, and write marketing materials for numerous lending
programs. Also during 1994 and 1995, Mr. Norman owned and operated a group of
independent automobile dealerships under the name Auto Express Financial and
managed all sales/leasing operations on a daily basis. From 1993 until 1994, Mr.
Norman was the Vice President of Operations for Leadership Financial, a
non-prime indirect lender. He was responsible for implementing the company's
underwriting criteria, hiring and training all key personnel and developing all
marketing materials. Prior to 1994, from 1992 until 1994, Mr. Norman was the
Regional Manager of Dealer Development for Union Federal Savings Bank where he
was hired to develop and co-manage an indirect lending program.
A detailed resume of his experience is attached as Exhibit 99.1 to our
Form 8-K filed March 11, 1999. Certain additional information concerning Mr.
Norman is set forth in Item 11, "Security Ownership of Certain Beneficial Owners
and Management."
Hunter Ennis has been with us since August 1998. He has been our
Secretary and Treasurer since December 1998, and our Director of Operations for
Auto Corp Financial Services. Prior to joining our Company, Mr. Ennis was a
Dealer Auditor with AutoPrime from July 1998 to August 1998. Before that, he was
Vice President of Accounting and Finance, of Windsor Holdings, Inc., a Dallas
non-prime, indirect consumer lender, from May 1997 to July 1998. From June 1996
to May 1997, Mr. Ennis was Director of Accounting for Allied Funding
Corporation, a Dallas non-prime finance lender. During 1994 until mid 1996, he
was a Senior Analyst with Alltel, a telecommunications company. Mr. Ennis worked
in the Little Rock, Arkansas office of Alltel.
27
<PAGE>
Darr Heath has been with the Company since October 1998. He became
Director of Operations for ACE Motor Company in November 1998. In this capacity,
he is responsible for the supervision of all day-to-day operations in sales and
servicing. From November 1996 to 1998, Mr. Heath was Director of Operations and
General Manager of Fiesta Motors, a Dallas, Texas, automobile dealership and
subsidiary of Sovereign Finance Corporation. From February 1994 to the end of
1996, he served as Director of Operations of Public Auto Sales, which is engaged
in used automobile sales and financing in Dallas, Texas.
During fiscal 1998, Messrs. William O. Merritt and Dennis N. Miller
were our controlling shareholders. In August 1998, they asked Charles Norman to
assume day-to-day management control of our Company.
Mr. Norman agreed to do this and assist in our re-structuring effort,
but only if he had control of all major decisions. Based on Mr. Norman's past
experience, and his knowledge of the non-prime automobile business, our Board of
Directors, in August, 1998, hired Mr. Norman, elected him as a Director, and
gave him the necessary authority to restructure our Company. He became the
controlling shareholder of our Company on December 30, 1998.
On December 30, 1998, Mr. Miller resigned as a Director. From that
date until April 28, 1999, our Directors were:
o Charles Norman
o William O. Merritt
During April 1999, Merritt and Norman elected Mr. Ennis as a Director.
Mr. Merritt resigned on April 28, 1999. Messrs. Norman and Ennis elected Darr
Heath as a Director. Messrs. Ennis and Heath were and continue to be employees
of AutoCorp Financial and/or ACE Motor Company. The Board of Directors held four
meetings during fiscal year 1998. The Board of Directors had no Audit Committee,
Compensation or Nomination Committees during fiscal 1998 and does not currently
have any committees.
Our governing documents provide that our Company must have at least
three Directors. In addition, the Bylaws authorize the Board of Directors to act
by resolution to increase or decrease the number of Directors. The present
number of authorized Directors is three.
The term of the present Directors will expire concurrently with the
election of Directors at the forthcoming 1999 Annual Meeting of Shareholders.
Management will propose at that meeting that Messrs. Norman, Heath and Ennis be
re-elected as Directors for the coming year. Mr. Norman, in his capacity as
Trustee of the three voting trusts, controls 52.8% of the outstanding Common
Shares. He presently intends to vote these shares in favor of the re-election of
these three Directors. The Directors elected at the forthcoming 1999 Annual
Meeting of Shareholders will serve until the next Annual Meeting of Shareholders
and until their successors have been duly elected and qualified.
We presently contemplate that after the 1999 Annual Meeting of
Shareholders, the newly elected Directors will hold a regular annual meeting of
the Board of Directors. If a regular meeting is not held, the Directors will
sign a unanimous consent in lieu of holding the meeting and will re-elect the
current officers to the same positions for the coming year.
Item 10. Executive Compensation
Executive Officers. The table below shows cash and stock compensation
paid during the last three years to each of the three persons who served as
Chief Executive Officer during fiscal 1998. None of the next four most highly
compensated officers serving on September 30, 1998, received more than $100,000
for fiscal 1998.
<TABLE>
Name and Fiscal Year Salary Consulting Other Annual
Principal Position Fees Compensation
<S> <C> <C> <C> <C>
Charles Norman, President 1998 $ 0 $0 $ 0
and Chief Executive Officer
(August 1998 to Present)
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<PAGE>
Andrew Kacic* - President and 1998 $6,600 $43,564 $110,200**
Chief Executive Officer
(December 1997 to June 1998)
William O. Merritt - President 1998 $16,350 $ 0 $ 0
and Chief Executive Officer (July 1997 $63,900 $ 0 $ 0
to December 1997) (June 1998 to
August 1998)
</TABLE>
* See Item 12, "Certain Relationships and Related Transactions", for
information as to equipment we purchased and other equipment we lease
from Mr. Kacic during fiscal 1998.
** Consists of 110,200 Common Shares valued at $1.00 per share, paid to
Advisory Services, Inc. for consulting services rendered by Mr. Kacic.
On December 30, 1998, the Company established Voting Trust I with Mr.
Norman as Trustee, and placed 350,000 Common Shares in it for the benefit of
officers of the Company to be named in the future. The Board of Directors has
not yet determined which officers will participate in these shares or the terms
on which the shares will be made available to them. For additional information
about Voting Trust I see Item 11, "Security Ownership of Certain Beneficial
Owners and Management."
The Company has a non-qualified stock option plan (the "Plan") that was
adopted by the Board of Directors in March 1997. The Plan, as authorized,
provides for the issuance of up to 2,000,000 shares of the Company's stock.
Persons eligible to participate in the Plan as recipients of stock options
include full and part-time employees of the Company, as well as officers,
directors, attorneys, consultants and other advisors to the Company or
affiliated corporations.
Options issued under the Plan are exercisable at a price that is not
less than twenty percent (20%) of the fair market value of such shares (as
defined) on the date the options are granted. The non-qualified stock options
are generally non-transferable and are exercisable over a period not to exceed
ten (10) years from the date of the grant. Earlier expiration is operative due
to termination of employment or death of the issuee. The entire Plan expires on
March 20, 2007, except as to non-qualified stock options then outstanding, which
will remain in effect until they have expired or have been exercised.
As of May 31, 1999, 981,857 shares had been issued under the Plan, no
options were outstanding, and 1,018,143 shares were available for future
issuance.
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<PAGE>
Compensation of Directors. Directors received a fee of $300 per meeting
for serving as Directors during fiscal 1998. This compensation continues for all
formal meetings held in fiscal 1999.
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a)
of the Securities Exchange Act of 1934 and the rules promulgated thereunder
require that directors and executive officers of the Company and beneficial
owners of greater than 10% of the Company's Common Stock file various reports
with the Securities and Exchange Commission (the "SEC"). The Company has
reviewed its files and does not find that any Forms 3, 4 or 5 were furnished to
the Company during or with respect to fiscal 1998.
Item 11. Security Ownership of Certain Beneficial Owners and Management
On December 30, 1998, we established three trusts naming Charles Norman
as Trustee of each of them. We did this as part of the Transaction and placed
certain shares of stock in them. As a result, Mr. Norman acquired control of our
Company from William O. Merritt, Dennis W. Miller and others in the Transaction.
Messrs. Merritt and Miller continue to have beneficial ownership of a total of
600,000 (or 9.9%) of the outstanding Common Shares.
As of May 31, 1999, Mr. Norman, in his capacity as Trustee of the
three trusts, beneficially owns a total of 3,217,000 Common Shares. This is
52.8% of the 6,087,184 Common Shares that, according to our stock transfer
agent, were outstanding as of May 31, 1999.
As part of the December 30, 1998, Transaction, we tendered 1,091,113
Common Shares to AutoPrime, as described above in Item 1, "Description of
Business - How the Purpose of the Restructuring Was Achieved." AutoPrime can
accept the tender only after approval has been received from the Office of
Thrift Supervision. There is no assurance the approval can be obtained.
AutoPrime disclaims any beneficial ownership of the 1,091,113 shares as long as
it cannot accept the tender.
The following table sets forth certain information, as of May 31, 1999,
concerning the beneficial ownership of Common Stock by all Directors and
nominees, certain executive officers, all Directors and executive officers of
the Company, as a group, and each person who beneficially owns more than 5% of
the 6,087,184 outstanding shares of Common Stock, $.001 par value. Unless
otherwise indicated, each person named has sole voting and investment power over
the shares indicated.
<TABLE>
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership (1) of Class (1)
------------------- ------------------------ ------------
<S> <C> <C>
Charles Norman, Trustee 3,217,000 (1)(2) 52.8%
5949 Sherry Lane, Suite 525
Dallas, Texas 75225
All directors and officers 3,217,000 (1)(2) 52.8%
as a group (3 persons)
</TABLE>
(1) As part of the transaction described in Item 1, above, we entered into
three trust agreements dated as of December 30, 1998, with Mr. Norman,
as Trustee under Voting Trust Agreement I, Voting Trust Agreement II
and Exchange Trust Agreement. We placed certain shares in each trust on
that date. As of April 12, 1999, the parties created an additional
purpose for Exchange Trust and allocated certain of the shares in
Exchange Trust to it Mr. Norman is the sole trustee and has sole voting
power. The beneficiaries of the three trusts and the securities in each
trust as of May 31, 1999, are:
<TABLE>
Name of Trust Beneficiaries Securities Held
<S> <C> <C>
Voting Trust I Executive officers of ours to 350,000 Common Shares
be named in the future
Voting Trust II Executive officers of AutoPrime, 350,000 Common Shares
Inc. ("Auto Prime") to be named
in the future
The Exchange Trust (a) Consumer Investment Corporation up to 700,000 Common
("CIC") (for the benefit of the Shares (all unused shares
holders of the CIC notes) will first be available toAutoPrime
for satisfaction of our and/or CIC's
obligations to them)
(b) AutoPrime (for the purpose of 3,340,529 Preferred Shares
holding the securities tendered and 1,091,113 Common Shares
to AutoPrime and that it cannot
lawfully accept prior to receipt
of approval from the Office of
Thrift Supervision)
(c) AutoPrime (for the purpose of up to 725,887 Common Shares
satisfying our and/or CIC's
obligation to AutoPrime)
</TABLE>
(2) Does not include 3,340,529 Common Shares issuable upon conversion of
3,340,529 Series "A" Preferred Shares held by Mr. Norman as Trustee of
the Exchange Trust. The Series "A" Preferred Shares are not convertible
until January 1, 2001, unless certain events occur. The terms of
convertibility are described in more detail in "Item 5. Market for
Common Equity and Related Stockholder Matters."
By virtue of his beneficial ownership of Common Stock, Mr. Norman may
be deemed to be a "parent" of the Company as such term is defined in the rules
and regulations of the Securities and Exchange Commission.
Possible Change of Control. The 700,000 Common Shares held in Exchange
Trust, as of May 31, 1999, for the benefit of the holders of the CIC notes are
scheduled to be released from Exchange Trust by December 31, 1999. In addition,
AutoPrime may be able to lawfully accept by that date the tender of the
1,091,113 Common Shares held in Exchange Trust for its benefit. Further, the
725,887 Common Shares held to satisfy our and/or CIC's obligations to AutoPrime
may have been utilized by December 31, 1999.
The occurrence of these events would reduce Mr. Norman's beneficial
ownership to 700,000 Common Shares (11.5% of the outstanding Common Shares).
31
<PAGE>
Simultaneously, AutoPrime would become the beneficial owner of at least
1,091,113 Common Shares (18% of the outstanding Common Shares), and perhaps the
additional 725,887 shares, as well. In the latter case, AutoPrime would
beneficially own 1,817,000 (29.8%) of the outstanding Common Shares.
Item 12. Certain Relationships and Related Transactions
During fiscal 1998, our CIC subsidiary purchased a telephone system
from Advisory Services, Inc., an affiliate of Andrew Kacic. The purchase price
was $4,500 cash. We believe that amount did not exceed its fair market value,
but we do not know what the cost of the equipment was to Mr. Kacic. At the time,
Mr. Kacic was our President and a Director. He held these positions from
December 1997 to August 1998. We disposed of our CIC subsidiary in the December
30, 1998 Transaction.
In addition, in September, 1999, our former CIC subsidiary leased
computer equipment and software from Mr. Kacic on a lease that expires in
September 1999. The amount financed was $65,000 and the outstanding balance at
June 20, 1999, was $8,020. The lease payments during fiscal 1998 totaled
$28,800. The equipment is to be returned to Mr. Kacic at the end of the lease.
We have received advances from and made payments for a company known as
"CIC Fund V." During that time, CIC Fund V was an affiliate of ours. It is owned
by William O. Merritt and Dennis Miller, who were, at that time, also Directors
and officers of our Company. The amounts advanced by us to (or due to us from)
CIC Fund V at September 30, 1998 and 1997 were $0 and $45,709, respectively.
AutoPrime, Inc. is a third party creditor that purchased a substantial
portion of the installment contracts of the subsidiaries we had at the time.
These were purchased under an agreement by which we derecognized the amounts
receivable, but continued to service the contracts for a fee. AutoPrime, the
note holder, also sold contracts originated by a third party dealer to CIC and
the Merritt Group for a purchase price of approximately $3,000,000, represented
by a note bearing interest at 10% per annum.
In March and June 1998, we issued a total of 172,000 Common Shares to
Stanley F. Wilson as part of our severance agreement with him. Mr. Wilson had
served as a Vice President and a Director from December 1997 to August 1998.
On December 30, 1998, as part of the Transaction, we redeemed 2,653,500
Common Shares from the Merritt Group and transferred to them the stock of CIC,
LLCI and other subsidiaries of ours, which we deemed to be non-productive and
not consistent with our future plans (see Item 1, Description of Business-Recent
Restructuring Transaction).
On that same date, December 30, 1998, our subsidiary, ACE Motor
Company, acquired certain assets of Lenders Resale Centers of Texas, Inc., a
corporation owned by Messrs. Miller and Merritt. We refer to this corporation as
"Lenders of Texas." The purchase price was $50,000. Simultaneously, ACE
Financial Services, Inc. ("AFS") assumed the rights and obligations of Lenders
of Texas pertaining to a note portfolio with a remaining gross balance of
$1,400,000.
The portfolio had previously been sold to AutoPrime. The obligations
ACE assumed contained recourse as to the contracts in that portfolio. In return,
Lenders of Texas gave its note in the amount of $2,205,919 to ACE. We attribute
no value to that note in our financial records.
32
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
The following documents are attached to and filed with this report as
Exhibits:
2.1 Master Agreement dated as of December 30, 1998 by and among
AutoPrime, Inc., AutoCorp Equities, Inc., Consumer Investment
Corporation, Lenders Liquidation Centers, Inc., William O.
Merritt, Dennis W. Miller, Andrew J. Kacic, Vincent W. Bustillo,
Wayne McLaws and Efrain Diaz.*
2.2 Unconditional Tender of AutoCorp Preferred and Common Stock,
effective December 30, 1998, by and between AutoCorp Equities,
Inc. and AutoPrime, Inc.*
2.3 Agreement to Issue Additional Preferred Stock between AutoCorp
Equities, Inc., AutoPrime, Inc., Consumer Investment Corporation,
and Lenders Liquidation Centers, Inc. effective December 30,
1998.*
2.4 Pledge Agreement dated as of December 30, 1998, from Consumer
Investment Corporation and Lenders Liquidation Centers, Inc. to
AutoPrime, Inc.*
2.5 Pledge Agreement dated as of December 30, 1998, from William O.
Merritt and Dennis W. Miller to AutoPrime, Inc.*
2.6 General Indemnity Agreement dated as of December 30, 1998, from
Consumer Investment Corporation and Lenders Liquidation Centers,
Inc. to AutoCorp Equities, Inc.*
2.7 Ratification of Obligations dated as of December 30, 1998, from
Consumer Investment Corporation and Lenders Liquidation Centers,
Inc. to AutoPrime, Inc.*
2.8 Release of Pledge Agreement dated as of December 30, 1998, from
AutoPrime, Inc. to the Merritt Group.*
3.1 Certificate of Designation of the Series "A" Non-Cumulative
Convertible Preferred Stock of AutoCorp Equities, Inc.*
9.1 Voting Trust Agreement I dated as of December 30, 1998, Charles
Norman, Trustee (When this document has been appropriately
amended, it will contain a management compensatory plan or
arrangement).*
9.2 Voting Trust Agreement II dated as of December 30, 1998, Charles
Norman, Trustee.*
33
<PAGE>
9.3 Exchange Trust Agreement dated as of December 30, 1998, Charles
Norman, Trustee.*
10.1 Master Purchase and Sale Agreement dated October 6, 1997, between
AutoPrime, Inc. and Consumer Investment Corporation.
10.2 Guaranty dated October 6, 1997, executed by AutoCorp Equities,
Inc. with respect to Master Purchase and Sale Agreement dated
October 6, 1997.
10.3 Servicing Agreement dated October 6, 1997, between AutoPrime,
Inc. and Consumer Investment Corporation.
10.4 Master Purchase and Sale Agreement dated January 22, 1998,
between AutoPrime, Inc. and Lenders Auto Resale Centers of Texas,
Inc.
10.5 Servicing Agreement dated January 22, 1998, between AutoPrime,
Inc. and Lenders Auto Resale Centers of Texas, Inc.
10.6 Master Purchase and Sale Agreement dated January 12, 1999,
between AutoPrime, Inc. and ACE Motor Company.
10.7 Guaranty dated January 12, 1999, executed by AutoCorp Equities,
Inc., ACE Motor Company, and AutoCorp Financial Services, Inc.,
with respect to Master Purchase and Sale Agreement dated January
12, 1999.
10.8 Servicing Agreement dated January 12, 1999, between AutoPrime,
Inc. and ACE Motor Company.
10.9 Master Purchase and Sale Agreement dated January 12, 1999,
between AutoPrime, Inc. and AutoCorp Financial Services, Inc.
10.10 Guaranty dated January 12, 1999, executed by AutoCorp Equities,
Inc., ACE Motor Company, and AutoCorp Financial Services, Inc.,
with respect to Master Purchase and Sale Agreement dated January
12, 1999.
10.11 Servicing Agreement dated January 12, 1999, between AutoPrime,
Inc. and AutoCorp Financial Services.
10.12 Business Loan Agreement dated October 26, 1998 between Suburba
Acquisition Company, Inc. d/b/a ACE Motor Co. and AutoPrime, Inc.
10.13 Promissory Note dated October 26, 1998, in the principal amount
of $750,000 executed by Suburba Acquisition Company, Inc. d/b/a
ACE Motor Co. in favor of AutoPrime, Inc.
10.14 Commercial Security Agreement dated October 26, 1998, between
Suburba Acquisition Company, Inc. and AutoPrime, Inc.
10.15 Promissory Note dated April 26, 1999, in the principal amount of
$750,000 executed by Suburba Acquisition Company, Inc. d/b/a ACE
Motor Co. in favor of AutoPrime, Inc.
10.16 Business Loan Agreement dated June 17, 1999, between ACE Motor
Co. (formerly known as Suburba Acquisition Company, Inc. d/b/a
ACE Motor Co.) and AutoPrime, Inc.
10.17 Promissory Note dated June 17, 1999, in the principal amount of
$1,000,000, executed by ACE Motor Co. (formerly known as Suburba
Acquisition Company, Inc. d/b/a ACE Motor Co.) in favor or
AutoPrime, Inc.
10.18 Commercial Security Agreement dated June 17, 1999, between ACE
Motor Co. (formerly known as Suburba Acquisition Company, Inc.
d/b/a ACE Motor Co.) and AutoPrime, Inc.
10.19 Asset Purchase Agreement dated December 30, 1998 between
AutoCorp Financial Services, Inc. and ACE Motor Company, as
Buyer, and Lenders Auto Resale Center of Texas, Inc. and Lenders
Liquidation Centers, Inc., as Seller.
34
<PAGE>
21 List of Subsidiaries.
27 Financial Data Schedule.
99.1 Resume of Experience of Charles Norman (This relates to "Item 9.
Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act" in this Form
10-KSB).*
- ---------------------------
* Incorporated by reference to the exhibit with the same name and
number attached to the Form 8-K filed by AutoCorp Equities, Inc. on March 11,
1999.
(b) Reports on form 8-K
No report on Form 8-K was filed during the fourth (last) quarter of the
fiscal year ended September 30, 1998.
35
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AUTOCORP EQUITIES, INC.
Registrant
Date: June 25, 1999 By /s/ Charles Norman
-----------------------------
Charles Norman, President and
Chief Executive
Officer (Principal Executive
Officer, Principal Financial
Officer and Director)
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
Date: June 25, 1999 By: /s/ Hunter Ennis
----------------------
Hunter Ennis, Director
Date: By:
----------------------
Darr Heath, Director
36
<PAGE>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and 1997
Page No.
CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations 4
Consolidated Statements of Changes in
Shareholders' Equity (Deficit) 5
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 10
37
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
AutoCorp Equities, Inc.:
We have audited the accompanying consolidated balance sheets of AutoCorp
Equities, Inc. and subsidiaries (the "Company") as of September 30, 1998 and
1997, and the related consolidated statements of operations, changes in
shareholders' equity (deficit), and cash flows for each of the three years in
the period ended September 30, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We
did not audit the financial statements of Consumer Insurance Company (Cayman), a
wholly-owned subsidiary of a wholly-owned subsidiary, for September 30, 1997
which statements reflect total assets and revenues constituting 9 percent and 2
percent, respectively, of the related consolidated totals at September 30, 1997.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for
Consumer Insurance Company (Cayman), is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of AutoCorp Equities,
Inc. and subsidiaries as of September 30, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has negative working capital at September 30, 1998 that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Notes 2 and 12. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Hurley & Company
Granada Hills, California
March 19, 1999
1
<PAGE>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1998 and 1997
1998 1997
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 51,979 $ 153,667
Accounts receivable, net of
allowance for doubtful accounts
of $0 and $139,222 respectively 468 817,324
Loans receivable - officers, net -- 47,677
Inventory 95,297 946,378
Prepaid expenses -- 406,685
---------- ----------
Total current assets 147,744 2,371,731
PROPERTY AND EQUIPMENT
Furniture and fixtures 5,500 62,198
Office equipment 4,220 25,225
Automobiles 14,500 --
Machinery and equipment 10,780 7,251
Leasehold improvements -- 20,561
---------- ----------
35,000 115,235
Less accumulated depreciation
and amortization 1,361 9,494
---------- ----------
33,639 105,741
OTHER ASSETS
Deposits -- 22,118
Financing costs, net -- 49,913
Other -- 66,962
---------- ----------
-- 138,993
---------- ----------
Total assets $ 181,383 $2,616,465
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1998 and 1997
1998 1997
------------- -------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion, long-term debt $ 987,153 $ 502,482
Accounts payable 346,625 188,747
Accrued expenses 1,143,336 413,961
Related party payables (Note 10) 5,678,208 45,709
Other current liabilities 188,943 182,507
Deferred income - 74,099
------------- -------------
Total current liabilities 8,344,265 1,407,505
Long-term debt, net of current portion
and net of discounts of $5,733 and
$28,878, respectively 1,534,606 2,884,714
Provision for recourse liability (Note 6) 2,320,000 --
Commitments and contingencies -- --
SHAREHOLDERS' DEFICIT:
Common stock, par value $.001; 110,000,000
shares authorized, 6,099,435 and 5,100,018
shares issued and outstanding at September
30, 1998 and 1997, respectively 6,099 5,100
Additional paid-in-capital 11,469,716 9,309,979
Accumulated deficit (22,914,303) (10,409,833)
Less treasury stock (569,000) (569,000)
Less stock subscriptions receivable (10,000) (12,000)
------------- -------------
Total shareholders' deficit (12,017,488) (1,675,754)
------------- -------------
Total liabilities and
shareholders' deficit $ 181,383 $ 2,616,465
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 30, 1998, 1997 and 1996
1998 1997 1996
------------ ----------- -----------
Net Revenues $ 4,098,074 $ 3,177,217 $ 150,501
Cost of sales 3,517,643 2,370,098 29,741
------------ ----------- -----------
Gross profit 580,431 807,119 120,760
Selling, administrative
and other operating expenses 9,952,292 2,023,249 909,212
Provision for recourse liability 2,320,000 - -
------------ ----------- -----------
Operating loss (11,691,861) (1,216,130) (788,452)
Other expense:
Interest expense (478,621) (283,479) (43,229)
Miscellaneous (5,225) - -
Costs of abandoned business
combination agreements - (20,750) -
Loss on lot closings (144,740) - -
Loss on conversion of
debt to equity (184,023) - -
------------ ----------- -----------
Loss before
discontinued operations (12,504,470) (1,520,359) (831,681)
Discontinued operations - - (174,354)
------------ ----------- -----------
Net loss $(12,504,470) $(1,520,359) $(1,006,035)
============ =========== ===========
Net loss per share before
discontinued operations,
basic and diluted $ (2.28) $ (.30) $ (5.32)
Discontinued operations,
basic and diluted - - (1.11)
------------ ----------- -----------
Net loss per share,
basic and diluted $ (2.28) $ (.30) $ (6.43)
============ =========== ===========
Weighted average number
of shares outstanding,
basic and diluted 5,484,807 5,098,584 156,532
============ =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Years Ended September 30, 1998, 1997 and 1996
Common Stock Additional Stock
Par Paid-In Subscriptions Treasury Accumulated
Shares Value Capital Receivable Stock Deficit Total
------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
October 1, 1995 156,532 $ 156 $ 8,931,793 $ (652,000) $ - $ (7,883,439) $ 396,510
Net loss for the year
ended September 30, 1996 - - - - - (1,006,035) (1,006,035)
------------- ------------- ------------- ------------- ------------- ------------- -------------
Balance at
September 30, 1996 156,532 156 8,931,793 (652,000) - (8,889,474) (609,525)
Issuance of stock for
cash and subscription 130,666 131 81,869 (12,000) - - 70,000
Issuance of stock to former
officer for reduction
of note payable 405,000 405 149,445 - - - 149,850
Issuance of stock
for services 126,820 127 146,872 - - - 146,999
Cancellation of stock
subscription agreement - - - 652,000 (569,000) - 83,000
Stock issued in acquisition
of subsidiaries 4,281,000 4,281 - - - - 4,281
Net loss for the year
ended September 30, 1997 - - - - - (1,520,359) (1,520,359)
------------- ------------- ------------- ------------- ------------- ------------- -------------
Balance at
September 30, 1997 5,100,018 $ 5,100 $ 9,309,979 $ (12,000) $ (569,000) $ (10,409,833) $ (1,675,754)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
<TABLE>
<CAPTION>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)(CONTINUED)
For the Years Ended September 30, 1998, 1997 and 1996
Common Stock Additional Stock
Par Paid-In Subscriptions Treasury Accumulated
Shares Value Capital Receivable Stock Deficit Total
------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
September 30, 1997 5,100,018 $ 5,100 $ 9,309,979 $ (12,000) $ (569,000) $ (10,409,833) $ (1,675,754)
Shares issued to
convert debt
to equity 490,076 490 1,839,400 - - - 1,839,890
Shares issued for
services 227,141 227 212,227 - - - 212,454
Cancellation of stock
subscription agreement (20,000) (20) (1,980) 2,000 - - -
Shares issued to former
officer per agreement 192,000 192 - - - - 192
Shares issued to former
officer for services 110,200 110 110,090 - - - 110,200
Net loss for the year
ended September 30, 1998 - - - - - (12,504,470) (12,504,470)
------------- ------------- ------------- ------------- ------------- ------------- -------------
Balance at
September 30, 1998 6,099,435 $ 6,099 $ 11,469,716 $ (10,000) $ (569,000) $ (22,914,303) $ (12,017,488)
============= ============= ============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
<TABLE>
<CAPTION>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 1998, 1997 and 1996
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Net loss $(12,504,470) $(1,520,359) $(1,006,035)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization 147,889 58,649 21,129
Deferred income (74,099) (352,799) 426,898
Loss on lot closings 144,740 -- --
Loss on conversion of
debt to equity 184,023 -- --
Interest on related
party debt 69,230 -- --
Provision for
recourse liability 2,320,000 -- --
Changes in:
Accounts receivable 816,856 360,155 (1,177,479)
Related party payables 5,563,269 45,709 --
Receivables from officers 47,677 (37,652) (10,025)
Prepaid expenses 406,685 (6,685) -
Inventory 851,081 (902,677) (43,701)
Accounts payable 575,425 47,669 34,206
Accrued expenses 898,573 (235,200) 1,103,291
Barter credits -- -- 94,606
Other 26,976 (94,066) 51,852
------------ ----------- -----------
Total adjustments 11,978,325 (1,116,897) 500,777
------------ ----------- -----------
Net cash used in
operating activities (526,145) (2,637,256) (505,258)
------------ ----------- -----------
Cash flows from investing activities:
Capital expenditures (102,072) (102,667) (12,568)
------------ ----------- -----------
Net cash used in
investing activities (102,072) (102,667) (12,568)
------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
<TABLE>
<CAPTION>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the Years Ended September 30, 1998, 1997 and 1996
1998 1997 1996
----------- ----------- -----------
Cash flows from financing activities:
<S> <C> <C> <C>
Principal payments
on long-term debt $ (466,767) $ (54,080) $ --
Additional borrowings 993,124 2,751,575 713,921
Proceeds from issuance
of common stock 192 -- --
Cancellation of stock
subscription agreement (20) -- --
----------- ----------- -----------
Net cash provided by
financing activities 526,529 2,697,495 713,921
----------- ----------- -----------
Net increase/(decrease) in
cash and cash equivalents (101,688) (42,428) 196,095
Cash and cash equivalents
at beginning of period 153,667 196,095 --
----------- ----------- -----------
Cash and cash equivalents
at end of period $ 51,979 $ 153,667 $ 196,095
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 215,143 $ 25,319 $ 2,182
=========== =========== ===========
Cash paid for income taxes $ -- $ -- $ --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the Years Ended September 30, 1998, 1997 and 1996
1998 1997 1996
------------ ------------ ------------
Non-cash transactions
Stock issued for services $ 212,454 $ 146,999 -
Stock issued to former
officer for services 110,200 - -
Stock issued to former
officer for reduction
of note payable - 149,850 -
Stock issued to convert
debt to equity, net of
$119,584 of costs relating
to conversion 1,839,890 - -
Treasury stock obtained
in cancellation of
subscription agreement - 569,000 -
Services provided for
cancellation of stock
subscription agreement - 83,000 -
Stock subscription
issued for stock - 12,000 -
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidated basis
------------------
The consolidated financial statements of the Company include the
accounts of AutoCorp Equities, Inc., ("AutoCorp"), and its wholly owned
subsidiaries, Consumer Investment Corporation ("CIC"), Consumer
Insurance Services, Inc. ("CIS"), Lenders Liquidation Centers ("LLC"),
Lenders Liquidation Center Reconditioning ("Recon") and Suburba
Acquisition Company ("Suburba"). CIS also includes its wholly owned
subsidiary, Consumer Insurance Company Cayman ("Cayman"). All material
intercompany accounts and transactions have been eliminated in
consolidation.
Use of estimates
----------------
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles necessarily
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair value of financial instruments
-----------------------------------
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments, requires that the Company
disclose estimated fair values for its financial
10
<PAGE>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value of financial instruments (continued)
-----------------------------------
instruments. The following summary presents a description of the
methodologies and assumptions used to determine such amounts.
Fair value estimates are made at a specific point in time and are based
on relevant market information and information about the financial
instrument; they are subjective in nature and involve uncertainties,
matters of judgment and, therefore, cannot be determined with
precision. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular instrument. Changes in assumptions could
significantly affect the estimates.
Since the fair value is estimated at September 30, 1998, the amounts
that will actually be realized or paid at settlement of the instruments
could be significantly different.
The carrying amount of cash and cash equivalents is assumed to be the
fair value because of the liquidity of these instruments. Accounts
receivable, accounts payable and accrued expenses approximate fair
value because of the short maturity of these instruments. The recorded
balance of notes payable less the amount discounted at issuance are
estimated to be the fair value since the rates specified in the notes
approximate current market rates.
Revenue recognition
-------------------
Due to the high losses from the notes secured by automobiles and sold
with recourse, management has decided to record revenue from sale of
the notes only when collected. Management has established a provision
for recourse liability of 30% of the total portfolio sold with recourse
(see Note 6 below). Management will review the loss ratio continuously
to both measure the improvement of the screening process and the
collections procedures and will adjust the expected loss ratio when
the actual losses differ from the estimate.
11
<PAGE>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition (continued)
-------------------
The Company is paid to serve as the collection agent for AutoPrime, a
third party creditor which purchased all the notes receivable of the
Company's subsidiaries under an agreement by which the Company factored
the notes receivable. The service revenue fee earned is based on a
percentage of collections and is earned over the life of the notes. The
Company will record the revenue as notes are collected.
Cash and cash equivalents
-------------------------
Cash and cash equivalents include cash on hand and on deposit and
highly liquid debt instruments with original maturities of three months
or less.
Property and equipment
----------------------
Property and equipment are stated at cost. Depreciation is computed on
property and equipment using the straight-line method over the expected
useful lives of the assets, which are generally three years for
automobiles, five years for office equipment and seven years for
furniture and fixtures, leasehold improvements and machinery and
equipment.
Inventory
---------
Inventories consist principally of cars available for sale and are
stated at the lower of cost (specific identification method) or market.
Income taxes
------------
The Company records its taxes in accordance with Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes". Under this
method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amount of existing assets and liabilities
and their respective tax bases, including operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates
12
<PAGE>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes (continued)
------------
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect in deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized.
Advertising and promotional costs
---------------------------------
Advertising and promotional costs are expensed as incurred. Advertising
and promotional expenses were $680,058 and $128,872 in 1998 and 1997,
respectively.
Loss per common share
---------------------
Basic net loss per share is computed by dividing net loss by the
weighted average number of shares of common stock outstanding during
the year. Diluted net loss per share is computed by dividing the net
loss applicable to common shareholders by the weighted average number
of common shares and common equivalent shares outstanding during the
year.
Reclassifications
-----------------
Certain prior year amounts in the accompanying consolidated financial
statements have been reclassified to conform to the current year's
presentation.
NOTE 2. BASIS OF PRESENTATION
During the two years ended September 30, 1998 and 1997, the Company's
operations were negatively impacted by the poor performance of the
automobile sales and financing subsidiaries. The Company has a
shareholders' deficit of approximately $12,000,000 at September 30,
1998 and a history of operating losses. At September 30, 1998, the
Company also had negative
13
<PAGE>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
NOTE 2. BASIS OF PRESENTATION (continued)
working capital of approximately $8,200,000. Management's plans to
return to profitability are three-fold. First, to divest itself of the
non-productive subsidiaries by exchanging them for stock held by the
Merritt Group, a related party comprised of certain officers of the
Company. Second, to reduce debt and make arrangements to reduce the
Company's exposure to further liability by tendering equity securities
to AutoPrime in satisfaction of the Company's obligations to AutoPrime.
Third, to achieve operational profitability by purchasing and
generating higher quality notes receivable.
It is not possible to predict the success of management's subsequent
efforts to achieve profitability. If management is unable to achieve
its goals, the Company may find it necessary to undertake other actions
as may be appropriate.
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of the
recorded asset amounts or the amounts and classification of liabilities
that might be necessary should the Company be unable to continue in
existence.
NOTE 3. INCOME TAXES
The Company has incurred net book operating losses of approximately
$23,000,000 and corresponding tax net operating losses of approximately
$15,000,000 since inception. The Company has not yet filed tax returns
and therefore has not determined the amount of those losses which may
be used to offset future taxable income. The Company plans to file all
tax returns that are delinquent.
Any tax benefit from the loss carryforwards at September 30, 1998 would
be totally offset by a valuation allowance. Any changes of stock
ownership exceeding 50% would limit the Company's ability to use the
loss carryforwards. Since the Company has not yet developed a history
of profitable operations, utilization of the loss carryforwards cannot
be reasonably assured.
14
<PAGE>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
NOTE 4. DISCONTINUED OPERATIONS
In 1996, the Company completed the discontinuation of its entertainment
operations resulting in a loss from discontinued operations of $174,354
due to the write-off of remaining assets deemed to be worthless.
NOTE 5. LONG-TERM DEBT
Long-term debt at September 30, 1998 and 1997 consisted of the
following:
September 30, September 30,
1998 1997
------------- -------------
Notes payable, unsecured, payable
at maturity plus accrued interest
at 14% per annum. Converted to
stock December 1998 $ 1,221,559 $ 1,633,045
Notes payable, unsecured, payable
at maturity plus accrued interest
at 12% per annum. Converted to
stock December 1998 462,074 934,680
Notes payable, unsecured, payable
at maturity plus accrued interest
at 10% per annum. Converted to
stock December 1998 302,445 456,220
Note payable, unsecured, for
acquisition of car lot, payable
in quarterly installments of
$50,000. No interest is charged
on note. Matures March 2000 284,000 -
Notes payable, unsecured, payable
at maturity plus accrued interest
at 15% per annum. Converted to
stock December 1998 155,446 281,446
15
<PAGE>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
NOTE 5. LONG-TERM DEBT (continued)
September 30, September 30,
1998 1997
------------ ------------
Note payable, unsecured, payable
in quarterly installments of
$10,049 principal plus interest
at 24% per annum. Converted to
stock December 1998 $ 55,868 $ 79,072
Note payable, unsecured, payable
at maturity plus interest
at 8% per annum. Fully due and
payable, matured September 1998 20,492 20,864
Capital lease, secured by
equipment, payable in monthly
installments of $848 plus
interest at 14% per annum.
Matures August 2000 16,685 -
Capital lease, secured by
equipment, payable in
monthly installments of $277
plus interest at 16% per annum.
Matures September 1999 8,923 10,747
Unamortized discounts (5,733) (28,878)
------------ ------------
2,521,759 3,387,196
Less current portion 987,153 502,482
------------ ------------
$ 1,534,606 $ 2,884,714
============ ============
Maturities of this debt are as follows:
Year ended September 30, 1999 $ 987,153
2000 1,524,606
2001 10,000
-----------
$ 2,521,759
===========
16
<PAGE>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
NOTE 6. COMMITMENTS AND CONTINGENCIES
The Company leases office space and auto lots under noncancellable
operating lease agreements which require payments of $12,719 per Month
and expire in August 1999. Future minimum annual payments required
under the leases are $101,034 at September 30, 1998.
The Company sells used automobiles using auto financing contracts. The
Company then sells the contracts to a finance company, generally under
a recourse agreement, whereby the Company guarantees the repayment of
the note. If the note holder defaults, the Company is responsible for
repossessing the automobile and then either paying the amount due the
finance company or substituting a new loan for the one in default.
In December 1995, the Company's subsidiary, CIC, entered into a
factoring agreement with Travelers Acceptance Corporation ("TAC"). The
agreement allowed TAC to buy the Company's notes receivable at 70% of
the face value of the notes. TAC would then remit to the Company 20% of
the customer payments received. The Company stopped submitting notes to
TAC in October 1997. At September 30, 1998, TAC held notes totaling
$681,141, of which the Company would be contingently liable to repay
approximately $480,000 to TAC if the various note holders all
defaulted. However, in management's estimate, the Company will not have
to repay or replace these notes, nor does management expect the Company
to receive any contingent revenue. As of December 31, 1998, the Merritt
Group assumed responsibility for this liability.
In October 1997, the Company entered into an agreement with AutoPrime
to provide financing for the Company's automobile transactions. The
agreement allows AutoPrime to buy the notes at a percentage of face
value (averaging approximately 75%) and then to pay the Company an
additional percentage less the service fee (averaging approximately
15%) on all principal collections. The loss ratios of the notes sold
have been much greater than expected to date. However, with a change in
management and changes in the Company's lending criteria, management
expects to have better loan collection results in future periods. The
loan balances and
17
<PAGE>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
NOTE 6. COMMITMENTS AND CONTINGENCIES (continued)
contingent losses reserved are as follows:
September 30, September 30,
1998 1997
------------ ------------
Total liability, including
the contracts sold by
related parties. $ 7,730,000 $ -
Recorded provision for
recourse liability, estimated
at 30% of total contracts
outstanding $ 2,320,000 $ -
NOTE 7. STOCK OPTION PLAN
The Company has a non-qualified stock option plan (the "Plan") that was
adopted by the Board of Directors in March 1997. The Plan, as
authorized, provides for the issuance of up to 2,000,000 shares of the
Company's stock. Persons eligible to participate in the Plan as
recipients of stock options include full and part-time employees of the
Company, as well as officers, directors, attorneys, consultants and
other advisors to the Company or affiliated corporations. Options
issued under the Plan are exercisable at a price that is not less than
twenty percent (20%) of the fair market value of such shares (as
defined) on the date the options are granted. The non-qualified stock
options are generally non-transferable and are exercisable over a
period not to exceed ten (10) years from the date of the grant. Earlier
expiration is operative due to termination of employment or death of
the issuee. The entire Plan expires on March 20, 2007, except as to
non-qualified stock options then outstanding, which will remain in
effect until they have expired or have been exercised.
Accounting for the stock option plan is in accordance with Accounting
Principles Board Opinion 25, "Accounting for Stock Issued to
Employees." Since common stock, rather than stock options, has been
issued for the full value of services rendered, there is no additional
compensation to be disclosed under the Company's stock-based
compensation plan, as required by the disclosure provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation". As of September
30, 1998 and 1997, there were no
18
<PAGE>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
NOTE 7. STOCK OPTION PLAN (continued)
options outstanding and 979,120 and 611,348 shares, respectively, had
been issued. At September 30, 1998 and 1997, there were 1,020,880 and
1,388,652 shares available for future issuance, respectively.
NOTE 8. CONCENTRATION OF CREDIT RISK
The Company is reliant on the financing supplied by AutoPrime. At
September 30, 1998, substantially all of the auto loans made by the
Company were financed by AutoPrime. Subsequent to year end, AutoPrime
was tendered all of the issued preferred shares and approximately 18%
of the Company's common stock outstanding in exchange for certain debts
and other consideration. Management believes that because of the
related party relationship, the Company will be able to continue to
finance its automobile transactions.
NOTE 9. STOCK TRANSACTIONS
In July 1997, the Company acquired its subsidiaries in exchange for
4,281,000 shares of its common stock at $1.00 per share. 3,677,500
shares were issued to the shareholders of the acquired companies and
603,500 shares were issued to related parties.
In January 1998, CIC started delivering shares of AutoCorp Equities,
Inc. common stock to holders of its unsecured notes payable as the
unsecured notes began to mature. As of September 30, 1998, 490,076
shares had been issued for $1,839,890 which converted $1,400,570 of
CIC's notes, which were in default, $255,297 of accrued interest, and
resulted in a loss on conversion of $184,023.
During 1998, the Company issued 160,474 shares of common stock at $1.00
per share and 66,667 shares of common stock for $0.78 per share for
accounting and consulting services totaling $212,454.
Also during 1998, the Company issued 172,000 shares of common stock at
par value ($.001 per share) to a former officer of the Company as part
of his severance agreement with the Company and 110,200 shares of
common stock at $1.00 per share to another former officer as part of a
separate agreement.
19
<PAGE>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
NOTE 10. RELATED PARTY TRANSACTIONS
The Company has received advances from and made payments for a company
that was related during the period known as CIC Fund V, which is owned
by the Merritt Group (see Note 2 above). AutoPrime also sold contracts
to the Merritt Group and affiliates in an aggregate amount of
approximately $3,000,000, and advanced certain additional funds, all
represented by promissory notes accruing interest at 10% per annum.
The Company was a co-maker of the notes and AutoPrime offset interest
due on the loans and principal payments due from the Merritt Group and
CIC Fund V with funds due to the Company. The amounts advanced by CIC
Fund V at September 30, 1998 and 1997 were $0 and $45,709,
respectively. The balances of amounts owed to AutoPrime, primarily as
a result of repurchase obligations, at September 30, 1998 and 1997
were $5,678,208 and $0, respectively.
Certain former officers of the Company had various contingent
agreements with the Company. Management believes that no additional
payments will be made on these agreements in excess of what has been
accrued.
NOTE 11. LITIGATION
From time to time in the ordinary course of business, the Company is
involved in litigation. In the estimation of both management and legal
counsel, the ultimate result of any litigation would not have a
material adverse effect on the financial statements beyond what is
already accrued on the balance sheet.
NOTE 12. SUBSEQUENT EVENTS
In November, 1998, one of the Company's subsidiaries, Suburba
Acquisition Company, split its finance serving arm into a new
corporation named AutoCorp Financial Services, Inc. and changed the
name of the used automobile purchase and sales arm to ACE Motor
Company.
In December, 1998, the Board of Directors authorized a new issuance of
series A non-cumulative convertible preferred stock of 10,000,000
shares. The preferred shares pay non-cumulative 5% dividends per year,
have a liquidation preference of $1.00 per share, and have no voting
rights, sinking fund provisions or redemption rights. The shares are
convertible to common shares of the Company's stock on a 1-for-1 basis
at any time after December 31, 2001.
20
<PAGE>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
NOTE 12. SUBSEQUENT EVENTS (continued)
The Company disposed of certain subsidiaries in December 1998. The
transaction resulted in the buying and selling of automobile financing
contracts and the purchase of four used automobile lots. The Company
received 2,653,500 shares of its common stock from the former majority
shareholders of thee Company in exchange for the wholly owned
subsidiaries CIC, CIS, LLC and Recon. As part of the transaction, the
Company restructured its debt with AutoPrime, tendering 6,578,485
shares of preferred stock and 1,091,113 shares of common stock in the
Company for a $6,081,042 reduction in debt. The Company further agreed
to put certain shares of the Company's common stock in trust accounts
to help settle other liabilities and contingencies, including certain
long-term bondholders. The overall effect of the transaction resulted
in a gain on disposition of subsidiaries of approximately $600,000.
21
<PAGE>
<TABLE>
<CAPTION>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
NOTE 13. BUSINESS SEGMENTS
The principal business of the Company is the selling and financing of
automobiles. At September 30, 1998, the Company had five subsidiaries.
(1) Consumer Investment Corporation (2) Lenders Liquidation Centers and
(3) Suburba Acquisition Company which all sell automobiles, (4) Lenders
Liquidation Center Reconditioning which reconditions and makes ready
for resale cars acquired by trade in, repossession or purchase at
auction, and (5) Consumer Insurance Services, Inc.
which offers insurance to customers of its automobile retail lots.
Capital Depreciation/
Revenues Net Loss Assets Expenditures Amortization
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1998:
Automobile retail lots $ 3,881,748 $(11,415,610) $ 177,066 $ 102,072 $ 147,191
Reconditioning center 213,349 (134,450) 4,146 - 698
Insurance service 2,977 (141,801) 171 - -
------------ ------------ ------------ ------------ ------------
$ 4,098,074 (11,691,861) $ 181,383 $ 102,072 $ 147,889
============ ============ ============ ============
Net interest expense and other (812,609)
------------
$(12,504,470)
============
Year ended September 30, 1997:
Automobile retail lots $ 2,988,073 $ (1,024,794) $ 2,330,926 $ 99,042 $ 58,649
Reconditioning center 96,416 (172,271) 15,820 3,625 -
Insurance service 92,728 (19,065) 269,719 - -
------------ ------------ ------------ ------------ ------------
$3,177,217 (1,216,130) $ 2,616,465 $ 102,667 $ 58,649
============ ============ ============ ============
Net interest expense and other (304,229)
------------
$ (1,520,359)
============
Year ended September 30, 1996:
Automobile retail lots $ 150,501 $ (772,944) $ 1,801,556 $ 12,568 $ 21,129
Insurance service - (15,508) 127,488 - -
------------ ------------ ------------ ------------ ------------
$ 150,501 (788,452) $ 1,929,044 $ 12,568 $ 21,129
============ ============ ============ ============
Net interest expense and discontinued operations (217,583)
------------
$ (1,006,035)
============
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
NOTE 14. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed balance sheet and
combined condensed statement of operations reflect the combined
financial position and operations of AutoCorp Equities, Inc. and the
companies acquired as of July 21, 1997. This unaudited pro forma
combined information gives effect to the acquisition using the purchase
method of accounting. This unaudited pro forma combined condensed
balance sheet should be read in conjunction with the unaudited pro
forma combined condensed statement of operations and the separate
consolidated financial statements and notes of AutoCorp Equities, Inc.
and subsidiaries.
AUTOCORP EQUITIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
July 21, 1997
AutoCorp Combined
Equities Acquired Pro Forma
Inc. Companies Results
----------- ----------- -----------
ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 42 $ 371,441 $ 371,483
Accounts receivable - 1,185,881 1,185,881
Loans receivable-officers - 26,525 26,525
Inventory - 1,223,144 1,223,144
Prepaid expenses 400,000 - 400,000
----------- ----------- -----------
Total current assets 400,042 2,806,991 3,207,033
Property and equipment, net - 89,774 89,774
Other assets - 226,774 226,774
----------- ----------- -----------
$ 400,042 $ 3,123,539 $ 3,523,581
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Current portion, long-term debt $ - $ 465,631 $ 465,631
Accounts payable and accrued expenses 208,651 820,779 1,029,430
----------- ----------- -----------
Total current liabilities 208,651 1,286,410 1,495,061
Long-term debt, net of current portion - 2,718,729 2,718,729
Deferred income - 431,186 431,186
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock 686 6,000 6,686
Additional paid-in capital 8,592,113 - 8,592,113
Accumulated deficit (8,401,408) (1,318,786) (9,720,194)
----------- ----------- -----------
Total shareholders' equity(deficit) 191,391 (1,312,786) (1,121,395)
----------- ----------- -----------
$ 400,042 $3,123,539 $ 3,523,581
=========== =========== ===========
</TABLE>
23
<PAGE>
AUTOCORP EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
NOTE 14. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(continued)
AUTOCORP EQUITIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For the 42 Weeks Ended July 21, 1997
AutoCorp Combined
Equities Acquired Pro Forma
Inc. Companies Results
----------- ----------- -----------
Net revenues $ 7,964 $ 2,058,260 $ 2,066,224
Cost of sales - 1,474,532 1,474,532
----------- ----------- -----------
Gross profit 7,964 583,728 591,692
Selling, administrative and
other operating expenses 207,922 1,025,371 1,233,293
----------- ----------- -----------
Operating loss (199,958) (441,643) (641,601)
Other expense:
Interest (4,908) (182,032) (186,940)
----------- ----------- -----------
Net loss $ (204,866) $ (623,675) $ (828,541)
=========== =========== ===========
24
<PAGE>
AUTOCORP EQUITIES, INC.
FORM 10-KSB
FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1998
INDEX TO EXHIBITS
The following documents are attached to and filed with this report as
Exhibits:
2.1 Master Agreement dated as of December 30, 1998 by and among
AutoPrime, Inc., AutoCorp Equities, Inc., Consumer Investment
Corporation, Lenders Liquidation Centers, Inc., William O.
Merritt, Dennis W. Miller, Andrew J. Kacic, Vincent W. Bustillo,
Wayne McLaws and Efrain Diaz.*
2.2 Unconditional Tender of AutoCorp Preferred and Common Stock,
effective December 30, 1998, by and between AutoCorp Equities,
Inc. and AutoPrime, Inc.*
2.3 Agreement to Issue Additional Preferred Stock between AutoCorp
Equities, Inc., AutoPrime, Inc., Consumer Investment Corporation,
and Lenders Liquidation Centers, Inc. effective December 30,
1998.*
2.4 Pledge Agreement dated as of December 30, 1998, from Consumer
Investment Corporation and Lenders Liquidation Centers, Inc. to
AutoPrime, Inc.*
2.5 Pledge Agreement dated as of December 30, 1998, from William O.
Merritt and Dennis W. Miller to AutoPrime, Inc.*
2.6 General Indemnity Agreement dated as of December 30, 1998, from
Consumer Investment Corporation and Lenders Liquidation Centers,
Inc. to AutoCorp Equities, Inc.*
2.7 Ratification of Obligations dated as of December 30, 1998, from
Consumer Investment Corporation and Lenders Liquidation Centers,
Inc. to AutoPrime, Inc.*
2.8 Release of Pledge Agreement dated as of December 30, 1998, from
AutoPrime, Inc. to the Merritt Group.*
3.1 Certificate of Designation of the Series A Non-Cumulative
Convertible Preferred Stock of AutoCorp Equities, Inc.*
9.1 Voting Trust Agreement I dated as of December 30, 1998, Charles
Norman, Trustee. (When this document has been appropriately
amended, it will contain a management compensatory plan or
arrangement.)*
9.2 Voting Trust Agreement II dated as of December 30, 1998, Charles
Norman, Trustee.*
9.3 Exchange Trust Agreement dated as of December 30, 1998, Charles
Norman, Trustee.*
10.1 Master Purchase and Sale Agreement dated October 6, 1997, between
AutoPrime, Inc. and Consumer Investment Corporation.
[This agreement contains the following exhibits which are
omitted from this filing but will be made available to the
Commission upon request:
Exhibit Title of Exhibit
------- ----------------
A Bill of Sale
B Resolutions/Evidence of Authority
<PAGE>
C Incumbency Certificate
D Owner's Agreement
E Power of Attorney]
10.2 Guaranty dated October 6, 1997, executed by AutoCorp Equities,
Inc. with respect to Master Purchase and Sale Agreement dated
October 6, 1997.
10.3 Servicing Agreement dated October 6, 1997, between AutoPrime,
Inc. and Consumer Investment Corporation.
10.4 Master Purchase and Sale Agreement dated January 22, 1998,
between AutoPrime, Inc. and Lenders Auto Resale Centers of Texas,
Inc.
[This agreement contains the following exhibits which are omitted from
this filing but will be made available to the Commission upon request:
Exhibit Title of Exhibit
------- ----------------
A Bill of Sale
B Resolutions/Evidence of Authority
C Incumbency Certificate
D Owner's Agreement
E Power of Attorney]
10.5 Servicing Agreement dated January 22, 1998, between AutoPrime,
Inc. and Lenders Auto Resale Centers of Texas, Inc.
10.6 Master Purchase and Sale Agreement dated January 12, 1999,
between AutoPrime, Inc. and ACE Motor Company.
[This agreement contains the following exhibits which are omitted from
this filing but will be made available to the Commission:
Exhibit Title of Exhibit
------- ----------------
A Bill of Sale
B Resolutions/Evidence of Authority
C Incumbency Certificate
D Owner's Agreement
E Power of Attorney]
10.7 Guaranty dated January 12, 1999, executed by AutoCorp Equities,
Inc., ACE Motor Company, and AutoCorp Financial Services, Inc.,
with respect to Master Purchase and Sale Agreement dated January
12, 1999.
10.8 Servicing Agreement dated January 12, 1999, between AutoPrime,
Inc. and ACE Motor Company.
10.9 Master Purchase and Sale Agreement dated January 12, 1999,
between AutoPrime, Inc. and AutoCorp Financial Services, Inc.
[This agreement contains the following exhibits which are
omitted from this filing but will be made available to the
Commission upon request:
Exhibit Title of Exhibit
------- ----------------
A Bill of Sale
B Resolutions/Evidence of Authority
C Incumbency Certificate
D Owner's Agreement
2
<PAGE>
E Power of Attorney]
10.10 Guaranty dated January 12, 1999, executed by AutoCorp Equities,
Inc., ACE Motor Company, and AutoCorp Financial Services, Inc.,
with respect to Master Purchase and Sale Agreement dated January
12, 1999.
10.11 Servicing Agreement dated January 12, 1999, between AutoPrime,
Inc. and AutoCorp Financial Services.
10.12 Business Loan Agreement dated October 26, 1998 between Suburba
Acquisition Company, Inc. d/b/a ACE Motor Co. and AutoPrime, Inc.
10.13 Promissory Note dated October 26, 1998, in the principal amount
of $750,000 executed by Suburba Acquisition Company, Inc. d/b/a
ACE Motor Co. in favor of AutoPrime, Inc.
10.14 Commercial Security Agreement dated October 26, 1998, between
Suburba Acquisition Company, Inc. and AutoPrime, Inc.
10.15 Promissory Note dated April 26, 1999, in the principal amount of
$750,000 executed by Suburba Acquisition Company, Inc. d/b/a ACE
Motor Co. in favor of AutoPrime, Inc.
10.16 Business Loan Agreement dated June 17, 1999, between ACE Motor
Co. (formerly known as Suburba Acquisition Company, Inc. d/b/a
ACE Motor Co.) and AutoPrime, Inc.
10.17 Promissory Note dated June 17, 1999, in the principal amount of
$1,000,000, executed by ACE Motor Co. (formerly known as Suburba
Acquisition Company, Inc. d/b/a ACE Motor Co.) in favor or
AutoPrime, Inc.
10.18 Commercial Security Agreement dated June 17, 1999, between ACE
Motor Co. (formerly known as Suburba Acquisition Company, Inc.
d/b/a ACE Motor Co.) and AutoPrime, Inc.
10.19 Asset Purchase Agreement dated December 30, 1998 between
AutoCorp Financial Services, Inc. and ACE Motor Company, as
Buyer, and Lenders Auto Resale Center of Texas, Inc. and Lenders
Liquidation Centers, Inc., as Seller.
[The Agreement contains the following exhibits which are
omitted from this filing, but will be made available to the
Commission upon request:
Exhibits Title of Exhibit
A Assets (including Retail Installment
Contracts Schedules and inventory of
Personal Property)
B Bill of Sale
C Allonge
D Schedule of Seller's Existing
Obligations (Advanced
Funds)
E Description of Retail Installment
Contracts
Purchased By AutoPrime from Seller]
21 List of Subsidiaries.
27 Financial Data Schedule
3
<PAGE>
99.1 Resume of Experience of Charles Norman (This relates to
"Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a) of the
Exchange Act" in this Form 10-KSB)*
----------------------------------------------------
* Incorporated by reference to the exhibit with the same name and
number attached to the Form 8-K filed by AutoCorp Equities, Inc.
on March 11, 1999.
4
EXHIBIT 10.1
MASTER PURCHASE AND SALE AGREEMENT
----------------------------------
This MASTER PURCHASE AND SALE AGREEMENT (the "Agreement"), dated and
effective as of the date set forth on the signature page of this Agreement, is
made and entered into by and between AutoPrime, Inc., a Delaware corporation
(the "Purchaser"), and the entity more particularly described on the signature
page of this Agreement (the "Seller").
WHEREAS, subject to the terms of this Agreement, Seller desires to
sell, and Purchaser desires to purchase, from time to time, pools of retail
installment sales contracts secured by first priority liens on automobiles and
light-duty trucks (collectively, the "Contracts").
NOW, THEREFORE, in consideration of the mutual premises and promises of
the parties, the receipt and sufficiency of which are hereby acknowledged, and
in reliance on the representations, warranties, covenants, and conditions
contained herein, Purchaser and Seller agree as follows:
ARTICLE 1
Definitions
Whenever used herein, unless the context otherwise requires, the
following words and phrases have the following meanings:
Section 1.1 Amount Financed shall mean, as to any Contract, the
purchase price of the Financed Vehicle and related closing costs as shown in the
documentation evidencing such Contract, less any down payment previously paid on
such Financed Vehicle.
Section 1.2 Agreement shall mean this Master Purchase and Sale
Agreement and all amendments and supplements hereto.
Section 1.3 Annual Percentage Rate or APR shall mean, as to any
Contract and at any time, the contractual rate of interest then being borne by
such Contract, as determined therein.
Section 1.4 Bill of Sale shall mean each bill of sale, in the form
attached hereto as Exhibit A, delivered by Seller pursuant to Section 2.4
hereof.
Section 1.5 Closing Date shall mean the date agreed by the parties and
set forth on each Contract Schedule delivered in accordance with the terms of
this Agreement, which is, as to any Pool of Contracts purchased hereunder, the
date at which Purchaser purchases such Pool of Contracts from Seller in
accordance with, and subject to, the terms and provisions of this Agreement.
Section 1.6 Computer Tape shall mean the computer tapes, floppy disks
and/or print-outs generated by Seller which provide information relating to the
Contracts.
Section 1.7 Contract(s) shall mean the retail installment sales
contracts secured by first priority liens on automobiles and light-duty trucks,
delivered to Purchaser from time to time, and described in a Contract Schedule.
Each Contract includes, without limitation, all related security interests and
any rights to receive payments which are received pursuant thereto from and
after the related Cut-Off Date.
5
<PAGE>
Section 1.8 Contract File shall mean as to any Contract (a) the
original copy of the Contract, (b) the original certificate of title for the
related Financed Vehicle with the first lien granted in favor of Seller noted
thereon, (c) any extension, modification or waiver agreement(s) relating to such
Contract, (d) all documents evidencing the existence of any Insurance Policies,
(e) the executed credit application of Obligor, (f) a credit report detailing
the Obligor's credit history from a credit reporting service, and (g) copies of
all other documentation regarding Obligor generated by Seller or executed by the
Obligor.
Section 1.9 Contract Schedule shall mean the list attached as Addendum
I to each Bill of Sale delivered by Seller on each Closing Date pursuant to
Section 2.4 and Section 2.5 hereof, identifying the Contracts to be purchased
and sold on and as of such Closing Date, and which (a) identifies each Contract
by contract number plus the name and address of the Obligor and (b) sets forth
as to each Contract: (i) the original selling price of the Financed Vehicle,
(ii) the make and model of each Financed Vehicle, (iii) the unpaid principal
balance due on the Contract as of the related Cut-Off Date, (iv) the number of
payments past due on the Contract as of the related Cut-Off Date, (v) the amount
of each scheduled payment due from the Obligor, (vi) the APR, (viii) the final
payment date, and (ix) the most recent payment date.
Section 1.10 Credit Code shall mean those laws in effect in the State
from time to time which govern the making and collection of motor vehicle
installment sales contracts.
Section 1.11 Cut-Off Date shall mean the date set forth on each
Contract Schedule delivered in accordance with the terms of this Agreement,
which is, as to any Contract purchased hereunder, the date as of which such
Contract is offered by Seller for purchase, the date as of which such contract
is actually accepted or deemed accepted by Purchaser for purchase, and the date
as of which the corresponding Contract Schedule is based.
Section 1.12 Electronic Ledger shall mean the electronic master record
of the installment sale contracts or installments loans of Seller.
Section 1.13 Financed Vehicle shall mean the Motor Vehicle, together
with all accessions thereto, securing an Obligor's indebtedness under a
Contract.
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Section 1.14 Insurance Policies shall mean all physical damage,
comprehensive and collision, fire and theft insurance policies maintained by the
Obligors with respect to the Financed Vehicles, the vendor's single interest
insurance policy providing coverage upon repossession of a Financed Vehicle, and
any credit life and disability insurance maintained by or on behalf of the
Obligors and benefiting the holders of the Contracts.
Section 1.15 Motor Vehicle shall mean a used automobile or light-duty
truck.
Section 1.16 Obligors shall mean each person, other than Seller, who is
indebted under, or has guaranteed, a Contract, or who has acquired a Financed
Vehicle subject to a Contract.
Section 1.17 Person shall mean any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
incorporated organization, or government or any agency or political subdivision
thereof.
Section 1.18 Pool shall mean each pool of Contracts delivered for
purchase by Purchaser pursuant to Section 2.1 hereof.
Section 1.19 Servicing Agreement shall mean the Servicing Agreement,
dated the same date as this Agreement, executed between Seller, or Seller's
affiliate, and Purchaser.
Section 1.20 Servicing File shall mean all legal documents, accounting
records and other items (including comments on collection efforts) maintained by
or on behalf of Seller with respect to a Contract and not included in the
Contract File therefor, and the Computer Tape and any other machine readable
tapes, floppy magnetic diskettes, optical storage disks, or other computer
memory containing same.
Section 1.21 State shall mean the one or more local, state or federal
governmental jurisdictions in which the transactions described herein occur.
Section 1.22 UCC shall mean the Uniform Commercial Code as now in
effect in the relevant State, as such Uniform Commercial Code may be
subsequently amended.
ARTICLE 2
Purchase and Sale of Contracts
Section 2.1 Purchase and Sale of Contracts. At the Closing Date, Seller
shall sell, transfer, assign and deliver to Purchaser, and Purchaser shall
purchase, accept, and receive from Seller, a Pool of Contracts, subject to the
terms of this Agreement. At any time after the Closing Date, Seller may, from
time to time, submit additional Contracts or Pools of Contracts to Purchaser for
purchase in accordance with, and subject to, the terms and provisions of this
Agreement.
Section 2.2 Conveyance and Delivery of Contracts.
(a) With respect to each Contract actually purchased by Purchaser
pursuant to this Agreement, Seller, on the Closing Date, shall sell, transfer,
assign, endorse, set over, convey, and deliver to Purchaser all right, title and
interest of Seller in, to and under:
(i) the Contracts accepted by Purchaser on such Closing Date,
including all payments of principal and interest, lawful late charges, and other
similar payments due thereon and accruing after the related Cut-Off Date, and
all payments on the Contracts received prior to or after the related Cut-Off
Date which have not been applied to the amounts due on the Contracts as of the
related Cut-Off Date;
(ii) the liens and security interests created by the
Contracts, and other rights of Seller arising out of such liens and security
interests, in the Financed Vehicles;
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(iii) the interest of Seller, if any, in all Insurance
Policies relating to the Financed Vehicles or the Contracts,
(iv) all documents and information contained in the Contract
Files and the Servicing Files;
(v) the Electronic Ledger; and
(vi) all proceeds derived from any of the foregoing.
(b) SELLER AND PURCHASER AGREE AND ACKNOWLEDGE THAT THIS AGREEMENT IS
AN AGREEMENT FOR THE PURCHASE AND SALE OF CONTRACTS ONLY AND IS NOT A LOAN
TRANSACTION AND THAT NO TERM OR PROVISION CONTAINED IN THIS AGREEMENT SHALL BE
CONSTRUED TO THE CONTRARY.
Section 2.3 Purchase Price; Payments.
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(a) The purchase price for each Contract shall be the amount set forth
on Addendum II to the Bill of Sale with respect to such Contract (the "Purchase
Price"). Upon satisfaction of the conditions in Section 2.4 and Section 2.5
hereof with respect to each Contract, Purchaser shall pay the Purchase Price for
such Contract to Seller.
(b) For each Contract purchased by Purchaser, Purchaser shall be
entitled to all payments on such Contract received on and after the related
Cut-Off Date, including accrued interest. In addition, all payments on each
Contract received by Seller prior to the related Cut-Off Date which (i) have not
been applied to the amount due on such Contract as of the related Cut-Off Date,
and (ii) were not utilized to calculate the unpaid principal balance of such
Contract, shall be the property of Purchaser and forwarded to Purchaser by
Seller on the Closing Date, or promptly thereafter when received by Seller.
Section 2.4 Conditions to Effectiveness of Agreement; Deliveries at
Closing. The effectiveness of this Agreement and all of Purchaser's obligations
hereunder, is subject to Purchaser having received on or before the Closing Date
the following items (unless waived by Purchaser in writing), each of which shall
be dated as of the Closing Date:
(a) copies of appropriate resolutions of Seller certified by the
Secretary of Seller (if Seller is a corporation), in the form of Exhibit B
attached hereto, or other documentation of the authority of the Person executing
all documents required hereunder on behalf of Seller authorizing Seller to enter
into and perform this Agreement, each Bill of Sale, the Servicing Agreement and
any and all other documents, obligations and transactions contemplated hereunder
and thereunder;
(b) an executed Servicing Agreement;
(c) an executed incumbency certificate (if Seller is a corporation), in
the form of Exhibit C attached hereto, or other evidence of the signatures of
the representatives of Seller signing this Agreement, each Bill of Sale and the
Servicing Agreement;
(d) an executed Owner's Agreement, in the form attached hereto as
Exhibit D;
(e) an executed Power of Attorney in the form attached hereto as
Exhibit E;
(f) an executed Bill of Sale conveying Seller's interest in
the Contracts to be delivered on such Closing Date from Seller to Purchaser;
(g) a UCC search in each jurisdiction requested by Purchaser,
the results of which are satisfactory to Purchaser in Purchaser's sole
discretion;
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(h) a title report issued by a reputable title reporting agency
approved by Purchaser with respect to each Financed Vehicle securing each
of the Contracts purchased;
(i) with respect to each Contract purchased, a copy of the
Contract, all Insurance Policies, the Contract File, the Servicing File, the
certificate of title or other document evidencing lien or security interests
created by the Contract, and the Electronic Ledger; and
(j) all other documents that may be requested by Purchaser.
Section 2.5 Conditions to Subsequent Sales of Contracts. Purchaser's
obligations to purchase Contracts or Pools of Contracts which Seller may, from
time to time, submit to Purchaser for purchase after the Closing Date pursuant
to this Agreement shall be subject to the satisfaction of the conditions set
forth in Sections 2.4(f), (g), (h), (i) and (j) with respect to each such
Contract as of the applicable Cut-Off Date.
ARTICLE 3
Representations and Warranties of Seller
Section 3.1. Representations and Warranties of Seller. Seller hereby
represents and warrants to, and agrees and covenants with, Purchaser as of the
Closing Date and each Cut-Off Date as follows:
(a) Organization and Good Standing. Seller is duly organized and
validly existing under the laws of its jurisdiction of incorporation or other
formation, has the power to own its assets, including but not limited to the
Contracts, and to transact business in the State in which it is currently
engaged. Seller is duly qualified to do business and is in good standing in the
State and in each other jurisdiction in which the character of the business
transacted by it or properties owned or leased by it or the purchase and sale of
the Contracts requires such qualification and in which the failure so to qualify
would have an adverse effect on the performance of Seller hereunder or the
enforceability of any of the Contracts.
(b) Authorization; Binding Obligations. Seller has all requisite power
and authority to make, execute, and deliver this Agreement, to perform its
obligations under this Agreement and to effect all of the transactions
contemplated to be performed by it under this Agreement, and has taken all
necessary action to authorize the execution, delivery and performance of this
Agreement and to consummate the transactions contemplated hereby. When executed
and delivered, this Agreement will constitute the legal, valid and binding
obligation of Seller enforceable in accordance with its terms.
(c) No Consent Required. Seller is not required to obtain the consent
of any other party nor is any consent, license, approval or authorization from,
or registration or declaration with, the State or any governmental authority,
bureau or agency required in connection with Seller's execution, delivery, or
performance of this Agreement, or, if required, Seller has previously obtained
any such required consent, license, approval, authorization, registration or
declaration.
(d) No Violations. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby by Seller will not violate
any provision of any existing law or regulation or any order or decree of any
court of competent jurisdiction applicable to Seller or the charter or bylaws of
Seller, or constitute a breach of any mortgage, indenture, loan agreement or
other contract to which Seller is a party or by which Seller may be bound.
(e) Litigation. No litigation or administrative proceeding of or before
any court, tribunal or governmental body is currently pending or, to the
knowledge of Seller, threatened against Seller or any of its properties,
including specifically the Contracts, Financed Vehicles or Insurance Policies,
or with respect to this Agreement.
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(f) Sale of Contracts. Each sale of Contracts pursuant to this
Agreement shall be reflected on Seller's balance sheet and other financial
statements as a sale of assets by Seller. Seller shall not take any action or
omit to take any action which would cause the transfer of any Contract to
Purchaser to be treated as anything other than a sale to Purchaser of all of
Seller's right, title and interest in and to such Contract.
Section 3.2. Representations and Warranties as to Each Contract. Seller
hereby makes the following representations and warranties as to each Contract or
Pool of Contracts conveyed by it to Purchaser hereunder.
(a) Characteristics of Contracts. The Contract (i) has been originated
by Seller in the ordinary course of Seller's business and has been fully and
properly executed by the parties thereto, (ii) is secured by a valid,
subsisting, and enforceable first priority lien and security interest in favor
of Seller in the Financed Vehicle, which lien and security interest are
assignable by Seller to Purchaser, (iii) contains customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for realization against the collateral securing such Contract,
including the Financed Vehicle, (iv) provides for payments which fully amortize
the Amount Financed over the original term and provide interest at the related
APR over the term of the Contract, (v) provides for, in the event the Contract
is prepaid, a prepayment that fully prepays the outstanding principal balance
thereof and includes accrued and unpaid interest at least through the date of
prepayment in an amount equal to the APR, and (vi) has not, as of the related
Cut-Off Date, been modified as a result of the Soldiers' and Sailors' Civil
Relief Act of 1940, as amended.
(b) Contract Schedule. The information set forth in the Contract
Schedule with respect to such Contract was true and correct as of the opening of
business on the related Cut-Off Date, and the principal balance and the APR of
the Contract as of the related Cut-Off Date have been accurately and correctly
calculated in all documents within the related Contract File and is accurately
and correctly shown on the Contract Schedule. All reports delivered to Purchaser
by Seller regarding payments made by Obligor subsequent to the Cut-Off Date will
be, when delivered, true and correct.
(c) Down Payment. The down payment paid by the Obligor on each Contract
was paid by such Obligor to Seller in the amount and form as set forth on each
Contract.
(d) Compliance with Law. The Contract, and the sale of the related
Financed Vehicle, complied at the time it was originated or made, and will
comply as of the Closing Date and the related Cut-Off Date, with all
requirements of State law and any other applicable federal, state and local
laws, and regulations thereunder, including, without limitation, laws relating
to usury, the Federal Truth-In-Lending Act, the Equal Credit Opportunity Act,
the Fair Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt
Collection Practices Act, Federal Reserve Board Regulations B, Z and AA, any
state adaptations of the National Consumer Credit Protection Act, any state
adaptations of the Uniform Consumer Credit Code, and, to the best of Seller's
information and beliefs any other applicable consumer credit, equal opportunity,
and disclosure laws.
(e) Binding Obligation. The Contract constitutes the genuine,
bona-fide, valid, and binding obligation of the Obligor, enforceable by the
holder thereof in accordance with its terms.
(f) Solvency of Obligors. To Seller's knowledge, no voluntary or
involuntary petition or complaint is pending by or against Obligor seeking
bankruptcy of Obligor or the appointment of a receiver or trustee of Obligor, or
of all or substantially all of the assets of Obligor; and no order, order for
relief, judgment or decree is pending or threatened seeking the appointment of a
receiver or trustee of Obligor, or of all substantially all of the assets of
Obligor.
(g) No Government Obligor. The Obligor is not the United States of
America or any State thereof, or any agency, department, political subdivision
or instrumentality of the United States of America or any State thereof.
(h) Contracts in Force. The Contract has not been pledged, encumbered,
satisfied, subordinated, waived, restricted, rescinded or held to be invalid or
unenforceable, and the Financed Vehicle has not been released from the lien
granted by the Contract in whole or in part nor has the Financed Vehicle been
damaged to such degree that materially affects the value of the Financed Vehicle
since the date of sale of the Financed Vehicle to Obligor.
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(i) No Amendment or Waiver. No provision of the Contract has been
amended, waived, altered or modified in any respect, except pursuant to a
document, instrument or writing included in the Contract File and reflected in
the Electronic Ledger and no such amendment, waiver, alteration or modification
causes such Contract or the lien and security interest granted by the Contract
against the Financed Vehicle not to conform to the other representations and
warranties contained in this Agreement, nor renders it invalid or unenforceable.
(j) No Defenses. The Contract is not subject to any right of
rescission, setoff, counterclaim or defense including, without limitation, the
defense or claim of usury, and the operation of any of the terms of the
Contract, or the exercise of any right thereunder, will not render the Contract
unenforceable in whole or in part or subject to any claim, cause of action,
right of rescission, right of cancellation, setoff, counterclaim or defense
including, without limitation, the defense or claim of usury, and no such claim,
cause of action, right of rescission, right of cancellation, setoff,
counterclaim or defense has been asserted by Obligor with respect thereto.
(k) No Liens. There are no undisclosed liens or claims, including liens
for work, labor, materials or unpaid state or federal taxes relating to the
Financed Vehicle, that are or may be liens prior to, equal to or subordinate to,
the lien granted by the Contract against the Financed Vehicle.
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(l) No Default. Except for payment delinquencies of which Seller has
notified Purchaser in writing, no default, breach, violation or event permitting
acceleration under the terms of the Contract exists; and no continuing condition
that with notice or lapse of time, or both, would constitute a default, breach,
violation or event permitting acceleration under the terms of the Contract
exists; and Seller has not waived any of the foregoing.
(m) Good Title. Neither the Contract nor any of Seller's interests
therein has been sold, assigned, hypothecated, pledged or otherwise conveyed by
Seller to any person other than Purchaser and, immediately prior to the transfer
and assignment herein contemplated, Seller (i) had good and marketable title to
the Contract free and clear of any encumbrance, equity, lien, pledge, charge,
claim, security interest or other right or title of any third party, (ii) was
the sole owner and holder of the Contract and all rights thereunder, and (iii)
had full right, power and authority to transfer and assign the Contract to
Purchaser. Immediately upon the transfer and assignment of the Contract to
Purchaser, Purchaser shall have good and marketable title to the Contract, free
and clear of any encumbrance, equity, lien, pledge, charge, claim, security
interest or other right or title of any other Person and the transfer will be
valid and enforceable under the laws of the State.
(n) Lawful Assignment. The Contract has not been originated in, and is
not subject to the laws of, any jurisdiction under which the sale, transfer and
assignment of such Contract hereunder to Purchaser or pursuant to which
transfers of the Contracts to Purchaser are unlawful, void or voidable.
(o) All Filings Made. All filings, including UCC filings, necessary in
any jurisdiction to give Purchaser an ownership interest (or a first priority
perfected security interest) in the Contract have been made.
(p) One Original. There is only one original executed Contract and
related certificate of title, which has been conveyed, endorsed and delivered by
Seller to Purchaser.
(q) No Fraud or Misrepresentations. The Contract was originated without
any conduct constituting fraud or misrepresentation, failure of consideration,
or forgery or alteration.
(r) Possession. On the related Closing Date, Purchaser will receive
possession of the original Contract and the related Contract File, and there are
and there will be no agreements in effect adversely affecting the right or
ability of Seller to make, or cause to be made, any delivery required hereunder.
(s) Bulk Transfer Laws. The transfer, assignment and conveyance of the
Contract and the Contract Files by Seller pursuant to this Agreement are not
subject to bulk transfer or any similar statutory provisions in effect in any
applicable jurisdiction.
(t) Taxes. All ad valorem, excise and other taxes of any nature or
description whatsoever and all recording fees and title transfer costs relating
to the Contracts and the Financial Vehicles have been paid in full by Seller.
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(u) Information. All financial statements, tax returns, journals,
ledgers, and other information furnished to Purchaser in connection with the
purchase of the Contracts was or will be at the time furnished true and correct
in all respects, and Seller has not made any untrue statement of material fact
or omitted to state any material fact to Purchaser or any of its officers and
agents in connection with the purchase of the Contracts by Purchaser. No
material adverse change has occurred in the business, prospects, profits,
properties, operations, or condition, financial or otherwise, except as
disclosed to Purchaser in such delivered information.
(v) No Assignment. Seller has not taken any action to convey any right
to any Person that would result in such Person having a right to payments
received under the Insurance Policies or payments due under any Contract that is
senior to, equal with, or subordinate to that of Purchaser.
(w) Characteristics. The Contracts in each Pool had the following
characteristics as of the related Cut-Off Date: (i) each Contract is a retail
installment sales contract for the purposes of used Financed Vehicle statutes;
and (ii) none of the Financed Vehicles securing the Contracts has been titled as
salvaged, reconditioned or reconstructed Motor Vehicles.
(x) Computer Tape. The Computer Tape relating to the Pool made
available by Seller was complete and accurate as of the related Cut-Off Date and
includes a description of the same Contracts that are described in the Contract
Schedule.
(y) Marking Records. On or before the Closing Date, Seller will have
caused the portions of the Electronic Ledger relating to the Contracts to be
purchased as of the related Cut-Off Date to be clearly and unambiguously marked
to show that such Contracts are owned by Purchaser and, upon Purchaser's
request, shall provide Purchaser with evidence of such marking.
(z) Other. Without limiting any of the foregoing, Seller further
represents and warrants as to each Contract the following: (i) the Contract is
in form and substance in compliance with all applicable governmental
requirements; (ii) the Contract is the only instrument executed for the purchase
of the property described therein and is and will continue to be free from
defenses, offsets and counterclaims; (iii) all statements contained in each
Contract are true and correct and the unpaid balance as shown therein is
correct; (iv) any down payment in any Contract has been made in cash and not its
equivalent unless otherwise stated in each Contract; (v) no part of the down
payment described in any Contract and reflected as paid has been loaned or given
directly or indirectly by Seller to Obligor; (vi) the Financed Vehicle described
in the Contract has been delivered; (vii) each sale evidenced by said Contract
was completed in accordance with governmental requirements affecting such sale,
including, but not limited to, the Federal Truth-in-Lending Act, the Magnuson
and Moss Warranty Federal Trade Commission Improvement Act and Warrant Act,
Federal Equal Credit Opportunity Act, The Federal Trade Commission Act, and all
applicable state and local laws and regulations; (viii) all required disclosures
to Obligor were made in accordance with all governmental requirements; (ix) the
Obligor in each Contract had the legal capacity to enter into said Contract; and
(x) the names and signatures on each Contract are not forged, fictitious or
assumed and are true and correct.
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ARTICLE 4
Covenants of Seller
Seller hereby agrees to keep, perform and fully discharge the following
covenants and agreements:
Section 4.1 Effecting and Perfecting Each Sale of Contracts. At the request
of Purchaser, Seller will, at Seller's expense, promptly:
(i) take or cause to be taken any further action necessary or
appropriate to effect and perfect each sale and conveyance of each Contract made
hereunder;
(ii) execute or cause to be executed such documents and
instruments as are necessary or appropriate to effect and perfect each sale and
conveyance of each Contract made hereunder;
(iii) obtain from third parties all documents, instruments,
waivers and releases necessary, and to take all other actions requested by
Purchaser, to facilitate each sale and conveyance of each Contract made
hereunder; and
(iv) execute a notice letter to the Obligors, informing them
of the existence of this transaction and the assignment of the applicable
Contract, and Seller hereby grants Purchaser the authority to mail such notice
letter to, or otherwise contact, Obligors informing them of the existence of
this transaction and the assignment of the applicable Contract.
Without limiting the generality of the foregoing, at Purchaser's
request, Seller will send appropriate notices of the transfer of the Contracts
to insurers under the Insurance Policies covering the Financed Vehicles securing
the Contracts and will send appropriate notices to the Obligors under the
Contracts.
Section 4.2 Certificate of Title. Seller has delivered and assigned to
Purchaser the original certificate of title with respect to each Financed
Vehicle that is the subject of each Contract purchased by Purchaser hereunder,
and Seller will not request any governmental agency to issue or cause to be
issued any copy of such certificate of title, except upon the written request of
Purchaser. If a temporary certificate of title has been obtained and delivered
to Purchaser, Seller will promptly obtain a permanent certificate of title,
reflecting Seller's lien, and deliver it to Purchaser as soon as it is obtained.
Section 4.3 No Future Lien. After the sale to Purchaser of any Contract,
Seller will not create or cause to be created any lien or claim, including liens
for work, labor, materials or unpaid state or federal taxes relating to a
Financed Vehicle, that are prior to or equal to the lien granted by the Contract
against the Financed Vehicle.
Section 4.4 Replacement and Repurchase of Contracts. Seller will perform or
cause to be performed the replacement and repurchase obligations set forth in
Article 5 of this Agreement.
Section 4.5 Relocation of Principal Executive Office. Seller shall give
Purchaser at least thirty (30) days prior written notice of any relocation of
its principal executive office and if, as a result of such relocation, the
applicable provisions of the UCC would require the filing of any amendment of
any previously filed financing or continuation statement or of any new financing
statement, Seller shall execute and deliver to Purchaser such amended or
replacement financing statement.
Section 4.6 Notice of Breach. Seller covenants and agrees to give Purchaser
prompt written notice upon discovery of a breach of any representation, warranty
or covenant of this Agreement and upon the discovery of any delinquency in the
payment of unpaid principal and interest on any Contract by Obligor.
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ARTICLE 5
Repurchase and Replacement of Contracts
Section 5.1 Repurchase and Replacement Obligation. Upon the occurrence of a
Triggering Event (as defined below), Seller agrees to replace or repurchase any
of the Contracts subject to such Triggering Event in the manner and within the
time period as provided in this Article 5.
Section 5.2 Replacement of Contracts. Upon the occurrence of a Triggering
Event, Seller may elect to replace any Contract by delivering to Purchaser a
replacement contract (a "Replacement Contract"), which is acceptable to
Purchaser, within the time specified in this Article 5. The Replacement Contract
delivered by Seller must be secured by a first priority lien on an automobile
and/or light-duty truck and must contain an equivalent pay-off amount as of the
date of exchange, the same term, the same APR, and such other terms and
provisions acceptable to Purchaser. To the extent Purchaser, in its sole
discretion, accepts a Replacement Contract with a term, APR or pay-off amount
that varies in any way from that of the Contract to be replaced, the resulting
yield on the investment for Purchaser must be equivalent. Seller will pay to
Purchaser, or vice versa, an amount at the date of exchange which will make the
exchange exact as to value and yield. Seller shall reimburse Purchaser for any
and all expenses incurred by Purchaser with respect to any Contract replaced in
accordance with this Article 5. The decision to accept or reject a Replacement
Contract is in the Purchaser's sole discretion, and Purchaser is under no
obligation to accept a Contract offered by Seller as a replacement. If Purchaser
does not accept the Replacement Contract, Seller must repurchase the delinquent
Contract from Purchaser pursuant to Section 5.5 hereof.
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Section 5.3 Manner of Replacement. If Purchaser accepts the Replacement
Contract offered by Seller, Seller shall promptly deliver to Purchaser the
Contract File related to the Replacement Contract, together with the documents
required to be delivered pursuant to Section 2.5 hereof. Upon receipt by
Purchaser of each of the foregoing (unless receipt of any is expressly waived by
Purchaser), Purchaser shall promptly deliver to Seller the Contract to be
replaced, the Contract File related to the Contract to be replaced and all other
documents in the possession of Purchaser related to the Contract to be replaced.
Section 5.4 Continuing Obligations of Seller on Replacement Contracts.
Seller agrees and acknowledges that the representations, warranties, covenants
and other obligations of Seller arising under this Agreement with respect to all
Contracts shall continue and be enforceable with respect to any such Replacement
Contracts, including, but not limited to, the representations and warranties
contained in Article 3 hereof, the covenants of Seller contained in Article 4
hereof, and the repurchase and replacement obligations contained in this Article
5.
Section 5.5 Repurchase of Contracts. Upon the occurrence of a Triggering
Event, Seller may elect to repurchase any Contract within the time specified in
this Article 5. The purchase price for the Contract to be repurchased shall be
the payoff amount on the Contract plus all accrued and unpaid interest thereon,
less one-half of the unearned discount on the Contract at the date of exchange.
In addition, Seller shall reimburse Purchaser for any and all expenses incurred
by Purchaser with respect to such Contract. Upon the receipt by Purchaser of the
repurchase price together with any expenses as set forth in this Section 5.5,
Purchaser shall promptly deliver to Seller the Contract to be repurchased, the
Contract File related to the repurchased Contract and all other documents in the
possession of Purchaser related to the repurchased Contract.
Section 5.6 Triggering Events. For purposes of this Article 5, a Triggering
Event shall mean:
(a) a breach by Seller of any representation, warranty or covenant
contained in this Agreement and such breach has not been cured in all material
respects within five (5) days of Seller's receipt of notice of such breach from
Purchaser; or
(b) if any payment due under any Contract becomes delinquent for a
period of thirty (30) days or more.
Section 5.7 Timing of Seller's Repurchase and Replacement Obligations.
Seller must complete its repurchase and replacement obligations pursuant to this
Article 5 within five (5) days of the expiration of the cure period set forth in
Section 5.6(a) or within ten (10) days following the date at which a Contract
becomes delinquent for thirty (30) days as set forth in Section 5.6(b).
ARTICLE 6
Indemnification
Seller hereby agrees to protect, defend, indemnify and hold Purchaser and
its assigns and their respective attorneys, accountants, employees, agents,
officers and directors harmless from and against all losses, liabilities,
damages, judgments, claims, counterclaims, demands, actions, proceedings, costs
and expenses (including reasonable attorneys' fees) of every kind and character
resulting from, relating to or arising out of this Agreement and the
transactions contemplated hereby including, without limitation, those resulting
from, relating to or arising out of (a) the inaccuracy, nonfulfillment or breach
of any representation, warranty, covenant or agreement made by Seller herein or
in the documents described in Section 2.4 or Section 2.5 hereof, (b) any legal
action, including any counterclaim, to the extent it is based upon alleged facts
that, if true, would constitute a breach of any representation, warranty,
covenant or agreement made by Seller herein or in the documents described in
Section 2.4 or Section 2.5 hereof, (c) any actions or omissions of Seller or any
employee or agent of Seller, or any negligent, reckless or willful misconduct of
Seller or any employee or agent of Seller, occurring prior to the Cut-Off Date
with respect to any Contract or the Financed Vehicle, or (d) the violation or
claim of violation of any of the State's laws by Seller or any person acting for
or on behalf of Seller.
16
<PAGE>
ARTICLE 7
Miscellaneous Provisions
Section 7.1. Amendment. This Agreement may be amended from time to time by
Seller and Purchaser only by written agreement signed by Seller and Purchaser.
Section 7.2. Disputes. In the event of a dispute regarding the terms of
this Agreement, the breach of any representation or warranty contained herein,
or any matter arising hereunder, if Seller and Purchaser cannot otherwise agree,
the matter shall be submitted to binding arbitration under the International
Rules of the American Arbitration Association, before an independent qualified
expert in Dallas, Texas.
Section 7.3. Further Assurances. In order to facilitate enforcement of
Purchaser's rights hereunder with respect to any Contract and Financed Vehicle,
Seller shall, promptly after the request by Purchaser or its assigns, and at
Seller's expense, do and perform or cause to be done and performed every
reasonable act and thing necessary or advisable to carry out to the intent of
this Agreement (including, without limitation, ensuring that Purchaser has the
right and ability to enforce payment and performance of the Contracts). Seller
hereby grants an irrevocable power of attorney coupled with an interest to
Purchaser for the specific purpose of exercising all rights and remedies Seller
would have with respect to the Contracts, titles to motor vehicles serving as
collateral, and the Financed Vehicles securing them, but for sale of the
Contracts to Purchaser. Seller hereby authorizes Purchaser to send the notice
letter to Obligors, informing them of the existence of this transaction and the
assignment of the applicable Contract.
Section 7.4. Counterparts. This Agreement may be executed simultaneously in
any number of counterparts, each of which shall be deemed to be an original, and
all of such counterparts shall constitute one and the same Agreement.
Section 7.5. Survival. The obligations of Seller and Purchaser under this
Agreement, including, but not limited to, the representations and warranties set
forth in Article 3, the covenants set forth in Article 4, and the repurchase and
replacement obligations set forth in Article 5 shall survive the sale of
Contracts to Purchaser.
Section 7.6. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Texas and the obligations, rights and remedies of
the parties hereunder shall be determined in accordance with such laws without
giving effect to the conflict of laws principles thereof. This Agreement is
performable in Dallas County, Texas, which is proper venue for all legal
proceedings. Each of the parties expressly consents to the personal jurisdiction
of the courts of the State of Texas.
Section 7.7. Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally, delivered by a national overnight delivery service or mailed by
first class mail, postage prepaid to the address of each party set forth on the
signature page of this Agreement, which address is the principal place of
business of such party unless otherwise indicated.
Section 7.8. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be held
invalid for any reason whatsoever, 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.
Section 7.9. No Partnership. Nothing herein contained shall be deemed or
construed to create a co-partnership or joint venture between the parties
hereto.
[remainder of page intentionally left blank]
17
<PAGE>
Section 7.10. Successor and Assigns. This Agreement shall inure to the
benefit of and be binding upon Seller and Purchaser and their respective
successors and assigns; provided, however, that this Agreement may not be
assigned by Seller without the prior written consent of Purchaser. Purchaser may
sell, assign, hypothecate, pledge or otherwise convey this Agreement or any
Contract purchased hereunder without the prior written consent of Seller.
18
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
signed and delivered by its duly authorized officers or representatives on this
6th day of October, 1997.
SELLER: PURCHASER:
Consumer Investments Corporation AutoPrime, Inc.
By: /s/ William O. Merritt By: /s/ Robert T. Davenport
------------------------------ ------------------------------
Title: President Title: Director of Dealer Relations
Address: 2980 East Northern Avenue Address: 200 Crescent Court
Phoenix, Arizona 85028 Suite 1900
Dallas, Texas 75201
STATE OF TEXAS
COUNTY OF DALLAS
The foregoing instrument was acknowledged before me this 6th day of
October, 1997 by William O. Merritt, President of Consumer Investment
Corporation, an Arizona corporation.
/s/ Connie S. Gibbs
------------------------
Notary Public in and for
said County and State
My commission expires: 3/25/98
(SEAL)
STATE OF TEXAS
COUNTY OF DALLAS
The foregoing instrument was acknowledged before me this 6th day of
October, 1997 by Robert T. Davenport, Director of Dealer Relations of AutoPrime,
Inc., a Delaware corporation.
My commission expires: 3/25/98 /s/ Connie S. Gibbs
------------------------
(SEAL) Notary Public in and for
said County and State
19
EXHIBIT 10.2
GUARANTY
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which is
hereby acknowledged, the undersigned (the "Guarantor") guarantees personally and
unconditionally, the full and prompt performance of all obligations of Seller
under the Master Purchase and Sale Agreement (the "Master Purchase and Sale
Agreement), including, but not limited to, the obligations of Seller described
in Article 5 and Article 6 of the Master Purchase and Sale Agreement, and under
the Servicing Agreement (the "Servicing Agreement"), both dated of even date
herewith. Capitalized terms used herein but not defined shall have the meanings
assigned to such terms in the Master Purchase and Sale Agreement.
Guarantor acknowledges and represents to Purchaser that it is receiving
direct and indirect financial and other benefits as a result of this Guaranty
and the obligations secured hereunder; represents to Purchaser that after giving
effect to this Guaranty and the contingent obligations evidenced hereby it is,
and will be, solvent; acknowledges that this Guaranty is operative and binding
as to it; and acknowledges that neither Purchaser nor any officer, employee,
agent, attorney or other representative of Purchaser has made any
representation, warranty or statement to Guarantor to induce it to execute this
Guaranty.
Guarantor agrees to pay on demand all costs and expenses of every kind
incurred by Purchaser: (a) in enforcing this Guaranty; (b) in collecting on any
obligations of Seller or Guarantor; (c) in realizing upon or protecting any
collateral for this Guaranty; and (d) for any other purpose related to the this
Guaranty.
This Guaranty shall inure to the benefit of and be binding upon
Purchaser and Guarantor and their respective successors and assigns; provided,
however, that this Guaranty may not be assigned by Guarantor without the prior
written consent of Purchaser.
This Guaranty shall be construed in accordance with the laws of the
State of Texas and the obligations, rights and remedies pursuant to this
Guaranty shall be determined in accordance with such laws without giving effect
to the conflict of laws principles thereof. This Guaranty is performable in
Dallas County, Texas, which is proper venue for all legal proceedings. Guarantor
expressly consents to the personal jurisdiction of the courts of the State of
Texas.
Executed and delivered as of the 6th day of October, 1997.
/s/ William O. Merritt
--------------------------------------
Name: AutoCorp Equities, Inc.
By: William O. Merritt, Its President
Address: 2980 E. Northern Avenue
Suite B1
Phoenix, Arizona 85028
EXHIBIT 10.3
SERVICING AGREEMENT
-------------------
This SERVICING AGREEMENT (the "Agreement"), dated and effective as of
the date appearing on the signature page of this Agreement, is entered into by
and between AutoPrime, Inc., a Delaware corporation ("Owner") and the entity
described on the signature page of this Agreement ("Servicer").
WHEREAS, Servicer and Owner have entered into a Master Purchase and
Sale Agreement, dated of even date herewith (the "Master Purchase and Sale
Agreement"), pursuant to which, among other things, Owner purchased from
20
<PAGE>
Servicer certain retail installment sales contracts secured by first priority
liens on automobiles and light-duty trucks ("Contracts").
WHEREAS, Servicer is engaged in the business of managing and servicing
Contracts.
WHEREAS, Owner desires to retain the services of Servicer for the
purposes of managing and servicing Contracts purchased from time to time by
Owner from Servicer for Owner's account pursuant to the Master Purchase and Sale
Agreement ("Acquired Contracts"). All capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Master
Purchase and Sale Agreement.
NOW, THEREFORE, in consideration of the mutual premises and promises of
the parties and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Servicer and Owner agree as
follows:
Section 1. Contract Management and Servicing. Subject to the terms and
conditions hereinafter set forth along with all terms, conditions,
representations, warranties, covenants and definitions set forth in the Master
Purchase and Sale Agreement, which are expressly incorporated herein by
reference, Servicer shall provide all management and servicing of the Acquired
Contracts purchased by Owner from Servicer from time to time under the Master
Purchase and Sale Agreement and covenants and agrees to manage and service the
Acquired Contracts for the account of Owner as described below and in accordance
with the industry standards pertaining to such Contracts utilizing the same
degree of care as if the Acquired Contracts were owned by Servicer itself:
(a) Servicer obligates itself to service the Acquired Contracts
under this Servicing Agreement in accordance with the industry standards
pertaining to such Contracts utilizing the same degree of care as if the
Acquired Contracts were owned by Servicer itself including, without limitation,
an obligation to maintain an automated reporting system at its sole cost which
produces information with respect to each Contract and each Pool in form and
content reasonably acceptable to Owner.
(b) Servicer covenants and agrees to comply with all requirements
of State law and any other applicable federal, state and local laws, and
regulations thereunder, including, without limitation, the Fair Debt Collection
Practices Act, in servicing the Acquired Contracts under this Agreement.
(c) During the term of the Acquired Contracts serviced under this
Agreement, Servicer will proceed diligently to collect all sums due under the
Acquired Contracts and will deposit on a daily basis or as otherwise directed in
writing by Owner all funds received with respect to the Acquired Contracts, less
the servicing fee provided for in Section 2 hereof, into a bank custodial or
trust account or accounts maintained for the benefit of Owner and from which
Owner will have the right to withdraw or transfer such funds. Said account or
accounts shall be maintained in a financial institution designated by Owner, the
accounts of which are insured by the Federal Deposit Insurance Corporation.
(d) Servicer shall maintain complete books and records relating to
its servicing activities hereunder and shall provide to Owner, not less
frequently than once per week, a written servicing report containing a complete
and accurate accounting of the servicing activity during the preceding week.
Said report will include the following information with respect to each Acquired
Contract: (i) a Delinquency Analysis & Report in the form attached hereto as
Exhibit A, and (ii) a schedule of payments received and payments due but not
paid in the form attached hereto as Exhibit B. Each report shall be delivered to
Owner by hand delivery or facsimile transmission no later than 12:00 p.m. on
Tuesday of each week and shall be accurate as of all transactions through the
close of business on Saturday of the immediately preceding week.
21
<PAGE>
(e) Servicer, in the course of servicing and managing the Acquired
Contracts, shall not waive, vary, extend or cancel any term or condition of the
Acquired Contracts without Owner's prior written consent, but Servicer may,
without legally committing Owner to any of the same, extend in its discretion
reasonable forbearance before declaring an Acquired Contract in default as shall
be consistent with industry standards, in any event not to exceed fourteen (14)
days.
(f) With respect to the Insurance Policies, if any, maintained by
Servicer for the Acquired Contracts in connection with and as described by the
Master Purchase and Sale Agreement, Servicer shall, at Servicer's expense, file
all claims and/or other forms necessary or appropriate to preserve and protect
Owner's interest in the Insurance Policies, if any, identified in the Master
Purchase and Sale Agreement.
(g) Owner shall be named as an additional insured on any fidelity
and errors and omissions insurance policies maintained by Servicer. Upon Owner's
request, Servicer shall furnish to Owner a certificate of insurance with respect
to any such coverage reflecting Owner as additional insured. Servicer shall not
reduce the amount of any such coverage without prior written notice to Owner.
Owner may, at its option and expense, obtain and maintain such fidelity and
errors and omissions insurance policies with respect to the employees of
Servicer, naming Owner as additional insured, as it deems necessary or
appropriate.
(h) No later than ten (10) days after the end of each calendar
month, Servicer shall furnish to Owner a monthly unaudited profit and loss
statement and balance sheet of Servicer, each prepared in reasonable detail and
in accordance with generally accepted accounting principles and certified by an
authorized officer of Servicer as being true and correct.
Section 2. Servicing Fees. As compensation for its services rendered
hereunder, Servicer shall be entitled to retain an amount, as set forth on
Exhibit C to this Agreement, of all payments due and actually received by
Servicer under each Acquired Contract serviced hereunder. Servicer shall remit
in full to Owner the balance of the payments actually received by Servicer under
each Acquired Contract serviced hereunder, less the servicing fee provided for
in this Section 2, into a bank custodial or trust account or accounts as set
forth in Section 1(b) hereof. Servicer will pay all costs and expenses incurred
by it in connection with its servicing activities hereunder.
Section 3. Term and Termination. This Agreement shall be effective and
commence on the date hereof and, unless earlier terminated pursuant to this
Section 3, shall terminate after the repayment of the last Acquired Contract in
Owner's portfolio and after all taxes, fees and funds have been accounted for
and disbursed with respect thereto in accordance with the terms hereof. This
Agreement may be terminated as follows:
(a) This Agreement shall terminate automatically as to any and all
Acquired Contracts upon the dissolution, termination of existence, insolvency
(failure to pay debts as they mature or the failure to maintain the fair salable
value of assets in excess of liabilities), business failure, appointment of a
receiver, trustee, custodian or similar fiduciary, assignment for the benefit of
22
<PAGE>
creditors, or the commencement of any proceedings under the bankruptcy laws, of,
by, or against Servicer, or the making by Servicer of any offer or settlement,
extension or composition to its creditors generally.
(b) If Servicer breaches or fails to perform, keep or observe any
representation, warranty, covenant or agreement contained in this Agreement or
in the Master Purchase and Sale Agreement (including, but not limited to,
Servicer's failure to deposit funds received for any Acquired Contract into an
account as set forth in Section 1(b) hereof, Servicer's failure to deliver on a
timely basis any of the reports to Owner pursuant to this Agreement or the
Master Purchase and Sale Agreement, Servicer's failure to use due diligence in
collecting funds due under any Acquired Contract, Servicer's failure to timely
perform its replacement and repurchase obligations as set forth in Article 5 of
the Master Purchase and Sale Agreement, and the occurrence of a material adverse
change in the financial condition of Servicer), Owner may, upon twenty-four (24)
hours written or oral notice, terminate this Agreement with respect to any and
all Acquired Contracts.
(c) This Agreement may be terminated as to any and all Acquired
Contracts at any time by the mutual agreement of Owner and Servicer.
Section 4. Procedure upon Termination.
(a) Immediately upon the termination of this Agreement pursuant to
Section 3(a) and Section 3(c) hereof and immediately upon Servicer's receipt of
notice of termination pursuant to Section 3(b) hereof, Servicer's right to
retain the servicing fees prescribed in Section 2 hereof with respect to any and
all of such terminated Acquired Contracts shall terminate immediately and, from
and after the date of such termination, Servicer shall deposit all amounts
received with respect to such Acquired Contracts, if any, into the account or
accounts maintained pursuant to Section 1(b) hereof, without deduction.
(b) Upon termination of this Agreement as to any and all Acquired
Contracts, Servicer immediately shall deliver to Owner the Servicing File and
any other documents in Servicer's possession with respect to each Acquired
Contract so terminated and an accounting of all monies collected by Servicer and
held by it for Owner with respect to such Acquired Contracts, and shall
immediately pay over to Owner all monies so held.
Section 5. Indemnification. Servicer hereby agrees to protect, defend,
indemnify and hold Owner and its assigns and their respective attorneys,
accountants, employees, agents, officers and directors harmless from and against
all losses, liabilities, damages, judgments, claims, counterclaims, demands,
actions, proceedings, costs and expenses (including reasonable attorneys' fees)
of every kind and character resulting from, relating to or arising out of this
Agreement or the performance of Servicer's obligations hereunder. In addition to
and without limiting the foregoing, (a) if Servicer breaches any representation,
warranty or covenant contained in this Agreement or the Master Purchase and Sale
23
<PAGE>
Agreement and such breach has not been cured in all material respects within
five (5) days of Servicer's receipt of notice of such breach from Owner,
Servicer shall replace or repurchase the Acquired Contract within five (5) days
of the expiration of the aforementioned cure period or (b) if any payment due
under any of the Acquired Contracts becomes delinquent for a period of thirty
(30) days or more, Servicer shall replace or repurchase the Acquired Contract
within ten (10) days of the Acquired Contract becoming thirty (30) days
delinquent, each in accordance with Article 5 of the Master Purchase and Sale
Agreement, which is expressly incorporated herein by reference. The purchase
price for any such Acquired Contract shall be an amount equal to the unpaid
principal balance of the Acquired Contract plus accrued interest, less one-half
of any unearned discounts. In addition, Servicer shall reimburse Owner for any
and all expenses incurred by Owner with respect to such Acquired Contract. Upon
receipt of the purchase price and any and all additional funds due Owner as
stated herein, Owner promptly shall deliver to Servicer the Contract File and
all other documentation related to the purchased Acquired Contract. Servicer's
obligations under this Section 5 shall survive the termination of this
Agreement.
Section 6. Independent Contractor. Any possible construction of any
other provisions of this Agreement to the contrary notwithstanding, it is
intended by this Agreement that Owner, for and during the term hereof, has
delegated to Servicer the right for it and on its behalf, subject to the terms
and conditions of this Agreement and the Master Purchase and Sale Agreement, to
service each Acquired Contract as an independent contractor with discretion in
the manner and means thereof, but subject to the specific covenants and
agreements of the parties contained in this Agreement and in the Master Purchase
and Sale Agreement.
Section 7. Miscellaneous.
(a) Amendment. This Agreement may be amended from time to time by
Servicer and Owner only by written agreement signed by Servicer and Owner.
(b) Disputes. In the event of a dispute regarding the terms of
this Agreement or any matter arising hereunder, if Servicer and Owner cannot
otherwise agree, the matter shall be submitted to binding arbitration under the
International Rules of the American Arbitration Association, before an
independent qualified expert in Dallas, Texas.
(c) Counterparts. This Agreement may be executed simultaneously in
any number of counterparts, each of which counterparts shall be deemed to be an
original, and all of such counterparts shall constitute one and the same
Agreement.
(d) Survival. The obligations of Servicer under Section 5 hereof
shall survive the termination of this Agreement as to any or all Pools.
(e) Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Texas and the obligations, rights and remedies of
the parties hereunder shall be determined in accordance with such laws without
giving effect to the conflict of laws principles thereof. This Agreement is
performable in Dallas County, Texas, which is proper venue for all legal
proceedings.
(f) Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally, delivered by a national overnight delivery service or mailed by
first class mail, postage prepaid to the addresses set forth on the signature
page of this Agreement.
24
<PAGE>
(g) Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be held
invalid for any reason whatsoever, 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.
[remainder of page intentionally left blank]
25
<PAGE>
(h) Successor and Assigns. This Agreement shall inure to the
benefit of and be binding upon Servicer and Owner and their respective
successors and assigns; provided, however, that this Agreement may not be
assigned by Servicer without the prior written consent of Owner.
IN WITNESS WHEREOF, each of the parties has caused its duly authorized
officer or representative to execute this Agreement on the 6th day of October,
1997, the effective date of this Agreement.
SERVICER: OWNER:
- -------- -----
CONSUMER INVESTMENT CORPORATION AUTOPRIME, INC.
By: /s/ William O. Merritt By: /s/ Robert T. Davenport
----------------------------- ------------------------------------
Title: President Title: Director of Dealer Relations
Address: 2980 E. Northern Avenue Address: 200 Crescent Court, Suite 1900
Suite B1 Dallas, Texas 75201
Phoenix, Arizona 85028 Fax: (214) 871-6540
Fax: (602) 482-6836
STATE OF TEXAS
COUNTY OF DALLAS
The foregoing instrument was acknowledged before me this 6th day of
October 1997, by William O. Merritt, President of Consumer Investment
Corporation, an Arizona corporation.
/s/ Connie S. Gibbs
------------------------------------
Notary Public in and for said County
and State
My commission expires: 3-25-98
(SEAL)
26
<PAGE>
STATE OF TEXAS
COUNTY OF DALLAS
The foregoing instrument was acknowledged before me this 6th day of
October 1997, by Robert T. Davenport, Director of Dealer Relations of AutoPrime
Inc., a Delaware corporation.
/s/ Connie S. Gibbs
------------------------------------
Notary Public in and for said County
and State
My commission expires: 3-25-98
(SEAL)
27
<PAGE>
Exhibit C
Servicing Fees
The Servicing Fee is equal to twenty percent (20%) of gross
amounts collected.
28
EXHIBIT 10.4
MASTER PURCHASE AND SALE AGREEMENT
----------------------------------
This MASTER PURCHASE AND SALE AGREEMENT (the "Agreement"), dated and
effective as of the date set forth on the signature page of this Agreement, is
made and entered into by and between AutoPrime, Inc., a Delaware corporation
(the "Purchaser"), and the entity more particularly described on the signature
page of this Agreement (the "Seller").
WHEREAS, subject to the terms of this Agreement, Seller desires to
sell, and Purchaser desires to purchase, from time to time, pools of retail
installment sales contracts secured by first priority liens on automobiles and
light-duty trucks (collectively, the "Contracts").
NOW, THEREFORE, in consideration of the mutual premises and promises of
the parties, the receipt and sufficiency of which are hereby acknowledged, and
in reliance on the representations, warranties, covenants, and conditions
contained herein, Purchaser and Seller agree as follows:
ARTICLE 1
Definitions
Whenever used herein, unless the context otherwise requires, the
following words and phrases have the following meanings:
Section 1.1 Amount Financed shall mean, as to any Contract, the
purchase price of the Financed Vehicle and related closing costs as shown in the
documentation evidencing such Contract, less any down payment previously paid on
such Financed Vehicle.
Section 1.2 Agreement shall mean this Master Purchase and Sale
Agreement and all amendments and supplements hereto.
Section 1.3 Annual Percentage Rate or APR shall mean, as to any
Contract and at any time, the contractual rate of interest then being borne by
such Contract, as determined therein.
Section 1.4 Bill of Sale shall mean each bill of sale, in the
form attached hereto as Exhibit A, delivered by Seller pursuant to Section 2.4
hereof.
Section 1.5 Closing Date shall mean the date agreed by the
parties and set forth on each Contract Schedule delivered in accordance with the
terms of this Agreement, which is, as to any Pool of Contracts purchased
hereunder, the date at which Purchaser purchases such Pool of Contracts from
Seller in accordance with, and subject to, the terms and provisions of this
Agreement.
Section 1.6 Computer Tape shall mean the computer tapes, floppy
disks and/or print-outs generated by Seller which provide information relating
to the Contracts.
Section 1.7 Contract(s) shall mean the retail installment sales
contracts secured by first priority liens on automobiles and light-duty trucks,
delivered to Purchaser from time to time, and described in a Contract Schedule.
Each Contract includes, without limitation, all related security interests and
any rights to receive payments which are received pursuant thereto from and
after the related Cut-Off Date.
Section 1.8 Contract File shall mean as to any Contract (a) the
original copy of the Contract, (b) the original certificate of title for the
related Financed Vehicle with the first lien granted in favor of Seller noted
29
<PAGE>
thereon, (c) any extension, modification or waiver agreement(s) relating to such
Contract, (d) all documents evidencing the existence of any Insurance Policies,
(e) the executed credit application of Obligor, (f) a credit report detailing
the Obligor's credit history from a credit reporting service, and (g) copies of
all other documentation regarding Obligor generated by Seller or executed by the
Obligor.
Section 1.9 Contract Schedule shall mean the list attached as
Addendum I to each Bill of Sale delivered by Seller on each Closing Date
pursuant to Section 2.4 and Section 2.5 hereof, identifying the Contracts to be
purchased and sold on and as of such Closing Date, and which (a) identifies each
Contract by contract number plus the name and address of the Obligor and (b)
sets forth as to each Contract: (i) the original selling price of the Financed
Vehicle, (ii) the make and model of each Financed Vehicle, (iii) the unpaid
principal balance due on the Contract as of the related Cut-Off Date, (iv) the
number of payments past due on the Contract as of the related Cut-Off Date, (v)
the amount of each scheduled payment due from the Obligor, (vi) the APR, (viii)
the final payment date, and (ix) the most recent payment date.
Section 1.10 Credit Code shall mean those laws in effect in the
State from time to time which govern the making and collection of motor vehicle
installment sales contracts.
Section 1.11 Cut-Off Date shall mean the date set forth on each
Contract Schedule delivered in accordance with the terms of this Agreement,
which is, as to any Contract purchased hereunder, the date as of which such
Contract is offered by Seller for purchase, the date as of which such contract
is actually accepted or deemed accepted by Purchaser for purchase, and the date
as of which the corresponding Contract Schedule is based.
Section 1.12 Electronic Ledger shall mean the electronic master
record of the installment sale contracts or installments loans of Seller.
Section 1.13 Financed Vehicle shall mean the Motor Vehicle,
together with all accessions thereto, securing an Obligor's indebtedness under a
Contract.
30
<PAGE>
Section 1.14 Insurance Policies shall mean all physical damage,
comprehensive and collision, fire and theft insurance policies maintained by the
Obligors with respect to the Financed Vehicles, the vendor's single interest
insurance policy providing coverage upon repossession of a Financed Vehicle, and
any credit life and disability insurance maintained by or on behalf of the
Obligors and benefiting the holders of the Contracts.
Section 1.15 Motor Vehicle shall mean a used automobile or
light-duty truck.
Section 1.16 Obligors shall mean each person, other than Seller,
who is indebted under, or has guaranteed, a Contract, or who has acquired a
Financed Vehicle subject to a Contract.
Section 1.17 Person shall mean any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
incorporated organization, or government or any agency or political subdivision
thereof.
Section 1.18 Pool shall mean each pool of Contracts delivered for
purchase by Purchaser pursuant to Section 2.1 hereof.
Section 1.19 Servicing Agreement shall mean the Servicing
Agreement, dated the same date as this Agreement, executed between Seller, or
Seller's affiliate, and Purchaser.
Section 1.20 Servicing File shall mean all legal documents,
accounting records and other items (including comments on collection efforts)
maintained by or on behalf of Seller with respect to a Contract and not included
in the Contract File therefor, and the Computer Tape and any other machine
readable tapes, floppy magnetic diskettes, optical storage disks, or other
computer memory containing same.
Section 1.21 State shall mean the one or more local, state or
federal governmental jurisdictions in which the transactions described herein
occur.
Section 1.22 UCC shall mean the Uniform Commercial Code as now in
effect in the relevant State, as such Uniform Commercial Code may be
subsequently amended.
ARTICLE 2
Purchase and Sale of Contracts
Section 2.1 Purchase and Sale of Contracts. At the Closing Date,
Seller shall sell, transfer, assign and deliver to Purchaser, and Purchaser
shall purchase, accept, and receive from Seller, a Pool of Contracts, subject to
the terms of this Agreement. At any time after the Closing Date, Seller may,
from time to time, submit additional Contracts or Pools of Contracts to
Purchaser for purchase in accordance with, and subject to, the terms and
provisions of this Agreement.
Section 2.2 Conveyance and Delivery of Contracts.
(a) With respect to each Contract actually purchased by Purchaser
pursuant to this Agreement, Seller, on the Closing Date, shall sell, transfer,
assign, endorse, set over, convey, and deliver to Purchaser all right, title and
interest of Seller in, to and under:
(i) the Contracts accepted by Purchaser on such Closing
Date, including all payments of principal and interest, lawful late charges, and
other similar payments due thereon and accruing after the related Cut-Off Date,
and all payments on the Contracts received prior to or after the related Cut-Off
Date which have not been applied to the amounts due on the Contracts as of the
related Cut-Off Date;
(ii) the liens and security interests created by the
Contracts, and other rights of Seller arising out of such liens and security
interests, in the Financed Vehicles;
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(iii) the interest of Seller, if any, in all Insurance
Policies relating to the Financed Vehicles or the Contracts,
(iv) all documents and information contained in the
Contract Files and the Servicing Files;
(v) the Electronic Ledger; and
(vi) all proceeds derived from any of the foregoing.
(b) SELLER AND PURCHASER AGREE AND ACKNOWLEDGE THAT THIS AGREEMENT IS
AN AGREEMENT FOR THE PURCHASE AND SALE OF CONTRACTS ONLY AND IS NOT A LOAN
TRANSACTION AND THAT NO TERM OR PROVISION CONTAINED IN THIS AGREEMENT SHALL BE
CONSTRUED TO THE CONTRARY.
Section 2.3 Purchase Price; Payments.
(a) The purchase price for each Contract shall be the amount set forth
on Addendum II to the Bill of Sale with respect to such Contract (the "Purchase
Price"). Upon satisfaction of the conditions in Section 2.4 and Section 2.5
hereof with respect to each Contract, Purchaser shall pay the Purchase Price for
such Contract to Seller.
(b) For each Contract purchased by Purchaser, Purchaser shall be
entitled to all payments on such Contract received on and after the related
Cut-Off Date, including accrued interest. In addition, all payments on each
Contract received by Seller prior to the related Cut-Off Date which (i) have not
been applied to the amount due on such Contract as of the related Cut-Off Date,
and (ii) were not utilized to calculate the unpaid principal balance of such
Contract, shall be the property of Purchaser and forwarded to Purchaser by
Seller on the Closing Date, or promptly thereafter when received by Seller.
Section 2.4 Conditions to Effectiveness of Agreement; Deliveries
at Closing. The effectiveness of this Agreement and all of Purchaser's
obligations hereunder, is subject to Purchaser having received on or before the
Closing Date the following items (unless waived by Purchaser in writing), each
of which shall be dated as of the Closing Date:
(a) copies of appropriate resolutions of Seller certified by the
Secretary of Seller (if Seller is a corporation), in the form of Exhibit B
attached hereto, or other documentation of the authority of the Person executing
all documents required hereunder on behalf of Seller authorizing Seller to enter
into and perform this Agreement, each Bill of Sale, the Servicing Agreement and
any and all other documents, obligations and transactions contemplated hereunder
and thereunder;
(b) an executed Servicing Agreement;
(c) an executed incumbency certificate (if Seller is a corporation), in
the form of Exhibit C attached hereto, or other evidence of the signatures of
the representatives of Seller signing this Agreement, each Bill of Sale and the
Servicing Agreement;
(d) an executed Owner's Agreement, in the form attached hereto as
Exhibit D;
(e) an executed Power of Attorney in the form attached hereto as
Exhibit E;
(f) an executed Bill of Sale conveying Seller's interest in the
Contracts to be delivered on such Closing Date from Seller to Purchaser;
(g) a UCC search in each jurisdiction requested by Purchaser,
the results of which are satisfactory to Purchaser in Purchaser's sole
discretion;
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(h) a title report issued by a reputable title reporting agency
approved by Purchaser with respect to each Financed Vehicle securing each of the
Contracts purchased;
(i) with respect to each Contract purchased, a copy of the
Contract, all Insurance Policies, the Contract File, the Servicing File, the
certificate of title or other document evidencing lien or security interests
created by the Contract, and the Electronic Ledger; and
(j) all other documents that may be requested by Purchaser.
Section 2.5 Conditions to Subsequent Sales of Contracts.
Purchaser's obligations to purchase Contracts or Pools of Contracts which Seller
may, from time to time, submit to Purchaser for purchase after the Closing Date
pursuant to this Agreement shall be subject to the satisfaction of the
conditions set forth in Sections 2.4(f), (g), (h), (i) and (j) with respect to
each such Contract as of the applicable Cut-Off Date.
ARTICLE 3
Representations and Warranties of Seller
Section 3.1. Representations and Warranties of Seller. Seller
hereby represents and warrants to, and agrees and covenants with, Purchaser as
of the Closing Date and each Cut-Off Date as follows:
(a) Organization and Good Standing. Seller is duly organized and
validly existing under the laws of its jurisdiction of incorporation or other
formation, has the power to own its assets, including but not limited to the
Contracts, and to transact business in the State in which it is currently
engaged. Seller is duly qualified to do business and is in good standing in the
State and in each other jurisdiction in which the character of the business
transacted by it or properties owned or leased by it or the purchase and sale of
the Contracts requires such qualification and in which the failure so to qualify
would have an adverse effect on the performance of Seller hereunder or the
enforceability of any of the Contracts.
(b) Authorization; Binding Obligations. Seller has all requisite power
and authority to make, execute, and deliver this Agreement, to perform its
obligations under this Agreement and to effect all of the transactions
contemplated to be performed by it under this Agreement, and has taken all
necessary action to authorize the execution, delivery and performance of this
Agreement and to consummate the transactions contemplated hereby. When executed
and delivered, this Agreement will constitute the legal, valid and binding
obligation of Seller enforceable in accordance with its terms.
(c) No Consent Required. Seller is not required to obtain the consent
of any other party nor is any consent, license, approval or authorization from,
or registration or declaration with, the State or any governmental authority,
bureau or agency required in connection with Seller's execution, delivery, or
performance of this Agreement, or, if required, Seller has previously obtained
any such required consent, license, approval, authorization, registration or
declaration.
(d) No Violations. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby by Seller will not violate
any provision of any existing law or regulation or any order or decree of any
court of competent jurisdiction applicable to Seller or the charter or bylaws of
Seller, or constitute a breach of any mortgage, indenture, loan agreement or
other contract to which Seller is a party or by which Seller may be bound.
(e) Litigation. No litigation or administrative proceeding of or before
any court, tribunal or governmental body is currently pending or, to the
knowledge of Seller, threatened against Seller or any of its properties,
including specifically the Contracts, Financed Vehicles or Insurance Policies,
or with respect to this Agreement.
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(f) Sale of Contracts. Each sale of Contracts pursuant to this
Agreement shall be reflected on Seller's balance sheet and other financial
statements as a sale of assets by Seller. Seller shall not take any action or
omit to take any action which would cause the transfer of any Contract to
Purchaser to be treated as anything other than a sale to Purchaser of all of
Seller's right, title and interest in and to such Contract.
Section 3.2. Representations and Warranties as to Each Contract. Seller
hereby makes the following representations and warranties as to each Contract or
Pool of Contracts conveyed by it to Purchaser hereunder.
(a) Characteristics of Contracts. The Contract (i) has been originated
by Seller in the ordinary course of Seller's business and has been fully and
properly executed by the parties thereto, (ii) is secured by a valid,
subsisting, and enforceable first priority lien and security interest in favor
of Seller in the Financed Vehicle, which lien and security interest are
assignable by Seller to Purchaser, (iii) contains customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for realization against the collateral securing such Contract,
including the Financed Vehicle, (iv) provides for payments which fully amortize
the Amount Financed over the original term and provide interest at the related
APR over the term of the Contract, (v) provides for, in the event the Contract
is prepaid, a prepayment that fully prepays the outstanding principal balance
thereof and includes accrued and unpaid interest at least through the date of
prepayment in an amount equal to the APR, and (vi) has not, as of the related
Cut-Off Date, been modified as a result of the Soldiers' and Sailors' Civil
Relief Act of 1940, as amended.
(b) Contract Schedule. The information set forth in the Contract
Schedule with respect to such Contract was true and correct as of the opening of
business on the related Cut-Off Date, and the principal balance and the APR of
the Contract as of the related Cut-Off Date have been accurately and correctly
calculated in all documents within the related Contract File and is accurately
and correctly shown on the Contract Schedule. All reports delivered to Purchaser
by Seller regarding payments made by Obligor subsequent to the Cut-Off Date will
be, when delivered, true and correct.
(c) Down Payment. The down payment paid by the Obligor on each Contract
was paid by such Obligor to Seller in the amount and form as set forth on each
Contract.
(d) Compliance with Law. The Contract, and the sale of the related
Financed Vehicle, complied at the time it was originated or made, and will
comply as of the Closing Date and the related Cut-Off Date, with all
requirements of State law and any other applicable federal, state and local
laws, and regulations thereunder, including, without limitation, laws relating
to usury, the Federal Truth-In-Lending Act, the Equal Credit Opportunity Act,
the Fair Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt
Collection Practices Act, Federal Reserve Board Regulations B, Z and AA, any
state adaptations of the National Consumer Credit Protection Act, any state
adaptations of the Uniform Consumer Credit Code, and, to the best of Seller's
information and beliefs any other applicable consumer credit, equal opportunity,
and disclosure laws.
(e) Binding Obligation. The Contract constitutes the genuine,
bona-fide, valid, and binding obligation of the Obligor, enforceable by the
holder thereof in accordance with its terms.
(f) Solvency of Obligors. To Seller's knowledge, no voluntary or
involuntary petition or complaint is pending by or against Obligor seeking
bankruptcy of Obligor or the appointment of a receiver or trustee of Obligor, or
of all or substantially all of the assets of Obligor; and no order, order for
relief, judgment or decree is pending or threatened seeking the appointment of a
receiver or trustee of Obligor, or of all substantially all of the assets of
Obligor.
(g) No Government Obligor. The Obligor is not the United States of
America or any State thereof, or any agency, department, political subdivision
or instrumentality of the United States of America or any State thereof.
(h) Contracts in Force. The Contract has not been pledged, encumbered,
satisfied, subordinated, waived, restricted, rescinded or held to be invalid or
unenforceable, and the Financed Vehicle has not been released from the lien
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granted by the Contract in whole or in part nor has the Financed Vehicle been
damaged to such degree that materially affects the value of the Financed Vehicle
since the date of sale of the Financed Vehicle to Obligor.
(i) No Amendment or Waiver. No provision of the Contract has been
amended, waived, altered or modified in any respect, except pursuant to a
document, instrument or writing included in the Contract File and reflected in
the Electronic Ledger and no such amendment, waiver, alteration or modification
causes such Contract or the lien and security interest granted by the Contract
against the Financed Vehicle not to conform to the other representations and
warranties contained in this Agreement, nor renders it invalid or unenforceable.
(j) No Defenses. The Contract is not subject to any right of
rescission, setoff, counterclaim or defense including, without limitation, the
defense or claim of usury, and the operation of any of the terms of the
Contract, or the exercise of any right thereunder, will not render the Contract
unenforceable in whole or in part or subject to any claim, cause of action,
right of rescission, right of cancellation, setoff, counterclaim or defense
including, without limitation, the defense or claim of usury, and no such claim,
cause of action, right of rescission, right of cancellation, setoff,
counterclaim or defense has been asserted by Obligor with respect thereto.
(k) No Liens. There are no undisclosed liens or claims, including liens
for work, labor, materials or unpaid state or federal taxes relating to the
Financed Vehicle, that are or may be liens prior to, equal to or subordinate to,
the lien granted by the Contract against the Financed Vehicle.
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(l) No Default. Except for payment delinquencies of which Seller has
notified Purchaser in writing, no default, breach, violation or event permitting
acceleration under the terms of the Contract exists; and no continuing condition
that with notice or lapse of time, or both, would constitute a default, breach,
violation or event permitting acceleration under the terms of the Contract
exists; and Seller has not waived any of the foregoing.
(m) Good Title. Neither the Contract nor any of Seller's interests
therein has been sold, assigned, hypothecated, pledged or otherwise conveyed by
Seller to any person other than Purchaser and, immediately prior to the transfer
and assignment herein contemplated, Seller (i) had good and marketable title to
the Contract free and clear of any encumbrance, equity, lien, pledge, charge,
claim, security interest or other right or title of any third party, (ii) was
the sole owner and holder of the Contract and all rights thereunder, and (iii)
had full right, power and authority to transfer and assign the Contract to
Purchaser. Immediately upon the transfer and assignment of the Contract to
Purchaser, Purchaser shall have good and marketable title to the Contract, free
and clear of any encumbrance, equity, lien, pledge, charge, claim, security
interest or other right or title of any other Person and the transfer will be
valid and enforceable under the laws of the State.
(n) Lawful Assignment. The Contract has not been originated in, and is
not subject to the laws of, any jurisdiction under which the sale, transfer and
assignment of such Contract hereunder to Purchaser or pursuant to which
transfers of the Contracts to Purchaser are unlawful, void or voidable.
(o) All Filings Made. All filings, including UCC filings, necessary in
any jurisdiction to give Purchaser an ownership interest (or a first priority
perfected security interest) in the Contract have been made.
(p) One Original. There is only one original executed Contract and
related certificate of title, which has been conveyed, endorsed and delivered by
Seller to Purchaser.
(q) No Fraud or Misrepresentations. The Contract was originated without
any conduct constituting fraud or misrepresentation, failure of consideration,
or forgery or alteration.
(r) Possession. On the related Closing Date, Purchaser will receive
possession of the original Contract and the related Contract File, and there are
and there will be no agreements in effect adversely affecting the right or
ability of Seller to make, or cause to be made, any delivery required hereunder.
(s) Bulk Transfer Laws. The transfer, assignment and conveyance of the
Contract and the Contract Files by Seller pursuant to this Agreement are not
subject to bulk transfer or any similar statutory provisions in effect in any
applicable jurisdiction.
(t) Taxes. All ad valorem, excise and other taxes of any nature or
description whatsoever and all recording fees and title transfer costs relating
to the Contracts and the Financial Vehicles have been paid in full by Seller.
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(u) Information. All financial statements, tax returns, journals,
ledgers, and other information furnished to Purchaser in connection with the
purchase of the Contracts was or will be at the time furnished true and correct
in all respects, and Seller has not made any untrue statement of material fact
or omitted to state any material fact to Purchaser or any of its officers and
agents in connection with the purchase of the Contracts by Purchaser. No
material adverse change has occurred in the business, prospects, profits,
properties, operations, or condition, financial or otherwise, except as
disclosed to Purchaser in such delivered information.
(v) No Assignment. Seller has not taken any action to convey any right
to any Person that would result in such Person having a right to payments
received under the Insurance Policies or payments due under any Contract that is
senior to, equal with, or subordinate to that of Purchaser.
(w) Characteristics. The Contracts in each Pool had the following
characteristics as of the related Cut-Off Date: (i) each Contract is a retail
installment sales contract for the purposes of used Financed Vehicle statutes;
and (ii) none of the Financed Vehicles securing the Contracts has been titled as
salvaged, reconditioned or reconstructed Motor Vehicles.
(x) Computer Tape. The Computer Tape relating to the Pool made
available by Seller was complete and accurate as of the related Cut-Off Date and
includes a description of the same Contracts that are described in the Contract
Schedule.
(y) Marking Records. On or before the Closing Date, Seller will have
caused the portions of the Electronic Ledger relating to the Contracts to be
purchased as of the related Cut-Off Date to be clearly and unambiguously marked
to show that such Contracts are owned by Purchaser and, upon Purchaser's
request, shall provide Purchaser with evidence of such marking.
(z) Other. Without limiting any of the foregoing, Seller further
represents and warrants as to each Contract the following: (i) the Contract is
in form and substance in compliance with all applicable governmental
requirements; (ii) the Contract is the only instrument executed for the purchase
of the property described therein and is and will continue to be free from
defenses, offsets and counterclaims; (iii) all statements contained in each
Contract are true and correct and the unpaid balance as shown therein is
correct; (iv) any down payment in any Contract has been made in cash and not its
equivalent unless otherwise stated in each Contract; (v) no part of the down
payment described in any Contract and reflected as paid has been loaned or given
directly or indirectly by Seller to Obligor; (vi) the Financed Vehicle described
in the Contract has been delivered; (vii) each sale evidenced by said Contract
was completed in accordance with governmental requirements affecting such sale,
including, but not limited to, the Federal Truth-in-Lending Act, the Magnuson
and Moss Warranty Federal Trade Commission Improvement Act and Warrant Act,
Federal Equal Credit Opportunity Act, The Federal Trade Commission Act, and all
applicable state and local laws and regulations; (viii) all required disclosures
to Obligor were made in accordance with all governmental requirements; (ix) the
Obligor in each Contract had the legal capacity to enter into said Contract; and
(x) the names and signatures on each Contract are not forged, fictitious or
assumed and are true and correct.
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ARTICLE 4
Covenants of Seller
Seller hereby agrees to keep, perform and fully discharge the following
covenants and agreements:
Section 4.1 Effecting and Perfecting Each Sale of Contracts. At the
request of Purchaser, Seller will, at Seller's expense, promptly:
(i) take or cause to be taken any further action
necessary or appropriate to effect and perfect each sale and conveyance of each
Contract made hereunder;
(ii) execute or cause to be executed such documents and
instruments as are necessary or appropriate to effect and perfect each sale and
conveyance of each Contract made hereunder;
(iii) obtain from third parties all documents, instruments,
waivers and releases necessary, and to take all other actions requested by
Purchaser, to facilitate each sale and conveyance of each Contract made
hereunder; and
(iv) execute a notice letter to the Obligors, informing
them of the existence of this transaction and the assignment of the applicable
Contract, and Seller hereby grants Purchaser the authority to mail such notice
letter to, or otherwise contact, Obligors informing them of the existence of
this transaction and the assignment of the applicable Contract.
Without limiting the generality of the foregoing, at Purchaser's
request, Seller will send appropriate notices of the transfer of the Contracts
to insurers under the Insurance Policies covering the Financed Vehicles securing
the Contracts and will send appropriate notices to the Obligors under the
Contracts.
Section 4.2 Certificate of Title. Seller has delivered and
assigned to Purchaser the original certificate of title with respect to each
Financed Vehicle that is the subject of each Contract purchased by Purchaser
hereunder, and Seller will not request any governmental agency to issue or cause
to be issued any copy of such certificate of title, except upon the written
request of Purchaser. If a temporary certificate of title has been obtained and
delivered to Purchaser, Seller will promptly obtain a permanent certificate of
title, reflecting Seller's lien, and deliver it to Purchaser as soon as it is
obtained.
Section 4.3 No Future Lien. After the sale to Purchaser of any
Contract, Seller will not create or cause to be created any lien or claim,
including liens for work, labor, materials or unpaid state or federal taxes
relating to a Financed Vehicle, that are prior to or equal to the lien granted
by the Contract against the Financed Vehicle.
Section 4.4 Replacement and Repurchase of Contracts. Seller will
perform or cause to be performed the replacement and repurchase obligations set
forth in Article 5 of this Agreement.
Section 4.5 Relocation of Principal Executive Office. Seller
shall give Purchaser at least thirty (30) days prior written notice of any
relocation of its principal executive office and if, as a result of such
relocation, the applicable provisions of the UCC would require the filing of any
amendment of any previously filed financing or continuation statement or of any
new financing statement, Seller shall execute and deliver to Purchaser such
amended or replacement financing statement.
Section 4.6 Notice of Breach. Seller covenants and agrees to give
Purchaser prompt written notice upon discovery of a breach of any
representation, warranty or covenant of this Agreement and upon the discovery of
any delinquency in the payment of unpaid principal and interest on any Contract
by Obligor.
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ARTICLE 5
Repurchase and Replacement of Contracts
Section 5.1 Repurchase and Replacement Obligation. Upon the
occurrence of a Triggering Event (as defined below), Seller agrees to replace or
repurchase any of the Contracts subject to such Triggering Event in the manner
and within the time period as provided in this Article 5.
Section 5.2 Replacement of Contracts. Upon the occurrence of a
Triggering Event, Seller may elect to replace any Contract by delivering to
Purchaser a replacement contract (a "Replacement Contract"), which is acceptable
to Purchaser, within the time specified in this Article 5. The Replacement
Contract delivered by Seller must be secured by a first priority lien on an
automobile and/or light-duty truck and must contain an equivalent pay-off amount
as of the date of exchange, the same term, the same APR, and such other terms
and provisions acceptable to Purchaser. To the extent Purchaser, in its sole
discretion, accepts a Replacement Contract with a term, APR or pay-off amount
that varies in any way from that of the Contract to be replaced, the resulting
yield on the investment for Purchaser must be equivalent. Seller will pay to
Purchaser, or vice versa, an amount at the date of exchange which will make the
exchange exact as to value and yield. Seller shall reimburse Purchaser for any
and all expenses incurred by Purchaser with respect to any Contract replaced in
accordance with this Article 5. The decision to accept or reject a Replacement
Contract is in the Purchaser's sole discretion, and Purchaser is under no
obligation to accept a Contract offered by Seller as a replacement. If Purchaser
does not accept the Replacement Contract, Seller must repurchase the delinquent
Contract from Purchaser pursuant to Section 5.5 hereof.
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Section 5.3 Manner of Replacement. If Purchaser accepts the
Replacement Contract offered by Seller, Seller shall promptly deliver to
Purchaser the Contract File related to the Replacement Contract, together with
the documents required to be delivered pursuant to Section 2.5 hereof. Upon
receipt by Purchaser of each of the foregoing (unless receipt of any is
expressly waived by Purchaser), Purchaser shall promptly deliver to Seller the
Contract to be replaced, the Contract File related to the Contract to be
replaced and all other documents in the possession of Purchaser related to the
Contract to be replaced.
Section 5.4 Continuing Obligations of Seller on Replacement
Contracts. Seller agrees and acknowledges that the representations, warranties,
covenants and other obligations of Seller arising under this Agreement with
respect to all Contracts shall continue and be enforceable with respect to any
such Replacement Contracts, including, but not limited to, the representations
and warranties contained in Article 3 hereof, the covenants of Seller contained
in Article 4 hereof, and the repurchase and replacement obligations contained in
this Article 5.
Section 5.5 Repurchase of Contracts. Upon the occurrence of a
Triggering Event, Seller may elect to repurchase any Contract within the time
specified in this Article 5. The purchase price for the Contract to be
repurchased shall be the payoff amount on the Contract plus all accrued and
unpaid interest thereon, less one-half of the unearned discount on the Contract
at the date of exchange. In addition, Seller shall reimburse Purchaser for any
and all expenses incurred by Purchaser with respect to such Contract. Upon the
receipt by Purchaser of the repurchase price together with any expenses as set
forth in this Section 5.5, Purchaser shall promptly deliver to Seller the
Contract to be repurchased, the Contract File related to the repurchased
Contract and all other documents in the possession of Purchaser related to the
repurchased Contract.
Section 5.6 Triggering Events. For purposes of this Article 5,
a Triggering Event shall mean:
(a) a breach by Seller of any representation, warranty or covenant
contained in this Agreement and such breach has not been cured in all material
respects within five (5) days of Seller's receipt of notice of such breach from
Purchaser; or
(b)if any payment due under any Contract becomes delinquent for a
period of thirty (30) days or more.
Section 5.7 Timing of Seller's Repurchase and Replacement
Obligations. Seller must complete its repurchase and replacement obligations
pursuant to this Article 5 within five (5) days of the expiration of the cure
period set forth in Section 5.6(a) or within ten (10) days following the date at
which a Contract becomes delinquent for thirty (30) days as set forth in Section
5.6(b).
ARTICLE 6
Indemnification
Seller hereby agrees to protect, defend, indemnify and hold Purchaser
and its assigns and their respective attorneys, accountants, employees, agents,
officers and directors harmless from and against all losses, liabilities,
damages, judgments, claims, counterclaims, demands, actions, proceedings, costs
and expenses (including reasonable attorneys' fees) of every kind and character
resulting from, relating to or arising out of this Agreement and the
transactions contemplated hereby including, without limitation, those resulting
from, relating to or arising out of (a) the inaccuracy, nonfulfillment or breach
of any representation, warranty, covenant or agreement made by Seller herein or
in the documents described in Section 2.4 or Section 2.5 hereof, (b) any legal
action, including any counterclaim, to the extent it is based upon alleged facts
that, if true, would constitute a breach of any representation, warranty,
covenant or agreement made by Seller herein or in the documents described in
Section 2.4 or Section 2.5 hereof, (c) any actions or omissions of Seller or any
employee or agent of Seller, or any negligent, reckless or willful misconduct of
Seller or any employee or agent of Seller, occurring prior to the Cut-Off Date
with respect to any Contract or the Financed Vehicle, or (d) the violation or
claim of violation of any of the State's laws by Seller or any person acting for
or on behalf of Seller.
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ARTICLE 7
Miscellaneous Provisions
Section 7.1. Amendment. This Agreement may be amended from time to
time by Seller and Purchaser only by written agreement signed by Seller and
Purchaser.
Section 7.2. Disputes. In the event of a dispute regarding the
terms of this Agreement, the breach of any representation or warranty contained
herein, or any matter arising hereunder, if Seller and Purchaser cannot
otherwise agree, the matter shall be submitted to binding arbitration under the
International Rules of the American Arbitration Association, before an
independent qualified expert in Dallas, Texas.
Section 7.3. Further Assurances. In order to facilitate
enforcement of Purchaser's rights hereunder with respect to any Contract and
Financed Vehicle, Seller shall, promptly after the request by Purchaser or its
assigns, and at Seller's expense, do and perform or cause to be done and
performed every reasonable act and thing necessary or advisable to carry out to
the intent of this Agreement (including, without limitation, ensuring that
Purchaser has the right and ability to enforce payment and performance of the
Contracts). Seller hereby grants an irrevocable power of attorney coupled with
an interest to Purchaser for the specific purpose of exercising all rights and
remedies Seller would have with respect to the Contracts, titles to motor
vehicles serving as collateral, and the Financed Vehicles securing them, but for
sale of the Contracts to Purchaser. Seller hereby authorizes Purchaser to send
the notice letter to Obligors, informing them of the existence of this
transaction and the assignment of the applicable Contract.
Section 7.4. Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed to
be an original, and all of such counterparts shall constitute one and the same
Agreement.
Section 7.5. Survival. The obligations of Seller and Purchaser
under this Agreement, including, but not limited to, the representations and
warranties set forth in Article 3, the covenants set forth in Article 4, and the
repurchase and replacement obligations set forth in Article 5 shall survive the
sale of Contracts to Purchaser.
Section 7.6. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Texas and the obligations, rights and
remedies of the parties hereunder shall be determined in accordance with such
laws without giving effect to the conflict of laws principles thereof. This
Agreement is performable in Dallas County, Texas, which is proper venue for all
legal proceedings. Each of the parties expressly consents to the personal
jurisdiction of the courts of the State of Texas.
Section 7.7. Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, delivered by a national overnight delivery service or
mailed by first class mail, postage prepaid to the address of each party set
forth on the signature page of this Agreement, which address is the principal
place of business of such party unless otherwise indicated.
Section 7.8. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be held
invalid for any reason whatsoever, 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.
Section 7.9. No Partnership. Nothing herein contained shall be
deemed or construed to create a co-partnership or joint venture between the
parties hereto.
[remainder of page intentionally left blank]
41
<PAGE>
Section 7.10. Successor and Assigns. This Agreement shall inure to
the benefit of and be binding upon Seller and Purchaser and their respective
successors and assigns; provided, however, that this Agreement may not be
assigned by Seller without the prior written consent of Purchaser. Purchaser may
sell, assign, hypothecate, pledge or otherwise convey this Agreement or any
Contract purchased hereunder without the prior written consent of Seller.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
signed and delivered by its duly authorized officers or representatives on this
22nd day of January, 1998.
SELLER: PURCHASER:
Lenders Auto Resale Centers of Texas, Inc. AutoPrime, Inc.
dba Lenders Auto Resale Centers
By: /s/ William O. Merritt By: /s/ Thomas A. Henson
-------------------------- --------------------------
Title: President Title: Director of Operations
Address: 4738 IH 35 South Address: 200 Crescent Court
Austin, Texas 78745 Suite 1900
Dallas, Texas 75201
STATE OF TEXAS
COUNTY OF TRAVIS
The foregoing instrument was acknowledged before me this 22nd day
of January, 1998 by William O. Merritt, President of Lenders Auto Resale Centers
of Texas, Inc. dba Lenders Auto Resale Centers, an Arizona corporation.
/s/ Barbara Nelson
------------------------
Notary Public in and for
said County and State
My commission expires: 7/21/2001
(SEAL)
42
<PAGE>
STATE OF TEXAS
COUNTY OF TRAVIS
The foregoing instrument was acknowledged before me this 22nd day of
January, 1998 by Thomas A. Hanson, Director of Operations of AutoPrime, Inc., a
Delaware corporation.
/s/ Barbara Nelson
------------------------
Notary Public in and for
said County and State
My commission expires: 7/21/2001
(SEAL)
43
EXHIBIT 10.5
SERVICING AGREEMENT
-------------------
This SERVICING AGREEMENT (the "Agreement"), dated and effective as of
the date appearing on the signature page of this Agreement, is entered into by
and between AutoPrime, Inc., a Delaware corporation ("Owner") and the entity
described on the signature page of this Agreement ("Servicer").
WHEREAS, Servicer and Owner have entered into a Master Purchase and
Sale Agreement, dated of even date herewith (the "Master Purchase and Sale
Agreement"), pursuant to which, among other things, Owner purchased from
Servicer certain retail installment sales contracts secured by first priority
liens on automobiles and light-duty trucks ("Contracts").
WHEREAS, Servicer is engaged in the business of managing and servicing
Contracts.
WHEREAS, Owner desires to retain the services of Servicer for the
purposes of managing and servicing Contracts purchased from time to time by
Owner from Servicer for Owner's account pursuant to the Master Purchase and Sale
Agreement ("Acquired Contracts"). All capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Master
Purchase and Sale Agreement.
NOW, THEREFORE, in consideration of the mutual premises and promises of
the parties and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Servicer and Owner agree as
follows:
Section 1. Contract Management and Servicing. Subject to the terms and
conditions hereinafter set forth along with all terms, conditions,
representations, warranties, covenants and definitions set forth in the Master
Purchase and Sale Agreement, which are expressly incorporated herein by
reference, Servicer shall provide all management and servicing of the Acquired
Contracts purchased by Owner from Servicer from time to time under the Master
Purchase and Sale Agreement and covenants and agrees to manage and service the
Acquired Contracts for the account of Owner as described below and in accordance
with the industry standards pertaining to such Contracts utilizing the same
degree of care as if the Acquired Contracts were owned by Servicer itself:
(a) Servicer obligates itself to service the Acquired Contracts
under this Servicing Agreement in accordance with the industry standards
pertaining to such Contracts utilizing the same degree of care as if the
Acquired Contracts were owned by Servicer itself including, without limitation,
an obligation to maintain an automated reporting system at its sole cost which
produces information with respect to each Contract and each Pool in form and
content reasonably acceptable to Owner.
(b) Servicer covenants and agrees to comply with all requirements
of State law and any other applicable federal, state and local laws, and
regulations thereunder, including, without limitation, the Fair Debt Collection
Practices Act, in servicing the Acquired Contracts under this Agreement.
(c) During the term of the Acquired Contracts serviced under this
Agreement, Servicer will proceed diligently to collect all sums due under the
Acquired Contracts and will deposit on a daily basis or as otherwise directed in
writing by Owner all funds received with respect to the Acquired Contracts, less
the servicing fee provided for in Section 2 hereof, into a bank custodial or
trust account or accounts maintained for the benefit of Owner and from which
Owner will have the right to withdraw or transfer such funds. Said account or
accounts shall be maintained in a financial institution designated by Owner, the
accounts of which are insured by the Federal Deposit Insurance Corporation.
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(d) Servicer shall maintain complete books and records relating to
its servicing activities hereunder and shall provide to Owner, not less
frequently than once per week, a written servicing report containing a complete
and accurate accounting of the servicing activity during the preceding week.
Said report will include the following information with respect to each Acquired
Contract: (i) a Delinquency Analysis & Report in the form attached hereto as
Exhibit A, and (ii) a schedule of payments received and payments due but not
paid in the form attached hereto as Exhibit B. Each report shall be delivered to
Owner by hand delivery or facsimile transmission no later than 12:00 p.m. on
Tuesday of each week and shall be accurate as of all transactions through the
close of business on Saturday of the immediately preceding week.
(e) Servicer, in the course of servicing and managing the Acquired
Contracts, shall not waive, vary, extend or cancel any term or condition of the
Acquired Contracts without Owner's prior written consent, but Servicer may,
without legally committing Owner to any of the same, extend in its discretion
reasonable forbearance before declaring an Acquired Contract in default as shall
be consistent with industry standards, in any event not to exceed fourteen (14)
days.
(f) With respect to the Insurance Policies, if any, maintained by
Servicer for the Acquired Contracts in connection with and as described by the
Master Purchase and Sale Agreement, Servicer shall, at Servicer's expense, file
all claims and/or other forms necessary or appropriate to preserve and protect
Owner's interest in the Insurance Policies, if any, identified in the Master
Purchase and Sale Agreement.
(g) Owner shall be named as an additional insured on any fidelity
and errors and omissions insurance policies maintained by Servicer. Upon Owner's
request, Servicer shall furnish to Owner a certificate of insurance with respect
to any such coverage reflecting Owner as additional insured. Servicer shall not
reduce the amount of any such coverage without prior written notice to Owner.
Owner may, at its option and expense, obtain and maintain such fidelity and
errors and omissions insurance policies with respect to the employees of
Servicer, naming Owner as additional insured, as it deems necessary or
appropriate.
(h) No later than ten (10) days after the end of each calendar
month, Servicer shall furnish to Owner a monthly unaudited profit and loss
statement and balance sheet of Servicer, each prepared in reasonable detail and
in accordance with generally accepted accounting principles and certified by an
authorized officer of Servicer as being true and correct.
Section 2. Servicing Fees. As compensation for its services rendered
hereunder, Servicer shall be entitled to retain an amount, as set forth on
Exhibit C to this Agreement, of all payments due and actually received by
Servicer under each Acquired Contract serviced hereunder. Servicer shall remit
in full to Owner the balance of the payments actually received by Servicer under
each Acquired Contract serviced hereunder, less the servicing fee provided for
in this Section 2, into a bank custodial or trust account or accounts as set
forth in Section 1(b) hereof. Servicer will pay all costs and expenses incurred
by it in connection with its servicing activities hereunder.
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<PAGE>
Section 3. Term and Termination. This Agreement shall be effective and
commence on the date hereof and, unless earlier terminated pursuant to this
Section 3, shall terminate after the repayment of the last Acquired Contract in
Owner's portfolio and after all taxes, fees and funds have been accounted for
and disbursed with respect thereto in accordance with the terms hereof. This
Agreement may be terminated as follows:
(a) This Agreement shall terminate automatically as to any and all
Acquired Contracts upon the dissolution, termination of existence, insolvency
(failure to pay debts as they mature or the failure to maintain the fair salable
value of assets in excess of liabilities), business failure, appointment of a
receiver, trustee, custodian or similar fiduciary, assignment for the benefit of
creditors, or the commencement of any proceedings under the bankruptcy laws, of,
by, or against Servicer, or the making by Servicer of any offer or settlement,
extension or composition to its creditors generally.
(b) If Servicer breaches or fails to perform, keep or observe any
representation, warranty, covenant or agreement contained in this Agreement or
in the Master Purchase and Sale Agreement (including, but not limited to,
Servicer's failure to deposit funds received for any Acquired Contract into an
account as set forth in Section 1(b) hereof, Servicer's failure to deliver on a
timely basis any of the reports to Owner pursuant to this Agreement or the
Master Purchase and Sale Agreement, Servicer's failure to use due diligence in
collecting funds due under any Acquired Contract, Servicer's failure to timely
perform its replacement and repurchase obligations as set forth in Article 5 of
the Master Purchase and Sale Agreement, and the occurrence of a material adverse
change in the financial condition of Servicer), Owner may, upon twenty-four (24)
hours written or oral notice, terminate this Agreement with respect to any and
all Acquired Contracts.
(c) This Agreement may be terminated as to any and all Acquired
Contracts at any time by the mutual agreement of Owner and Servicer.
46
<PAGE>
Section 4. Procedure upon Termination.
(a) Immediately upon the termination of this Agreement pursuant to
Section 3(a) and Section 3(c) hereof and immediately upon Servicer's receipt of
notice of termination pursuant to Section 3(b) hereof, Servicer's right to
retain the servicing fees prescribed in Section 2 hereof with respect to any and
all of such terminated Acquired Contracts shall terminate immediately and, from
and after the date of such termination, Servicer shall deposit all amounts
received with respect to such Acquired Contracts, if any, into the account or
accounts maintained pursuant to Section 1(b) hereof, without deduction.
(b) Upon termination of this Agreement as to any and all Acquired
Contracts, Servicer immediately shall deliver to Owner the Servicing File and
any other documents in Servicer's possession with respect to each Acquired
Contract so terminated and an accounting of all monies collected by Servicer and
held by it for Owner with respect to such Acquired Contracts, and shall
immediately pay over to Owner all monies so held.
Section 5. Indemnification. Servicer hereby agrees to protect, defend,
indemnify and hold Owner and its assigns and their respective attorneys,
accountants, employees, agents, officers and directors harmless from and against
all losses, liabilities, damages, judgments, claims, counterclaims, demands,
actions, proceedings, costs and expenses (including reasonable attorneys' fees)
of every kind and character resulting from, relating to or arising out of this
Agreement or the performance of Servicer's obligations hereunder. In addition to
and without limiting the foregoing, (a) if Servicer breaches any representation,
warranty or covenant contained in this Agreement or the Master Purchase and Sale
Agreement and such breach has not been cured in all material respects within
five (5) days of Servicer's receipt of notice of such breach from Owner,
Servicer shall replace or repurchase the Acquired Contract within five (5) days
of the expiration of the aforementioned cure period or (b) if any payment due
under any of the Acquired Contracts becomes delinquent for a period of thirty
(30) days or more, Servicer shall replace or repurchase the Acquired Contract
within ten (10) days of the Acquired Contract becoming thirty (30) days
delinquent, each in accordance with Article 5 of the Master Purchase and Sale
Agreement, which is expressly incorporated herein by reference. The purchase
price for any such Acquired Contract shall be an amount equal to the unpaid
principal balance of the Acquired Contract plus accrued interest, less one-half
of any unearned discounts. In addition, Servicer shall reimburse Owner for any
and all expenses incurred by Owner with respect to such Acquired Contract. Upon
receipt of the purchase price and any and all additional funds due Owner as
stated herein, Owner promptly shall deliver to Servicer the Contract File and
all other documentation related to the purchased Acquired Contract. Servicer's
obligations under this Section 5 shall survive the termination of this
Agreement.
Section 6. Independent Contractor. Any possible construction of any
other provisions of this Agreement to the contrary notwithstanding, it is
intended by this Agreement that Owner, for and during the term hereof, has
delegated to Servicer the right for it and on its behalf, subject to the terms
and conditions of this Agreement and the Master Purchase and Sale Agreement, to
service each Acquired Contract as an independent contractor with discretion in
47
<PAGE>
the manner and means thereof, but subject to the specific covenants and
agreements of the parties contained in this Agreement and in the Master Purchase
and Sale Agreement.
Section 7. Miscellaneous.
(a) Amendment. This Agreement may be amended from time to time by
Servicer and Owner only by written agreement signed by Servicer and Owner.
(b) Disputes. In the event of a dispute regarding the terms of
this Agreement or any matter arising hereunder, if Servicer and Owner cannot
otherwise agree, the matter shall be submitted to binding arbitration under the
International Rules of the American Arbitration Association, before an
independent qualified expert in Dallas, Texas.
(c) Counterparts. This Agreement may be executed simultaneously in
any number of counterparts, each of which counterparts shall be deemed to be an
original, and all of such counterparts shall constitute one and the same
Agreement.
(d) Survival. The obligations of Servicer under Section 5 hereof
shall survive the termination of this Agreement as to any or all Pools.
(e) Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Texas and the obligations, rights and remedies of
the parties hereunder shall be determined in accordance with such laws without
giving effect to the conflict of laws principles thereof. This Agreement is
performable in Dallas County, Texas, which is proper venue for all legal
proceedings.
(f) Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally, delivered by a national overnight delivery service or mailed by
first class mail, postage prepaid to the addresses set forth on the signature
page of this Agreement.
(g) Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be held
invalid for any reason whatsoever, 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.
[remainder of page intentionally left blank]
48
<PAGE>
(h) Successor and Assigns. This Agreement shall inure to the
benefit of and be binding upon Servicer and Owner and their respective
successors and assigns; provided, however, that this Agreement may not be
assigned by Servicer without the prior written consent of Owner.
IN WITNESS WHEREOF, each of the parties has caused its duly authorized
officer or representative to execute this Agreement on the 22nd day of January,
1998, the effective date of this Agreement.
SERVICER: OWNER:
- -------- -----
Lenders Auto Resale Centers of Texas, Inc. AutoPrime, Inc.
dba Lenders Auto Resale Centers
By: /s/ William O. Merritt By: /s/ Thomas A. Henson
------------------------ -------------------------
Title: President Title: Director of Operations
Address: 4738 IH 35 South Address: 200 Crescent Court
Austin, Texas 78745 Suite 1900
Fax: (512) 441-1550 Dallas, Texas 75201
Fax: (214) 871-6540
STATE OF TEXAS
COUNTY OF TRAVIS
The foregoing instrument was acknowledged before me this 22nd day
of January, 1998, by William O. Merritt, President of Lenders Auto Resale
Centers of Texas, Inc. dba Lenders Auto Resale Centers, an Arizona corporation.
/s/ Barbara Nelson
-----------------------------
Notary Public in and for said
County and State
My commission expires: 7-21-2001
(SEAL)
49
<PAGE>
STATE OF TEXAS
COUNTY OF TRAVIS
The foregoing instrument was acknowledged before me this 22nd day of
January, 1998, by Thomas A. Hanson, Director of Operations of AutoPrime Inc., a
Delaware corporation.
/s/ Barbara Nelson
-----------------------------
Notary Public in and for said
County and State
My commission expires: 7-21-2001
(SEAL)
<PAGE>
Exhibit C
Servicing Fees
The Servicing Fee is equal to twenty percent (20%) of gross amounts collected.
51
EXHIBIT 10.6
MASTER PURCHASE AND SALE AGREEMENT
This MASTER PURCHASE AND SALE AGREEMENT (this "Agreement"), dated and
effective as of the date set forth on the signature page of this Agreement, is
made and entered into by and between AutoPrime, Inc., a Delaware corporation
(the "Purchaser"), and the entity more particularly described on the signature
page of this Agreement (the "Seller").
WHEREAS, subject to the terms of this Agreement, Seller desires to
sell, and Purchaser desires to purchase, from time to time, pools of retail
installment sales contracts secured by first priority liens on automobiles and
light-duty trucks (collectively, the "Contracts").
NOW, THEREFORE, in consideration of the mutual premises and promises of
the parties, the receipt and sufficiency of which are hereby acknowledged, and
in reliance on the representations, warranties, covenants, and conditions
contained herein, Purchaser and Seller agree as follows:
ARTICLE I
Definitions
Whenever used herein, unless the context otherwise requires, the
following words and phrases have the following meanings:
Section 1.1 Amount Financed shall mean, as to any Contract, the
purchase price of the Financed Vehicle and the related closing costs, as shown
in the documentation evidencing such Contract, less any down payment previously
paid on such Financed Vehicle.
Section 1.2 Agreement shall mean this Master Purchase and Sale
Agreement and all amendments and supplements hereto.
Section 1.3 Annual Percentage Rate or APR shall mean, as to any
Contract and at any time, the contractual rate of interest then being borne by
such Contract, as determined therein.
Section 1.4 Bill of Sale shall mean each bill of sale, in the form
attached hereto as Exhibit A, delivered by Seller pursuant to Section 2.4
hereof.
Section 1.5 Closing Date shall mean the date agreed by the parties and
set forth on each Contract Schedule delivered in accordance with the terms of
this Agreement, which is, as to any Pool of Contracts purchased hereunder, the
date at which Purchaser purchases such Pool of Contracts from Seller in
accordance with, and subject to, the terms and provisions of this Agreement.
Section 1.6 Computer Tape shall mean the computer tapes, floppy disks,
and/or print-outs generated by Seller that provide information relating to the
Contracts.
Section 1.7 Contract(s) shall mean the retail installment sales
contracts secured by first priority liens on automobiles and light-duty trucks,
delivered to Purchaser from time to time and described in a Contract Schedule.
Each Contract includes, without limitation, all related security interests and
any rights to receive payments which are received pursuant thereto from and
after the related Cut-Off Date.
Section 1.8 Contract File shall mean as to any Contract (a) the
original copy of the Contract, (b) the original certificate of title for the
related Financed Vehicle with the first lien granted in favor of Seller noted
thereon, (c) any extension, modification, or waiver agreement(s) relating to
such Contract, (d) all documents evidencing the existence of any Insurance
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Policies, (e) the executed credit application of Obligor, (f) a credit report
detailing the Obligor's credit history from a credit reporting service, and (g)
copies of all other documentation regarding Obligor generated by Seller or
executed by the Obligor.
Section 1.9 Contract Schedule shall mean the list attached as Addendum
I to each Bill of Sale delivered by Seller on each Closing Date pursuant to
Section 2.4 and Section 2.5 hereof, identifying the Contracts to be purchased
and sold on and as of such Closing Date, and which (a) identifies each Contract
by contract number plus the name and address of the Obligor and (b) sets forth
as to each Contract: (i) the original selling price of the Financed Vehicle,
(ii) the make and model of each Financed Vehicle, (iii) the unpaid principal
balance due on the Contract as of the related Cut-Off Date, (iv) the number of
payments past due on the Contract as of the related Cut-Off Date, (v) the amount
of each scheduled payment due from the Obligor, (vi) the APR, (viii) the final
payment date, and (ix) the most recent payment date.
Section 1.10 Credit Code shall mean those laws in effect in the State
from time to time which govern the making and collection of motor vehicle
installment sales contracts.
Section 1.11 Cut-Off Date shall mean the date set forth on each
Contract Schedule delivered in accordance with the terms of this Agreement,
which is, as to any Contract purchased hereunder, the date as of which such
Contract is offered by Seller for purchase, the date as of which such contract
is actually accepted or deemed accepted by Purchaser for purchase, and the date
as of which the corresponding Contract Schedule is based.
Section 1.12 Electronic Ledger shall mean the electronic master record
of the installment sale contracts or installments loans of Seller.
Section 1.13 Financed Vehicle shall mean the Motor Vehicle, together
with all accessions thereto, securing an Obligor's indebtedness under a
Contract.
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<PAGE>
Section 1.14 Insurance Policies shall mean all physical damage,
comprehensive and collision, fire and theft insurance policies maintained by the
Obligors with respect to the Financed Vehicles, the vendor's single interest
insurance policy providing coverage upon repossession of a Financed Vehicle, and
any credit life and disability insurance maintained by or on behalf of the
Obligors and benefiting the holders of the Contracts.
Section 1.15 Motor Vehicle shall mean a used automobile or light-duty
truck.
Section 1.16 Obligors shall mean each person, other than Seller, who is
indebted under or has guaranteed a Contract or who has acquired a Financed
Vehicle subject to a Contract.
Section 1.17 Person shall mean any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
incorporated organization, or government or any agency or political subdivision
thereof.
Section 1.18 Pool shall mean each pool of Contracts delivered for
purchase by Purchaser pursuant to Section 2.1 hereof.
Section 1.19 Servicing Agreement shall mean the Servicing Agreement,
dated the same date as this Agreement, executed between Seller, or Seller's
affiliate, and Purchaser.
Section 1.20 Servicing File shall mean all legal documents, accounting
records and other items (including comments on collection efforts) maintained by
or on behalf of Seller with respect to a Contract and not included in the
Contract File therefor, and the Computer Tape and any other machine readable
tapes, floppy magnetic diskettes, optical storage disks, or other computer
memory containing same.
Section 1.21 State shall mean the one or more local, state, or federal
governmental jurisdictions in which the transactions described herein occur.
Section 1.22 UCC shall mean the Uniform Commercial Code as now in
effect in the relevant State, as such Uniform Commercial Code may be
subsequently amended.
ARTICLE II
Purchase and Sale of Contracts
Section 2.1 Purchase and Sale of Contracts. On the Closing Date,
Seller shall sell, transfer, assign, and deliver to Purchaser, and Purchaser
shall purchase, accept, and receive from Seller, a Pool of Contracts, subject to
the terms of this Agreement. At any time after the Closing Date, Seller may,
from time to time, submit additional Contracts or Pools of Contracts to
Purchaser for purchase in accordance with, and subject to, the terms and
provisions of this Agreement.
Section 2.2 Conveyance and Delivery of Contracts.
(a) With respect to each Contract actually purchased by Purchaser
pursuant to this Agreement, Seller, on the Closing Date, shall sell, transfer,
assign, endorse, set over, convey, and deliver to Purchaser all right, title,
and interest of Seller in, to, and under:
(i) the Contracts accepted by Purchaser on such Closing Date,
including all payments of principal and interest, lawful late charges, and other
similar payments due thereon and accruing after the related Cut-Off Date, and
all payments on the Contracts received prior to or after the related Cut-Off
Date which have not been applied to the amounts due on the Contracts as of the
related Cut-Off Date;
(ii) the liens and security interests created by the
Contracts, and other rights of Seller arising out of such liens and security
interests, in the Financed Vehicles;
54
<PAGE>
(iii) the interest of Seller, if any, in all Insurance
Policies relating to the Financed Vehicles or the Contracts,
(iv) all documents and information contained in the Contract
Files and the Servicing Files;
(v) the Electronic Ledger; and
(vi) all proceeds derived from any of the foregoing.
(b) SELLER AND PURCHASER ACKNOWLEDGE AND AGREE THAT THIS AGREEMENT IS
AN AGREEMENT FOR THE PURCHASE AND SALE OF CONTRACTS ONLY AND IS NOT A LOAN
TRANSACTION AND THAT NO TERM OR PROVISION CONTAINED IN THIS AGREEMENT SHALL BE
CONSTRUED TO THE CONTRARY.
Section 2.3 Purchase Price; Payments.
(a) The purchase price for each Contract shall be the amount set forth
on Addendum II to the Bill of Sale with respect to such Contract (the "Purchase
Price"). Upon satisfaction of the conditions in Section 2.4 and Section 2.5
hereof with respect to each Contract, Purchaser shall pay the Purchase Price for
such Contract to Seller.
(b) For each Contract purchased by Purchaser, Purchaser shall be
entitled to all payments on such Contract received on and after the related
Cut-Off Date, including accrued interest. In addition, all payments on each
Contract received by Seller prior to the related Cut-Off Date which (i) have not
been applied to the amount due on such Contract as of the related Cut-Off Date
and (ii) were not utilized to calculate the unpaid principal balance of such
Contract, shall be the property of Purchaser and forwarded to Purchaser by
Seller on the Closing Date or promptly thereafter when received by Seller.
Section 2.4 Conditions to Effectiveness of Agreement; Deliveries at
Closing. The effectiveness of this Agreement and all of Purchaser's obligations
hereunder is subject to Purchaser having received on or before the Closing Date
the following items (unless waived by Purchaser in writing), each of which shall
be dated as of the Closing Date:
(a) copies of appropriate resolutions of Seller certified by
the Secretary of Seller (if Seller is a corporation), in the form of Exhibit B
attached hereto, or other documentation of the authority of the Person executing
all documents required hereunder on behalf of Seller authorizing Seller to enter
into and perform this Agreement, each Bill of Sale, the Servicing Agreement and
any and all other documents, obligations, and transactions contemplated
hereunder and thereunder;
(b) an executed Servicing Agreement;
(c) an executed incumbency certificate (if Seller is a corporation), in
the form of Exhibit C attached hereto, or other evidence of the signatures of
the representatives of Seller signing this Agreement, each Bill of Sale, and the
Servicing Agreement;
(d) an executed Owner's Agreement, in the form attached hereto as
Exhibit D;
(e) an executed Power of Attorney in the form attached hereto as
Exhibit E;
(f) an executed Bill of Sale conveying Seller's interest in
the Contracts to be delivered on such Closing Date from Seller to Purchaser;
(g) a UCC search in each jurisdiction requested by Purchaser,
the results of which are satisfactory to Purchaser in Purchaser's sole
discretion;
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<PAGE>
(h) a title report issued by a reputable title reporting agency
approved by Purchaser with respect to each Financed Vehicle securing each
of the Contracts purchased;
(i) with respect to each Contract purchased, a copy of the
Contract, all Insurance Policies, the Contract File, the Servicing File, the
certificate of title or other document evidencing lien or security interests
created by the Contract, and the Electronic Ledger; and
(j) all other documents that may be requested by Purchaser.
Section 2.5 Conditions to Subsequent Sales of Contracts. Purchaser's
decision to purchase Contracts or Pools of Contracts which Seller may, from time
to time, submit to Purchaser for purchase after the Closing Date pursuant to
this Agreement shall be subject to the satisfaction of the conditions set forth
in Sections 2.4(f), (g), (h), (i), and (j) with respect to each such Contract as
of the applicable Cut-Off Date.
ARTICLE III
Representations and Warranties of Seller
Section 3.1 Representations and Warranties of Seller. Seller hereby
represents and warrants to, and agrees and covenants with, Purchaser as of the
Closing Date and each Cut-Off Date as follows:
(a) Organization and Good Standing. Seller is duly organized and
validly existing under the laws of its jurisdiction of incorporation or other
formation, has the power to own its assets, including but not limited to the
Contracts, and to transact business in the State in which it is currently
engaged. Seller is duly qualified to do business and is in good standing in the
State and in each other jurisdiction in which the character of the business
transacted by it or properties owned or leased by it or the purchase and sale of
the Contracts requires such qualification and in which the failure so to qualify
would have an adverse effect on the performance of Seller hereunder or the
enforceability of any of the Contracts.
(b) Authorization; Binding Obligations. Seller has all requisite power
and authority to make, execute, and deliver this Agreement, to perform its
obligations under this Agreement, and to effect all of the transactions
contemplated to be performed by it under this Agreement, and has taken all
necessary action to authorize the execution, delivery, and performance of this
Agreement and to consummate the transactions contemplated hereby. When executed
and delivered, this Agreement will constitute the legal, valid, and binding
obligation of Seller enforceable in accordance with its terms.
(c) No Consent Required. Seller is not required to obtain the consent
of any other party nor is any consent, license, approval, or authorization from,
or registration or declaration with, the State or any governmental authority,
bureau, or agency required in connection with Seller's execution, delivery, or
performance of this Agreement, or, if required, Seller has previously obtained
any such required consent, license, approval, authorization, registration, or
declaration.
(d) No Violations. The execution, delivery, and performance of this
Agreement and the transactions contemplated hereby by Seller will not violate
any provision of any existing law or regulation or any order or decree of any
court of competent jurisdiction applicable to Seller or the charter or bylaws of
Seller, or constitute a breach of any mortgage, indenture, loan agreement, or
other contract to which Seller is a party or by which Seller may be bound.
(e) Litigation. No litigation or administrative proceeding of or before
any court, tribunal, or governmental body is currently pending or, to the
knowledge of Seller, threatened against Seller or any of its properties,
including specifically the Contracts, Financed Vehicles, or Insurance Policies,
or with respect to this Agreement.
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(f) Sale of Contracts. Each sale of Contracts pursuant to this
Agreement shall be reflected on Seller's balance sheet and other financial
statements as a sale of assets by Seller. Seller shall not take any action or
omit to take any action which would cause the transfer of any Contract to
Purchaser to be treated as anything other than a sale to Purchaser of all of
Seller's right, title, and interest in and to such Contract.
Section 3.2 Representations and Warranties as to Each Contract. Seller
hereby makes the following representations and warranties as to each Contract or
Pool of Contracts conveyed by it to Purchaser hereunder.
(a) Characteristics of Contracts. The Contract (i) has been originated
by Seller in the ordinary course of Seller's business and has been fully and
properly executed by the parties thereto, (ii) is secured by a valid,
subsisting, and enforceable first priority lien and security interest in favor
of Seller in the Financed Vehicle, which lien and security interest are
assignable by Seller to Purchaser, (iii) contains customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for realization against the collateral securing such Contract,
including the Financed Vehicle, (iv) provides for payments which fully amortize
the Amount Financed over the original term and provide interest at the related
APR over the term of the Contract, (v) provides for, in the event the Contract
is prepaid, a prepayment that fully prepays the outstanding principal balance
thereof and includes accrued and unpaid interest at least through the date of
prepayment in an amount equal to the APR, and (vi) has not, as of the related
Cut-Off Date, been modified as a result of the Soldiers' and Sailors' Civil
Relief Act of 1940, as amended.
(b) Contract Schedule. The information set forth in the Contract
Schedule with respect to such Contract was true and correct as of the opening of
business on the related Cut-Off Date, and the principal balance and the APR of
the Contract as of the related Cut-Off Date have been accurately and correctly
calculated in all documents within the related Contract File and is accurately
and correctly shown on the Contract Schedule. All reports delivered to Purchaser
by Seller regarding payments made by Obligor subsequent to the Cut-Off Date will
be, when delivered, true and correct.
(c) Down Payment. The down payment paid by the Obligor on each
Contract was paid by such Obligor to Seller in the amount and form as set forth
on each Contract.
(d) Compliance with Law. The Contract and the sale of the related
Financed Vehicle complied at the time it was originated or made, and will comply
as of the Closing Date and the related Cut-Off Date, with all requirements of
State law and any other applicable federal, state and local laws, and
regulations thereunder, including, without limitation, laws relating to usury,
the Federal Truth-In-Lending Act, the Equal Credit Opportunity Act, the Fair
Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, Federal Reserve Board Regulations B, Z and AA, any state
adaptations of the National Consumer Credit Protection Act, any state
adaptations of the Uniform Consumer Credit Code, and, to the best of Seller's
knowledge, any other applicable consumer credit, equal opportunity, and
disclosure laws.
(e) Binding Obligation. The Contract constitutes the genuine,
bona-fide, valid, and binding obligation of the Obligor, enforceable by the
holder thereof in accordance with its terms.
(f) Solvency of Obligors. To Seller's knowledge, no voluntary or
involuntary petition or complaint is pending by or against Obligor seeking
bankruptcy of Obligor or the appointment of a receiver or trustee of Obligor, or
of all or substantially all of the assets of Obligor; and no order, order for
relief, judgment, or decree is pending or threatened seeking the appointment of
a receiver or trustee of Obligor, or of all substantially all of the assets of
Obligor.
(g) No Government Obligor. The Obligor is not the United States of
America or any State thereof, or any agency, department, political subdivision,
or instrumentality of the United States of America or any State thereof.
(h) Contracts in Force. The Contract has not been pledged, encumbered,
satisfied, subordinated, waived, restricted, rescinded, or held to be invalid or
unenforceable, and the Financed Vehicle has not been released from the lien
granted by the Contract in whole or in part nor has the Financed Vehicle been
damaged to such degree that materially affects the value of the Financed Vehicle
since the date of sale of the Financed Vehicle to Obligor.
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(i) No Amendment or Waiver. No provision of the Contract has been
amended, waived, altered, or modified in any respect, except pursuant to a
document, instrument, or writing included in the Contract File and reflected in
the Electronic Ledger, and no such amendment, waiver, alteration, or
modification causes such Contract or the lien and security interest granted by
the Contract against the Financed Vehicle not to conform to the other
representations and warranties contained in this Agreement, nor renders it
invalid or unenforceable.
(j) No Defenses. The Contract is not subject to any right of
rescission, setoff, counterclaim, or defense including, without limitation, the
defense or claim of usury, and the operation of any of the terms of the
Contract, or the exercise of any right thereunder, will not render the Contract
unenforceable in whole or in part or subject to any claim, cause of action,
right of rescission, right of cancellation, setoff, counterclaim, or defense
including, without limitation, the defense or claim of usury, and no such claim,
cause of action, right of rescission, right of cancellation, setoff,
counterclaim, or defense has been asserted by Obligor with respect thereto.
(k) No Liens. There are no undisclosed liens or claims, including liens
for work, labor, materials, or unpaid state or federal taxes relating to the
Financed Vehicle, that are or may be liens prior to, equal to, or subordinate to
the lien granted by the Contract against the Financed Vehicle.
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(l) No Default. Except for payment delinquencies of which Seller has
notified Purchaser in writing, no default, breach, violation, or event
permitting acceleration under the terms of the Contract exists, and no
continuing condition that with notice or lapse of time, or both, would
constitute a default, breach, violation, or event permitting acceleration under
the terms of the Contract exists, and Seller has not waived any of the
foregoing.
(m) Good Title. Neither the Contract nor any of Seller's interests
therein has been sold, assigned, hypothecated, pledged, or otherwise conveyed by
Seller to any person other than Purchaser and, immediately prior to the transfer
and assignment herein contemplated, Seller (i) had good and marketable title to
the Contract free and clear of any encumbrance, equity, lien, pledge, charge,
claim, security interest, or other right or title of any third party, (ii) was
the sole owner and holder of the Contract and all rights thereunder, and (iii)
had full right, power, and authority to transfer and assign the Contract to
Purchaser. Immediately upon the transfer and assignment of the Contract to
Purchaser, Purchaser shall have good and marketable title to the Contract, free
and clear of any encumbrance, equity, lien, pledge, charge, claim, security
interest, or other right or title of any other Person and the transfer will be
valid and enforceable under the laws of the State.
(n) Lawful Assignment. The Contract has not been originated in, and is
not subject to the laws of, any jurisdiction under which the sale, transfer, and
assignment of such Contract hereunder to Purchaser or pursuant to which
transfers of the Contracts to Purchaser are unlawful, void, or voidable.
(o) All Filings Made. All filings, including UCC filings, necessary in
any jurisdiction to give Purchaser an ownership interest (or a first priority
perfected security interest) in the Contract have been made.
(p) One Original. There is only one original executed Contract and
related certificate of title, which has been conveyed, endorsed, and delivered
by Seller to Purchaser.
(q) No Fraud or Misrepresentations. The Contract was originated without
any conduct constituting fraud or misrepresentation, failure of consideration,
or forgery or alteration.
(r) Possession. On the related Closing Date, Purchaser will receive
possession of the original Contract and the related Contract File, and there are
and there will be no agreements in effect adversely affecting the right or
ability of Seller to make, or cause to be made, any delivery required hereunder.
(s) Bulk Transfer Laws. The transfer, assignment, and conveyance of the
Contract and the Contract Files by Seller pursuant to this Agreement are not
subject to bulk transfer or any similar statutory provisions in effect in any
applicable jurisdiction.
(t) Taxes. All ad valorem, excise, and other taxes of any nature or
description whatsoever and all recording fees and title transfer costs relating
to the Contracts and the Financial Vehicles have been paid in full by Seller.
(u) Information. All financial statements, tax returns, journals,
ledgers, and other information furnished to Purchaser in connection with the
purchase of the Contracts was or will be at the time furnished true and correct
in all respects, and Seller has not made any untrue statement of material fact
or omitted to state any material fact to Purchaser or any of its officers and
agents in connection with the purchase of the Contracts by Purchaser. No
material adverse change has occurred in the business, prospects, profits,
properties, operations, or condition, financial or otherwise, except as
disclosed to Purchaser in such delivered information.
(v) No Assignment. Seller has not taken any action to convey any right
to any Person that would result in such Person having a right to payments
received under the Insurance Policies or payments due under any Contract that is
senior to, equal with, or subordinate to that of Purchaser.
(w) Characteristics. The Contracts in each Pool had the following
characteristics as of the related Cut-Off Date: (i) each Contract is a retail
installment sales contract for the purposes of used Financed Vehicle statutes;
and (ii) none of the Financed Vehicles securing the Contracts has been titled as
salvaged, reconditioned, or reconstructed Motor Vehicles.
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(x) Computer Tape. The Computer Tape relating to the Pool made
available by Seller was complete and accurate as of the related Cut-Off Date and
includes a description of the same Contracts that are described in the Contract
Schedule.
(y) Marking Records. On or before the Closing Date, Seller will have
caused the portions of the Electronic Ledger relating to the Contracts to be
purchased as of the related Cut-Off Date to be clearly and unambiguously marked
to show that such Contracts are owned by Purchaser and, upon Purchaser's
request, shall provide Purchaser with evidence of such marking.
(z) Other. Without limiting any of the foregoing, Seller further
represents and warrants as to each Contract the following: (i) the Contract is
in form and substance in compliance with all applicable governmental
requirements; (ii) the Contract is the only instrument executed for the purchase
of the property described therein and is and will continue to be free from
defenses, offsets and counterclaims; (iii) all statements contained in each
Contract are true and correct and the unpaid balance as shown therein is
correct; (iv) any down payment in any Contract has been made in cash and not its
equivalent unless otherwise stated in each Contract; (v) no part of the down
payment described in any Contract and reflected as paid has been loaned or given
directly or indirectly by Seller to Obligor; (vi) the Financed Vehicle described
in the Contract has been delivered; (vii) each sale evidenced by said Contract
was completed in accordance with governmental requirements affecting such sale,
including, but not limited to, the Federal Truth-in-Lending Act, the Magnuson
and Moss Warranty Federal Trade Commission Improvement Act and Warrant Act,
Federal Equal Credit Opportunity Act, The Federal Trade Commission Act, and all
applicable state and local laws and regulations; (viii) all required disclosures
to Obligor were made in accordance with all governmental requirements; (ix) the
Obligor in each Contract had the legal capacity to enter into said Contract; and
(x) the names and signatures on each Contract are not forged, fictitious or
assumed and are true and correct.
ARTICLE IV
Covenants of Seller
Seller hereby agrees to keep, perform, and fully discharge the
following covenants and agreements:
Section 4.1 Effecting and Perfecting Each Sale of Contracts. At the
request of Purchaser, Seller will, at Seller's expense, promptly:
(i) take or cause to be taken any further action necessary or
appropriate to effect and perfect each sale and conveyance of each Contract made
hereunder;
(ii) execute or cause to be executed such documents and
instruments as are necessary or appropriate to effect and perfect each sale and
conveyance of each Contract made hereunder;
(iii) obtain from third parties all documents, instruments,
waivers, and releases necessary, and to take all other actions requested by
Purchaser, to facilitate each sale and conveyance of each Contract made
hereunder; and
(iv) execute a notice letter to the Obligors informing them of
the existence of this transaction and the sale and assignment of the applicable
Contract, and Seller hereby grants Purchaser the authority to mail such notice
letter to, or otherwise contact, Obligors informing them of the existence of
this transaction and the sale and assignment of the applicable Contract.
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Without limiting the generality of the foregoing, at Purchaser's
request, Seller will send appropriate notices of the transfer of the Contracts
to insurers under the Insurance Policies covering the Financed Vehicles securing
the Contracts and will send appropriate notices to the Obligors under the
Contracts.
Section 4.2 Certificate of Title. Seller has delivered and assigned to
Purchaser the original certificate of title with respect to each Financed
Vehicle that is the subject of each Contract purchased by Purchaser hereunder,
and Seller will not request any governmental agency to issue or cause to be
issued any copy of such certificate of title, except upon the written request of
Purchaser. If a temporary certificate of title has been obtained and delivered
to Purchaser, Seller will promptly obtain a permanent certificate of title,
reflecting Seller's lien, and deliver it to Purchaser as soon as it is obtained.
Section 4.3 No Future Lien. After the sale to Purchaser of any
Contract, Seller will not create or cause to be created any lien or claim that
is prior to or equal to the lien granted by the Contract against the Financed
Vehicle, including a lien for any work, labor, materials, or unpaid state or
federal taxes relating to a Financed Vehicle.
Section 4.4 Replacement and Repurchase of Contracts. Seller will
perform or cause to be performed the replacement and repurchase obligations set
forth in Article V of this Agreement.
Section 4.5 Relocation of Principal Executive Office. Seller shall give
Purchaser at least thirty (30) days prior written notice of any relocation of
its principal executive office and if, as a result of such relocation, the
applicable provisions of the UCC would require the filing of any amendment of
any previously filed financing or continuation statement or of any new financing
statement, Seller shall execute and deliver to Purchaser such amended or
replacement financing statement.
Section 4.6 Notice of Breach. Seller covenants and agrees to give
Purchaser prompt written notice upon discovery of a breach of any
representation, warranty, or covenant of this Agreement and upon the discovery
of any delinquency in the payment of unpaid principal and interest on any
Contract by Obligor.
ARTICLE V
Repurchase and Replacement of Contracts
Section 5.1 Repurchase and Replacement Obligation. Upon the occurrence
of a Triggering Event (as defined below), Seller agrees to replace or repurchase
any of the Contracts subject to such Triggering Event in the manner and within
the time period as provided in this Article V.
Section 5.2 Replacement of Contracts. Upon the occurrence of a
Triggering Event, Seller may elect to replace any Contract by delivering to
Purchaser a replacement contract (a "Replacement Contract"), which is acceptable
to Purchaser, within the time specified in this Article V. The Replacement
Contract delivered by Seller must be secured by a first priority lien on an
automobile and/or light-duty truck and must contain an equivalent pay-off amount
as of the date of exchange, the same term, the same APR, and such other terms
and provisions acceptable to Purchaser. To the extent Purchaser, in its sole
discretion, accepts a Replacement Contract with a term, APR, or pay-off amount
that varies in any way from that of the Contract to be replaced, the resulting
yield on the investment for Purchaser must be equivalent. Seller will pay to
Purchaser, or vice versa, an amount at the date of exchange which will make the
exchange exact as to value and yield. Seller shall reimburse Purchaser for any
and all expenses incurred by Purchaser with respect to any Contract replaced in
accordance with this Article V. The decision to accept or reject a Replacement
Contract is in the Purchaser's sole discretion, and Purchaser is under no
obligation to accept a Contract offered by Seller as a replacement. If Purchaser
does not accept the Replacement Contract, Seller must repurchase the delinquent
Contract from Purchaser pursuant to Section 5.5 hereof.
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Section 5.3 Manner of Replacement. If Purchaser accepts the Replacement
Contract offered by Seller, Seller shall promptly deliver to Purchaser the
Contract File related to the Replacement Contract, together with the documents
required to be delivered pursuant to Section 2.5 hereof. Upon receipt by
Purchaser of each of the foregoing (unless receipt of any is expressly waived by
Purchaser), Purchaser shall promptly deliver to Seller the Contract to be
replaced, the Contract File related to the Contract to be replaced, and all
other documents in the possession of Purchaser related to the Contract to be
replaced.
Section 5.4 Continuing Obligations of Seller on Replacement Contracts.
Seller agrees and acknowledges that the representations, warranties, covenants,
and other obligations of Seller arising under this Agreement with respect to all
Contracts shall continue and be enforceable with respect to any such Replacement
Contracts, including, but not limited to, the obligations and conditions of
Seller contained in Article II, the representations and warranties contained in
Article III hereof, the covenants of Seller contained in Article IV hereof, and
the repurchase and replacement obligations contained in this Article V.
Section 5.5 Repurchase of Contracts. Upon the occurrence of a
Triggering Event, Seller may elect to repurchase any Contract within the time
specified in this Article V. The purchase price for the Contract to be
repurchased shall be the payoff amount on the Contract plus all accrued and
unpaid interest thereon, less one-half of the unearned discount on the Contract
at the date of exchange. In addition, Seller shall reimburse Purchaser for any
and all expenses incurred by Purchaser with respect to such Contract. Upon the
receipt by Purchaser of the repurchase price together with any expenses as set
forth in this Section 5.5, Purchaser shall promptly deliver to Seller the
Contract to be repurchased, the Contract File related to the repurchased
Contract, and all other documents in the possession of Purchaser related to the
repurchased Contract.
Section 5.6 Triggering Events. For purposes of this Article V, a
Triggering Event shall mean:
(a) a breach by Seller of any representation, warranty, or covenant
contained in this Agreement and such breach has not been cured in all material
respects within five (5) days of Seller's receipt of notice of such breach from
Purchaser; or
(b) if any payment due under any Contract becomes delinquent for a
period of thirty (30) days or more.
Section 5.7 Timing of Seller's Repurchase and Replacement Obligations.
Seller must complete its repurchase and replacement obligations pursuant to this
Article V within five (5) days of the expiration of the cure period set forth in
Section 5.6(a) or within ten (10) days following the date at which a Contract
becomes delinquent for thirty (30) days as set forth in Section 5.6(b).
Section 5.8 Right and First Option to Purchase or Exchange Contracts.
Seller hereby agrees that in the event and during such time of a default by
Seller under the terms of this Agreement, including, without limitation, the
failure of Seller to timely repurchase or replace any Contract pursuant to this
Article V, then, in such event, Seller will not sell, assign, encumber, or
otherwise transfer or dispose to any third party any retail installment sales
contract owned by Seller and secured by first priority liens on automobiles and
light-duty trucks unless Seller first offers such contract to Purchaser either
for (a) purchase at a price to be calculated in accordance with the terms of
this Agreement or (b) exchange in accordance with Section 5.2, with such
election to be made by Purchaser in Purchaser's sole discretion. Purchaser will
have five (5) business days following the presentment of any contracts by Seller
to exercise the right and first option granted hereunder. If Purchaser notifies
Seller of its intent not to purchase or exchange such contracts or if Purchaser
fails to notify Seller of its intention within such five (5) day period, Seller
may sell, assign, encumber, or otherwise transfer or dispose of such contracts
to any third party. Seller agrees and acknowledges that the representations,
warranties, covenants, and other obligations of Seller arising under this
Agreement with respect to all Contracts shall continue and be enforceable with
respect to any contracts purchased or exchanged by Purchaser pursuant to this
Section 5.8, including, but not limited to, the obligations and conditions of
Seller contained in Article II, the representations and warranties contained in
Article III hereof, the covenants of Seller contained in Article IV hereof, and
the repurchase and replacement obligations contained in this Article V.
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ARTICLE VI
Indemnification
Seller hereby agrees to protect, defend, indemnify, and hold Purchaser
and its assigns and their respective attorneys, accountants, employees, agents,
officers, and directors harmless from and against all losses, liabilities,
damages, judgments, claims, counterclaims, demands, actions, proceedings, costs
and expenses (including reasonable attorneys' fees) of every kind and character
resulting from, relating to, or arising out of this Agreement and the
transactions contemplated hereby including, without limitation, those resulting
from, relating to, or arising out of (a) the inaccuracy, nonfulfillment, or
breach of any representation, warranty, covenant, or agreement made by Seller
herein or in the documents described in Section 2.4 or Section 2.5 hereof, (b)
any legal action, including any counterclaim, to the extent it is based upon
alleged facts that, if true, would constitute a breach of any representation,
warranty, covenant, or agreement made by Seller herein or in the documents
described in Section 2.4 or Section 2.5 hereof, (c) any actions or omissions of
Seller or any employee or agent of Seller, or any negligent, reckless or willful
misconduct of Seller or any employee or agent of Seller, occurring prior to the
Cut-Off Date with respect to any Contract or the Financed Vehicle, or (d) the
violation or claim of violation of any of the State's laws by Seller or any
person acting for or on behalf of Seller.
ARTICLE VII
Miscellaneous Provisions
Section 7.1 Amendment. This Agreement may be amended from time to
time by Seller and Purchaser only by written agreement signed by Seller and
Purchaser.
Section 7.2. Disputes. In the event of a dispute regarding the terms of
this Agreement, the breach of any representation or warranty contained herein,
or any matter arising hereunder, if Seller and Purchaser cannot otherwise agree,
the matter shall be submitted to binding arbitration under the Commercial Rules
of the American Arbitration Association before an independent qualified expert
in Dallas, Texas. Purchaser and Seller agree that an arbitrator may, in addition
to any other remedy at law or equity, award punitive, consequential, or special
damages against a party for any claim, controversy, or dispute arising under or
in any way relating to this Agreement, whether arising in equity, contract, or
tort (including, without limitation, any claim for fraud or negligence).
Section 7.3 Injunctive Relief; Specific Performance. Notwithstanding
the foregoing terms of Section 7.2, Purchaser and Seller acknowledge and agree
that the failure of any party to perform its agreements and covenants under this
Agreement will cause irreparable injury to the other party for which damages,
even if available, will not be an adequate remedy. Accordingly, each party
hereby consents and agrees to the issuance of injunctive relief by any court of
law of competent jurisdiction (a) in the event of a dispute regarding the terms
of the Agreement, the breach of any representation, warranty, or covenant
contained in the Agreement, or any other dispute, controversy, or claim between
the Purchaser and Seller arising under or in any way related to the Agreement or
the transactions contemplated thereby or (b) to compel specific performance of
such party's obligations and to the granting by any court of the remedy of
specific performance of its obligations under this Agreement.
Section 7.4 Remedies. Purchaser and Seller agree that (a) all rights
and remedies under this Agreement are cumulative and that no election or
exercise of any right or remedy will be deemed an exclusion of any other right
or remedy and (b) unless expressly stated, no right or remedy under this
Agreement will be deemed a limitation on any other right or remedy.
Section 7.5 Further Assurances. In order to facilitate enforcement of
Purchaser's rights hereunder with respect to any Contract and Financed Vehicle,
Seller shall, promptly after the request by Purchaser or its assigns, and at
Seller's expense, do and perform or cause to be done and performed every
reasonable act and thing necessary or advisable to carry out to the intent of
this Agreement (including, without limitation, ensuring that Purchaser has the
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right and ability to enforce payment and performance of the Contracts). Seller
hereby grants an irrevocable power of attorney coupled with an interest to
Purchaser for the specific purpose of exercising all rights and remedies Seller
would have with respect to the Contracts, titles to motor vehicles serving as
collateral, and the Financed Vehicles securing them, but for sale of the
Contracts to Purchaser. Seller hereby authorizes Purchaser to send the notice
letter to Obligors informing them of the existence of this transaction and the
assignment of the applicable Contract.
Section 7.6 Counterparts. This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed to be an original,
and all of such counterparts shall constitute one and the same Agreement.
Section 7.7 Survival. The obligations of Seller and Purchaser under
this Agreement, including, but not limited to, the representations and
warranties set forth in Article III, the covenants set forth in Article IV, the
repurchase and replacement obligations set forth in Article V, and the
obligations of Seller contained in Article VI shall survive the sale of
Contracts to Purchaser.
Section 7.8 Notices. All demands, notices, and communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally, delivered by a national overnight delivery service, or mailed by
first class mail, postage prepaid, to the address of each party set forth on the
signature page of this Agreement, which address is the principal place of
business of such party unless otherwise indicated.
Section 7.9 Severability of Provisions. If any one or more of the
covenants, agreements, provisions, or terms of this Agreement shall be held
invalid for any reason whatsoever, 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.
Section 7.10 No Partnership. Nothing herein contained shall be deemed
or construed to create a co-partnership or joint venture between the parties
hereto.
Section 7.11 Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Texas and the obligations, rights, and
remedies of the parties hereunder shall be determined in accordance with such
laws without giving effect to the conflict of laws principles thereof. This
Agreement is performable in Dallas County, Texas, which is proper venue for all
legal proceedings. Each of the parties expressly consents to the personal
jurisdiction of the courts of the State of Texas.
Section 7.12 Successor and Assigns. This Agreement shall inure to the
benefit of and be binding upon Seller and Purchaser and their respective
successors and assigns; provided, however, that this Agreement may not be
assigned by Seller without the prior written consent of Purchaser. Purchaser may
sell, assign, hypothecate, pledge, or otherwise convey this Agreement or any
Contract purchased hereunder without the prior written consent of Seller.
Section 7.13. Attorneys' Fees and Costs. If attorneys' fees or other
costs are incurred to secure performance of any obligations under the Agreement,
or to establish damages for the breach thereof or to obtain any other
appropriate relief at law or equity, whether by way of prosecution or defense,
the prevailing party shall be entitled to recover reasonable attorneys' fees and
costs incurred in connection therewith.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
signed and delivered by its duly authorized officers or representatives on this
12th day of January, 1999.
SELLER: PURCHASER:
- ------ ---------
ACE Motor Company AutoPrime, Inc.
By: /s/ Charles Norman By: /s/ Thomas A. Hanson
---------------------- -------------------------
Title: President Title: Director of Marketing
Address: 5949 Sherry Lane Address: 200 Crescent Court
Suite 525 Suite 1900
Dallas, Texas 75225 Dallas, Texas 75201
STATE OF TEXAS
COUNTY OF DALLAS
The foregoing instrument was acknowledged before me this 12th day of
January, 1999 by Charles Norman, President of ACE Motor Company, a Texas
corporation.
/s/ Joan M. Simpson
------------------------
Notary Public in and for
said County and State
My commission expires: 10-16-2001
(SEAL)
STATE OF TEXAS
COUNTY OF DALLAS
The foregoing instrument was acknowledged before me this 12th day of
January, 1999 by Thomas A. Hanson, Director of Marketing of AutoPrime, Inc., a
Delaware corporation.
/s/ Joan M. Simpson
My commission expires: 10-16-2001 ---------------------------------
(SEAL) Notary Public in and for
said County and State
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EXHIBIT 10.7
GUARANTY
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which is
hereby acknowledged, each of the undersigned corporations (the "Guarantor")
guarantees unconditionally, the full and prompt performance of all obligations
of each of the other undersigned corporations who may, from time to time, be a
Seller under the Master Purchase and Sale Agreement (the "Master Purchase and
Sale Agreement"), including, but not limited to, the obligations of the
Servicing Agreement (the "Servicing Agreement"), both dated of even date
herewith. Capitalized terms used herein but not defined shall have the meanings
assigned to such terms in the Master Purchase and Sale Agreement.
Guarantor acknowledges and represents to Purchaser that it is receiving
direct and indirect financial and other benefits as a result of this Guaranty
and the obligations secured hereunder; represents to Purchaser that after giving
effect to this Guaranty and the contingent obligations evidenced hereby it is,
and will be, solvent; acknowledges that this Guaranty is operative and binding
as to it; and acknowledges that neither Purchaser nor any officer, employee,
agent, attorney or other representative of Purchaser has made any
representation, warranty or statement to Guarantor to induce it to execute this
Guaranty.
Guarantor agrees to pay on demand all costs and expenses of every kind
incurred by Purchaser: (a) in enforcing this Guaranty; (b) in collecting on any
obligations of any Seller or any Guarantor; (c) in realizing upon or protecting
any collateral for this Guaranty; and (d) for any other purpose related to this
Guaranty.
This Guaranty shall inure to the benefit of and be binding upon
Purchasers and Guarantors, and their respective successors and assigns;
provided, however, that this Guaranty may not be assigned by any Guarantor
without the prior written consent of Purchaser.
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This Guaranty shall be construed in accordance with the laws of the
State of Texas and the obligations, rights and remedies pursuant to this
Guaranty shall be determined in accordance with such laws without giving effect
to the conflict of laws principles thereof. This Guaranty is performable in
Dallas County, Texas, which is proper venue for all legal proceedings. Guarantor
expressly consents to the personal jurisdiction of the courts of the State of
Texas.
Executed and delivered as of the 12th day of January, 1999.
ACE Motor Company
By: /s/ Charles Norman
-------------------------
Charles Norman, President
AutoCorp Financial Services, Inc.
By: /s/ Charles Norman
-------------------------
Charles Norman, President
AutoCorp Equities, Inc.
By: /s/ Charles Norman
-------------------------
Charles Norman, President
67
EXHIBIT 10.8
SERVICING AGREEMENT
This SERVICING AGREEMENT (this "Agreement"), dated and effective as of
the date appearing on the signature page of this Agreement, is entered into by
and between AutoPrime, Inc., a Delaware corporation ("Owner"), and the entity
described on the signature page of this Agreement ("Servicer").
WHEREAS, Servicer and Owner have entered into a Master Purchase and
Sale Agreement, dated of even date herewith (the "Master Purchase and Sale
Agreement"), pursuant to which, among other things, Owner purchased from
Servicer certain retail installment sales contracts secured by first priority
liens on automobiles and light-duty trucks ("Contracts").
WHEREAS, Servicer is engaged in the business of managing and servicing
Contracts.
WHEREAS, Owner desires to retain the services of Servicer for the
purposes of managing and servicing Contracts purchased from time to time by
Owner from Servicer for Owner's account pursuant to the Master Purchase and Sale
Agreement ("Acquired Contracts"). All capitalized terms used herein and not
otherwise defined shall have the meanings assigned to such terms in the Master
Purchase and Sale Agreement.
NOW, THEREFORE, in consideration of the mutual premises and promises of
the parties and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Servicer and Owner agree as
follows:
Section 1. Contract Management and Servicing. Subject to the terms and
conditions hereinafter set forth, along with all terms, conditions,
representations, warranties, covenants, and definitions set forth in the Master
Purchase and Sale Agreement, which are expressly incorporated herein by
reference, Servicer shall provide all management and servicing of the Acquired
Contracts purchased by Owner from Servicer from time to time under the Master
Purchase and Sale Agreement and covenants and agrees to manage and service the
Acquired Contracts for the account of Owner as described below and in accordance
with the industry standards pertaining to such Contracts utilizing the same
degree of care as if the Acquired Contracts were owned by Servicer itself:
(a) Servicer obligates itself to service the Acquired Contracts
under this Servicing Agreement in accordance with the industry standards
pertaining to such Contracts utilizing the same degree of care as if the
Acquired Contracts were owned by Servicer itself including, without limitation,
an obligation to maintain an automated reporting system at its sole cost which
produces information with respect to each Contract and each Pool in form and
content reasonably acceptable to Owner.
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(b) Servicer covenants and agrees to comply with all requirements
of State law and any other applicable federal, state, and local laws and
regulations thereunder, including, without limitation, the Fair Debt Collection
Practices Act, in servicing the Acquired Contracts under this Agreement.
(c) During the term of the Acquired Contracts serviced under this
Agreement, Servicer will proceed diligently to collect all sums due under the
Acquired Contracts and will deposit on a daily basis or as otherwise directed in
writing by Owner all funds received with respect to the Acquired Contracts, less
the servicing fee provided for in Section 2 hereof, into a bank custodial or
trust account or accounts maintained for the benefit of Owner and from which
Owner will have the right to withdraw or transfer such funds. Said account or
accounts shall be maintained in a financial institution designated by Owner, the
accounts of which are insured by the Federal Deposit Insurance Corporation.
(d) Servicer shall maintain complete books and records relating to
its servicing activities hereunder and shall provide to Owner, not less
frequently than once per week, a written servicing report containing a complete
and accurate accounting of the servicing activity during the preceding week,
which will include the following information with respect to each Acquired
Contract: (i) a Delinquency Analysis & Report in the form attached hereto as
Exhibit A, and (ii) a schedule of payments received and payments due but not
paid in the form attached hereto as Exhibit B. Each report shall be delivered to
Owner by hand delivery or facsimile transmission no later than 12:00 p.m. on
Tuesday of each week and shall be accurate as of all transactions through the
close of business on Saturday of the immediately preceding week.
(e) Servicer, in the course of servicing and managing the Acquired
Contracts, shall not waive, vary, extend, or cancel any term or condition of the
Acquired Contracts without Owner's prior written consent, but Servicer may,
without legally committing Owner to any of the same, extend in its discretion
reasonable forbearance before declaring an Acquired Contract in default as shall
be consistent with industry standards, but such period of forbearance shall not
in any event exceed fourteen (14) days.
(f) With respect to the Insurance Policies, if any, maintained by
Servicer for the Acquired Contracts in connection with and as described by the
Master Purchase and Sale Agreement, Servicer shall, at Servicer's expense, file
all claims and/or other forms necessary or appropriate to preserve and protect
Owner's interest in the Insurance Policies, if any, identified in the Master
Purchase and Sale Agreement.
(g) Owner shall be named as an additional insured on any fidelity
and errors and omissions insurance policies maintained by Servicer. Upon Owner's
request, Servicer shall furnish to Owner a certificate of insurance with respect
to any such coverage reflecting Owner as additional insured. Servicer shall not
reduce the amount of any such coverage without prior written notice to Owner.
Owner may, at its option and expense, obtain and maintain such fidelity and
errors and omissions insurance policies with respect to the employees of
Servicer, naming Owner as additional insured, as it deems necessary or
appropriate.
(h) No later than ten (10) days after the end of each calendar
month, Servicer shall furnish to Owner a monthly unaudited profit and loss
statement and balance sheet of Servicer, each prepared in reasonable detail and
in accordance with generally accepted accounting principles and certified by an
authorized officer of Servicer as being true and correct.
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Section 2. Servicing Fees. As compensation for its services rendered
hereunder, Servicer shall be entitled to retain an amount, as set forth on
Exhibit C to this Agreement, of all payments due and actually received by
Servicer under each Acquired Contract serviced hereunder. Servicer shall remit
in full to Owner the balance of the payments actually received by Servicer under
each Acquired Contract serviced hereunder, less the servicing fee provided for
in this Section 2, into a bank custodial or trust account or accounts as set
forth in Section 1(b) hereof. Servicer will pay all costs and expenses incurred
by it in connection with its servicing activities hereunder.
Section 3. Term and Termination. This Agreement shall be effective and
commence on the date hereof and, unless earlier terminated pursuant to this
Section 3, shall terminate after the repayment of the last Acquired Contract in
Owner's portfolio and after all taxes, fees, and funds have been accounted for
and disbursed with respect thereto in accordance with the terms hereof. This
Agreement may be terminated as follows:
(a) This Agreement shall terminate automatically as to any and all
Acquired Contracts upon the dissolution, termination of existence, insolvency
(failure to pay debts as they mature or the failure to maintain the fair salable
value of assets in excess of liabilities), business failure, appointment of a
receiver, trustee, custodian, or similar fiduciary, assignment for the benefit
of creditors, or the commencement of any proceedings under the bankruptcy laws,
of, by, or against Servicer, or the making by Servicer of any offer or
settlement, extension, or composition to its creditors generally.
(b) If Servicer breaches or fails to perform, keep, or observe any
representation, warranty, covenant, or agreement contained in this Agreement or
in the Master Purchase and Sale Agreement (including, but not limited to,
Servicer's failure to deposit funds received for any Acquired Contract into an
account as set forth in Section 1(b) hereof, Servicer's failure to deliver on a
timely basis any of the reports to Owner pursuant to this Agreement or the
Master Purchase and Sale Agreement, Servicer's failure to use due diligence in
collecting funds due under any Acquired Contract, Servicer's failure to timely
perform its replacement and repurchase obligations as set forth in Article 5 of
the Master Purchase and Sale Agreement, and the occurrence of a material adverse
change in the financial condition of Servicer), Owner may, upon twenty-four (24)
hours written or oral notice, terminate this Agreement with respect to any and
all Acquired Contracts.
(c) This Agreement may be terminated as to any and all Acquired
Contracts at any time by the mutual agreement of Owner and Servicer.
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Section 4. Procedure upon Termination.
(a) Immediately upon the termination of this Agreement pursuant to
Section 3(a) and Section 3(c) hereof and immediately upon Servicer's receipt of
notice of termination pursuant to Section 3(b) hereof, Servicer's right to
retain the servicing fees prescribed in Section 2 hereof with respect to any and
all of such terminated Acquired Contracts shall terminate immediately and, from
and after the date of such termination, Servicer shall deposit all amounts
received with respect to such Acquired Contracts, if any, into the account or
accounts maintained pursuant to Section 1(b) hereof, without deduction. In
addition, Owner may, with or without the consent of Servicer, mail to each
Obligor of any Acquired Contract the notice letter executed by Servicer pursuant
to Section 4.1 of the Master Purchase and Sale Agreement, or otherwise contact
each Obligor of any Acquired Contract, informing such Obligor of the existence
of the transactions between Servicer and Owner, the sale and assignment of the
applicable Acquired Contract, the termination of this Agreement, and directing
the Obligor to remit all future payments under the Acquired Contract to an
account designated by Owner.
(b) Upon termination of this Agreement as to any and all Acquired
Contracts, Servicer shall immediately deliver to Owner the Servicing File and
any other documents in Servicer's possession with respect to each Acquired
Contract so terminated and an accounting of all monies collected by Servicer and
held by it for Owner with respect to such Acquired Contracts and shall
immediately pay over to Owner all monies so held.
Section 5. Indemnification. Servicer hereby agrees to protect, defend,
indemnify, and hold Owner and its assigns and their respective attorneys,
accountants, employees, agents, officers, and directors harmless from and
against all losses, liabilities, damages, judgments, claims, counterclaims,
demands, actions, proceedings, costs and expenses (including reasonable
attorneys' fees) of every kind and character resulting from, relating to, or
arising out of this Agreement or the performance of Servicer's obligations
hereunder. In addition to and without limiting the foregoing, (a) if Servicer
breaches any representation, warranty, or covenant contained in this Agreement
or the Master Purchase and Sale Agreement and such breach has not been cured in
all material respects within five (5) days of Servicer's receipt of notice of
such breach from Owner, Servicer shall replace or repurchase the Acquired
Contract within five (5) days of the expiration of the aforementioned cure
period or (b) if any payment due under any of the Acquired Contracts becomes
delinquent for a period of thirty (30) days or more, Servicer shall replace or
repurchase the Acquired Contract within ten (10) days of the Acquired Contract
becoming thirty (30) days delinquent, each in accordance with Article V of the
Master Purchase and Sale Agreement, which is expressly incorporated herein by
reference. The purchase price for any such Acquired Contract shall be an amount
equal to the unpaid principal balance of the Acquired Contract plus accrued
interest, less one-half of any unearned discounts. In addition, Servicer shall
reimburse Owner for any and all expenses incurred by Owner with respect to such
Acquired Contract. Upon receipt of the purchase price and any and all additional
funds due Owner as stated herein, Owner shall promptly deliver to Servicer the
Contract File and all other documentation related to the purchased Acquired
Contract. Servicer's obligations under this Section 5 shall survive the
termination of this Agreement.
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Section 6. Independent Contractor. Any possible construction of any
other provisions of this Agreement to the contrary notwithstanding, it is
intended by this Agreement that Owner, for and during the term hereof, has
delegated to Servicer the right for it and on its behalf, subject to the terms
and conditions of this Agreement and the Master Purchase and Sale Agreement, to
service each Acquired Contract as an independent contractor with discretion in
the manner and means thereof, but subject to the specific covenants and
agreements of the parties contained in this Agreement and in the Master Purchase
and Sale Agreement.
Section 7. Miscellaneous.
(a) Amendment. This Agreement may be amended from time to time by
Servicer and Owner only by written agreement signed by Servicer and Owner.
(b) Disputes. In the event of a dispute regarding the terms of
this Agreement, the breach of any representation or warranty contained herein,
or any matter arising hereunder, if Owner and Servicer cannot otherwise agree,
the matter shall be submitted to binding arbitration under the Commercial Rules
of the American Arbitration Association before an independent qualified expert
in Dallas, Texas. Owner and Servicer agree that an arbitrator may, in addition
to any other remedy at law or equity, award punitive, consequential, or special
damages against a party for any claim, controversy, or dispute arising under or
in any way relating to this Agreement, whether arising in equity, contract, or
tort (including, without limitation, any claim for fraud or negligence).
(c) Injunctive Relief; Specific Performance. Notwithstanding the
terms of Section 7(b), Owner and Servicer acknowledge and agree that the failure
of any party to perform its agreements and covenants under this Agreement will
cause irreparable injury to the other party for which damages, even if
available, will not be an adequate remedy. Accordingly, each party hereby
consents and agrees to the issuance of injunctive relief by any court of law of
competent jurisdiction (i) in the event of a dispute regarding the terms of the
Agreement, the breach of any representation, warranty, or covenant contained in
the Agreement, or any other dispute, controversy, or claim between the Owner and
Servicer arising under or in any way related to the Agreement or the
transactions contemplated thereby or (ii) to compel performance of such party's
obligations and to the granting by any court of the remedy of specific
performance of its obligations under this Agreement.
(d) Remedies. Owner and Servicer agree that (a) all rights and
remedies under this Agreement are cumulative and that no election or exercise of
any right or remedy will be deemed an exclusion of any other right or remedy and
(b) unless expressly stated, no right or remedy under this Agreement will be
deemed a limitation on any other right or remedy.
(e) Counterparts. This Agreement may be executed simultaneously in
any number of counterparts, each of which counterparts shall be deemed to be an
original, and all of such counterparts shall constitute one and the same
Agreement.
(f) Survival. The obligations of Servicer under Section 5 hereof
shall survive the termination of this Agreement as to any or all Pools.
(g) Notices. All demands, notices, and communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally, delivered by a national overnight delivery service, or mailed by
first class mail, postage prepaid, to the addresses set forth on the signature
page of this Agreement.
(h) Severability of Provisions. If any one or more of the
covenants, agreements, provisions, or terms of this Agreement shall be held
invalid for any reason whatsoever, 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.
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(i) Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Texas and the obligations, rights, and remedies of
the parties hereunder shall be determined in accordance with such laws without
giving effect to the conflict of laws principles thereof. This Agreement is
performable in Dallas County, Texas, which is proper venue for all legal
proceedings. Each of the parties hereby expressly consents to the personal
jurisdiction of the courts of the State of Texas.
(j) Successor and Assigns. This Agreement shall inure to the
benefit of and be binding upon Servicer and Owner and their respective
successors and assigns; provided, however, that this Agreement may not be
assigned by Servicer without the prior written consent of Owner.
(k) Attorneys' Fees and Costs. If attorneys' fees or other costs
are incurred to secure performance of any obligations under the Agreement, or to
establish damages for the breach thereof or to obtain any other appropriate
relief at law or equity, whether by way of prosecution or defense, the
prevailing party shall be entitled to recover reasonable attorneys' fees and
costs incurred in connection therewith.
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IN WITNESS WHEREOF, each of the parties has caused its duly authorized
officer or representative to execute this Agreement on the 12th day of January,
1999, the effective date of this Agreement.
SERVICER: OWNER:
ACE Motor Company AutoPrime, Inc.
By: /S/ Charles Norman By: /S/ Thomas A. Hanson
-------------------------------- -----------------------------
Title: President Title: Director of Marketing
Address: 5949 Sherry Lane, Suite 525 Address: 200 Crescent Court,
Dallas, Texas 75225 Suite 1900
Dallas, Texas 75201
STATE OF TEXAS
COUNTY OF DALLAS
The foregoing instrument was acknowledged before me this 12th day of
January, 1999, by Charles Norman, President of ACE Motor Company, a Texas
corporation.
/S/ Joan M. Simpson
------------------------
Notary Public in and for
said County and State
My commission expires: 10-16-2001
(SEAL)
STATE OF TEXAS
COUNTY OF DALLAS
The foregoing instrument was acknowledged before me this 12th day of
January, 1999, by Thomas A. Hanson, Director of Marketing of AutoPrime Inc., a
Delaware corporation.
/S/ Joan M. Simpson
------------------------
Notary Public in and for
said County and State
My commission expires: 10-16-2001
(SEAL)
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Exhibit C
Servicing Fees
The Servicing Fee for 79.01 is equal to twenty percent (20%) of gross
amounts collected.
The Servicing Fee for 79.02 is equal to twenty percent (20%) of gross
amounts collected.
The Servicing Fee for 79.03 is equal to twenty percent (20%) of gross
amounts collected.
The Servicing Fee for 79.04 is equal to twenty percent (20%) of gross
amounts collected.
The Servicing Fee for 79.05 is equal to twenty percent (20%) of gross
amounts collected.
The Servicing Fee for 79.06 is equal to thirteen percent (13%) of gross
amounts collected.
The Servicing Fee for 79.07 is equal to thirteen percent (13%) of gross
amounts collected.
The Servicing Fee for 79.08 is equal to ten percent (10%) of gross amounts
collected.
The Servicing Fee for 79.09 is equal to ten percent (10%) of gross amounts
collected.
The Servicing Fee for 79.10 is equal to thirteen percent (13%) of
gross amounts collected.
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EXHIBIT 10.9
MASTER PURCHASE AND SALE AGREEMENT
This MASTER PURCHASE AND SALE AGREEMENT (this "Agreement"), dated and
effective as of the date set forth on the signature page of this Agreement, is
made and entered into by and between AutoPrime, Inc., a Delaware corporation
(the "Purchaser"), and the entity more particularly described on the signature
page of this Agreement (the "Seller").
WHEREAS, subject to the terms of this Agreement, Seller desires to
sell, and Purchaser desires to purchase, from time to time, pools of retail
installment sales contracts secured by first priority liens on automobiles and
light-duty trucks (collectively, the "Contracts").
NOW, THEREFORE, in consideration of the mutual premises and promises of
the parties, the receipt and sufficiency of which are hereby acknowledged, and
in reliance on the representations, warranties, covenants, and conditions
contained herein, Purchaser and Seller agree as follows:
ARTICLE I
Definitions
Whenever used herein, unless the context otherwise requires, the
following words and phrases have the following meanings:
Section 1.1 Amount Financed shall mean, as to any Contract, the
purchase price of the Financed Vehicle and the related closing costs, as shown
in the documentation evidencing such Contract, less any down payment previously
paid on such Financed Vehicle.
Section 1.2 Agreement shall mean this Master Purchase and Sale
Agreement and all amendments and supplements hereto.
Section 1.3 Annual Percentage Rate or APR shall mean, as to any
Contract and at any time, the contractual rate of interest then being borne by
such Contract, as determined therein.
Section 1.4 Bill of Sale shall mean each bill of sale, in the
form attached hereto as Exhibit A, delivered by Seller pursuant to Section 2.4
hereof.
Section 1.5 Closing Date shall mean the date agreed by the
parties and set forth on each Contract Schedule delivered in accordance with the
terms of this Agreement, which is, as to any Pool of Contracts purchased
hereunder, the date at which Purchaser purchases such Pool of Contracts from
Seller in accordance with, and subject to, the terms and provisions of this
Agreement.
Section 1.6 Computer Tape shall mean the computer tapes, floppy
disks, and/or print-outs generated by Seller that provide information relating
to the Contracts.
Section 1.7 Contract(s) shall mean the retail installment sales
contracts secured by first priority liens on automobiles and light-duty trucks,
delivered to Purchaser from time to time and described in a Contract Schedule.
Each Contract includes, without limitation, all related security interests and
any rights to receive payments which are received pursuant thereto from and
after the related Cut-Off Date.
Section 1.8 Contract File shall mean as to any Contract (a) the
original copy of the Contract, (b) the original certificate of title for the
related Financed Vehicle with the first lien granted in favor of Seller noted
thereon, (c) any extension, modification, or waiver agreement(s) relating to
such Contract, (d) all documents evidencing the existence of any Insurance
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Policies, (e) the executed credit application of Obligor, (f) a credit report
detailing the Obligor's credit history from a credit reporting service, and (g)
copies of all other documentation regarding Obligor generated by Seller or
executed by the Obligor.
Section 1.9 Contract Schedule shall mean the list attached as
Addendum I to each Bill of Sale delivered by Seller on each Closing Date
pursuant to Section 2.4 and Section 2.5 hereof, identifying the Contracts to be
purchased and sold on and as of such Closing Date, and which (a) identifies each
Contract by contract number plus the name and address of the Obligor and (b)
sets forth as to each Contract: (i) the original selling price of the Financed
Vehicle, (ii) the make and model of each Financed Vehicle, (iii) the unpaid
principal balance due on the Contract as of the related Cut-Off Date, (iv) the
number of payments past due on the Contract as of the related Cut-Off Date, (v)
the amount of each scheduled payment due from the Obligor, (vi) the APR, (viii)
the final payment date, and (ix) the most recent payment date.
Section 1.10 Credit Code shall mean those laws in effect in the
State from time to time which govern the making and collection of motor vehicle
installment sales contracts.
Section 1.11 Cut-Off Date shall mean the date set forth on each
Contract Schedule delivered in accordance with the terms of this Agreement,
which is, as to any Contract purchased hereunder, the date as of which such
Contract is offered by Seller for purchase, the date as of which such contract
is actually accepted or deemed accepted by Purchaser for purchase, and the date
as of which the corresponding Contract Schedule is based.
Section 1.12 Electronic Ledger shall mean the electronic master
record of the installment sale contracts or installments loans of Seller.
Section 1.13 Financed Vehicle shall mean the Motor Vehicle,
together with all accessions thereto, securing an Obligor's indebtedness under a
Contract.
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Section 1.14 Insurance Policies shall mean all physical damage,
comprehensive and collision, fire and theft insurance policies maintained by the
Obligors with respect to the Financed Vehicles, the vendor's single interest
insurance policy providing coverage upon repossession of a Financed Vehicle, and
any credit life and disability insurance maintained by or on behalf of the
Obligors and benefiting the holders of the Contracts.
Section 1.15 Motor Vehicle shall mean a used automobile or
light-duty truck.
Section 1.16 Obligors shall mean each person, other than Seller,
who is indebted under or has guaranteed a Contract or who has acquired a
Financed Vehicle subject to a Contract.
Section 1.17 Person shall mean any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
incorporated organization, or government or any agency or political subdivision
thereof.
Section 1.18 Pool shall mean each pool of Contracts delivered for
purchase by Purchaser pursuant to Section 2.1 hereof.
Section 1.19 Servicing Agreement shall mean the Servicing
Agreement, dated the same date as this Agreement, executed between Seller, or
Seller's affiliate, and Purchaser.
Section 1.20 Servicing File shall mean all legal documents,
accounting records and other items (including comments on collection efforts)
maintained by or on behalf of Seller with respect to a Contract and not included
in the Contract File therefor, and the Computer Tape and any other machine
readable tapes, floppy magnetic diskettes, optical storage disks, or other
computer memory containing same.
Section 1.21 State shall mean the one or more local, state, or
federal governmental jurisdictions in which the transactions described herein
occur.
Section 1.22 UCC shall mean the Uniform Commercial Code as now in
effect in the relevant State, as such Uniform Commercial Code may be
subsequently amended.
ARTICLE II
Purchase and Sale of Contracts
Section 2.1 Purchase and Sale of Contracts. On the Closing Date,
Seller shall sell, transfer, assign, and deliver to Purchaser, and Purchaser
shall purchase, accept, and receive from Seller, a Pool of Contracts, subject to
the terms of this Agreement. At any time after the Closing Date, Seller may,
from time to time, submit additional Contracts or Pools of Contracts to
Purchaser for purchase in accordance with, and subject to, the terms and
provisions of this Agreement.
Section 2.2 Conveyance and Delivery of Contracts.
(a) With respect to each Contract actually purchased by Purchaser
pursuant to this Agreement, Seller, on the Closing Date, shall sell, transfer,
assign, endorse, set over, convey, and deliver to Purchaser all right, title,
and interest of Seller in, to, and under:
(i) the Contracts accepted by Purchaser on such Closing
Date, including all payments of principal and interest, lawful late charges, and
other similar payments due thereon and accruing after the related Cut-Off Date,
and all payments on the Contracts received prior to or after the related Cut-Off
Date which have not been applied to the amounts due on the Contracts as of the
related Cut-Off Date;
(ii) the liens and security interests created by the
Contracts, and other rights of Seller arising out of such liens and security
interests, in the Financed Vehicles;
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(iii) the interest of Seller, if any, in all Insurance
Policies relating to the Financed Vehicles or the Contracts,
(iv) all documents and information contained in the
Contract Files and the Servicing Files;
(v) the Electronic Ledger; and
(vi) all proceeds derived from any of the foregoing.
(b) SELLER AND PURCHASER ACKNOWLEDGE AND AGREE THAT THIS AGREEMENT IS
AN AGREEMENT FOR THE PURCHASE AND SALE OF CONTRACTS ONLY AND IS NOT A LOAN
TRANSACTION AND THAT NO TERM OR PROVISION CONTAINED IN THIS AGREEMENT SHALL BE
CONSTRUED TO THE CONTRARY.
Section 2.3 Purchase Price; Payments.
(a) The purchase price for each Contract shall be the amount set forth
on Addendum II to the Bill of Sale with respect to such Contract (the "Purchase
Price"). Upon satisfaction of the conditions in Section 2.4 and Section 2.5
hereof with respect to each Contract, Purchaser shall pay the Purchase Price for
such Contract to Seller.
(b) For each Contract purchased by Purchaser, Purchaser shall be
entitled to all payments on such Contract received on and after the related
Cut-Off Date, including accrued interest. In addition, all payments on each
Contract received by Seller prior to the related Cut-Off Date which (i) have not
been applied to the amount due on such Contract as of the related Cut-Off Date
and (ii) were not utilized to calculate the unpaid principal balance of such
Contract, shall be the property of Purchaser and forwarded to Purchaser by
Seller on the Closing Date or promptly thereafter when received by Seller.
Section 2.4 Conditions to Effectiveness of Agreement; Deliveries
at Closing. The effectiveness of this Agreement and all of Purchaser's
obligations hereunder is subject to Purchaser having received on or before the
Closing Date the following items (unless waived by Purchaser in writing), each
of which shall be dated as of the Closing Date:
(a) copies of appropriate resolutions of Seller certified by the
Secretary of Seller (if Seller is a corporation), in the form of Exhibit B
attached hereto, or other documentation of the authority of the Person executing
all documents required hereunder on behalf of Seller authorizing Seller to enter
into and perform this Agreement, each Bill of Sale, the Servicing Agreement and
any and all other documents, obligations, and transactions contemplated
hereunder and thereunder;
(b) an executed Servicing Agreement;
(c) an executed incumbency certificate (if Seller is a corporation), in
the form of Exhibit C attached hereto, or other evidence of the signatures of
the representatives of Seller signing this Agreement, each Bill of Sale, and the
Servicing Agreement;
(d) an executed Owner's Agreement, in the form attached hereto as
Exhibit D;
(e) an executed Power of Attorney in the form attached hereto as
Exhibit E;
(f) an executed Bill of Sale conveying Seller's interest in the
Contracts to be delivered on such Closing Date from Seller to Purchaser;
(g) a UCC search in each jurisdiction requested by Purchaser, the
results of which are satisfactory to Purchaser in Purchaser's sole discretion;
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(h) a title report issued by a reputable title reporting agency
approved by Purchaser with respect to each Financed Vehicle securing each of the
Contracts purchased;
(i) with respect to each Contract purchased, a copy of the Contract,
all Insurance Policies, the Contract File, the Servicing File, the certificate
of title or other document evidencing lien or security interests created by the
Contract, and the Electronic Ledger; and
(j) all other documents that may be requested by Purchaser.
Section 2.5 Conditions to Subsequent Sales of Contracts.
Purchaser's decision to purchase Contracts or Pools of Contracts which Seller
may, from time to time, submit to Purchaser for purchase after the Closing Date
pursuant to this Agreement shall be subject to the satisfaction of the
conditions set forth in Sections 2.4(f), (g), (h), (i), and (j) with respect to
each such Contract as of the applicable Cut-Off Date.
ARTICLE III
Representations and Warranties of Seller
Section 3.1 Representations and Warranties of Seller. Seller
hereby represents and warrants to, and agrees and covenants with, Purchaser as
of the Closing Date and each Cut-Off Date as follows:
(a) Organization and Good Standing. Seller is duly organized and
validly existing under the laws of its jurisdiction of incorporation or other
formation, has the power to own its assets, including but not limited to the
Contracts, and to transact business in the State in which it is currently
engaged. Seller is duly qualified to do business and is in good standing in the
State and in each other jurisdiction in which the character of the business
transacted by it or properties owned or leased by it or the purchase and sale of
the Contracts requires such qualification and in which the failure so to qualify
would have an adverse effect on the performance of Seller hereunder or the
enforceability of any of the Contracts.
(b) Authorization; Binding Obligations. Seller has all requisite power
and authority to make, execute, and deliver this Agreement, to perform its
obligations under this Agreement, and to effect all of the transactions
contemplated to be performed by it under this Agreement, and has taken all
necessary action to authorize the execution, delivery, and performance of this
Agreement and to consummate the transactions contemplated hereby. When executed
and delivered, this Agreement will constitute the legal, valid, and binding
obligation of Seller enforceable in accordance with its terms.
(c) No Consent Required. Seller is not required to obtain the consent
of any other party nor is any consent, license, approval, or authorization from,
or registration or declaration with, the State or any governmental authority,
bureau, or agency required in connection with Seller's execution, delivery, or
performance of this Agreement, or, if required, Seller has previously obtained
any such required consent, license, approval, authorization, registration, or
declaration.
(d) No Violations. The execution, delivery, and performance of this
Agreement and the transactions contemplated hereby by Seller will not violate
any provision of any existing law or regulation or any order or decree of any
court of competent jurisdiction applicable to Seller or the charter or bylaws of
Seller, or constitute a breach of any mortgage, indenture, loan agreement, or
other contract to which Seller is a party or by which Seller may be bound.
(e) Litigation. No litigation or administrative proceeding of or before
any court, tribunal, or governmental body is currently pending or, to the
knowledge of Seller, threatened against Seller or any of its properties,
including specifically the Contracts, Financed Vehicles, or Insurance Policies,
or with respect to this Agreement.
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(f) Sale of Contracts. Each sale of Contracts pursuant to this
Agreement shall be reflected on Seller's balance sheet and other financial
statements as a sale of assets by Seller. Seller shall not take any action or
omit to take any action which would cause the transfer of any Contract to
Purchaser to be treated as anything other than a sale to Purchaser of all of
Seller's right, title, and interest in and to such Contract.
Section 3.2 Representations and Warranties as to Each Contract.
Seller hereby makes the following representations and warranties as to each
Contract or Pool of Contracts conveyed by it to Purchaser hereunder.
(a) Characteristics of Contracts. The Contract (i) has been originated
by Seller in the ordinary course of Seller's business and has been fully and
properly executed by the parties thereto, (ii) is secured by a valid,
subsisting, and enforceable first priority lien and security interest in favor
of Seller in the Financed Vehicle, which lien and security interest are
assignable by Seller to Purchaser, (iii) contains customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for realization against the collateral securing such Contract,
including the Financed Vehicle, (iv) provides for payments which fully amortize
the Amount Financed over the original term and provide interest at the related
APR over the term of the Contract, (v) provides for, in the event the Contract
is prepaid, a prepayment that fully prepays the outstanding principal balance
thereof and includes accrued and unpaid interest at least through the date of
prepayment in an amount equal to the APR, and (vi) has not, as of the related
Cut-Off Date, been modified as a result of the Soldiers' and Sailors' Civil
Relief Act of 1940, as amended.
(b) Contract Schedule. The information set forth in the Contract
Schedule with respect to such Contract was true and correct as of the opening of
business on the related Cut-Off Date, and the principal balance and the APR of
the Contract as of the related Cut-Off Date have been accurately and correctly
calculated in all documents within the related Contract File and is accurately
and correctly shown on the Contract Schedule. All reports delivered to Purchaser
by Seller regarding payments made by Obligor subsequent to the Cut-Off Date will
be, when delivered, true and correct.
(c) Down Payment. The down payment paid by the Obligor on each Contract
was paid by such Obligor to Seller in the amount and form as set forth on each
Contract.
(d) Compliance with Law. The Contract and the sale of the related
Financed Vehicle complied at the time it was originated or made, and will comply
as of the Closing Date and the related Cut-Off Date, with all requirements of
State law and any other applicable federal, state and local laws, and
regulations thereunder, including, without limitation, laws relating to usury,
the Federal Truth-In-Lending Act, the Equal Credit Opportunity Act, the Fair
Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, Federal Reserve Board Regulations B, Z and AA, any state
adaptations of the National Consumer Credit Protection Act, any state
adaptations of the Uniform Consumer Credit Code, and, to the best of Seller's
knowledge, any other applicable consumer credit, equal opportunity, and
disclosure laws.
(e) Binding Obligation. The Contract constitutes the genuine,
bona-fide, valid, and binding obligation of the Obligor, enforceable by the
holder thereof in accordance with its terms.
(f) Solvency of Obligors. To Seller's knowledge, no voluntary or
involuntary petition or complaint is pending by or against Obligor seeking
bankruptcy of Obligor or the appointment of a receiver or trustee of Obligor, or
of all or substantially all of the assets of Obligor; and no order, order for
relief, judgment, or decree is pending or threatened seeking the appointment of
a receiver or trustee of Obligor, or of all substantially all of the assets of
Obligor.
(g) No Government Obligor. The Obligor is not the United States of
America or any State thereof, or any agency, department, political subdivision,
or instrumentality of the United States of America or any State thereof.
(h) Contracts in Force. The Contract has not been pledged, encumbered,
satisfied, subordinated, waived, restricted, rescinded, or held to be invalid or
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unenforceable, and the Financed Vehicle has not been released from the lien
granted by the Contract in whole or in part nor has the Financed Vehicle been
damaged to such degree that materially affects the value of the Financed Vehicle
since the date of sale of the Financed Vehicle to Obligor.
(i) No Amendment or Waiver. No provision of the Contract has been
amended, waived, altered, or modified in any respect, except pursuant to a
document, instrument, or writing included in the Contract File and reflected in
the Electronic Ledger, and no such amendment, waiver, alteration, or
modification causes such Contract or the lien and security interest granted by
the Contract against the Financed Vehicle not to conform to the other
representations and warranties contained in this Agreement, nor renders it
invalid or unenforceable.
(j) No Defenses. The Contract is not subject to any right of
rescission, setoff, counterclaim, or defense including, without limitation, the
defense or claim of usury, and the operation of any of the terms of the
Contract, or the exercise of any right thereunder, will not render the Contract
unenforceable in whole or in part or subject to any claim, cause of action,
right of rescission, right of cancellation, setoff, counterclaim, or defense
including, without limitation, the defense or claim of usury, and no such claim,
cause of action, right of rescission, right of cancellation, setoff,
counterclaim, or defense has been asserted by Obligor with respect thereto.
(k) No Liens. There are no undisclosed liens or claims, including liens
for work, labor, materials, or unpaid state or federal taxes relating to the
Financed Vehicle, that are or may be liens prior to, equal to, or subordinate to
the lien granted by the Contract against the Financed Vehicle.
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(l) No Default. Except for payment delinquencies of which Seller has
notified Purchaser in writing, no default, breach, violation, or event
permitting acceleration under the terms of the Contract exists, and no
continuing condition that with notice or lapse of time, or both, would
constitute a default, breach, violation, or event permitting acceleration under
the terms of the Contract exists, and Seller has not waived any of the
foregoing.
(m) Good Title. Neither the Contract nor any of Seller's interests
therein has been sold, assigned, hypothecated, pledged, or otherwise conveyed by
Seller to any person other than Purchaser and, immediately prior to the transfer
and assignment herein contemplated, Seller (i) had good and marketable title to
the Contract free and clear of any encumbrance, equity, lien, pledge, charge,
claim, security interest, or other right or title of any third party, (ii) was
the sole owner and holder of the Contract and all rights thereunder, and (iii)
had full right, power, and authority to transfer and assign the Contract to
Purchaser. Immediately upon the transfer and assignment of the Contract to
Purchaser, Purchaser shall have good and marketable title to the Contract, free
and clear of any encumbrance, equity, lien, pledge, charge, claim, security
interest, or other right or title of any other Person and the transfer will be
valid and enforceable under the laws of the State.
(n) Lawful Assignment. The Contract has not been originated in, and is
not subject to the laws of, any jurisdiction under which the sale, transfer, and
assignment of such Contract hereunder to Purchaser or pursuant to which
transfers of the Contracts to Purchaser are unlawful, void, or voidable.
(o) All Filings Made. All filings, including UCC filings, necessary in
any jurisdiction to give Purchaser an ownership interest (or a first priority
perfected security interest) in the Contract have been made.
(p) One Original. There is only one original executed Contract and
related certificate of title, which has been conveyed, endorsed, and delivered
by Seller to Purchaser.
(q) No Fraud or Misrepresentations. The Contract was originated without
any conduct constituting fraud or misrepresentation, failure of consideration,
or forgery or alteration.
(r) Possession. On the related Closing Date, Purchaser will receive
possession of the original Contract and the related Contract File, and there are
and there will be no agreements in effect adversely affecting the right or
ability of Seller to make, or cause to be made, any delivery required hereunder.
(s) Bulk Transfer Laws. The transfer, assignment, and conveyance of the
Contract and the Contract Files by Seller pursuant to this Agreement are not
subject to bulk transfer or any similar statutory provisions in effect in any
applicable jurisdiction.
(t) Taxes. All ad valorem, excise, and other taxes of any nature or
description whatsoever and all recording fees and title transfer costs relating
to the Contracts and the Financial Vehicles have been paid in full by Seller.
(u) Information. All financial statements, tax returns, journals,
ledgers, and other information furnished to Purchaser in connection with the
purchase of the Contracts was or will be at the time furnished true and correct
in all respects, and Seller has not made any untrue statement of material fact
or omitted to state any material fact to Purchaser or any of its officers and
agents in connection with the purchase of the Contracts by Purchaser. No
material adverse change has occurred in the business, prospects, profits,
properties, operations, or condition, financial or otherwise, except as
disclosed to Purchaser in such delivered information.
(v) No Assignment. Seller has not taken any action to convey any right
to any Person that would result in such Person having a right to payments
received under the Insurance Policies or payments due under any Contract that is
senior to, equal with, or subordinate to that of Purchaser.
(w) Characteristics. The Contracts in each Pool had the following
characteristics as of the related Cut-Off Date: (i) each Contract is a retail
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installment sales contract for the purposes of used Financed Vehicle statutes;
and (ii) none of the Financed Vehicles securing the Contracts has been titled as
salvaged, reconditioned, or reconstructed Motor Vehicles.
(x) Computer Tape. The Computer Tape relating to the Pool made
available by Seller was complete and accurate as of the related Cut-Off Date and
includes a description of the same Contracts that are described in the Contract
Schedule.
(y) Marking Records. On or before the Closing Date, Seller will have
caused the portions of the Electronic Ledger relating to the Contracts to be
purchased as of the related Cut-Off Date to be clearly and unambiguously marked
to show that such Contracts are owned by Purchaser and, upon Purchaser's
request, shall provide Purchaser with evidence of such marking.
(z) Other. Without limiting any of the foregoing, Seller further
represents and warrants as to each Contract the following: (i) the Contract is
in form and substance in compliance with all applicable governmental
requirements; (ii) the Contract is the only instrument executed for the purchase
of the property described therein and is and will continue to be free from
defenses, offsets and counterclaims; (iii) all statements contained in each
Contract are true and correct and the unpaid balance as shown therein is
correct; (iv) any down payment in any Contract has been made in cash and not its
equivalent unless otherwise stated in each Contract; (v) no part of the down
payment described in any Contract and reflected as paid has been loaned or given
directly or indirectly by Seller to Obligor; (vi) the Financed Vehicle described
in the Contract has been delivered; (vii) each sale evidenced by said Contract
was completed in accordance with governmental requirements affecting such sale,
including, but not limited to, the Federal Truth-in-Lending Act, the Magnuson
and Moss Warranty Federal Trade Commission Improvement Act and Warrant Act,
Federal Equal Credit Opportunity Act, The Federal Trade Commission Act, and all
applicable state and local laws and regulations; (viii) all required disclosures
to Obligor were made in accordance with all governmental requirements; (ix) the
Obligor in each Contract had the legal capacity to enter into said Contract; and
(x) the names and signatures on each Contract are not forged, fictitious or
assumed and are true and correct.
ARTICLE IV
Covenants of Seller
Seller hereby agrees to keep, perform, and fully discharge the
following covenants and agreements:
Section 4.1 Effecting and Perfecting Each Sale of Contracts. At
the request of Purchaser, Seller will, at Seller's expense, promptly:
(i) take or cause to be taken any further action
necessary or appropriate to effect and perfect each sale and conveyance of each
Contract made hereunder;
(ii) execute or cause to be executed such documents and
instruments as are necessary or appropriate to effect and perfect each sale and
conveyance of each Contract made hereunder;
(iii) obtain from third parties all documents, instruments,
waivers, and releases necessary, and to take all other actions requested by
Purchaser, to facilitate each sale and conveyance of each Contract made
hereunder; and
(iv) execute a notice letter to the Obligors informing
them of the existence of this transaction and the sale and assignment of the
applicable Contract, and Seller hereby grants Purchaser the authority to mail
such notice letter to, or otherwise contact, Obligors informing them of the
existence of this transaction and the sale and assignment of the applicable
Contract.
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Without limiting the generality of the foregoing, at Purchaser's
request, Seller will send appropriate notices of the transfer of the Contracts
to insurers under the Insurance Policies covering the Financed Vehicles securing
the Contracts and will send appropriate notices to the Obligors under the
Contracts.
Section 4.2 Certificate of Title. Seller has delivered and
assigned to Purchaser the original certificate of title with respect to each
Financed Vehicle that is the subject of each Contract purchased by Purchaser
hereunder, and Seller will not request any governmental agency to issue or cause
to be issued any copy of such certificate of title, except upon the written
request of Purchaser. If a temporary certificate of title has been obtained and
delivered to Purchaser, Seller will promptly obtain a permanent certificate of
title, reflecting Seller's lien, and deliver it to Purchaser as soon as it is
obtained.
Section 4.3 No Future Lien. After the sale to Purchaser of any
Contract, Seller will not create or cause to be created any lien or claim that
is prior to or equal to the lien granted by the Contract against the Financed
Vehicle, including a lien for any work, labor, materials, or unpaid state or
federal taxes relating to a Financed Vehicle.
Section 4.4 Replacement and Repurchase of Contracts. Seller will
perform or cause to be performed the replacement and repurchase obligations set
forth in Article V of this Agreement.
Section 4.5 Relocation of Principal Executive Office. Seller
shall give Purchaser at least thirty (30) days prior written notice of any
relocation of its principal executive office and if, as a result of such
relocation, the applicable provisions of the UCC would require the filing of any
amendment of any previously filed financing or continuation statement or of any
new financing statement, Seller shall execute and deliver to Purchaser such
amended or replacement financing statement.
Section 4.6 Notice of Breach. Seller covenants and agrees to give
Purchaser prompt written notice upon discovery of a breach of any
representation, warranty, or covenant of this Agreement and upon the discovery
of any delinquency in the payment of unpaid principal and interest on any
Contract by Obligor.
ARTICLE V
Repurchase and Replacement of Contracts
Section 5.1 Repurchase and Replacement Obligation. Upon the
occurrence of a Triggering Event (as defined below), Seller agrees to replace or
repurchase any of the Contracts subject to such Triggering Event in the manner
and within the time period as provided in this Article V.
Section 5.2 Replacement of Contracts. Upon the occurrence of a
Triggering Event, Seller may elect to replace any Contract by delivering to
Purchaser a replacement contract (a "Replacement Contract"), which is acceptable
to Purchaser, within the time specified in this Article V. The Replacement
Contract delivered by Seller must be secured by a first priority lien on an
automobile and/or light-duty truck and must contain an equivalent pay-off amount
as of the date of exchange, the same term, the same APR, and such other terms
and provisions acceptable to Purchaser. To the extent Purchaser, in its sole
discretion, accepts a Replacement Contract with a term, APR, or pay-off amount
that varies in any way from that of the Contract to be replaced, the resulting
yield on the investment for Purchaser must be equivalent. Seller will pay to
Purchaser, or vice versa, an amount at the date of exchange which will make the
exchange exact as to value and yield. Seller shall reimburse Purchaser for any
and all expenses incurred by Purchaser with respect to any Contract replaced in
accordance with this Article V. The decision to accept or reject a Replacement
Contract is in the Purchaser's sole discretion, and Purchaser is under no
obligation to accept a Contract offered by Seller as a replacement. If Purchaser
does not accept the Replacement Contract, Seller must repurchase the delinquent
Contract from Purchaser pursuant to Section 5.5 hereof.
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Section 5.3 Manner of Replacement. If Purchaser accepts the
Replacement Contract offered by Seller, Seller shall promptly deliver to
Purchaser the Contract File related to the Replacement Contract, together with
the documents required to be delivered pursuant to Section 2.5 hereof. Upon
receipt by Purchaser of each of the foregoing (unless receipt of any is
expressly waived by Purchaser), Purchaser shall promptly deliver to Seller the
Contract to be replaced, the Contract File related to the Contract to be
replaced, and all other documents in the possession of Purchaser related to the
Contract to be replaced.
Section 5.4 Continuing Obligations of Seller on Replacement
Contracts. Seller agrees and acknowledges that the representations, warranties,
covenants, and other obligations of Seller arising under this Agreement with
respect to all Contracts shall continue and be enforceable with respect to any
such Replacement Contracts, including, but not limited to, the obligations and
conditions of Seller contained in Article II, the representations and warranties
contained in Article III hereof, the covenants of Seller contained in Article IV
hereof, and the repurchase and replacement obligations contained in this Article
V.
Section 5.5 Repurchase of Contracts. Upon the occurrence of a
Triggering Event, Seller may elect to repurchase any Contract within the time
specified in this Article V. The purchase price for the Contract to be
repurchased shall be the payoff amount on the Contract plus all accrued and
unpaid interest thereon, less one-half of the unearned discount on the Contract
at the date of exchange. In addition, Seller shall reimburse Purchaser for any
and all expenses incurred by Purchaser with respect to such Contract. Upon the
receipt by Purchaser of the repurchase price together with any expenses as set
forth in this Section 5.5, Purchaser shall promptly deliver to Seller the
Contract to be repurchased, the Contract File related to the repurchased
Contract, and all other documents in the possession of Purchaser related to the
repurchased Contract.
Section 5.6 Triggering Events. For purposes of this Article V, a
Triggering Event shall mean:
(a) a breach by Seller of any representation, warranty, or
covenant contained in this Agreement and such breach has not been cured in all
material respects within five (5) days of Seller's receipt of notice of such
breach from Purchaser; or
(b) if any payment due under any Contract becomes delinquent
for a period of thirty (30) days or more.
Section 5.7 Timing of Seller's Repurchase and Replacement
Obligations. Seller must complete its repurchase and replacement obligations
pursuant to this Article V within five (5) days of the expiration of the cure
period set forth in Section 5.6(a) or within ten (10) days following the date at
which a Contract becomes delinquent for thirty (30) days as set forth in Section
5.6(b).
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Section 5.8 Right and First Option to Purchase or Exchange
Contracts. Seller hereby agrees that in the event and during such time of a
default by Seller under the terms of this Agreement, including, without
limitation, the failure of Seller to timely repurchase or replace any Contract
pursuant to this Article V, then, in such event, Seller will not sell, assign,
encumber, or otherwise transfer or dispose to any third party any retail
installment sales contract owned by Seller and secured by first priority liens
on automobiles and light-duty trucks unless Seller first offers such contract to
Purchaser either for (a) purchase at a price to be calculated in accordance with
the terms of this Agreement or (b) exchange in accordance with Section 5.2, with
such election to be made by Purchaser in Purchaser's sole discretion. Purchaser
will have five (5) business days following the presentment of any contracts by
Seller to exercise the right and first option granted hereunder. If Purchaser
notifies Seller of its intent not to purchase or exchange such contracts or if
Purchaser fails to notify Seller of its intention within such five (5) day
period, Seller may sell, assign, encumber, or otherwise transfer or dispose of
such contracts to any third party. Seller agrees and acknowledges that the
representations, warranties, covenants, and other obligations of Seller arising
under this Agreement with respect to all Contracts shall continue and be
enforceable with respect to any contracts purchased or exchanged by Purchaser
pursuant to this Section 5.8, including, but not limited to, the obligations and
conditions of Seller contained in Article II, the representations and warranties
contained in Article III hereof, the covenants of Seller contained in Article IV
hereof, and the repurchase and replacement obligations contained in this Article
V.
ARTICLE VI
Indemnification
Seller hereby agrees to protect, defend, indemnify, and hold Purchaser
and its assigns and their respective attorneys, accountants, employees, agents,
officers, and directors harmless from and against all losses, liabilities,
damages, judgments, claims, counterclaims, demands, actions, proceedings, costs
and expenses (including reasonable attorneys' fees) of every kind and character
resulting from, relating to, or arising out of this Agreement and the
transactions contemplated hereby including, without limitation, those resulting
from, relating to, or arising out of (a) the inaccuracy, nonfulfillment, or
breach of any representation, warranty, covenant, or agreement made by Seller
herein or in the documents described in Section 2.4 or Section 2.5 hereof, (b)
any legal action, including any counterclaim, to the extent it is based upon
alleged facts that, if true, would constitute a breach of any representation,
warranty, covenant, or agreement made by Seller herein or in the documents
described in Section 2.4 or Section 2.5 hereof, (c) any actions or omissions of
Seller or any employee or agent of Seller, or any negligent, reckless or willful
misconduct of Seller or any employee or agent of Seller, occurring prior to the
Cut-Off Date with respect to any Contract or the Financed Vehicle, or (d) the
violation or claim of violation of any of the State's laws by Seller or any
person acting for or on behalf of Seller.
ARTICLE VII
Miscellaneous Provisions
Section 7.1 Amendment. This Agreement may be amended from time to
time by Seller and Purchaser only by written agreement signed by Seller and
Purchaser.
Section 7.2. Disputes. In the event of a dispute regarding the
terms of this Agreement, the breach of any representation or warranty contained
herein, or any matter arising hereunder, if Seller and Purchaser cannot
otherwise agree, the matter shall be submitted to binding arbitration under the
Commercial Rules of the American Arbitration Association before an independent
qualified expert in Dallas, Texas. Purchaser and Seller agree that an arbitrator
may, in addition to any other remedy at law or equity, award punitive,
consequential, or special damages against a party for any claim, controversy, or
dispute arising under or in any way relating to this Agreement, whether arising
in equity, contract, or tort (including, without limitation, any claim for fraud
or negligence).
Section 7.3 Injunctive Relief; Specific Performance.
Notwithstanding the foregoing terms of Section 7.2, Purchaser and Seller
acknowledge and agree that the failure of any party to perform its agreements
and covenants under this Agreement will cause irreparable injury to the other
party for which damages, even if available, will not be an adequate remedy.
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Accordingly, each party hereby consents and agrees to the issuance of injunctive
relief by any court of law of competent jurisdiction (a) in the event of a
dispute regarding the terms of the Agreement, the breach of any representation,
warranty, or covenant contained in the Agreement, or any other dispute,
controversy, or claim between the Purchaser and Seller arising under or in any
way related to the Agreement or the transactions contemplated thereby or (b) to
compel specific performance of such party's obligations and to the granting by
any court of the remedy of specific performance of its obligations under this
Agreement.
Section 7.4 Remedies. Purchaser and Seller agree that (a) all
rights and remedies under this Agreement are cumulative and that no election or
exercise of any right or remedy will be deemed an exclusion of any other right
or remedy and (b) unless expressly stated, no right or remedy under this
Agreement will be deemed a limitation on any other right or remedy.
Section 7.5 Further Assurances. In order to facilitate
enforcement of Purchaser's rights hereunder with respect to any Contract and
Financed Vehicle, Seller shall, promptly after the request by Purchaser or its
assigns, and at Seller's expense, do and perform or cause to be done and
performed every reasonable act and thing necessary or advisable to carry out to
the intent of this Agreement (including, without limitation, ensuring that
Purchaser has the right and ability to enforce payment and performance of the
Contracts). Seller hereby grants an irrevocable power of attorney coupled with
an interest to Purchaser for the specific purpose of exercising all rights and
remedies Seller would have with respect to the Contracts, titles to motor
vehicles serving as collateral, and the Financed Vehicles securing them, but for
sale of the Contracts to Purchaser. Seller hereby authorizes Purchaser to send
the notice letter to Obligors informing them of the existence of this
transaction and the assignment of the applicable Contract.
Section 7.6 Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed to
be an original, and all of such counterparts shall constitute one and the same
Agreement.
Section 7.7 Survival. The obligations of Seller and Purchaser
under this Agreement, including, but not limited to, the representations and
warranties set forth in Article III, the covenants set forth in Article IV, the
repurchase and replacement obligations set forth in Article V, and the
obligations of Seller contained in Article VI shall survive the sale of
Contracts to Purchaser.
Section 7.8 Notices. All demands, notices, and communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, delivered by a national overnight delivery service, or
mailed by first class mail, postage prepaid, to the address of each party set
forth on the signature page of this Agreement, which address is the principal
place of business of such party unless otherwise indicated.
Section 7.9 Severability of Provisions. If any one or more of the
covenants, agreements, provisions, or terms of this Agreement shall be held
invalid for any reason whatsoever, 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.
Section 7.10 No Partnership. Nothing herein contained shall be
deemed or construed to create a co-partnership or joint venture between the
parties hereto.
Section 7.11 Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Texas and the obligations, rights, and
remedies of the parties hereunder shall be determined in accordance with such
laws without giving effect to the conflict of laws principles thereof. This
Agreement is performable in Dallas County, Texas, which is proper venue for all
legal proceedings. Each of the parties expressly consents to the personal
jurisdiction of the courts of the State of Texas.
Section 7.12 Successor and Assigns. This Agreement shall inure to
the benefit of and be binding upon Seller and Purchaser and their respective
88
<PAGE>
successors and assigns; provided, however, that this Agreement may not be
assigned by Seller without the prior written consent of Purchaser. Purchaser may
sell, assign, hypothecate, pledge, or otherwise convey this Agreement or any
Contract purchased hereunder without the prior written consent of Seller.
Section 7.13. Attorneys' Fees and Costs. If attorneys' fees or
other costs are incurred to secure performance of any obligations under the
Agreement, or to establish damages for the breach thereof or to obtain any other
appropriate relief at law or equity, whether by way of prosecution or defense,
the prevailing party shall be entitled to recover reasonable attorneys' fees and
costs incurred in connection therewith.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
signed and delivered by its duly authorized officers or representatives on this
12th day of January, 1999.
SELLER: PURCHASER:
- ------ ---------
AutoCorp. Financial Services, Inc. AutoPrime, Inc.
By: /S/ Charles Norman By: /S/ Thomas A. Hanson
------------------------------- ------------------------
Title: President Title: Director of Marketing
Address: 5949 Sherry Lane Address: 200 Crescent Court
Suite 525 Suite 1900
Dallas, Texas 75225 Dallas, Texas 75201
STATE OF TEXAS
COUNTY OF DALLAS
The foregoing instrument was acknowledged before me this 12th day of
January, 1999 by Charles Norman, President of AutoCorp Financial Services, Inc.,
a Texas corporation.
/S/ Joan M. Simpson
------------------------
Notary Public in and for
said County and State
My commission expires: 10-16-2001
(SEAL)
STATE OF TEXAS
COUNTY OF DALLAS
The foregoing instrument was acknowledged before me this 12th day of
January, 1999 by Thomas A. Hanson, Director of Marketing of AutoPrime, Inc., a
Delaware corporation.
My commission expires: 10-16-2001 /S/ Joan M. Simpson
-------------------------
Notary Public in and for
(SEAL) said County and State
90
Exhibit 10.10
GUARANTY
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which is
hereby acknowledged, each of the undersigned corporations (the "Guarantor")
guarantees unconditionally, the full and prompt performance of all obligations
of each of the other undersigned corporations who may, from time to time, be a
Seller under the Master Purchase and Sale Agreement (the "Master Purchase and
Sale Agreement"), including, but not limited to, the obligations of the
Servicing Agreement (the "Servicing Agreement"), both dated of even date
herewith. Capitalized terms used herein but not defined shall have the meanings
assigned to such terms in the Master Purchase and Sale Agreement.
Guarantor acknowledges and represents to Purchaser that it is receiving
direct and indirect financial and other benefits as a result of this Guaranty
and the obligations secured hereunder; represents to Purchaser that after giving
effect to this Guaranty and the contingent obligations evidenced hereby it is,
and will be, solvent; acknowledges that this Guaranty is operative and binding
as to it; and acknowledges that neither Purchaser nor any officer, employee,
agent, attorney or other representative of Purchaser has made any
representation, warranty or statement to Guarantor to induce it to execute this
Guaranty.
Guarantor agrees to pay on demand all costs and expenses of every kind
incurred by Purchaser: (a) in enforcing this Guaranty; (b) in collecting on any
obligations of any Seller or any Guarantor; (c) in realizing upon or protecting
any collateral for this Guaranty; and (d) for any other purpose related to this
Guaranty.
This Guaranty shall inure to the benefit of and be binding upon
Purchasers and Guarantors, and their respective successors and assigns;
provided, however, that this Guaranty may not be assigned by any Guarantor
without the prior written consent of Purchaser.
[The remainder of this page left intentionally blank.]
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This Guaranty shall be construed in accordance with the laws of the
State of Texas and the obligations, rights and remedies pursuant to this
Guaranty shall be determined in accordance with such laws without giving effect
to the conflict of laws principles thereof. This Guaranty is performable in
Dallas County, Texas, which is proper venue for all legal proceedings. Guarantor
expressly consents to the personal jurisdiction of the courts of the State of
Texas.
Executed and delivered as of the 12th day of January, 1999.
ACE Motor Company
By: /S/ Charles Norman
-------------------------
Charles Norman, President
AutoCorp Financial Services, Inc.
By: /S/ Charles Norman
-------------------------
Charles Norman, President
AutoCorp Equities, Inc.
By: /S/ Charles Norman
-------------------------
Charles Norman, President
92
Exhibit 10.11
SERVICING AGREEMENT
This SERVICING AGREEMENT (this "Agreement"), dated and effective as of
the date appearing on the signature page of this Agreement, is entered into by
and between AutoPrime, Inc., a Delaware corporation ("Owner"), and the entity
described on the signature page of this Agreement ("Servicer").
WHEREAS, Servicer and Owner have entered into a Master Purchase and
Sale Agreement, dated of even date herewith (the "Master Purchase and Sale
Agreement"), pursuant to which, among other things, Owner purchased from
Servicer certain retail installment sales contracts secured by first priority
liens on automobiles and light-duty trucks ("Contracts").
WHEREAS, Servicer is engaged in the business of managing and servicing
Contracts.
WHEREAS, Owner desires to retain the services of Servicer for the
purposes of managing and servicing Contracts purchased from time to time by
Owner from Servicer for Owner's account pursuant to the Master Purchase and Sale
Agreement ("Acquired Contracts"). All capitalized terms used herein and not
otherwise defined shall have the meanings assigned to such terms in the Master
Purchase and Sale Agreement.
NOW, THEREFORE, in consideration of the mutual premises and promises of
the parties and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Servicer and Owner agree as
follows:
Section 1. Contract Management and Servicing. Subject to the terms and
conditions hereinafter set forth, along with all terms, conditions,
representations, warranties, covenants, and definitions set forth in the Master
Purchase and Sale Agreement, which are expressly incorporated herein by
reference, Servicer shall provide all management and servicing of the Acquired
Contracts purchased by Owner from Servicer from time to time under the Master
Purchase and Sale Agreement and covenants and agrees to manage and service the
Acquired Contracts for the account of Owner as described below and in accordance
with the industry standards pertaining to such Contracts utilizing the same
degree of care as if the Acquired Contracts were owned by Servicer itself:
(a) Servicer obligates itself to service the Acquired Contracts under
this Servicing Agreement in accordance with the industry standards pertaining to
such Contracts utilizing the same degree of care as if the Acquired Contracts
were owned by Servicer itself including, without limitation, an obligation to
maintain an automated reporting system at its sole cost which produces
information with respect to each Contract and each Pool in form and content
reasonably acceptable to Owner.
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(b) Servicer covenants and agrees to comply with all requirements of
State law and any other applicable federal, state, and local laws and
regulations thereunder, including, without limitation, the Fair Debt Collection
Practices Act, in servicing the Acquired Contracts under this Agreement.
(c) During the term of the Acquired Contracts serviced under this
Agreement, Servicer will proceed diligently to collect all sums due under the
Acquired Contracts and will deposit on a daily basis or as otherwise directed in
writing by Owner all funds received with respect to the Acquired Contracts, less
the servicing fee provided for in Section 2 hereof, into a bank custodial or
trust account or accounts maintained for the benefit of Owner and from which
Owner will have the right to withdraw or transfer such funds. Said account or
accounts shall be maintained in a financial institution designated by Owner, the
accounts of which are insured by the Federal Deposit Insurance Corporation.
(d) Servicer shall maintain complete books and records relating to its
servicing activities hereunder and shall provide to Owner, not less frequently
than once per week, a written servicing report containing a complete and
accurate accounting of the servicing activity during the preceding week, which
will include the following information with respect to each Acquired Contract:
(i) a Delinquency Analysis & Report in the form attached hereto as Exhibit A,
and (ii) a schedule of payments received and payments due but not paid in the
form attached hereto as Exhibit B. Each report shall be delivered to Owner by
hand delivery or facsimile transmission no later than 12:00 p.m. on Tuesday of
each week and shall be accurate as of all transactions through the close of
business on Saturday of the immediately preceding week.
(e) Servicer, in the course of servicing and managing the Acquired
Contracts, shall not waive, vary, extend, or cancel any term or condition of the
Acquired Contracts without Owner's prior written consent, but Servicer may,
without legally committing Owner to any of the same, extend in its discretion
reasonable forbearance before declaring an Acquired Contract in default as shall
be consistent with industry standards, but such period of forbearance shall not
in any event exceed fourteen (14) days.
(f) With respect to the Insurance Policies, if any, maintained by
Servicer for the Acquired Contracts in connection with and as described by the
Master Purchase and Sale Agreement, Servicer shall, at Servicer's expense, file
all claims and/or other forms necessary or appropriate to preserve and protect
Owner's interest in the Insurance Policies, if any, identified in the Master
Purchase and Sale Agreement.
(g) Owner shall be named as an additional insured on any fidelity and
errors and omissions insurance policies maintained by Servicer. Upon Owner's
request, Servicer shall furnish to Owner a certificate of insurance with respect
to any such coverage reflecting Owner as additional insured. Servicer shall not
reduce the amount of any such coverage without prior written notice to Owner.
Owner may, at its option and expense, obtain and maintain such fidelity and
errors and omissions insurance policies with respect to the employees of
Servicer, naming Owner as additional insured, as it deems necessary or
appropriate.
(h) No later than ten (10) days after the end of each calendar month,
Servicer shall furnish to Owner a monthly unaudited profit and loss statement
and balance sheet of Servicer, each prepared in reasonable detail and in
accordance with generally accepted accounting principles and certified by an
authorized officer of Servicer as being true and correct.
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<PAGE>
Section 2. Servicing Fees. As compensation for its services rendered
hereunder, Servicer shall be entitled to retain an amount, as set forth on
Exhibit C to this Agreement, of all payments due and actually received by
Servicer under each Acquired Contract serviced hereunder. Servicer shall remit
in full to Owner the balance of the payments actually received by Servicer under
each Acquired Contract serviced hereunder, less the servicing fee provided for
in this Section 2, into a bank custodial or trust account or accounts as set
forth in Section 1(b) hereof. Servicer will pay all costs and expenses incurred
by it in connection with its servicing activities hereunder.
Section 3. Term and Termination. This Agreement shall be effective and
commence on the date hereof and, unless earlier terminated pursuant to this
Section 3, shall terminate after the repayment of the last Acquired Contract in
Owner's portfolio and after all taxes, fees, and funds have been accounted for
and disbursed with respect thereto in accordance with the terms hereof. This
Agreement may be terminated as follows:
(a) This Agreement shall terminate automatically as to any and all
Acquired Contracts upon the dissolution, termination of existence, insolvency
(failure to pay debts as they mature or the failure to maintain the fair salable
value of assets in excess of liabilities), business failure, appointment of a
receiver, trustee, custodian, or similar fiduciary, assignment for the benefit
of creditors, or the commencement of any proceedings under the bankruptcy laws,
of, by, or against Servicer, or the making by Servicer of any offer or
settlement, extension, or composition to its creditors generally.
(b) If Servicer breaches or fails to perform, keep, or observe any
representation, warranty, covenant, or agreement contained in this Agreement or
in the Master Purchase and Sale Agreement (including, but not limited to,
Servicer's failure to deposit funds received for any Acquired Contract into an
account as set forth in Section 1(b) hereof, Servicer's failure to deliver on a
timely basis any of the reports to Owner pursuant to this Agreement or the
Master Purchase and Sale Agreement, Servicer's failure to use due diligence in
collecting funds due under any Acquired Contract, Servicer's failure to timely
perform its replacement and repurchase obligations as set forth in Article 5 of
the Master Purchase and Sale Agreement, and the occurrence of a material adverse
change in the financial condition of Servicer), Owner may, upon twenty-four (24)
hours written or oral notice, terminate this Agreement with respect to any and
all Acquired Contracts.
(c) This Agreement may be terminated as to any and all Acquired
Contracts at any time by the mutual agreement of Owner and Servicer.
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<PAGE>
Section 4. Procedure upon Termination.
(a) Immediately upon the termination of this Agreement pursuant to
Section 3(a) and Section 3(c) hereof and immediately upon Servicer's receipt of
notice of termination pursuant to Section 3(b) hereof, Servicer's right to
retain the servicing fees prescribed in Section 2 hereof with respect to any and
all of such terminated Acquired Contracts shall terminate immediately and, from
and after the date of such termination, Servicer shall deposit all amounts
received with respect to such Acquired Contracts, if any, into the account or
accounts maintained pursuant to Section 1(b) hereof, without deduction. In
addition, Owner may, with or without the consent of Servicer, mail to each
Obligor of any Acquired Contract the notice letter executed by Servicer pursuant
to Section 4.1 of the Master Purchase and Sale Agreement, or otherwise contact
each Obligor of any Acquired Contract, informing such Obligor of the existence
of the transactions between Servicer and Owner, the sale and assignment of the
applicable Acquired Contract, the termination of this Agreement, and directing
the Obligor to remit all future payments under the Acquired Contract to an
account designated by Owner.
(b) Upon termination of this Agreement as to any and all Acquired
Contracts, Servicer shall immediately deliver to Owner the Servicing File and
any other documents in Servicer's possession with respect to each Acquired
Contract so terminated and an accounting of all monies collected by Servicer and
held by it for Owner with respect to such Acquired Contracts and shall
immediately pay over to Owner all monies so held.
Section 5. Indemnification. Servicer hereby agrees to protect, defend,
indemnify, and hold Owner and its assigns and their respective attorneys,
accountants, employees, agents, officers, and directors harmless from and
against all losses, liabilities, damages, judgments, claims, counterclaims,
demands, actions, proceedings, costs and expenses (including reasonable
attorneys' fees) of every kind and character resulting from, relating to, or
arising out of this Agreement or the performance of Servicer's obligations
hereunder. In addition to and without limiting the foregoing, (a) if Servicer
breaches any representation, warranty, or covenant contained in this Agreement
or the Master Purchase and Sale Agreement and such breach has not been cured in
all material respects within five (5) days of Servicer's receipt of notice of
such breach from Owner, Servicer shall replace or repurchase the Acquired
Contract within five (5) days of the expiration of the aforementioned cure
period or (b) if any payment due under any of the Acquired Contracts becomes
delinquent for a period of thirty (30) days or more, Servicer shall replace or
repurchase the Acquired Contract within ten (10) days of the Acquired Contract
becoming thirty (30) days delinquent, each in accordance with Article V of the
Master Purchase and Sale Agreement, which is expressly incorporated herein by
reference. The purchase price for any such Acquired Contract shall be an amount
equal to the unpaid principal balance of the Acquired Contract plus accrued
interest, less one-half of any unearned discounts. In addition, Servicer shall
reimburse Owner for any and all expenses incurred by Owner with respect to such
Acquired Contract. Upon receipt of the purchase price and any and all additional
funds due Owner as stated herein, Owner shall promptly deliver to Servicer the
Contract File and all other documentation related to the purchased Acquired
Contract. Servicer's obligations under this Section 5 shall survive the
termination of this Agreement.
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<PAGE>
Section 6. Independent Contractor. Any possible construction of any
other provisions of this Agreement to the contrary notwithstanding, it is
intended by this Agreement that Owner, for and during the term hereof, has
delegated to Servicer the right for it and on its behalf, subject to the terms
and conditions of this Agreement and the Master Purchase and Sale Agreement, to
service each Acquired Contract as an independent contractor with discretion in
the manner and means thereof, but subject to the specific covenants and
agreements of the parties contained in this Agreement and in the Master Purchase
and Sale Agreement.
Section 7. Miscellaneous.
(a) Amendment. This Agreement may be amended from time to time by
Servicer and Owner only by written agreement signed by Servicer and Owner.
(b) Disputes. In the event of a dispute regarding the terms of this
Agreement, the breach of any representation or warranty contained herein, or any
matter arising hereunder, if Owner and Servicer cannot otherwise agree, the
matter shall be submitted to binding arbitration under the Commercial Rules of
the American Arbitration Association before an independent qualified expert in
Dallas, Texas. Owner and Servicer agree that an arbitrator may, in addition to
any other remedy at law or equity, award punitive, consequential, or special
damages against a party for any claim, controversy, or dispute arising under or
in any way relating to this Agreement, whether arising in equity, contract, or
tort (including, without limitation, any claim for fraud or negligence).
(c) Injunctive Relief; Specific Performance. Notwithstanding the terms
of Section 7(b), Owner and Servicer acknowledge and agree that the failure of
any party to perform its agreements and covenants under this Agreement will
cause irreparable injury to the other party for which damages, even if
available, will not be an adequate remedy. Accordingly, each party hereby
consents and agrees to the issuance of injunctive relief by any court of law of
competent jurisdiction (i) in the event of a dispute regarding the terms of the
Agreement, the breach of any representation, warranty, or covenant contained in
the Agreement, or any other dispute, controversy, or claim between the Owner and
Servicer arising under or in any way related to the Agreement or the
transactions contemplated thereby or (ii) to compel performance of such party's
obligations and to the granting by any court of the remedy of specific
performance of its obligations under this Agreement.
(d) Remedies. Owner and Servicer agree that (a) all rights and remedies
under this Agreement are cumulative and that no election or exercise of any
right or remedy will be deemed an exclusion of any other right or remedy and (b)
unless expressly stated, no right or remedy under this Agreement will be deemed
a limitation on any other right or remedy.
(e) Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which counterparts shall be deemed to be an
original, and all of such counterparts shall constitute one and the same
Agreement.
(f) Survival. The obligations of Servicer under Section 5 hereof shall
survive the termination of this Agreement as to any or all Pools.
(g) Notices. All demands, notices, and communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, delivered by a national overnight delivery service, or mailed by
first class mail, postage prepaid, to the addresses set forth on the signature
page of this Agreement.
(h) Severability of Provisions. If any one or more of the covenants,
agreements, provisions, or terms of this Agreement shall be held invalid for any
reason whatsoever, 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.
97
<PAGE>
(i) Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Texas and the obligations, rights, and remedies of the
parties hereunder shall be determined in accordance with such laws without
giving effect to the conflict of laws principles thereof. This Agreement is
performable in Dallas County, Texas, which is proper venue for all legal
proceedings. Each of the parties hereby expressly consents to the personal
jurisdiction of the courts of the State of Texas.
(j) Successor and Assigns. This Agreement shall inure to the benefit of
and be binding upon Servicer and Owner and their respective successors and
assigns; provided, however, that this Agreement may not be assigned by Servicer
without the prior written consent of Owner.
(k) Attorneys' Fees and Costs. If attorneys' fees or other costs are
incurred to secure performance of any obligations under the Agreement, or to
establish damages for the breach thereof or to obtain any other appropriate
relief at law or equity, whether by way of prosecution or defense, the
prevailing party shall be entitled to recover reasonable attorneys' fees and
costs incurred in connection therewith.
[remainder of page intentionally left blank]
98
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused its duly authorized
officer or representative to execute this Agreement on the 12th day of January,
1999, the effective date of this Agreement.
SERVICER: OWNER:
- --------- -----
AutoCorp Financial Services, Inc. AutoPrime, Inc.
By: /S/ Charles Norman By: /S/ Thomas A. Hanson
---------------------------- -----------------------------
Title: President Title: Director of Marketing
Address: 5949 Sherry Lane, Suite 525 Address: 200 Crescent Court
Dallas, Texas 75225 Suite 1900
Dallas, Texas 75201
STATE OF TEXAS
COUNTY OF DALLAS
The foregoing instrument was acknowledged before me this 12th day of
January 1999, by Charles Norman, President of AutoCorp. Financial Services,
Inc., a Texas corporation.
/S/ Joan M. Simpson
-------------------------
Notary Public in and for
said County and State
My commission expires: 10-16-2001
(SEAL)
99
<PAGE>
STATE OF TEXAS
COUNTY OF DALLAS
The foregoing instrument was acknowledged before me this 12th day of
January, 1999, by Thomas A. Hanson, Director of Marketing of AutoPrime Inc., a
Delaware corporation.
/S/ Joan M. Simpson
------------------------
Notary Public in and for
said County and State
My commission expires: 10-16-2001
(SEAL)
100
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Exhibit C
Servicing Fees
The Servicing Fee for 79.01 is equal to twenty percent (20%) of gross
amounts collected.
The Servicing Fee for 79.02 is equal to twenty percent (20%) of gross
amounts collected.
The Servicing Fee for 79.03 is equal to twenty percent (20%) of gross
amounts collected.
The Servicing Fee for 79.04 is equal to twenty percent (20%) of gross
amounts collected.
The Servicing Fee for 79.05 is equal to twenty percent (20%) of gross
amounts collected.
The Servicing Fee for 79.06 is equal to thirteen percent (13%) of gross
amounts collected.
The Servicing Fee for 79.07 is equal to thirteen percent (13%) of gross
amounts collected.
The Servicing Fee for 79.08 is equal to ten percent (10%) of gross amounts
collected.
The Servicing Fee for 79.09 is equal to ten percent (10%) of gross amounts
collected.
The Servicing Fee for 79.10 is equal to thirteen percent (13%) of gross
amounts collected.
101
EXHIBIT 10.12
BUSINESS LOAN AGREEMENT
- --------------------------------------------------------------------------------
Principal Loan Date Maturity Loan Number Initials
$750,000.00 10-26-98 4-26-99 101
- --------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
Borrower: Suburba Acquisition Company, Inc. Lender: AutoPrime, Inc.
dba ACE Motor Co. 200 Crescent Court
5949 Sherry Lane Suite 1900
Suite 525 Dallas, TX 75201
Dallas, TX 75225
THIS BUSINESS LOAN AGREEMENT between Suburba Acquisition Company ("Borrower")
and AutoPrime, Inc. ("Lender") is made and executed on the following terms and
conditions. All such loans and financial accommodations, together with all
future loans and financial accommodations from Lender to Borrower, are referred
to in this Agreement individually as the "Loan" and collectively as the "Loans."
Borrower understands and agrees that (a) in granting, renewing, or extending any
Loan, Lender is relying upon Borrower's representations, warranties, and
agreements, as set forth in this Agreement; (b) the granting, renewing, or
extending of any Loan by Lender at all times shall be subject to Lender's sole
judgment and discretion; and (c) all such Loans shall be and shall remain
subject to the following terms and conditions of this Agreement.
TERM: This Agreement shall be effective as of October 26, 1998, and shall
continue thereafter until all indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender in form satisfactory
to Lender the following documents for the Loan: (a) the Note, (b) the
Security Agreements granting to Lender security interests in the
Collateral, (c) Financing Statements perfecting Lender's Security
Interests, (d) evidence of insurance as required below; and (e) any
other documents required under this Agreement or by Lender or its
counsel, including without limitation any assignments of life insurance
described below and any guaranties described below.
Borrower's Authorization. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and
the Related Documents, and such other authorizations and other
documents and instruments as Lender or its counsel, in their sole
discretion, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all
fees, charges, and other expenses which are then due and payable as
specified in this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document
or certificate delivered to Lender under this Agreement are true and
correct.
No Event of Default. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this
Agreement.
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REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any indebtedness exists:
Organization. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the State of
Texas and validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority
to own its properties and to transact the businesses in which it is
presently engaged or presently proposes to engage. Borrower also is
duly qualified as a foreign partnership and is in good standing in all
states in which the failure to so qualify would have a material adverse
effect on its businesses or financial condition.
Authorization. The execution, delivery, and performance of this
Agreement by Borrower, to the extent to be executed, delivered or
performed by Borrower, have been duly authorized by all necessary
action by Borrower; do not require the consent or approval of any other
person, regulatory authority or governmental body; and do not conflict
with, result in a violation of, or constitute a default under (a) any
provision of the partnership agreement, or any agreement or other
instrument binding upon Borrower or (b) any law, governmental
regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as
of the date of the statement, and there has been no material adverse
change in Borrower's financial condition subsequent to the date of the
most recent financial statement supplied to Lender. Borrower has no
material contingent obligations except as disclosed in such financial
statements.
Legal Effect. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered
will constitute, legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms.
Properties. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender
and as accepted by Lender, and except for property tax liens for taxes
not presently due and payable, Borrower owns and has good title to all
of Borrower's properties free and clear of all liens and security
interests, and has not executed any security documents or financing
statements relating to such properties. All of Borrower's properties
are titled in Borrower's legal name, and Borrower has not used, or
filed a financial statement under, any other name for at least the last
five (5) years.
Hazardous Substances. Except as disclosed to Lender in writing, no
property of Borrower ever has been, or ever will be so long as this
Agreement remains in effect, used for the generation, manufacture,
storage, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
"CERCLA" "SARA," applicable state or Federal laws, or regulations
adopted pursuant to any of the foregoing. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous
substances. Borrower hereby (a) releases and waives any future claims
against Lender for indemnity of contribution in the event Borrower
becomes liable for cleanup or other costs under any such law, and (b)
agrees to indemnify and hold harmless Lender against any and all claims
and losses resulting from a breach of this provision of this Agreement.
This obligation to indemnify shall survive the payment of the
indebtedness and the satisfaction of this Agreement.
Commercial Purposes. Borrower intends to use the Loan proceeds
solely for business or commercial related purposes.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
103
<PAGE>
Litigation. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all existing
and threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any guarantor of
the Loan which could materially affect the financial condition of
Borrower or the financial condition of the Loan.
Financial Records. Maintain its books and records in accordance with
accounting principles acceptable to Lender, applied on a consistent
basis and permit Lender to examine and audit Borrower's books and
records at all reasonable times.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and
other reports with respect to Borrower's financial condition and
business operations a Lender may request from time to time.
Guaranties. Prior to disbursement of any Loan proceeds, furnish
executed guaranties of the Loans in favor of Lender, executed by the
guarantors named below, on Lender's forms, and in the amounts and under
the conditions spelled out in those guaranties.
Guarantors
----------
AutoCorp Equities, Inc.
Lenders Auto Resale Center of Texas, Inc.
Loan Proceeds. Use all Loan proceeds solely for the following solely
for the following specific purposes:
Funds to be used for the purchase of vehicles.
Performance. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents in
a timely manner, and promptly notify Lender if Borrower learns of the
occurrence of any event which constitutes an Event of Default under
this Agreement or under any of the Related Documents.
Operations. Maintain executive and management personnel with
substantially the same qualifications and experience as the present
executive and management personnel; provide written notice to Lender of
any change in executive and management personnel; conduct its business
affairs in a reasonable and prudent manner and in compliance with all
applicable federal, state and municipal laws, ordinances, rules and
regulations respecting its properties, charters, businesses and
operations, including without limitation, compliance with the Americans
With Disabilities Act and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's employee
benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable time
to inspect any and all Collateral for the Loan or Loans and Borrower's
other properties and to examine or audit Borrower's books, accounts,
and records and to make copies and memoranda of Borrower's books,
accounts, and records. If Borrower now or at any time hereafter
maintains any records (including without limitation computer generated
records and computer software programs for the generation of such
records) in the possession of a third party, Borrower, upon request of
Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of
any records it may request, all at Borrower's expense.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state, or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other obligations which would (a) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (b) reduce
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the amounts payable to Lender under this Agreement or any related documents, or
(c) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower which explanation and calculations shall be
conclusive in the absence of manifest error.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the
normal course of business and indebtedness to Lender contemplated by
this Agreement, create, incur or assume indebtedness for borrowed
money, including capital leases, (b) except as allowed as a Permitted
Lien, self transfer, mortgage, assign, pledge, lease, grant a security
interest in, or encumber any of Borrower's assets, or (c) sell with
recourse any of Borrower's accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, liquidate, merge, transfer, acquire or
consolidate with any other entity, change ownership, change its name,
dissolve or transfer or sell Collateral out of the ordinary course of
business, or (c) make any distribution with respect to any capital
account, whether by reduction of capital or otherwise.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance
money or assets, (b) purchase, create or acquire any interest in any
other enterprise or entity, or (c) incur any obligation as surety or
guarantor other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of the Agreement or
any other agreement that Borrower or any guarantor has with Lender; (b) Borrower
or any Guarantor becomes insolvent, files a petition in bankruptcy or similar
proceedings, or is adjudged a bankrupt; (c) there occurs a material adverse
change in Borrower's financial condition, in the financial condition of any
guarantor, or in the value of any collateral securing any Loan; (d) any
guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
guarantor's guaranty of the Loan or any other loan with Lender; or (e) Lender in
good faith deems itself insecure, even though no Event of Default shall have
occurred.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on the indebtedness against any and all funds held by
Lender or owed to Borrower for any reason.
EVENTS OF DEFAULT. Each of the following shall constitute an event of default
("Event of Default") under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when
due on the Loans.
Other Defaults. Failure of Borrower to comply with or to perform when
due on any other term, obligation, covenant or condition contained in
the Agreement.
Default in Favor of Third Parties. Should Borrower default under any
loan, extension of credit, security agreement, purchase or sale
agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of Borrower's property or
Borrower's ability to repay the Loans or perform Borrower's
obligations under this Agreement or any related documents.
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False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower is false or misleading
in any material respect at the time made or furnished, or becomes
false or misleading at any time thereafter.
Death or Insolvency. The dissolution or termination of Borrower's
existence as a going business, the insolvency of Borrower, the
appointment of a receiver for any part of Borrower's property, any
assignment for the benefit of creditors, any type of credit workout,
or the commencement of any proceeding under any bankruptcy or
insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help
repossession or any other method, by any creditor of Borrower, any
creditor of any grantor of collateral for the loan. This includes a
garnishment attachment.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness; or any Guarantor
revokes or disputes the validity of, or liability under, any Guaranty
of the indebtedness.
Adverse Change. A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment
performance of the indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement immediately will terminate
(including any obligation to make Loan Advances or disbursements), and, at
Lender's option, all indebtedness immediately will become due and payable, all
without notice of any kind to Borrower, except that in the case of an Event of
Default of the type described in the "Insolvency" subsection above, such
acceleration shall be automatic and not optional. In addition, Lender shall have
all the rights and remedies provided in the Related Documents or available at
law, in equity or otherwise. Except as may be prohibited by applicable law, all
of Lender's rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or
take action to perform an obligation of Borrower or of any Grantor shall not
affect Lender's right to declare a default and to exercise its rights and
remedies.
BORROWER ACKNOWLEDGES HAVING READ ALL THE RPOVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
OCTOBER 26, 1998.
BORROWER:
Suburba Acquisition Company, Inc.
By: /s/ Charles Norman
-------------------
Title: President
LENDER:
AutoPrime, Inc.
By: /s/ Robert A. Baker
--------------------
Title
106
Exhibit 10.13
PROMISSORY NOTE
- --------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Initials
$750,000.00 10-26-98 4-26-99 101
- --------------------------------------------------------------------------------
Reference in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
Borrower: Suburba Acquisition Company, Inc. Lender: AutoPrime, Inc.
dba ACE Motor Co._ 200 Crescent Ct.
5949 Sherry Lane, Suite 525 Suite 1900
Dallas, TX 75225_ Dallas, TX 75201
Principal Amount: $750,000.00 Initial Rate: 15.000% Note Date: 10-26-98
PROMISE TO PAY. Suburba Acquisition Company, Inc. ("Borrower") promises to pay
AutoPrime, Inc. ("Lender"), or order, in lawful money of the United States of
America, the principal amount of Seven hundred fifty thousand & 00/100 Dollars
($750,000.00) or so much as may be outstanding together with interest on the
unpaid outstanding principal balance as advanced from time to time under this
Note. Interest shall be calculated from the date of each advance until repayment
of each advance or maturity, whichever occurs first.
CHOICE OF USURY CEILING AND INTEREST RATE. The interest rate on this note has
been implemented under the "Weekly Rate" as referred to in Section 303.201 of
the Texas Finance Code and Articles 1D.002 and 1D.003 of the Texas Credit Title.
The terms, included the rate, or index, formula or provision of law used to
compute the rate on the Note, will be subject to revision as to current and
future balances, from time to time by notice from Lender in compliance with
Section 303.403 of the Texas Finance Code.
PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in one
payment of all outstanding principal plus all accrued unpaid interest on April
26, 1999. In addition, Borrower will pay regular monthly payments of accrued
unpaid interest beginning December 1, 1998, and all subsequent interest payments
are due on the same day of each month after that. Interest on this Note is
computed on a 365/365 simple interest basis; that is, by applying the ratio of
the annual interest rate over the number of days in a year, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at Lender's address
shown above or a such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to accrued unpaid interest, then to principal, and any remaining amount to any
unpaid collection costs and late charges. Notwithstanding any other provision on
this Note, Lender will not charge interest on any undisbursed loan proceeds. No
scheduled payment, whether of principal or interest or both, will be due unless
sufficient loan funds have been disbursed by the scheduled payment date to
justify the payment.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index known as the Wall Street Journal Prime
Rate (the "Index"). The Index is not necessarily the lowest rate charged by
Lender on its loans and is set by Lender in its sole discretion. If the Index
becomes unavailable during the term of this loan, Lender may designate a
substitute index after notifying Borrower. Lender will tell Borrower the current
Index rate upon Borrower's request. Borrower understands that Lender may make
loans based on other rates as well. The interest rate change will not occur more
often than each day. The Index currently is 8.5% per annum. The interest rate to
be applied prior to maturity to the unpaid principal balance of this Note will
be at a rate of 6.5 percentage points over the Index, resulting in an initial
rate of 15% per annum. Notice: Under no circumstances will the interest rare on
this Note be more than the maximum rate allowed by applicable law. For purposes
of this Note, the "maximum rate allowed by applicable law" means the greater of
(a) the maximum rate of interest permitted under federal or other law applicable
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to the indebtedness evidenced by this Note, or (b) the "Weekly Rate" as referred
to in Section 303.201 of the Texas Finance Code and Articles 1D.002 and 1D.003
of the Texas Credit Title.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, they will reduce the principal balance due.
POST MATURITY RATE. The Post Maturity Rate on this Note is the maximum rate
allowed by applicable law. Borrower will pay interest on all sums due after
final maturity, whether by acceleration or otherwise, at that rate, with the
exception of any amounts added to the principal balance of this Note based on
Lender's payment of insurance premiums, which will continue to accrue interest
at the pre-maturity rate.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower' property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(g) Any of the events described in this default section occurs with respect to
any general partner of Borrower or any guarantor of this Note. (h) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the indebtedness is impaired. (i) Lender
in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire indebtedness,
including the unpaid principal balance on this Note, all accrued unpaid
interest, and all other amounts, costs and expenses for which Borrower is
responsible under this Note or any other agreement with Lender pertaining to
this loan, immediately due, without notice, and then Borrower will pay that
amount. Lender may hire an attorney to help collect this Note if Borrower does
not pay, and Borrower will pay Lender's reasonable attorney's fees. Borrower
also will pay Lender all other amounts actually incurred by Lender as court
costs, lawful fees for filing, recording, or releasing to any public office any
instrument securing this loan; the reasonable cost actually expended for
repossessing, storing, preparing for sale, and selling any security; and fees
for noting a lien on or transferring a certificate to title to any motor vehicle
offered as security for this loan, or premiums or identifiable charges received
in connection with the sale of authorized insurance. This Note has been
delivered to Lender and accepted by Lender in the State of Texas. If there is a
lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of
the courts of Dallas County, the State of Texas. This Note shall be governed by
and construed in accordance with the laws of the State of Texas and applicable
Federal laws.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
COLLATERAL. This Note is secured by a Blanket lien on vehicle inventory.
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LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested orally by Borrower or as provided in this paragraph.
All oral requests shall be confirmed in writing on the day of the request. All
communications, instructions, or directions by telephone otherwise to Lender are
to be directed to Lender's office shown above. The following party or parties
are authorized as provided in this paragraph to request advances under the line
of credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: Charles Norman,
_______________________. ADVANCE REQUESTS CAN BE OBTAINED UPON NOTIFICATION IN
WRITING TO AutoPrime, Inc. Borrower agrees to be liable for all sums either: (a)
advanced in accordance with the instructions of an authorized person or (b)
credited to any of Borrower's accounts with Lender. The unpaid principal balance
owing on this Note at any time may be evidenced by endorsements on this Note or
by Lender's internal records including daily computer print-outs. Lender will
have no obligation to advance funds under this Note if: (a) Borrower or any
guarantor is in default under the terms of this Note or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (b) Borrower or any guarantor ceases
doing business or is insolvent; (c) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of this Note or
any other loan with Lender; (d) Borrower has applied funds provided pursuant to
the Note for purposes other than those authorized by Lender; or (e) Lender in
good faith deems itself insecure under this Note or any other agreement between
Lender and Borrower. This revolving line of credit shall not be subject to sec.
346 of the Texas Finance Code.
DISHONORED CHECK CHARGE. In the event a check offered in full or partial payment
on this loan is returned unpaid, Lender may charge a fee for the purpose of
defraying the expense incident to handling such returned check, and Borrower
agrees to pay such fee. The fee shall not exceed the maximum amount permitted
under applicable law.
DOCUMENT REFERENCE. The REVOLVING CREDIT AGREEMENT FLOOR PLAN OF MOTOR VEHICLES
between Suburba Acquisition Company, Inc. and AutoPrime, Inc. is hereby
referenced to and made a part of this Promissory Note and related documents.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. If any part of this Note cannot be
enforced, this fact will not affect the rest of the note. In particular, this
section means (among other things) that Borrower does not agree or intend to
pay, and Lender does not agree or intend to contract for charge, collect, take,
reserve or receive (collectively referred to herein as "charge or collect"), any
amount in the nature of interest or in the nature of a fee for this loan, which
would in any way or event (including demand, prepayment, or acceleration) cause
Lender to charge or collect more for this loan than the maximum Lender would be
permitted to charge or collect by federal law or the law of the State of Texas
(as applicable). Any such excessive interest or unauthorized fee shall, instead
of anything stated to the contrary, be applied first to reduce the principal
balance of this loan, and when that principal has been paid in full, be refunded
to Borrower. The right to accelerate maturity of sums due under this Note does
not include the right to accelerate any interest which has not otherwise accrued
on the date of such acceleration, and Lender does not intend to charge or
collect any unearned interest in the event of acceleration. All sums paid or
agreed to be paid to Lender for the use, forbearance or detention of sums due
hereunder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the loan evidenced by
this Note until payment in full so that the rate or amount of interest on
account of the loan evidenced hereby does not exceed the applicable usury
ceiling. Lender may delay or forego enforcing any of its rights or remedies
under this Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest, notice of dishonor, notice of intent
to accelerate the maturity of this Note, and notice of acceleration of the
maturity of this Note. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any part, partner, or
guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral without the consent of or notice to anyone.
All such parties also agree that Lender may modify this loan without the consent
of or notice to anyone other than the party with whom the modification is made.
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PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
Suburba Acquisition Company, Inc.
By: /s/ Charles Norman
---------------------------
Charles Norman, President
110
Exhibit 10.14
COMMERCIAL SECURITY AGREEMENT
- --------------------------------------------------------------------------------
Principle Loan Date Maturity Loan Number Initials
$750,000.00 10-26-98 4-26-99 101
- --------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
THIS COMMERCIAL SECURITY AGREEMENT is entered into among SUBURBA ACQUISITION
COMPANY, INC., dba ACE Motor Co. (referred to below as "Borrower" and
"Grantor"); and AUTOPRIME, INC. (referred to below as "Lender"). For valuable
consideration, Grantor grants to Lender a security interest in the Collateral to
secure the Indebtedness and agrees that Lender shall have the rights stated in
this Agreement with respect to the collateral, in addition to all other rights
which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
Borrower. The word "Borrower" means each and every person or entity
signing the note, including without limitation Suburba Acquisition
Company, Inc.
Collateral. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired, whether
now existing or hereafter arising, and wherever located:
All inventory and equipment, together with the following specifically
described property: all Borrower's inventory of new and used
automobiles, including all parts and accessories now existing or
hereafter acquired, together with all substitutes and replacements
thereof, all accessions, attachments, parts, equipment and additions
now or hereafter affixed thereto or used in connection therewith, and
all similar property hereafter acquired by debtor, including any such
goods as may be leased or held for leasing, together with any and all
proceeds arising from the sale, lease or other disposition of said
property, and all returned, refused and repossessed goods, all monies
received from manufacturers by way of credits, refunds or otherwise
with respect to Collateral, and all proceed thereof.
In addition, the word "Collateral" includes all the following, whether
now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located:
(a) All attachments, accessions, accessories, tools, parts,
supplies, increases, and additions to and all replacements
of and substitutions for any property described above.
(b) All products and produce of any of the property described in
this Collateral section.
(c) All accounts, general intangibles, instruments, rents,
monies, payments, and all other rights, arising out of a
sale, lease, or other disposition of any of the property
described in this Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the
property described in this Collateral section.
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(e) All records and data relating to any of the property
described in this Collateral section, whether in the form of
a writing, photograph, microfilm, microfiche, or electronic
media, together with all of Grantor's right, title, and
interest in and to all computer software required to
utilize, create, maintain, and process any such records or
data on electronic media.
Event of Default. The words "Event of Default" mean and include
without limitation any of the Events of Default set forth below in the
section titled "Events of Default."
Grantor. The word "Grantor" means Suburba Acquisition Company, Inc. Any
Grantor, who signs this Agreement, but does not sign the Note, is
signing this Agreement only to grant a security interest in Grantor's
interest in the Collateral to Lender and is not personally liable under
the Note except as otherwise provided by contract or law (e.g.,
personal liability under a guaranty or as a surety.)
Guarantor. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced
by the Note, including all principal and earned interest, together with
all other indebtedness and costs and expenses for which Grantor or
Borrower is responsible under this Agreement or under any of the
Related Documents. In addition, the word "Indebtedness" includes all
other obligations, debts and liabilities, plus interest thereon, of
Borrower, or any one or more of them, to Lender, as well as all claims
by Lender against Borrower, or any one or more of them, whether
existing now or later; whether they are voluntary or involuntary, due
or not due, direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Borrower may be liable individually or jointly
with others; whether Borrower may be obligated as guarantor, surety,
accommodation party or otherwise.
Lender. The word "Lender" means AUTOPRIME, INC., its successors and
assigns.
Note. The word "Note" means the note or credit agreement dated October
26, 1998, in the principal amount of $750,000.00 from Borrower to
Lender, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or
credit agreement.
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, deeds of trust, and all other
instruments, agreements, documents, whether now or hereafter existing,
executed in connection with the Indebtedness.
BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under this
Agreement or by applicable law, (a) Borrower agrees that Lender need not tell
Borrower about any action or inaction Lender takes in connection with this
Agreement; (b) Borrower assumes the responsibility for being and keeping
informed about the Collateral; and (c) Borrower waives any defenses that may
arise because of any action or inaction of Lender, including without limitation
any failure of Lender to realize upon the collateral or any delay by Lender in
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realizing upon the Collateral; and Borrower agrees to remain liable under the
Note no matter what action Lender takes or fails to take under this Agreement.
GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (a) this
Agreement is executed at Borrower's request and not at the request of Lender;
(b) Grantor has the full right, power and authority to enter into this Agreement
and to pledge the Collateral to Lender; (c) Grantor has established adequate
means of obtaining from Borrower on a continuing basis information about
Borrower's financial condition; and (d) Lender has made no representation to
Grantor about Borrower or Borrower's creditworthiness.
GRANTOR'S WAIVERS. Grantor waives all requirements of presentment, protest,
demand, and notice of dishonor or non-payment to Grantor, Borrower, or any other
party to the indebtedness or the Collateral. Lender may do any of the following
with respect to any obligation of any Borrower, without first obtaining the
consent of Grantor: (a) grant any extension of time for any payment, (b) grant
any renewal, (c) permit any modification of payment terms or other terms, or (d)
exchange or release any Collateral or other security. No such act or failure to
act shall affect Lender's rights against Grantor or the Collateral.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Grantor hereby forever waives and relinquishes in favor of
Lender and Borrower, and their respective successors, any claim or right to
payment Grantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Grantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Grantor authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all Indebtedness against any and all funds held by Lender for
Grantor's account.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Perfection of Security Interest. Grantor agrees to execute such
financing statements and to take whatever other actions are requested
by Lender to perfect and continue Lender's security interest in the
Collateral. Upon request of Lender, Grantor will deliver to Lender any
and all of the documents evidencing or constituting the Collateral, and
Grantor will note Lender's interest upon any and all chattel paper if
not delivered to Lender for possession by Lender. Grantor hereby
appoints Lender as its irrevocable attorney-in-fact for the purpose of
executing any documents necessary to perfect or to continue the
security interest granted in this Agreement. Lender may at any time,
and without further authorization from Grantor, file a carbon,
photographic or other reproduction of any financing statement or of
this Agreement for use as a financing statement. Grantor will reimburse
Lender for all expenses for the perfection and the continuation of the
perfection of Lender's security interest in the Collateral. Grantor
promptly will notify Lender before any change in Grantor's name
including any change to the assumed business names of Grantor. This is
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a continuing Security Agreement and will continue in effect even though
all or any part of the Indebtedness is paid in full and even though for
a period of time Borrower may not be indebted to Lender.
No Violation. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its partnership agreement does not prohibit any term or
condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral
have authority and capacity to contract and are in fact obligated as
they appear to be on the Collateral.
Location of the Collateral. Grantor, upon request of Lender, will
deliver in form satisfactory to Lender a schedule of real properties
and Collateral locations relating to Grantor's operations, including
without limitation the following: (a) all real property owned or being
purchased by Grantor; (b) all real property being rented or leased by
Grantor; (c) all storage facilities owned, rented, leased or being used
by Grantor; and (d) all other properties where Collateral is or may be
located. Except in the ordinary course of its business, Grantor shall
not remove the Collateral from its existing locations without the prior
written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as accounts,
the records concerning the Collateral) at Grantor's address shown
above, or at such other locations as are acceptable to Lender. Except
in the ordinary course of its business, including the sales of
inventory, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender. To the extent
that the Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the
State of Texas, without the prior written consent of Lender.
Transactions Involving Collateral. Except for inventory sold or
accounts collected in the ordinary course of Grantor's business,
Grantor shall not sell, offer to sell, or otherwise transfer or dispose
of the Collateral. While Grantor is not in default under this
Agreement, Grantor may sell inventory, but only in the ordinary course
of its business and only to buyers who qualify as a buyer in the
ordinary course of business. A sale in the ordinary course of Grantor's
business does not include a transfer in partial or total satisfaction
of a debt or any bulk sale. Grantor shall not pledge, mortgage,
encumber or otherwise permit the Collateral to be subject to any lien,
security interest, encumbrance, or charge, other than the security
interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in
right to the security interests granted under this Agreement. Unless
waived by Lender, all proceeds from any disposition of the Collateral
(for whatever reason) shall be held in trust for Lender and shall not
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be commingled with any other funds; provided, however, this requirement
shall not constitute consent by Lender to any sale or other
disposition. Upon receipt, Grantor shall immediately deliver any such
proceeds for Lender.
Title. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public
office other than those which reflect the security interest created by
this Agreement or to which Lender has specifically consent. Grantor
shall defend Lender's rights in the Collateral against the claims and
demands of all other persons.
Collateral Schedules and Locations. Insofar as the Collateral consists
of inventory and equipment, Grantor shall deliver to Lender, as often
as Lender shall require, such lists, descriptions, and designations of
such Collateral as Lender may require to identify the nature, extent,
and location of such Collateral. Such information shall be submitted
for Grantor and each of its subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not
commit or permit damage to or destruction of the Collateral. Lender and
its designated representatives and agents shall have the right at all
reasonable times to examine the Collateral and shall immediately notify
Lender of all cases involving the return, rejection, repossession, loss
or damage of or to any Collateral; of any request for credit or
adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events affecting the
Collateral or the value or the amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon
this Agreement, upon any promissory note or notes evidencing the
Indebtedness, or upon any of the other Related Documents. Grantor may
withhold any such payment or may elect to contest any lien if Grantor
is in good faith conducting an appropriate proceeding to contest the
obligation to pay and so long as Lender's interest in the collateral is
not jeopardized in Lender's sole opinion. If the Collateral is
subjected to a lien which is not discharged within fifteen (15) days,
Grantor shall deposit with Lender cash, a sufficient corporate surety
bond or other security satisfactory to Lender in an amount adequate to
provide for the discharge of the lien plus any interest, costs,
attorneys' fees or other charges that could accrue as a result of
foreclosure or sale of the Collateral. In any contest Grantor shall
defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as
an additional obligee under any surety bond furnished in the contest
proceedings.
Compliance with Governmental Requirements. Grantor shall comply
promptly with all laws, ordinances, rules and regulations of all
governmental authorities, now or hereafter in effect, applicable to the
ownership, production, disposition, or use of the Collateral. Grantor
may contest in good faith any such law, ordinance or regulation and
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withhold compliance during any proceeding, including appropriate
appeals, so long as Lender's interest in the Collateral, in Lender's
opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this Agreement
remains a lien on the Collateral, used for the generation, manufacture,
storage, transportation, treatment, disposal, release or threatened
release of any hazardous waste or substance, as those terms are defined
in the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986,
Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable
state or Federal laws, rules, or regulations adopted pursuant to any of
the foregoing. The terms "hazardous waste" and "hazardous substance"
shall also include, without limitation, petroleum and petroleum
by-products or any fraction thereof and asbestos. The representations
and warranties contained herein are based on Grantor's due diligence in
investigating the Collateral for hazardous wastes and substances.
Grantor hereby (a) releases and waives any future claims against Lender
for indemnity or contribution in the event Grantor becomes liable for
cleanup or other costs under any such laws, and (b) agrees to indemnify
and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the Indebtedness
and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage together with such other insurance as Lender may
require with respect to the Collateral, in form, amounts, coverages and
basis reasonably acceptable to Lender. GRANTOR MAY FURNISH THE REQUIRED
INSURANCE WHETHER THROUGH EXISTING POLICIES OWNED OR CONTROLLED BY
GRANTOR OR THROUGH EQUIVALENT INSURANCE FROM ANY INSURANCE COMPANY
AUTHORIZED TO TRANSACT BUSINESS IN THE STATE OF TEXAS. If Grantor fails
to provide any required insurance or fails to continue such insurance
in force, Lender may, but shall not be required to, do so at Grantor's
expense, and the cost of the insurance will be added to the
Indebtedness. If any such insurance is procured by Lender at a rate or
charge not fixed or approved by the State Board of Insurance, Grantor
will be so notified, and Grantor will have the option for five (5) days
of furnishing equivalent insurance through any insurer authorized to
transact business in Texas. Grantor, upon request of Lender, will
deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be cancelled or diminished without at least thirty
(30) days' prior written notice to Lender and not including any
disclaimer of the insurer's liability for failure to give such a
notice. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Grantor or any other person. In
connection with all policies covering assets in which Lender holds or
is offered a security interest, Grantor will provide Lender with such
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loss payable or other endorsements as Lender may require. If Grantor at
any time fails to obtain or maintain any insurance as required under
this Agreement, Lender may (but shall not be obligated to) obtain such
insurance as Lender deems appropriate, including if it so chooses
"single interest insurance," which will cover only Lender's interest in
the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender
of any loss or damage to the Collateral. Lender may make proof of loss
if Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed
Collateral, Lender shall, upon satisfactory proof of expenditure, pay
or reimburse Grantor from the proceeds for the reasonable cost of
repair or restoration. If Lender does not consent to repair or
replacement of the Collateral, Lender shall retain a sufficient amount
of the proceeds to pay all of the Indebtedness, and shall pay the
balance to Grantor. Any proceeds which have not been disbursed within
six (6) months after their receipt and which Grantor has not committed
to the repair or restoration of the Collateral shall be used to prepay
the Indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be
created by monthly payments from Grantor of a sum estimated by Lender
to be sufficient to produce, at least fifteen (15) days before the
premium due date, amounts at least equal to the insurance premiums to
be paid. If fifteen (15) days before payment is due, the reserve funds
are insufficient, Grantor shall upon demand pay any deficiency to
Lender. The reserve funds shall be held by Lender as a general deposit
and shall constitute a non-interest-bearing account which Lender may
satisfy by payment of the insurance premiums required to be paid by
Grantor as they become due. Lender does not hold the reserve funds in
trust for Grantor, and Lender is not the agent of Grantor for payment
of the insurance premiums required to be paid by Grantor. The
responsibility for the payment of premiums shall remain Grantor's sole
responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the property insured; (e) the then current value on the
basis of which insurance has been obtained and the manner of
determining that value; and (f) the expiration date of the policy. In
addition, Grantor shall upon request by Lender (however not more often
than annually) have an independent appraiser satisfactory to Lender
determine, as applicable, the cash value or replacement cost of the
Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of the
tangible personal property and beneficial use of all the Collateral and may use
it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral. If
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Lender at any time has possession of the Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall be obligated
to) pay all costs for insurance, maintenance and preserving the Collateral. All
such expenditures incurred or paid by Lender for such purposes will then bear
interest at the Note rate from the date incurred by Lender to the date of
repayment by Grantor. All such expenses shall become a part of the Indebtedness
and, at Lender's option, will (a) be payable on demand, (b) be added to the
balance of the Note and be apportioned among and be payable with any installment
payments to become due during either (i) the term of any applicable insurance
policy or (ii) the remaining term of the Note, or (c) be treated as a balloon
payment which will be due and payable at the Note's maturity. This Agreement
also will secure payment of these amounts. Such right shall be in addition to
all other rights and remedies to which Lender may be entitled upon the
occurrence of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when
due on the Indebtedness.
Other Defaults. Failure of Grantor or Borrower to comply with or to
perform any other term, obligation, covenant or condition contained in
this Agreement or in any of the Related Documents or failure of
Borrower to comply with or to perform any term, obligation, covenant or
condition contained in any other agreement between Lender and Borrower.
Default in Favor of Third Parties. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may be materially affect any of
Borrower's property or Borrower's or any Grantor's ability to repay the
Loans or perform their respective obligations under this Agreement or
any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor or Borrower under this
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Agreement, the Note or the Related Documents is false or misleading in
any material respect, either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any collateral documents to create a valid and perfected security
interest or lien) at any time and for any reason.
Death or Insolvency. The dissolution or termination of Grantor or
Borrower's existence as a going business or the insolvency of Grantor
or Borrower, the appointment of a receiver for any part of Grantor or
Borrower's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under
any bankruptcy or insolvency laws by or against Grantor or Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or
Borrower or by any governmental agency against the Collateral or any
other collateral securing the Indebtedness. This includes a garnishment
of any of Grantor or Borrower's deposit accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor
dies or becomes incompetent.
Adverse Change. A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Texas Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness
immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender
all or any portion of the Collateral and any and all certificates of
title and other documents relating to the Collateral. Lender may
require Grantor to assemble the Collateral and make it available to
Lender at a place to be designated by Lender. Lender also shall have
full power to enter, provided Lender does so without a breach of the
peace or a trespass, upon the property of Grantor to take possession of
and remove the Collateral. If the Collateral contains other goods not
covered by this Agreement at the time of repossession, Grantor agrees
Lender may take such other goods, provided that Lender makes reasonable
efforts to return them to Grantor after repossession.
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Sell the Collateral. Lender shall full power to sell, lease, transfer
or otherwise deal with the Collateral or proceeds thereof in its own
name or that of Grantor. Lender may sell the Collateral at public
auction or private sale. Unless the Collateral threatens to decline
speedily in value or is of a type customarily sold on a recognized
market, Lender will give Grantor reasonable notice of the time after
which any private sale or any other intended disposition of the
Collateral is to be made. The requirements of reasonable notice shall
be met if such notice is given at least ten (10) days before the time
of the sale or disposition. All expenses relating to the disposition of
the Collateral, including without limitation the expenses of retaking,
holding, insuring, preparing for sale and selling the Collateral, shall
become a part of the Indebtedness secured by this Agreement and shall
be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment
of a receiver: (a) Lender may have a receiver appointed as a matter of
right, (b) the receiver may be an employee of Lender and may serve
without bond, and (c) all fees of the receiver and his or her attorney
shall become part of the Indebtedness secured by this Agreement and
shall be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from
the Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the
Indebtedness in such order of preference as Lender may determine.
Insofar as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, choses in action, or
similar property, Lender may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclosure, or realize on the Collateral
as Lender may determine, whether or not Indebtedness or Collateral is
then due. For these purposes, Lender may, on behalf of and in the name
of Grantor, receive, open and dispose of mail addressed to Grantor;
change any address to which mail and payments are to be sent; and
endorse notes, checks, drafts, money orders, documents of title,
instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly to
Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Borrower for any
deficiency remaining on the Indebtedness due to Lender after
application of all amounts received from the exercise of the rights
provided in this Agreement. Borrower shall be liable for a deficiency
even if the transaction described in this subsection is a sale of
accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and
remedies of a secured creditor under the provisions of the Uniform
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Commercial Code, as may be amended from time to time. In addition,
Lender shall have and may exercise any or all other rights and remedies
it may have available at law, in equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor or Borrower under this
Agreement, after Grantor or Borrower's failure to perform, shall not
affect Lender's right to declare a default and to exercise its
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alternation of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
Applicable Law. This Agreement has been delivered to Lender and
accepted by Lender in the State of Texas. If there is a lawsuit,
Grantor and Borrower agree upon Lender's request to submit to the
jurisdiction of the courts of the State of Texas. This Agreement shall
be governed by and construed in accordance with the laws of the State
of Texas and applicable Federal laws.
Attorney's Fees and Other Costs. Lender may hire an attorney to help
collect the Note if Borrower does not pay, and Grantor and Borrower
will pay Lender's reasonable attorneys' fees. Grantor and Borrower also
will pay Lender all other amounts actually incurred by Lender as court
costs, lawful fees for filing, recording, or releasing to any public
office any instrument securing the Note; the reasonable cost actually
expended for repossessing, storing, preparing for sale, and selling any
security; and fees for noting a lien on or transferring a certificate
of title to any motor vehicle offered as security for the Note, or
premiums or identifiable changes received in connection with the sale
of authorized insurance.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.
Multiple Parties. All obligations of Grantor and Borrower under this
Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower, and all references to Grantor shall
mean each and every Grantor. This means that each of the persons
signing below is responsible for all obligations in this Agreement.
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Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise
required by law), and shall be effective when actually delivered or
when deposited in the United States mail, first class, postage prepaid,
addressed to the party to whom the notice is to be given at the address
shown above. Any party may change its address for notices under this
Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's
address. To the extent permitted by applicable law, if there is more
than one Grantor or Borrower, notice to any Grantor or Borrower will
constitute notice to any Grantor and Borrowers. For notice purposes,
Grantor and Borrower will keep Lender informed at all times of Grantor
and Borrower's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and
lawful attorney-in-fact, irrevocably, will full power of substitution
to do the following: (a) to demand, collect, receive, receipt for, sue
and recover all sums of money or other property which may now or
hereafter become due, owing or payable from the Collateral; (b) to
execute, sign and endorse any and all claims, instruments, receipts,
checks, drafts or warranties issues in payment for the Collateral; (c)
to settle or compromise any and all claims arising under the
Collateral, and, in the place and stead of Grantor, to execute and
deliver its release and settlement for the claim; and (d) to file any
claim or claims or to take any action or institute or take part in any
proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary
or advisable. This power is given as security for the Indebtedness, and
the authority hereby conferred is and shall be irrevocable and shall
remain in full force and effect until renounced by Lender.
Severability. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible,
any such offending provision shall be deemed to be modified to be
within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
Successor Interests. Subject to the limitations set forth on transfer
of the Collateral, this Agreement shall be binding upon and inure to
the benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or
constitute a wavier of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waived by Lender, nor any course of dealing between
Lender and Grantor, shall constitute a waiver of any of Lender's rights
or of any of Grantor's obligations as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in
the sole discretion of Lender.
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BORROWER AND GRANTOR ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS
COMMERCIAL SECURITY AGREEMENT, AND BORROWER AND GRANTOR AGREE TO ITS TERMS. THIS
AGREEMENT IS DATED OCTOBER 26, 1998.
BORROWER:
Suburba Acquisition Company, Inc.
By: /s/ Charles Norman
--------------------
President
GRANTOR:
By: /s/ Robert A. Baker
--------------------
President
By:__________________________________________
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EXHIBIT 10.15
PROMISSORY NOTE
- --------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Initials
$750,000.00 4/26/99 11/26/99 101 (extended)
- --------------------------------------------------------------------------------
References in the shaded areas are for Lender's use only and do not limit
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
Borrower: ACE Motor Company_ Lender: AutoPrime, Inc.
(formerly known as Suburba 200 Crescent Court
Acquisition Company, Inc. Suite 1900
d/b/a ACE Motor Co.) Dallas, TX 75201
5949 Sherry Lane, Suite 525
Dallas, TX 75225
Principal Amount: $750,000 Initial Rate: 14.250% Note: 4/26/99
PROMISE TO PAY. ACE Motor Company (formerly known as Suburba Acquisition
Company, Inc. d/b/a ACE Motor Co.) ("Borrower") promises to pay AutoPrime, Inc.
("Lender"), or order, in lawful money of the United States of America, the
principal amount of Seven Hundred Fifty Thousand and 00/100 Dollars
($750,000.00) or so much as may be outstanding together with interest on the
unpaid outstanding principal balance as advanced from time to time under this
Note. Interest shall be calculated from the date of each advance until repayment
of each advance or maturity, whichever occurs first.
CHOICE OF USURY CEILING AND INTEREST RATE. The interest rate on this note has
been implemented under the "Weekly Rate" as referred to in Section 303.201 of
the Texas Financial Code and Articles ID.002 and ID.003 of the Texas Credit
Title. The terms, included in the rate, or index, formula or provision of law
used to compute the rate on the Note, will be subject to revision as to current
and future balances, from time to time by notice from Lender in compliance with
Section 303.403 of the Texas Financial Code.
PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in one
payment of all outstanding principal plus all accrued unpaid interest on
November 26, 1999. In addition, Borrower will pay regular monthly payments of
accrued unpaid interest beginning May 1, 1999, and all subsequent interest
payments are due on the same day of each month after that. Interest on this Note
is computed on a 365/365 simple interest basis; that is, by applying the ratio
of the annual interest rate over the number of days in a year, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at Lender's address
shown above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to accrued unpaid interest, then to principal, and any remaining amount to any
unpaid collection costs and late charges. Notwithstanding any other provision on
this Note, Lender will not charge interest on any undisbursed loan proceeds. No
scheduled payment, whether of principal or interest or both, will be due unless
sufficient loan funds have been disbursed by the scheduled payment date to
justify the payment. VARIABLE INTEREST RATE. The interest on this Note is
subject to change from time to time based on changes in an index known at the
WALL STREET JOURNAL PRIME RATE (the "Index"). The Index is not necessarily the
lowest rate charged by Lender on its loans and is set by Lender in its sole
discretion. If the Index becomes unavailable during the term of this loan,
Lender may designate a substitute index after notifying Borrower. Lender will
tell Borrower the current Index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often that each day. The Index
currently is 7.75% per annum. The interest rate to be applied prior to maturity
to the unpaid principal balance of this Note will be at a rate of 6.5 percentage
points over the Index, resulting in an initial rate of 14.25% per annum. Notice:
Under no circumstances will the interest rate on this Note be more than the
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maximum rate allowed by applicable law. For purposes of this Note, the "maximum
rate allowed by applicable law" means the lesser of (a) the greater of the
maximum rate of interest permitted under federal or other law applicable to the
indebtedness evidenced by this Note, or (b) the "Weekly Rate" as referred to in
Section 303.201 of the Texas Finance Code and Articles ID.002 and ID.003 of the
Texas Credit Title.
REPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower or Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, they will reduce the principal balance due.
POST MATURITY RATE. The Post Maturity Rate on this Note is the maximum rate
allowed by applicable law. Borrower will pay interest on all sums due after
final maturity, whether by acceleration or otherwise, at that rate, with the
exception of any amounts added to the principal balance of this Note based on
Lender's payment of insurance premiums, which will continue to accrue interest
at the pre-maturity rate.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due; (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender; (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents; (d) any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished; (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws; (f) any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest, including a garnishment of any of Borrower's accounts with Lender; (g)
any of the events described in this default section occurs with respect to any
general partner of Borrower or any guarantor of this Note; (h) a material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospects of payment or performance of the indebtedness is impaired; or (i)
Lender in good faith deems itself insecure. LENDER'S RIGHTS. Upon default,
Lender may declare the entire indebtedness, including the unpaid principal
balance on this Note, all accrued unpaid interest, and all other amounts, costs
and expenses for which Borrower is responsible under this Note or any other
agreement with Lender pertaining to this loan, immediately due, without notice,
and then Borrower will pay that amount. Lender may hire an attorney to help
collect this Note if Borrower does not pay, and Borrower will pay Lender's
reasonable attorney's fees. Borrower also will pay Lender (i) all other amounts
actually incurred by Lender as court costs, lawful fees for filing, recording,
or releasing to any public office any instrument securing this loan, (ii) the
reasonable cost actually expended for repossessing, storing, preparing for sale,
and selling any security and (iii) any fees for noting a lien on or transferring
a certificate to title to any motor vehicle offered as security for this loan,
or premiums or identifiable charges received in connection with the sale of
authorized insurance. This Note has been delivered to Lender and accepted by
Lender in the State of Texas. If there is a lawsuit, Borrower agrees upon
Lender's request to submit to the jurisdiction of the courts of Dallas County,
the State of Texas. This Note shall be governed by and construed in accordance
with the laws of the State of Texas and applicable Federal laws.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding, however, all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
COLLATERAL. This Note is secured by a blanket lien on vehicle inventory.
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LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested orally by Borrower or as provided in this paragraph.
All oral requests shall be confirmed in writing on the day of the request. All
communications, instructions, or directions by telephone otherwise to Lender are
to be directed to Lender's office shown above. The following party or parties
are authorized as provided in this paragraph to request advances under the line
of credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: Charles Norman, President.
ADVANCE REQUESTS CAN BE OBTAINED UPON NOTIFICATION IN WRITING TO LENDER.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instruction of an authorized person or (b) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this Note
at any time may be evidenced by endorsements on this Note or by Lender's
internal records including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; (d) Borrower has applied funds provided pursuant to the Note for
purposes other than those authorized by Lender; or (e) Lender in good faith
deems itself insecure under this Note or any other agreement between Lender and
Borrower. This revolving line of credit shall not be subject to Section 346 of
the Texas Financial Code.
DISHONORED CHECK CHARGE. In the event a check offered in full or partial payment
on this loan is returned unpaid, Lender may charge a fee for the purpose of
defraying the expense incident to handling such returned check, and Borrower
agrees to pay such fee. The fee shall not exceed the maximum amount permitted
under applicable law.
DOCUMENT REFERENCE. The REVOLVING CREDIT AGREEMENT FLOOR PLAN OF MOTOR VEHICLES
between Borrower and Lender is hereby referenced to and made a part of this
Promissory Note and related documents.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. If any part of this Note cannot be
enforced, this fact will not affect the rest of the note. In particular, this
section means (among other things) that Borrower does not agree to intend to
pay, and Lender does not agree or intend to contract for charge, collect, take,
reserve or receive (collectively referred to herein as "charge or collect", any
amount in the nature of interest or in the nature of a fee for this loan, which
would in any way or event (including demand, prepayment, or acceleration) cause
Lender to charge or collect more for this loan than the maximum Lender would be
permitted to charge or collect by federal law or the law of the State of Texas
(as applicable). Any such excessive interest or unauthorized feel shall, instead
of anything stated to the contrary, be applied first to reduce the principal
balance of this loan, and when that principal has been paid in full, be refunded
to Borrower. The right to accelerate maturity of sums due under this Note does
not include the right to accelerate any interest which has not otherwise accrued
on the date of such acceleration, and Lender does not intend to charge or
collect any unearned interest in the event of acceleration. All sums paid or
agreed to be paid to Lender for the use, forbearance or detention of sums due
hereunder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the loan evidenced by
this Note until payment in full so that the rate or amount of interest on
account of the loan evidenced hereby does not exceed the applicable usury
ceiling. Lender may delay or forego enforcing any of its rights or remedies
under this Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest, notice of dishonor, notice of intent
to accelerate the maturity of this Note, and notice of acceleration of the
maturity of this Note. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
make, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any part, partner, or
guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral without the consent of or notice to anyone.
All such parties also agree that Lender may modify this loan without the consent
of or notice to anyone other than the party with whom the modification is made.
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RESTATEMENT OF PRIOR NOTE. This Note amends, restates, modifies, extends and
replaces, but does not extinguish the indebtedness by, that certain Promissory
Note, dated October 26, 1998, in the original principal amount of $750,000.00,
executed by Borrower, payable to the order of Lender.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
ACE Motor Company
(formerly known as Suburba Acquisition Company, Inc. d/b/a ACE Motor Co.)
By: /s/ Charles Norman
-------------------
Charles Norman
President
127
EXHIBIT 10.16
BUSINESS LOAN AGREEMENT
- --------------------------------------------------------------------------------
Principal Loan Date Maturity Loan Number Initials
$1,000,000.00 6-17-99 1-17-99 102
- --------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular item
- --------------------------------------------------------------------------------
Borrower: ACE Motor Company Lender: AutoPrime, Inc.
(formerly known as Suburba 2740 N. Dallas Parkway
Acquisition Company, Inc. Suite 100
d/b/a ACE Motor Co.) Plano, TX 75093
5949 Sherry Lane, Suite 525
Dallas, TX 75225
THIS BUSINESS LOAN AGREEMENT between ACE Motor Company (formerly known as
Suburba Acquisition Company, Inc. d/b/a ACE Motor Co.) ("Borrower") and
AutoPrime, Inc. ("Lender") is made and executed on the following terms and
conditions. All such loans and financial accommodations, together with all
future loans and financial accommodations from Lender to Borrower, are referred
to in this Agreement individually as the "Loan" and collectively as the "Loans."
Borrower understands and agrees that (a) in granting, renewing, or extending any
Loan, Lender is relying upon Borrower's representations, warranties, and
agreements, as set forth in this Agreement; (b) the granting, renewing, or
extending of any Loan by Lender at all times shall be subject to Lender's sole
judgment and discretion; and (c) all such Loans shall be and shall remain
subject to the following terms and conditions of this Agreement.
TERM: This Agreement shall be effective as of June 17, 1999, and shall continue
thereafter until all indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement in writing.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender in form satisfactory
to Lender the following documents for the Loan: (a) the Note, (b) the
Security Agreements granting to Lender security interests in the
Collateral, (c) Financing Statements perfecting Lender's Security
Interests, (d) evidence of insurance as required below; and (e) any
other documents required under this Agreement or by Lender or its
counsel, including without limitation any assignments of life insurance
described below and any guaranties described below.
Borrower's Authorization. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and
the Related Documents, and such other authorizations and other
documents and instruments as Lender or its counsel, in their sole
discretion, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all
fees, charges, and other expenses which are then due and payable as
specified in this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document
or certificate delivered to Lender under this Agreement are true and
correct.
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No Event of Default. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this
Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any indebtedness exists:
Organization. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the State of
Texas and validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority
to own its properties and to transact the businesses in which it is
presently engaged or presently proposes to engage. Borrower also is
duly qualified as a foreign partnership and is in good standing in all
states in which the failure to so qualify would have a material adverse
effect on its businesses or financial condition.
Authorization. The execution, delivery, and performance of this
Agreement by Borrower, to the extent to be executed, delivered or
performed by Borrower, have been duly authorized by all necessary
action by Borrower; do not require the consent or approval of any other
person, regulatory authority or governmental body; and do not conflict
with, result in a violation of, or constitute a default under (a) any
provision of the partnership agreement, or any agreement or other
instrument binding upon Borrower or (b) any law, governmental
regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as
of the date of the statement, and there has been no material adverse
change in Borrower's financial condition subsequent to the date of the
most recent financial statement supplied to Lender. Borrower has no
material contingent obligations except as disclosed in such financial
statements.
Legal Effect. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered
will constitute, legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms.
Properties. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender
and as accepted by Lender, and except for property tax liens for taxes
not presently due and payable, Borrower owns and has good title to all
of Borrower's properties free and clear of all liens and security
interests, and has not executed any security documents or financing
statements relating to such properties. All of Borrower's properties
are titled in Borrower's legal name, and Borrower has not used, or
filed a financial statement under, any other name for at least the last
five (5) years.
Hazardous Substances. Except as disclosed to Lender in writing, no
property of Borrower ever has been, or ever will be so long as this
Agreement remains in effect, used for the generation, manufacture,
storage, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
"CERCLA" "SARA," applicable state or Federal laws, or regulations
adopted pursuant to any of the foregoing. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous
substances. Borrower hereby (a) releases and waives any future claims
against Lender for indemnity of contribution in the event Borrower
becomes liable for cleanup or other costs under any such law, and (b)
agrees to indemnify and hold harmless Lender against any and all claims
and losses resulting from a breach of this provision of this Agreement.
This obligation to indemnify shall survive the payment of the
indebtedness and the satisfaction of this Agreement.
Commercial Purposes. Borrower intends to use the Loan proceeds
solely for business or commercial related purposes.
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AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all existing
and threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any guarantor of
the Loan which could materially affect the financial condition of
Borrower or the financial condition of the Loan.
Financial Records. Maintain its books and records in accordance with
accounting principles acceptable to Lender, applied on a consistent
basis and permit Lender to examine and audit Borrower's books and
records at all reasonable times.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and
other reports with respect to Borrower's financial condition and
business operations a Lender may request from time to time.
Guaranties. Prior to disbursement of any Loan proceeds, furnish
executed guaranties of the Loans in favor of Lender, executed by the
guarantors named below, on Lender's forms, and in the amounts and under
the conditions spelled out in those guaranties.
Guarantors
AutoCorp Equities, Inc.
Lenders Auto Resale Center of Texas, Inc.
Loan Proceeds. Use all Loan proceeds solely for the following
solely for the following specific purposes: Funds to be used for
the purchase of vehicles.
Performance. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents in
a timely manner, and promptly notify Lender if Borrower learns of the
occurrence of any event which constitutes an Event of Default under
this Agreement or under any of the Related Documents.
Operations. Maintain executive and management personnel with
substantially the same qualifications and experience as the present
executive and management personnel; provide written notice to Lender of
any change in executive and management personnel; conduct its business
affairs in a reasonable and prudent manner and in compliance with all
applicable federal, state and municipal laws, ordinances, rules and
regulations respecting its properties, charters, businesses and
operations, including without limitation, compliance with the Americans
With Disabilities Act and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's employee
benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable time
to inspect any and all Collateral for the Loan or Loans and Borrower's
other properties and to examine or audit Borrower's books, accounts,
and records and to make copies and memoranda of Borrower's books,
accounts, and records. If Borrower now or at any time hereafter
maintains any records (including without limitation computer generated
records and computer software programs for the generation of such
records) in the possession of a third party, Borrower, upon request of
Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of
any records it may request, all at Borrower's expense.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
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applicable any taxes (except U.S. federal, state, or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other obligations which would (a) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (b) reduce
the amounts payable to Lender under this Agreement or any related documents, or
(c) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower which explanation and calculations shall be
conclusive in the absence of manifest error.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the
normal course of business and indebtedness to Lender contemplated by
this Agreement, create, incur or assume indebtedness for borrowed
money, including capital leases, (b) except as allowed as a Permitted
Lien, self transfer, mortgage, assign, pledge, lease, grant a security
interest in, or encumber any of Borrower's assets, or (c) sell with
recourse any of Borrower's accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, liquidate, merge, transfer, acquire or
consolidate with any other entity, change ownership, change its name,
dissolve or transfer or sell Collateral out of the ordinary course of
business, or (c) make any distribution with respect to any capital
account, whether by reduction of capital or otherwise.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance
money or assets, (b) purchase, create or acquire any interest in any
other enterprise or entity, or (c) incur any obligation as surety or
guarantor other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of the Agreement or
any other agreement that Borrower or any guarantor has with Lender; (b) Borrower
or any Guarantor becomes insolvent, files a petition in bankruptcy or similar
proceedings, or is adjudged a bankrupt; (c) there occurs a material adverse
change in Borrower's financial condition, in the financial condition of any
guarantor, or in the value of any collateral securing any Loan; (d) any
guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
guarantor's guaranty of the Loan or any other loan with Lender; or (e) Lender in
good faith deems itself insecure, even though no Event of Default shall have
occurred.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on the indebtedness against any and all funds held by
Lender or owed to Borrower for any reason.
EVENTS OF DEFAULT. Each of the following shall constitute an event of default
("Event of Default") under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when
due on the Loans.
Other Defaults. Failure of Borrower to comply with or to perform
when due on any other term, obligation, covenant or condition
contained in the Agreement.
Default in Favor of Third Parties. Should Borrower default under any
loan, extension of credit, security agreement, purchase or sale
agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of Borrower's property or
Borrower's ability to repay the Loans or perform Borrower's obligations
under this Agreement or any related documents.
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False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower is false or misleading
in any material respect at the time made or furnished, or becomes false
or misleading at any time thereafter.
Death or Insolvency. The dissolution or termination of Borrower's
existence as a going business, the insolvency of Borrower, the
appointment of a receiver for any part of Borrower's property, any
assignment for the benefit of creditors, any type of credit workout, or
the commencement of any proceeding under any bankruptcy or insolvency
laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help
repossession or any other method, by any creditor of Borrower, any
creditor of any grantor of collateral for the loan. This includes a
garnishment attachment.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness; or any Guarantor
revokes or disputes the validity of, or liability under, any Guaranty
of the indebtedness.
Adverse Change. A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment
performance of the indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement immediately will terminate
(including any obligation to make Loan Advances or disbursements), and, at
Lender's option, all indebtedness immediately will become due and payable, all
without notice of any kind to Borrower, except that in the case of an Event of
Default of the type described in the "Insolvency" subsection above, such
acceleration shall be automatic and not optional. In addition, Lender shall have
all the rights and remedies provided in the Related Documents or available at
law, in equity or otherwise. Except as may be prohibited by applicable law, all
of Lender's rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or
take action to perform an obligation of Borrower or of any Grantor shall not
affect Lender's right to declare a default and to exercise its rights and
remedies.
BORROWER ACKNOWLEDGES HAVING READ ALL THE RPOVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT AMENDS, RESTATES,
MODIFIES, EXTENDS, INCREASES AND REPLACES, BUT DOES NOT EXTINGUISH THE
INDEBTEDNESS BY, THAT CERTAIN BUSINESS LOAN AGREEMENT DATED OCTOBER 26, 1998.
BORROWER:
ACE Motor Company
(formerly known as Suburba Acquisition Company, Inc. d/b/a ACE Motor Co.)
By: /s/ Charles Norman
------------------
Title: President
LENDER:
AutoPrime, Inc.
By: /s/ Robert A. Baker
-------------------
Title: President
132
EXHIBIT 10.17
PROMISSORY NOTE
- --------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Initials
$1,000,000.00 6/17/99 1/17/00 102
- --------------------------------------------------------------------------------
References in the shaded areas are for Lender's use only and do not limit
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
Borrower: ACE Motor Company Lender: AutoPrime, Inc.
(formerly known as Suburba 2740 North Dallas Parkway
Acquisition Company, Inc. Suite 100
d/b/a ACE Motor Co.) Dallas, TX 75093-4705
5949 Sherry Lane, Suite 525
Dallas, TX 75225
Principal Amount: $1,000,000 Initial Rate: 14.250% Note: 6/17/99
PROMISE TO PAY. ACE Motor Company (formerly known as Suburba Acquisition
Company, Inc. d/b/a ACE Motor Co.) ("Borrower") promises to pay AutoPrime, Inc.
("Lender"), or order, in lawful money of the United States of America, the
principal amount of One Million and 00/100 Dollars ($1,000,000.00) or so much as
may be outstanding together with interest on the unpaid outstanding principal
balance as advanced from time to time under this Note. Interest shall be
calculated from the date of each advance until repayment of each advance or
maturity, whichever occurs first.
CHOICE OF USURY CEILING AND INTEREST RATE. The interest rate on this note has
been implemented under the "Weekly Rate" as referred to in Section 303.201 of
the Texas Financial Code and Articles ID.002 and ID.003 of the Texas Credit
Title. The terms, included in the rate, or index, formula or provision of law
used to compute the rate on the Note, will be subject to revision as to current
and future balances, from time to time by notice from Lender in compliance with
Section 303.403 of the Texas Financial Code.
PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in one
payment of all outstanding principal plus all accrued unpaid interest on January
17, 2000. In addition, Borrower will pay regular monthly payments of accrued
unpaid interest beginning July 1, 1999, and all subsequent interest payments are
due on the same day of each month after that. Interest on this Note is computed
on a 365/365 simple interest basis; that is, by applying the ratio of the annual
interest rate over the number of days in a year, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal balance
is outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount to any unpaid collection
costs and late charges. Notwithstanding any other provision on this Note, Lender
will not charge interest on any undisbursed loan proceeds. No scheduled payment,
whether of principal or interest or both, will be due unless sufficient loan
funds have been disbursed by the scheduled payment date to justify the payment.
VARIABLE INTEREST RATE. The interest on this Note is subject to change from time
to time based on changes in an index known at the WALL STREET JOURNAL PRIME RATE
(the "Index"). The Index is not necessarily the lowest rate charged by Lender on
its loans and is set by Lender in its sole discretion. If the Index becomes
unavailable during the term of this loan, Lender may designate a substitute
index after notifying Borrower. Lender will tell Borrower the current Index rate
upon Borrower's request. Borrower understands that Lender may make loans based
on other rates as well. The interest rate change will not occur more often that
each day. The Index currently is 7.75% per annum. The interest rate to be
applied prior to maturity to the unpaid principal balance of this Note will be
at a rate of 6.5 percentage points over the Index, resulting in an initial rate
of 14.25% per annum. Notice: Under no circumstances will the interest rate on
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this Note be more than the maximum rate allowed by applicable law. For purposes
of this Note, the "maximum rate allowed by applicable law" means the lesser of
(a) the greater of the maximum rate of interest permitted under federal or other
law applicable to the indebtedness evidenced by this Note, or (b) the "Weekly
Rate" as referred to in Section 303.201 of the Texas Finance Code and Articles
ID.002 and ID.003 of the Texas Credit Title.
REPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower or Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, they will reduce the principal balance due.
POST MATURITY RATE. The Post Maturity Rate on this Note is the maximum rate
allowed by applicable law. Borrower will pay interest on all sums due after
final maturity, whether by acceleration or otherwise, at that rate, with the
exception of any amounts added to the principal balance of this Note based on
Lender's payment of insurance premiums, which will continue to accrue interest
at the pre-maturity rate.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due; (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender; (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents; (d) any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished; (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws; (f) any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest, including a garnishment of any of Borrower's accounts with Lender; (g)
any of the events described in this default section occurs with respect to any
general partner of Borrower or any guarantor of this Note; (h) a material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospects of payment or performance of the indebtedness is impaired; or (i)
Lender in good faith deems itself insecure. LENDER'S RIGHTS. Upon default,
Lender may declare the entire indebtedness, including the unpaid principal
balance on this Note, all accrued unpaid interest, and all other amounts, costs
and expenses for which Borrower is responsible under this Note or any other
agreement with Lender pertaining to this loan, immediately due, without notice,
and then Borrower will pay that amount. Lender may hire an attorney to help
collect this Note if Borrower does not pay, and Borrower will pay Lender's
reasonable attorney's fees. Borrower also will pay Lender (i) all other amounts
actually incurred by Lender as court costs, lawful fees for filing, recording,
or releasing to any public office any instrument securing this loan, (ii) the
reasonable cost actually expended for repossessing, storing, preparing for sale,
and selling any security and (iii) any fees for noting a lien on or transferring
a certificate to title to any motor vehicle offered as security for this loan,
or premiums or identifiable charges received in connection with the sale of
authorized insurance. This Note has been delivered to Lender and accepted by
Lender in the State of Texas. If there is a lawsuit, Borrower agrees upon
Lender's request to submit to the jurisdiction of the courts of Dallas County,
the State of Texas. This Note shall be governed by and construed in accordance
with the laws of the State of Texas and applicable Federal laws.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding, however, all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
COLLATERAL. This Note is secured by a blanket lien on vehicle inventory.
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LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested orally by Borrower or as provided in this paragraph.
All oral requests shall be confirmed in writing on the day of the request. All
communications, instructions, or directions by telephone otherwise to Lender are
to be directed to Lender's office shown above. The following party or parties
are authorized as provided in this paragraph to request advances under the line
of credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: Charles Norman, President.
ADVANCE REQUESTS CAN BE OBTAINED UPON NOTIFICATION IN WRITING TO LENDER.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instruction of an authorized person or (b) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this Note
at any time may be evidenced by endorsements on this Note or by Lender's
internal records including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; (d) Borrower has applied funds provided pursuant to the Note for
purposes other than those authorized by Lender; or (e) Lender in good faith
deems itself insecure under this Note or any other agreement between Lender and
Borrower. This revolving line of credit shall not be subject to Section 346 of
the Texas Financial Code.
DISHONORED CHECK CHARGE. In the event a check offered in full or partial payment
on this loan is returned unpaid, Lender may charge a fee for the purpose of
defraying the expense incident to handling such returned check, and Borrower
agrees to pay such fee. The fee shall not exceed the maximum amount permitted
under applicable law.
DOCUMENT REFERENCE. The REVOLVING CREDIT AGREEMENT FLOOR PLAN OF MOTOR VEHICLES
between Borrower and Lender is hereby referenced to and made a part of this
Promissory Note and related documents.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. If any part of this Note cannot be
enforced, this fact will not affect the rest of the note. In particular, this
section means (among other things) that Borrower does not agree to intend to
pay, and Lender does not agree or intend to contract for charge, collect, take,
reserve or receive (collectively referred to herein as "charge or collect", any
amount in the nature of interest or in the nature of a fee for this loan, which
would in any way or event (including demand, prepayment, or acceleration) cause
Lender to charge or collect more for this loan than the maximum Lender would be
permitted to charge or collect by federal law or the law of the State of Texas
(as applicable). Any such excessive interest or unauthorized feel shall, instead
of anything stated to the contrary, be applied first to reduce the principal
balance of this loan, and when that principal has been paid in full, be refunded
to Borrower. The right to accelerate maturity of sums due under this Note does
not include the right to accelerate any interest which has not otherwise accrued
on the date of such acceleration, and Lender does not intend to charge or
collect any unearned interest in the event of acceleration. All sums paid or
agreed to be paid to Lender for the use, forbearance or detention of sums due
hereunder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the loan evidenced by
this Note until payment in full so that the rate or amount of interest on
account of the loan evidenced hereby does not exceed the applicable usury
ceiling. Lender may delay or forego enforcing any of its rights or remedies
under this Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest, notice of dishonor, notice of intent
to accelerate the maturity of this Note, and notice of acceleration of the
maturity of this Note. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
make, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any part, partner, or
guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral without the consent of or notice to anyone.
All such parties also agree that Lender may modify this loan without the consent
of or notice to anyone other than the party with whom the modification is made.
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RESTATEMENT OF PRIOR NOTE. This Note amends, restates, modifies, extends,
increases and replaces, but does not extinguish the indebtedness by, that
certain Promissory Note, dated October 26, 1998, in the original principal
amount of $750,000.00, executed by Borrower, payable to the order of Lender.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
ACE Motor Company
(formerly known as Suburba Acquisition Company, Inc. d/b/a ACE Motor Co.)
By: /s/ Charles Norman
--------------------
Charles Norman
President
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EXHIBIT 10.18
COMMERCIAL SECURITY AGREEMENT
- --------------------------------------------------------------------------------
Principal Loan Date Maturity Loan Number Initials
$1,000,000.00 6-17-99 1-17-99 102
- --------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
THIS COMMERCIAL SECURITY AGREEMENT is entered into among ACE MOTOR COMPANY
(Formerly known as Suburba Acquisition Company, Inc., dba ACE Motor Co.)
(referred to below as "Borrower" and "Grantor"); and AUTOPRIME, INC. (referred
to below as "Lender"). For valuable consideration, Grantor grants to Lender a
security interest in the Collateral to secure the Indebtedness and agrees that
Lender shall have the rights stated in this Agreement with respect to the
collateral, in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
Borrower. The word "Borrower" means each and every person or entity
signing the note, including without limitation ACE Motor Company
(formerly known as Suburba Acquisition Company, Inc. d/b/a ACE Motor
Co.)
Collateral. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired, whether
now existing or hereafter arising, and wherever located:
All inventory and equipment, together with the following specifically
described property: all Borrower's inventory of new and used
automobiles, including all parts and accessories now existing or
hereafter acquired, together with all substitutes and replacements
thereof, all accessions, attachments, parts, equipment and additions
now or hereafter affixed thereto or used in connection therewith, and
all similar property hereafter acquired by debtor, including any such
goods as may be leased or held for leasing, together with any and all
proceeds arising from the sale, lease or other disposition of said
property, and all returned, refused and repossessed goods, all monies
received from manufacturers by way of credits, refunds or otherwise
with respect to Collateral, and all proceed thereof.
In addition, the word "Collateral" includes all the following, whether
now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located:
(d) All attachments, accessions, accessories, tools, parts,
supplies, increases, and additions to and all replacements
of and substitutions for any property described above.
(e) All products and produce of any of the property described in
this Collateral section.
(f) All accounts, general intangibles, instruments, rents,
monies, payments, and all other rights, arising out of a
sale, lease, or other disposition of any of the property
described in this Collateral section.
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(f) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the
property described in this Collateral section.
(g) All records and data relating to any of the property
described in this Collateral section, whether in the form of
a writing, photograph, microfilm, microfiche, or electronic
media, together with all of Grantor's right, title, and
interest in and to all computer software required to
utilize, create, maintain, and process any such records or
data on electronic media.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
Grantor. The word "Grantor" means ACE Motor Company (formerly known as
Suburba Acquisition Company, Inc. d/b/a ACE Motor Co.) Any Grantor, who
signs this Agreement, but does not sign the Note, is signing this
Agreement only to grant a security interest in Grantor's interest in
the Collateral to Lender and is not personally liable under the Note
except as otherwise provided by contract or law (e.g., personal
liability under a guaranty or as a surety.)
Guarantor. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced
by the Note, including all principal and earned interest, together with
all other indebtedness and costs and expenses for which Grantor or
Borrower is responsible under this Agreement or under any of the
Related Documents. In addition, the word "Indebtedness" includes all
other obligations, debts and liabilities, plus interest thereon, of
Borrower, or any one or more of them, to Lender, as well as all claims
by Lender against Borrower, or any one or more of them, whether
existing now or later; whether they are voluntary or involuntary, due
or not due, direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Borrower may be liable individually or jointly
with others; whether Borrower may be obligated as guarantor, surety,
accommodation party or otherwise.
Lender. The word "Lender" means AUTOPRIME, INC., its successors and
assigns.
Note. The word "Note" means the note or credit agreement dated June 17,
1999, in the principal amount of $1,000,000.00 from Borrower to Lender,
together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or
credit agreement.
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, deeds of trust, and all other
instruments, agreements, documents, whether now or hereafter existing,
executed in connection with the Indebtedness.
BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under this
Agreement or by applicable law, (a) Borrower agrees that Lender need not tell
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Borrower about any action or inaction Lender takes in connection with this
Agreement; (b) Borrower assumes the responsibility for being and keeping
informed about the Collateral; and (c) Borrower waives any defenses that may
arise because of any action or inaction of Lender, including without limitation
any failure of Lender to realize upon the collateral or any delay by Lender in
realizing upon the Collateral; and Borrower agrees to remain liable under the
Note no matter what action Lender takes or fails to take under this Agreement.
GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (a) this
Agreement is executed at Borrower's request and not at the request of Lender;
(b) Grantor has the full right, power and authority to enter into this Agreement
and to pledge the Collateral to Lender; (c) Grantor has established adequate
means of obtaining from Borrower on a continuing basis information about
Borrower's financial condition; and (d) Lender has made no representation to
Grantor about Borrower or Borrower's creditworthiness.
GRANTOR'S WAIVERS. Grantor waives all requirements of presentment, protest,
demand, and notice of dishonor or non-payment to Grantor, Borrower, or any other
party to the indebtedness or the Collateral. Lender may do any of the following
with respect to any obligation of any Borrower, without first obtaining the
consent of Grantor: (a) grant any extension of time for any payment, (b) grant
any renewal, (c) permit any modification of payment terms or other terms, or (d)
exchange or release any Collateral or other security. No such act or failure to
act shall affect Lender's rights against Grantor or the Collateral.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Grantor hereby forever waives and relinquishes in favor of
Lender and Borrower, and their respective successors, any claim or right to
payment Grantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Grantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Grantor authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all Indebtedness against any and all funds held by Lender for
Grantor's account.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Perfection of Security Interest. Grantor agrees to execute such
financing statements and to take whatever other actions are requested
by Lender to perfect and continue Lender's security interest in the
Collateral. Upon request of Lender, Grantor will deliver to Lender any
and all of the documents evidencing or constituting the Collateral, and
Grantor will note Lender's interest upon any and all chattel paper if
not delivered to Lender for possession by Lender. Grantor hereby
appoints Lender as its irrevocable attorney-in-fact for the purpose of
executing any documents necessary to perfect or to continue the
security interest granted in this Agreement. Lender may at any time,
and without further authorization from Grantor, file a carbon,
photographic or other reproduction of any financing statement or of
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this Agreement for use as a financing statement. Grantor will reimburse
Lender for all expenses for the perfection and the continuation of the
perfection of Lender's security interest in the Collateral. Grantor
promptly will notify Lender before any change in Grantor's name
including any change to the assumed business names of Grantor. This is
a continuing Security Agreement and will continue in effect even though
all or any part of the Indebtedness is paid in full and even though for
a period of time Borrower may not be indebted to Lender.
No Violation. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its partnership agreement does not prohibit any term or
condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral
have authority and capacity to contract and are in fact obligated as
they appear to be on the Collateral.
Location of the Collateral. Grantor, upon request of Lender, will
deliver in form satisfactory to Lender a schedule of real properties
and Collateral locations relating to Grantor's operations, including
without limitation the following: (a) all real property owned or being
purchased by Grantor; (b) all real property being rented or leased by
Grantor; (c) all storage facilities owned, rented, leased or being used
by Grantor; and (d) all other properties where Collateral is or may be
located. Except in the ordinary course of its business, Grantor shall
not remove the Collateral from its existing locations without the prior
written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as accounts,
the records concerning the Collateral) at Grantor's address shown
above, or at such other locations as are acceptable to Lender. Except
in the ordinary course of its business, including the sales of
inventory, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender. To the extent
that the Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the
State of Texas, without the prior written consent of Lender.
Transactions Involving Collateral. Except for inventory sold or
accounts collected in the ordinary course of Grantor's business,
Grantor shall not sell, offer to sell, or otherwise transfer or dispose
of the Collateral. While Grantor is not in default under this
Agreement, Grantor may sell inventory, but only in the ordinary course
of its business and only to buyers who qualify as a buyer in the
ordinary course of business. A sale in the ordinary course of Grantor's
business does not include a transfer in partial or total satisfaction
of a debt or any bulk sale. Grantor shall not pledge, mortgage,
encumber or otherwise permit the Collateral to be subject to any lien,
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security interest, encumbrance, or charge, other than the security
interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in
right to the security interests granted under this Agreement. Unless
waived by Lender, all proceeds from any disposition of the Collateral
(for whatever reason) shall be held in trust for Lender and shall not
be commingled with any other funds; provided, however, this requirement
shall not constitute consent by Lender to any sale or other
disposition. Upon receipt, Grantor shall immediately deliver any such
proceeds for Lender.
Title. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public
office other than those which reflect the security interest created by
this Agreement or to which Lender has specifically consent. Grantor
shall defend Lender's rights in the Collateral against the claims and
demands of all other persons.
Collateral Schedules and Locations. Insofar as the Collateral consists
of inventory and equipment, Grantor shall deliver to Lender, as often
as Lender shall require, such lists, descriptions, and designations of
such Collateral as Lender may require to identify the nature, extent,
and location of such Collateral. Such information shall be submitted
for Grantor and each of its subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not
commit or permit damage to or destruction of the Collateral. Lender and
its designated representatives and agents shall have the right at all
reasonable times to examine the Collateral and shall immediately notify
Lender of all cases involving the return, rejection, repossession, loss
or damage of or to any Collateral; of any request for credit or
adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events affecting the
Collateral or the value or the amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon
this Agreement, upon any promissory note or notes evidencing the
Indebtedness, or upon any of the other Related Documents. Grantor may
withhold any such payment or may elect to contest any lien if Grantor
is in good faith conducting an appropriate proceeding to contest the
obligation to pay and so long as Lender's interest in the collateral is
not jeopardized in Lender's sole opinion. If the Collateral is
subjected to a lien which is not discharged within fifteen (15) days,
Grantor shall deposit with Lender cash, a sufficient corporate surety
bond or other security satisfactory to Lender in an amount adequate to
provide for the discharge of the lien plus any interest, costs,
attorneys' fees or other charges that could accrue as a result of
foreclosure or sale of the Collateral. In any contest Grantor shall
defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as
an additional obligee under any surety bond furnished in the contest
proceedings.
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Compliance with Governmental Requirements. Grantor shall comply
promptly with all laws, ordinances, rules and regulations of all
governmental authorities, now or hereafter in effect, applicable to the
ownership, production, disposition, or use of the Collateral. Grantor
may contest in good faith any such law, ordinance or regulation and
withhold compliance during any proceeding, including appropriate
appeals, so long as Lender's interest in the Collateral, in Lender's
opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this Agreement
remains a lien on the Collateral, used for the generation, manufacture,
storage, transportation, treatment, disposal, release or threatened
release of any hazardous waste or substance, as those terms are defined
in the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986,
Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable
state or Federal laws, rules, or regulations adopted pursuant to any of
the foregoing. The terms "hazardous waste" and "hazardous substance"
shall also include, without limitation, petroleum and petroleum
by-products or any fraction thereof and asbestos. The representations
and warranties contained herein are based on Grantor's due diligence in
investigating the Collateral for hazardous wastes and substances.
Grantor hereby (a) releases and waives any future claims against Lender
for indemnity or contribution in the event Grantor becomes liable for
cleanup or other costs under any such laws, and (b) agrees to indemnify
and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the Indebtedness
and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage together with such other insurance as Lender may
require with respect to the Collateral, in form, amounts, coverages and
basis reasonably acceptable to Lender. GRANTOR MAY FURNISH THE REQUIRED
INSURANCE WHETHER THROUGH EXISTING POLICIES OWNED OR CONTROLLED BY
GRANTOR OR THROUGH EQUIVALENT INSURANCE FROM ANY INSURANCE COMPANY
AUTHORIZED TO TRANSACT BUSINESS IN THE STATE OF TEXAS. If Grantor fails
to provide any required insurance or fails to continue such insurance
in force, Lender may, but shall not be required to, do so at Grantor's
expense, and the cost of the insurance will be added to the
Indebtedness. If any such insurance is procured by Lender at a rate or
charge not fixed or approved by the State Board of Insurance, Grantor
will be so notified, and Grantor will have the option for five (5) days
of furnishing equivalent insurance through any insurer authorized to
transact business in Texas. Grantor, upon request of Lender, will
deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be cancelled or diminished without at least thirty
(30) days' prior written notice to Lender and not including any
disclaimer of the insurer's liability for failure to give such a
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notice. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Grantor or any other person. In
connection with all policies covering assets in which Lender holds or
is offered a security interest, Grantor will provide Lender with such
loss payable or other endorsements as Lender may require. If Grantor at
any time fails to obtain or maintain any insurance as required under
this Agreement, Lender may (but shall not be obligated to) obtain such
insurance as Lender deems appropriate, including if it so chooses
"single interest insurance," which will cover only Lender's interest in
the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender
of any loss or damage to the Collateral. Lender may make proof of loss
if Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed
Collateral, Lender shall, upon satisfactory proof of expenditure, pay
or reimburse Grantor from the proceeds for the reasonable cost of
repair or restoration. If Lender does not consent to repair or
replacement of the Collateral, Lender shall retain a sufficient amount
of the proceeds to pay all of the Indebtedness, and shall pay the
balance to Grantor. Any proceeds which have not been disbursed within
six (6) months after their receipt and which Grantor has not committed
to the repair or restoration of the Collateral shall be used to prepay
the Indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be
created by monthly payments from Grantor of a sum estimated by Lender
to be sufficient to produce, at least fifteen (15) days before the
premium due date, amounts at least equal to the insurance premiums to
be paid. If fifteen (15) days before payment is due, the reserve funds
are insufficient, Grantor shall upon demand pay any deficiency to
Lender. The reserve funds shall be held by Lender as a general deposit
and shall constitute a non-interest-bearing account which Lender may
satisfy by payment of the insurance premiums required to be paid by
Grantor as they become due. Lender does not hold the reserve funds in
trust for Grantor, and Lender is not the agent of Grantor for payment
of the insurance premiums required to be paid by Grantor. The
responsibility for the payment of premiums shall remain Grantor's sole
responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the property insured; (e) the then current value on the
basis of which insurance has been obtained and the manner of
determining that value; and (f) the expiration date of the policy. In
addition, Grantor shall upon request by Lender (however not more often
than annually) have an independent appraiser satisfactory to Lender
determine, as applicable, the cash value or replacement cost of the
Collateral.
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GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of the
tangible personal property and beneficial use of all the Collateral and may use
it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral. If
Lender at any time has possession of the Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall be obligated
to) pay all costs for insurance, maintenance and preserving the Collateral. All
such expenditures incurred or paid by Lender for such purposes will then bear
interest at the Note rate from the date incurred by Lender to the date of
repayment by Grantor. All such expenses shall become a part of the Indebtedness
and, at Lender's option, will (a) be payable on demand, (b) be added to the
balance of the Note and be apportioned among and be payable with any installment
payments to become due during either (i) the term of any applicable insurance
policy or (ii) the remaining term of the Note, or (c) be treated as a balloon
payment which will be due and payable at the Note's maturity. This Agreement
also will secure payment of these amounts. Such right shall be in addition to
all other rights and remedies to which Lender may be entitled upon the
occurrence of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when
due on the Indebtedness.
Other Defaults. Failure of Grantor or Borrower to comply with or to
perform any other term, obligation, covenant or condition contained in
this Agreement or in any of the Related Documents or failure of
Borrower to comply with or to perform any term, obligation, covenant or
condition contained in any other agreement between Lender and Borrower.
Default in Favor of Third Parties. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may be materially affect any of
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Borrower's property or Borrower's or any Grantor's ability to repay the
Loans or perform their respective obligations under this Agreement or
any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor or Borrower under this
Agreement, the Note or the Related Documents is false or misleading in
any material respect, either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any collateral documents to create a valid and perfected security
interest or lien) at any time and for any reason.
Death or Insolvency. The dissolution or termination of Grantor or
Borrower's existence as a going business or the insolvency of Grantor
or Borrower, the appointment of a receiver for any part of Grantor or
Borrower's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under
any bankruptcy or insolvency laws by or against Grantor or Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or
Borrower or by any governmental agency against the Collateral or any
other collateral securing the Indebtedness. This includes a garnishment
of any of Grantor or Borrower's deposit accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor
dies or becomes incompetent.
Adverse Change. A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Texas Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness
immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender
all or any portion of the Collateral and any and all certificates of
title and other documents relating to the Collateral. Lender may
require Grantor to assemble the Collateral and make it available to
Lender at a place to be designated by Lender. Lender also shall have
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full power to enter, provided Lender does so without a breach of the
peace or a trespass, upon the property of Grantor to take possession of
and remove the Collateral. If the Collateral contains other goods not
covered by this Agreement at the time of repossession, Grantor agrees
Lender may take such other goods, provided that Lender makes reasonable
efforts to return them to Grantor after repossession.
Sell the Collateral. Lender shall full power to sell, lease, transfer
or otherwise deal with the Collateral or proceeds thereof in its own
name or that of Grantor. Lender may sell the Collateral at public
auction or private sale. Unless the Collateral threatens to decline
speedily in value or is of a type customarily sold on a recognized
market, Lender will give Grantor reasonable notice of the time after
which any private sale or any other intended disposition of the
Collateral is to be made. The requirements of reasonable notice shall
be met if such notice is given at least ten (10) days before the time
of the sale or disposition. All expenses relating to the disposition of
the Collateral, including without limitation the expenses of retaking,
holding, insuring, preparing for sale and selling the Collateral, shall
become a part of the Indebtedness secured by this Agreement and shall
be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment
of a receiver: (a) Lender may have a receiver appointed as a matter of
right, (b) the receiver may be an employee of Lender and may serve
without bond, and (c) all fees of the receiver and his or her attorney
shall become part of the Indebtedness secured by this Agreement and
shall be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from
the Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the
Indebtedness in such order of preference as Lender may determine.
Insofar as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, choses in action, or
similar property, Lender may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclosure, or realize on the Collateral
as Lender may determine, whether or not Indebtedness or Collateral is
then due. For these purposes, Lender may, on behalf of and in the name
of Grantor, receive, open and dispose of mail addressed to Grantor;
change any address to which mail and payments are to be sent; and
endorse notes, checks, drafts, money orders, documents of title,
instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly to
Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Borrower for any
deficiency remaining on the Indebtedness due to Lender after
application of all amounts received from the exercise of the rights
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provided in this Agreement. Borrower shall be liable for a deficiency
even if the transaction described in this subsection is a sale of
accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and
remedies of a secured creditor under the provisions of the Uniform
Commercial Code, as may be amended from time to time. In addition,
Lender shall have and may exercise any or all other rights and remedies
it may have available at law, in equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor or Borrower under this
Agreement, after Grantor or Borrower's failure to perform, shall not
affect Lender's right to declare a default and to exercise its
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alternation of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
Applicable Law. This Agreement has been delivered to Lender and
accepted by Lender in the State of Texas. If there is a lawsuit,
Grantor and Borrower agree upon Lender's request to submit to the
jurisdiction of the courts of the State of Texas. This Agreement shall
be governed by and construed in accordance with the laws of the State
of Texas and applicable Federal laws.
Attorney's Fees and Other Costs. Lender may hire an attorney to help
collect the Note if Borrower does not pay, and Grantor and Borrower
will pay Lender's reasonable attorneys' fees. Grantor and Borrower also
will pay Lender all other amounts actually incurred by Lender as court
costs, lawful fees for filing, recording, or releasing to any public
office any instrument securing the Note; the reasonable cost actually
expended for repossessing, storing, preparing for sale, and selling any
security; and fees for noting a lien on or transferring a certificate
of title to any motor vehicle offered as security for the Note, or
premiums or identifiable changes received in connection with the sale
of authorized insurance.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.
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Multiple Parties. All obligations of Grantor and Borrower under this
Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower, and all references to Grantor shall
mean each and every Grantor. This means that each of the persons
signing below is responsible for all obligations in this Agreement.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise
required by law), and shall be effective when actually delivered or
when deposited in the United States mail, first class, postage prepaid,
addressed to the party to whom the notice is to be given at the address
shown above. Any party may change its address for notices under this
Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's
address. To the extent permitted by applicable law, if there is more
than one Grantor or Borrower, notice to any Grantor or Borrower will
constitute notice to any Grantor and Borrowers. For notice purposes,
Grantor and Borrower will keep Lender informed at all times of Grantor
and Borrower's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and
lawful attorney-in-fact, irrevocably, will full power of substitution
to do the following: (a) to demand, collect, receive, receipt for, sue
and recover all sums of money or other property which may now or
hereafter become due, owing or payable from the Collateral; (b) to
execute, sign and endorse any and all claims, instruments, receipts,
checks, drafts or warranties issues in payment for the Collateral; (c)
to settle or compromise any and all claims arising under the
Collateral, and, in the place and stead of Grantor, to execute and
deliver its release and settlement for the claim; and (d) to file any
claim or claims or to take any action or institute or take part in any
proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary
or advisable. This power is given as security for the Indebtedness, and
the authority hereby conferred is and shall be irrevocable and shall
remain in full force and effect until renounced by Lender.
Severability. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible,
any such offending provision shall be deemed to be modified to be
within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
Successor Interests. Subject to the limitations set forth on transfer
of the Collateral, this Agreement shall be binding upon and inure to
the benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right
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shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or
constitute a wavier of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waived by Lender, nor any course of dealing between
Lender and Grantor, shall constitute a waiver of any of Lender's rights
or of any of Grantor's obligations as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in
the sole discretion of Lender.
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BORROWER AND GRANTOR ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS
COMMERCIAL SECURITY AGREEMENT, AND BORROWER AND GRANTOR AGREE TO ITS TERMS. THIS
AGREEMENT AMENDS, RESATAES, MODIFIES, EXTENDS, INCREASES AND REPLACEDS, BUT DOES
NOT EXTINGUISH THE INDEBTEDNESS BY, THAT CRETAIN COMMERCIAL SECURITY AGREEMENT
DATED OCTOBER 26, 1998.
BORROWER:
ACE Motor Company
(formerly known as Suburba Acquisition Company, Inc. d/b/a ACE Motor Co.)
By: /s/ Charles Norman
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Title: President
GRANTOR:
AutoPrime, Inc.
By: /s/ Robert A. Baker
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Title: President
By: /s/ Robert T. Davenport
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EXHIBIT 10.19
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT, ("Agreement"), is made and entered into
effective this 30th day of December, 1998 (this "Agreement"), by and among
AutoCorp Financial Services, Inc., a Texas corporation, and Ace Motor Company, a
Texas corporation (collectively, the "Buyer") and Lenders Auto Resale Centers of
Texas, Inc., an Arizona corporation, and Lenders Liquidation Centers, Inc., an
Arizona corporation, d/b/a Lenders Auto Resale Centers (collectively, the
"Seller").
R E C I T A L S:
Seller is a used automobile dealer in Austin, Travis County, Texas, and
has five (5) locations in Austin, Texas, three of which are used automobile
lots, one of which is a reconditioning center and one of which is a finance
office. In connection with Seller's business, Seller is the holder and owner of
(i) automobile retail installment contracts (the "Retail Installment Contracts")
arising from the sale of automobiles from Seller's places of business, and (ii)
certain furniture, fixtures, software, good will and equipment located at
Seller's five (5) locations (the "Personal Property"). Seller desires to sell
the Retail Installment Contracts and Personal Property, all as more particularly
described on Exhibit "A" attached hereto and incorporated herein (collectively,
the "Assets") to Buyer, and Buyer desires to purchase such Assets from Seller,
on the terms and subject to the conditions set forth in this Agreement.
Now therefore, for and in consideration of the foregoing and the
respective representations, warranties, covenants, and agreements set forth in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.01 Definitions. For purposes of this agreement, the following
capitalized terms shall have the respective meanings set forth below:
(1) Agreement. This Asset Purchase Agreement.
(2) Assets. Assets, as used herein, shall include, but not be limited
to, (i) all Personal Property of Seller whether or not located at
any of Seller's five (5) locations located in Austin, Travis
County, Texas (the "Locations"), which Personal Property shall
include all furniture, equipment, computer software and hardware,
accounts receivable, notes receivable, credits, parts, work in
process, records, phone numbers, and Seller's leasehold interest
in, to and under the five (5) Locations, (ii) the Retail
Installment Contracts and all rights to receive monies on and
after the Cut-Off Date, and (iii) all rights and obligations
under that certain Servicing Agreement between Seller, as
Servicer and AutoPrime, as Owner, covering the retail installment
contracts transferred to AutoPrime by Lipshy Motor Cars, Inc. All
Assets shall be transferred free and clear of all liabilities,
claims, liens or encumbrances, which, by execution hereof, Seller
hereby retains and assumes.
(3) Business Day. Any day other than a Saturday or Sunday, or a day
in which banking institutions in Texas are authorized or
obligated by law or executive order to be closed.
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(4) Certificate of Title. The original Certificate of Title showing
the correct name of the owner of the Vehicle and Obligor under
each of the Retail Installment Contracts, naming Seller as the
first, prior and sole lienholder with respect to the Vehicle and
correctly identifying the Vehicle make, model, year and VIN,
together with all other information as required by law or that
may be customary for similarly situated businesses. In the
alternative, a Certificate of Title shall refer to the original
Certificate of Title for all Vehicles owned or possessed by
Seller as of the Closing Date which Certificate of Title shall
identify Seller as the sole and unencumbered owner of each such
Vehicle.
(5) Closing Date. December 30, 1998.
(6) Closing Documents. The documents required to be delivered on the
Closing Date pursuant to Article VI of this Agreement.
(7) Cut-Off Date. November 10, 1998, which date shall precede the
Closing Date.
(8) Deleted Retail Installment Contract. A Retail Installment
Contract repurchased by Seller in accordance with the terms and
conditions set forth in this Agreement.
(9) Due Date. The day on which the monthly payment is due on a Retail
Installment Contract, exclusive of any days of grace or cure.
(10) Guaranty. The Unconditioned Guaranty to be executed by Consumer
Investment Corporation, a Nevada corporation ("CIC"), at Closing,
guarantying all of Seller's obligations arising hereunder or in
connection herewith, including, but not limited to, the Note.
(11) Locations. (i) 6318 Burnet Road, Austin, Texas 78727, (ii) 19,017
square feet located at Highland Mall Shopping Center, Austin,
Texas, (iii) 5410 Airport Boulevard, Austin, Texas, (iv) 4211
Willow Springs Road, Austin, Texas 78745, and (v) 1025 Cesar
Chavez, Austin, Texas.
(12) Monthly Payment. With respect to any Retail Installment Contract,
the scheduled combined payment of principal and interest payable
by the owner of the Vehicle under the Retail Installment Contract
on each Due Date.
(13) Note. The Promissory Note to be delivered by Seller to Buyer at
the Closing, in the original principal amount of $2,520,919.22,
bearing interest at ten percent (10%) per annum, and being due
and payable in accordance with the terms and conditions set forth
herein.
(14) Obligor. The purchaser of the subject Vehicle who is obligated to
make payments under the Retail Installment Contract in accordance
with the terms and conditions set forth therein.
(15) Person. An individual, corporation, partnership, joint venture,
association, limited liability company, trust, unincorporated
organization or any government or any agency or political
subdivision thereof.
(16) Repurchase Price. With respect to any Retail Installment
Contract, a price equal to the outstanding principal balance of
the Note, plus accrued interest at the rate set forth in the
Retail Installment Contract from and including the Due Date
through which interest has been paid on behalf of Obligor to and
including the date of repurchase of the Retail Installment
Contract by Seller.
(17) Retail Installment Contract. The written agreement between
Obligor and Seller governing the purchase and sale of a Vehicle
and the financing terms and conditions more particularly
described therein. Any reference herein to Retail Installment
Contract shall include the Retail Installment Contract and all
documentation in the Retail Installment Contract Package and
Certificate of Title.
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(18) Retail Installment Contract Package. Certificate of Title, Retail
Installment Contract, completed and executed credit report of
Vehicle owner (Obligor), if available, credit application of
Obligor, copy of current, non-expired drivers license of Obligor
and certificate of insurance of Obligor, and all information
required to be identified on the Retail Installment Contract
Schedule with respect to the subject Vehicle, together with any
additional instruments or documents as may be customary for
similarly situated businesses.
(19) Retail Installment Contract Schedule. The Schedule of Retail
Installments Contracts to be attached hereto as Exhibit "A" on
the Closing Date, setting forth the following information with
respect to every Retail Installment Contract: (1) Seller's loan
number; (2) name, address and phone numbers of Obligor under
Retail Installment Contract; (3) VIN; (4) make, model and year of
Vehicle; (5) original purchase price; (6) down payment; (7) Note
amount; (8) the origination date and maturity date of the Note
and Retail Installment Contract; (9) monthly payments of
principal and interest under the Note; (10) outstanding balance
on the Note; (11) the date of each month the Note payment is due;
and (12) whether Obligor has been more than fifteen (15) days
delinquent in any of its obligations under the Retail Installment
Contract.
(20) Subleases. The Sublease Agreements to be duly executed by Seller,
Buyer and the Landlord of each Location and delivered by Seller
at or prior to Closing covering each of the Locations.
(21) UCC Lien Search. A UCC lien search prepared by an entity approved
by Buyer, at Seller's expense, showing that there are no liens or
encumbrances against any of the Assets being transferred
hereunder.
(22) Vehicle. Any automobile or truck secured by a Retail Installment
Contract executed by an Obligor as of the Closing Date.
(23) VIN. The vehicle identification number.
ARTICLE II
PURCHASE OF ASSETS
2.01. Purchase of Assets. At the Closing (hereinafter defined), Seller
agrees to sell, transfer, convey and deliver to Buyer, all right, title and
interest in, to and under the Assets, and Buyer agrees to purchase and take the
Assets, on the terms and subject to the conditions set forth in this Agreement.
2.02. No Liabilities Assumed. Except as otherwise expressly provided
herein, Buyer shall not assume or become responsible for any liabilities of
Seller relating to the Assets or Seller's business. Buyer shall not assume any
direct or indirect debts, obligations, warranties, or liabilities of Seller or
any other person of any nature, whether absolute, accrued, contingent,
liquidated or otherwise, and whether due or to become due, asserted or
unasserted, known or unknown.
2.03. Seller's Existing Obligations. Seller acknowledges and agrees
that it has been previously advanced all monies set forth on Exhibit "D"
attached hereto and incorporated herein (the "Advanced Funds"), which Advanced
Funds are due and payable on demand, which demand has been made by the persons
that delivered the Advanced Funds and Seller also acknowledges full recourse
liability on Retail Installment Contracts previously conveyed to AutoPrime, Inc.
2.04. Consideration. The aggregate purchase price (the "Purchase
Price") for the Assets shall consist of the following, payable on the Closing
Date:
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(a) Acceptance by Buyer of the Note in the amount of the
Advanced Funds more particularly described on Exhibit "D" attached
hereto in lieu of immediate demand of repayment of the Advanced Funds.
(b) Assumption of Seller's recourse obligations owed to
AutoPrime, Inc. ("AutoPrime") relating to retail installment contracts,
having an aggregate value of $3,541,393.63 as of December 28, 1998,
purchased by AutoPrime from Seller and predecessors-in-interest to
Seller (not including any obligations relating to Lipshy Motor Cars,
Inc.), all such retail installment contracts being more particularly
described on Exhibit "E" attached hereto and incorporated herein; and
(c) Seller's delivery to Buyer of the Note.
2.04. Allocation of Purchase Price. The parties hereto acknowledge and
agree that the Purchase Price shall be allocated among the Assets for all
purposes (including financial, accounting and tax purposes) as determined by
Buyer in its sole and absolute discretion. Further, the parties hereto
acknowledge and agree that the two Buyers named herein will divide and allocate
the Assets and liabilities being transferred hereunder subsequent to Closing.
2.05. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the office of Buyer (or such other
place as the parties may agree) on the Closing Date or such other date as may be
mutually agreeable by Seller and Buyer. Notwithstanding the foregoing, the
Closing will not take place unless all of the conditions set forth in Article VI
have been satisfied or waived on the Closing Date.
2.06. Further Assurances. At or after the Closing, and without further
consideration, Seller and Buyer will execute and deliver to each other such
further instruments of conveyance and transfer as any party may reasonably
request in order to more effectively convey and transfer the Assets to Buyer, or
aid and assist the collecting and reducing to possession of any of the Retail
Installment Contracts and Vehicles and exercising rights with respect to any of
the Retail Installment Contracts, provided that no such instruments will subject
any party to any loss, cost, liability, obligation, expense, or risk not
contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Buyer to consummate the transactions contemplated
by this Agreement, Seller hereby jointly and severally represents and warrants
to Buyer as follows:
3.01. Organization and Qualification. Each Seller is a corporation duly
formed, validly existing, and in good standing under the laws of its state of
incorporation, has all requisite power and authority to own, lease, and operate
its properties and to carry on its business as it is now being conducted, and is
duly qualified and in good standing to do business in each jurisdiction in which
the nature of the business conducted by it or the ownership or leasing of its
properties makes such qualification necessary.
3.02. Authority. Each Seller has all requisite corporate power and
authority to execute and deliver this Agreement and the other documents
contemplated by this Agreement (the "Ancillary Agreements") to which it is a
party, to perform its obligations hereunder and thereunder, and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Ancillary Agreements to which Seller is a party and the
consummation by Seller of the transactions contemplated hereby and thereby have
been duly authorized by all necessary action, corporate or otherwise. This
Agreement and the Ancillary Agreements have been duly executed and delivered by
Seller and constitute the legal, valid, and binding obligations of Seller,
enforceable in accordance with their respective terms.
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3.03. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement and the
Ancillary Agreements by Seller does not, and the consummation of the
transactions contemplated hereby and thereby will not, (i) conflict
with or violate the articles of incorporation, bylaws, or any other
organizational document of Seller, as amended or restated as of the
date of this Agreement; (ii) conflict with or violate in any respect
any federal, state, foreign, or local law, statute, ordinance, rule,
regulation, order, judgment, or decree, including, without limitation,
laws relating to employment discrimination, fair employment practices,
fair labor standards, equal employment opportunity, individual or
collective employee rights, and occupational health and safety
(collectively, the "Laws") applicable to Seller or by which any of its
properties is bound or subject; or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to any other Person any
rights of termination, amendment, acceleration, or cancellation of, or
require payment under, or result in the creation of a lien or
encumbrance on any of the properties or assets of Seller pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise, or other instrument or obligation to which
Seller is a party or by or to which Seller or any of Seller's
properties is bound or subject.
(b) The execution and delivery of this Agreement and the
Ancillary Agreements by Seller do not, and consummation of the
transactions contemplated hereby and thereby will not, require Seller
to obtain any consent, license, permit, approval, waiver,
authorization, or order of, or to make any filing with or notification
to, any governmental or regulatory authority, domestic or foreign
(collectively, "Governmental Entities").
3.04. Permits; Compliance. Each Seller is in possession of all
franchise grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates (including, without limitation, certificate
of occupancy), approvals, and orders necessary to own, lease, and operate its
properties and to carry on its business as it is now being conducted and
currently proposed to be conducted (collectively, the "Permits"), and there is
no action, proceeding, or investigation pending or threatened regarding
suspension or cancellation of any of Permits. Seller is not in conflict with or
in default or violation of (a) any Law applicable to Seller or by or to which
any of its properties is bound or to which they may be subject or (b) any of
Permits. Seller has not received any written notice with respect to possible
conflicts, defaults, or violations of Laws from any Governmental Entity.
3.05. Title to Assets. Each Seller has good and marketable title to all
of the Assets and owns all of the Assets free and clear of any liabilities,
obligations, liens, claims, security interests or, encumbrances of any nature
(collectively, "Liens"), other than statutory liens securing current taxes and
other obligations that are not yet due and payable. The execution and delivery
of this Agreement and the Ancillary Agreements by Seller at the Closing will
convey to and vest in Buyer good and marketable title to the Assets, free and
clear of any Liens or claims whatsoever.
3.06. Financial Statements. Seller has previously delivered to Buyer,
correct, and complete copies of (a) the audited financial statements of each
Seller as of and for the year ended December 31, 1997, including balance sheets
and statements of income and cash flow, and (b) the interim financial statements
of Seller as of and for the period ended _________________, 19__, including a
balance sheet as of such date and statements of income and cash flow as of such
dates prepared by an independent certified public accounting firm (collectively,
the "Financial Statements"). To the best of Seller's knowledge, the Financial
Statements present fairly, in all material respects, the financial position of
Seller at the dates shown and the results of operations and cash flows for the
periods covered in accordance with generally accepted accounting principles
applied on a consistent basis. Seller has no present knowledge of any
liabilities of any sort, whether absolute or contingent, due or to become due,
known or unknown, asserted or unasserted, which could impair Seller's right,
title or interest in, to an under the Assets or Seller's ability to convey same
hereunder.
3.07. Absence of Litigation. There is no claim, action, suit,
litigation, proceeding, arbitration, or investigation of any kind, at law or in
equity (including actions or proceedings seeking injunctive relief), pending or
threatened against or involving Seller or any of the Assets, or relating to this
Agreement or the transactions contemplated by this Agreement, and with respect
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to the Assets or relating to the operation of Seller's business, Seller is not
subject to any continuing order of, consent decree, settlement agreement, or
other similar written agreement with, or continuing investigation by, any
Governmental Entity, or any judgment, order, writ, injunction, decree, or award
of an Governmental Entity or arbitrator, including, without limitation,
cease-and-desist or other orders.
3.08. Taxes.
(a) All returns and reports of or with respect to any tax that
are required to be filed by or with respect to each Seller or its
business or activities have been duly and timely filed. All items of
income, gain, loss, deduction, and credit or other items required to be
included in each such tax returns have been included, and all
information provided in each such tax return is true, correct, and
complete. All taxes that have been or are due have been timely paid in
full. Seller is not subject to taxation by any jurisdiction where
Seller does not file tax returns.
(b) Seller has timely paid and delivered to the appropriate
governmental authorities all sales taxes and licensing fees relating to
the sale of Vehicles to the Obligors pursuant to the Retail Installment
Contracts and all applicable laws, rules and regulations or Seller has
paid all sales tax payments on Vehicles identified in all of the Retail
Installment Contracts or has set aside adequate reserves to pay same,
and, in this regard, at the Closing, Seller shall deliver to Buyer an
amount equal to all sales taxes due or that will become due under the
Retail Installment Contracts (6.25% x outstanding balance on Retail
Installment Contracts). Buyer shall be responsible for delivering the
sales tax payments becoming due and payable after the Closing Date to
the applicable regulatory authorities out of monies delivered by Seller
to Buyer at Closing only to the extent of funds actually received by
Buyer from Seller.
(c) There are no pending audits, actions, proceedings,
investigations, disputes, or claims with respect to or against Seller
for or with respect to any taxes; no assessment, deficiency, or
adjustment has been assessed or proposed with respect to any tax return
of or with respect to Seller; and there is no reasonable basis on which
any claim for material taxes can be asserted against Seller.
None of Seller's tax returns has been audited by any taxing authority.
(d) To the best of Seller's knowledge, except for inchoate
statutory liens for current taxes not yet due, no liens for taxes exist
upon the assets of Seller.
3.09. Brokers; Other Transactions. Seller will be responsible for the
payment of any brokerage, finder's, or other fees or commissions incurred in
connection with the transactions contemplated by this Agreement or based upon
arrangements made by or on behalf of Seller. Seller represents and warrants to
Buyer that it is not party or subject to any actual or prospective agreement,
arrangement, or understanding, written or oral, express or implied, involving
any transaction that is inconsistent with their execution and delivery of this
Agreement.
3.10. Environmental Matters. The Assets, operations and activities of
Seller with respect to such Assets and Seller's business, comply currently with,
and have at all times complied with, all applicable Environmental Laws (as
defined below). Seller (or its properties or operations) is not subject to any
existing, pending, or threatened action, suit, claim, investigation, inquiry, or
proceeding by or before any Governmental Entity under any Environmental Law.
There are no physical or environmental conditions existing on any of the
Locations or resulting from Seller's operations or activities thereon, past or
present, at any location, that would give rise to any on-site or off-site
remedial obligations or other liabilities imposed under any Environmental Laws
or that would affect the soil, groundwater, surface water, or human health.
There has been no exposure of any Person or property to hazardous substances or
any pollutant or contaminant, nor has there been any release of hazardous
substances or any pollutant or contaminant into the environment, by Seller or in
connection with Seller's business at the Locations.
For purposes of this Agreement, the term "Environmental Laws" means any
and all laws, statutes, ordinances, rules, regulations, or orders of any
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Governmental Entity pertaining to health or the environment currently in effect
in any and all jurisdictions in which Seller owns property or conducts business,
including without limitation, the Comprehensive Environmental, Response,
Compensation, and Liability Act of 1980 ("CERCLA") as amended; the Resource
Conservation and Recovery Act of 1976 ("RCRA"), as amended; any state laws
implementing the foregoing federal laws; and all other environmental
conservation or protection laws. For purposes of this Agreement, the terms
"hazardous substance" and "release" have the meanings specified in CERCLA and
RCRA, and the term "disposal" has the meaning specified in RCRA; provided,
however, that to the extent the laws of the state in which the Locations are
located establish a meaning for "hazardous substance," "release," or "disposal"
that is broader than that specified in either CERCLA or RCRA, such broader
meaning will apply.
3.11. Retail Installment Contracts. As to each Retail Installment
Contract secured by first priority liens on Vehicles, each Seller jointly and
severally represents and warrants that:
(a) the Retail Installment Contract is in form and substance in
compliance with all applicable governmental requirements;
(b) the Retail Installment Contract is the only instrument executed by
Seller for the purchase of the Vehicle described therein and is and will
continue to be free from defenses, offsets and counterclaims;
(c) all statements contained in each Retail Installment Contract are
true and correct and the unpaid balance as shown therein and on Exhibit "A"
attached hereto is correct;
(d) any down payment in any Retail Installment Contract has been made
in cash and not its equivalent unless otherwise stated in the Retail
Installment Contract;
(e) no part of the down payment described in any Retail Installment
Contract and reflected as paid has been loaned or given directly or
indirectly by Seller to Obligor on the Retail Installment Contract;
(f) the financed Vehicle described in the Retail Installment Contract
has been delivered;
(g) each sale evidenced by said Retail Installment Contract was
completed in accordance with all governmental requirements affecting such
sale, including, but not limited to, the Federal Truth-in-Lending Act, the
Magnuson and Moss Warranty Federal Trade Commission Improvement Act and
Warrant Act, Federal Equal Credit Opportunity Act, The Federal Trade
Commission Act, and all applicable state and local laws, rules and
regulations;
(h) all required disclosures to the Obligor on the Retail Installment
Contract were made in accordance with all governmental requirements;
(i) the Obligor in each Retail Installment Contract had the legal
capacity to enter into said Retail Installment Contract;
(j) the names and signatures on each Retail Installment Contract are
not forged, fictitious or assumed and are true and correct;
(k) each Retail Installment Contract is valid, binding and fully
enforceable in the jurisdiction in which it was executed;
(l) no payment under any Retail Installment Contract is past due by
fifteen (15) days or more and all Retail Installment Contracts have been
paid current through and until the Cut-Off Date and the Closing Date;
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(m) all information in the Retail Installment Contract Packages is
complete, true and correct;
(n) all Retail Installment Contracts are fully enforceable in
accordance with the terms and conditions set forth therein;
(o) there are no other liens effecting the Vehicles that are the
collateral under the Retail Installment Contracts other than the first and
prior lien of Seller as evidenced on the Certificate of Title;
(p) no Obligor has filed for bankruptcy or protection from creditors
prior to or following the date of each Obligor's respective Retail
Installment Contract; and
(q) there is no fact or circumstance, whether known or unknown, that
would impair the value of the Retail Installment Contracts or Buyer's
ability to sell, transfer or dispose of same for value in the ordinary
course of business.
3.12. Effective Dates of Representations and Warranties. All
representations and warranties shall be deemed to be effective as of the
effective date hereof, the Cut-Off Date and the Closing Date. Seller covenants
and agrees to use its best efforts to supplement all information delivered to
Buyer, including, but not limited to, all information, documents and instruments
included in the Retail Installment Contract Packages, if any of the information
relating to these representations and warranties becomes untrue or inaccurate
subsequent to the effective date of this Agreement.
3.13. Survival; Remedies. All representations and warranties made in or
pursuant to this Agreement are joint and several as to each Seller and will
survive the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby for a period of two (2) years following the
Closing Date. All statements and information contained in any Retail Installment
Contract Package, schedules, exhibits, certificate, or other writing delivered
in connection with this Agreement or the Ancillary Agreements or the
transactions contemplated by this Agreement or the Ancillary Agreements will
constitute representations and warranties of Seller under this Agreement. Seller
agrees that Buyer will have no duty, express or implied, to make any
investigation of any representation or warranty made by Seller or contained in
any Retail Installment Contract Package, and that no failure to so investigate
will be considered negligent or unreasonable. All remedies under this Agreement
will be cumulative and not exclusive.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
Buyer hereby represents and warrants to Seller as follows:
4.01. Organization. Each Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of the state of its incorporation,
and is duly qualified to do business as a foreign corporation in each
jurisdiction in which the failure to be so qualified would affect the validity
or enforceability of this Agreement.
4.02. Authority. Each Buyer has all requisite corporate power and
authority to execute and deliver this Agreement and the Ancillary Agreements to
which it is a party, to perform its obligations hereunder and thereunder, and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Ancillary Agreements to which it is a party
by Buyer and the consummation by Buyer of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action and no
other corporate proceedings on the part of any of Buyer are necessary to
authorize this Agreement and the Ancillary Agreements to which it is a party or
to consummate the transactions contemplated hereby and thereby. This Agreement
and the Ancillary Agreements have been duly executed and delivered by Buyer and,
assuming the due authorization, execution, and delivery of this Agreement and
the Ancillary Agreements by Seller, constitute the legal, valid, and binding
obligations of the Buyer, enforceable in accordance with their respective terms.
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ARTICLE V
INDEMNIFICATION; SELLER'S REPURCHASE OBLIGATION
5.01. Indemnification of Buyer. Seller will jointly and severally
indemnify and hold Buyer, its subsidiaries and its respective directors,
officers, employees, and agents (collectively, the "Buyer Parties") harmless
from any and all claims, losses, liabilities, and expenses that Buyer may suffer
or incur as a result of or relating to the breach or inaccuracy of any of the
representations, warranties, covenants, or agreements made by Seller in this
Agreement or pursuant to the Ancillary Agreements.
5.02. Indemnification of Seller. Buyer will indemnify and hold Seller
harmless from any and all claims, losses, liabilities, and expenses that any
Seller may suffer or incur as a result of or relating to the breach or
inaccuracy, or any alleged breach or inaccuracy, of any of the representations,
warranties, covenants, or agreements made by the Buyer in this Agreement or
pursuant to the Ancillary Agreements.
5.03. Notice. Any party entitled to receive indemnification under this
Article V (the "Indemnified Party") agrees to give prompt written notice to the
party or parties required to provide such indemnification (the "Indemnifying
Parties") upon the occurrence of any indemnifiable claim or the assertion of any
claim or the commencement of any action or proceeding in respect of which such a
claim may reasonably be expected to occur (a "Loss Claim"), but the Indemnified
Party's failure to give such notice will not affect the obligations of the
Indemnifying Party under this Article V except to the extent that the
Indemnifying Party is materially prejudiced thereby and will not affect the
Indemnifying Party's obligations or liabilities otherwise than under this
Article V. Such written notice will set forth a reference to the event or events
forming the basis of such Loss or Loss Claim and the estimated amount involved,
unless such amount is uncertain or contingent, in which event the Indemnified
Party will give a later written notice when the amount becomes fixed.
5.04. Repurchase Obligation. Notwithstanding the indemnification
obligation of Seller described in Section 5.01 above, in the event Buyer
discovers that any of the representations and warranties of Seller are
inaccurate or there has been any fraud by Seller with respect to the Assets,
including any one or more of the Retail Installment Contracts, Buyer shall
notify the Seller of such discovery and Seller shall have the period of five (5)
days of the discovery of any breach of a representation or warranty or existence
of fraud by Seller with respect to the Assets, including the Retail Installment
Contracts, to use its best efforts to cure such breach or fraud by Seller in all
respects and, if such breach or fraud cannot be cured, the Seller immediately
shall repurchase such Retail Installment Contract at the Repurchase Price
defined in Section 1.01 above. Upon the delivery of the Repurchase Price by
Seller to Buyer, Seller shall promptly deliver the Retail Installment Contract
Package to Seller at the address set forth herein. The amount of the Repurchase
Price shall be delivered by Seller to Buyer in the form of wire transfer or
cashier's check within one (1) Business Day from the expiration of the five (5)
day cure period described above in this Section 5.04. Upon such repurchase, any
such Retail Installment Contract shall be deemed a Deleted Retail Installment
Contract and Exhibit "A" attached hereto and incorporated herein shall be
modified accordingly.
ARTICLE VI
CLOSING CONDITIONS
6.01. (a) Conditions to Closing. The obligations of Buyer to
purchase the Retail Installment Contracts and to consummate the other
transactions contemplated by this Agreement are subject to the satisfaction at
or prior to the Closing Date of the following conditions, any or all of which
may be waived in writing in the sole and absolute discretion of Buyer, in whole
or in part:
(i) Each of the representations and warranties of Seller
contained in this Agreement and all instruments and information
contained in the Retail Installment Contract Packages and the Retail
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Installment Contract Schedule must be true, complete and correct in all
respects as of the Cut-Off Date and Closing Date as though made on and
as of such dates.
(ii) Seller must have performed and complied with all
agreements and covenants required by this Agreement to be performed and
complied with by Seller on or prior to the Closing Date.
(iii) There must be no pending or threatened litigation in any
court or any proceeding before or by any governmental entity against
Seller or Buyer to restrain or prohibit or obtain damages or other
relief with respect to this Agreement or the Ancillary Agreements or
the consummation of the transactions contemplated by this Agreement or
the Ancillary Agreements.
(iv) Buyer shall have received the UCC Lien Search showing
that there are no claims or liens against the Assets being transferred
hereunder.
(v) Seller shall have delivered to Buyer originals of all
Retail Installment Contract Packages identified on the Retail
Installment Contract Schedule and all Certificates of Title for the
Vehicles being transferred from Seller to Buyer, and same shall be
true, accurate and complete as of the Closing Date, and Buyer shall
have an adequate amount of time to review all such information;
provided that Buyer shall have no obligation to do so and Buyer shall
be entitled to rely solely on Seller's representations, warranties and
covenants set forth herein.
6.02. Closing Deliveries.
(a) At the Closing, Seller shall deliver to Buyer the following:
(i) an executed Bill of Sale conveying the Assets to Buyer,
substantially in the form of Exhibit "B" attached hereto;
(ii) an originally executed (by Seller) Allonge for each
Retail Installment Contract to be attached to each Retail
Installment Contract substantially in the form of Exhibit "C"
attached hereto incorporated herein;
(iii) certified authorizing resolutions of Seller's Board of
Directors and shareholders authorizing the consummation of the
transactions contemplated hereby (the "Resolutions");
(iv) endorsed Certificates of Title transferring the
Vehicles to Buyer;
(v) the executed Subleases;
(vi) the Note;
(vii) the Unconditional Guaranty of CIC; and
(viii) the amount of funds necessary to satisfy Seller's
sales tax obligations under the Retail Installment Contracts as
more particularly described in Section 3.08(b).
(b) At the Closing, Buyer shall deliver to Seller the following:
(i) Seller acknowledges prior delivery and receipt of the
Advanced Funds; and
(ii) Buyer shall assume Seller's recourse obligations to
AutoPrime as more particularly described on Exhibit "E" attached
hereto.
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6.03. Termination of Employees by Seller. Prior to the Closing, Seller
shall terminate all employees, independent contractors, and service contracts.
Buyer shall be entitled to hire any such persons or no such persons in its sole
and absolute discretion.
6.04. Post-Closing Matters. From and after the Cut-Off Date, all
payments on the Retail Installment Contracts received by Seller shall be held in
trust for the benefit of Buyer and Seller shall immediately deliver all such
amounts to Buyer at the address set forth herein. In the event Buyer receives
payments under the Retail Installment Contracts made payable to Seller, Buyer
shall be permitted to endorse all such payments for the benefit of and to be
deposited by Buyer. Seller hereby covenants and agrees to promptly assist Buyer
in notifying all Obligors under the Retail Installment Contracts of the purchase
and sale contemplated by this Agreement.
6.05. Power of Attorney. By execution hereof, with respect to the
Retail Installment Contracts and the Vehicles being transferred hereunder,
Seller hereby makes, constitutes and appoints Buyer, and Buyer's successors and
assigns, with full power of substitution and resubstitution, as Seller's true
and lawful attorney-in-fact for Seller and in Seller's name, place and stead for
Buyer's use and benefit, to sign, endorse, execute, certify, acknowledge, swear
to, file, and record all instruments, checks, money orders, cashier's checks,
Certificates of Title, assignments and documents as may be necessary to
effectuate the consummation of the transactions contemplated by this Agreement,
including, but not limited to, effectuating the receipt by Buyer of all payments
under the Retail Installment Contracts arising or accruing from and after the
Cut-Off Date.
6.06. Resignation of William O. Merritt and Dennis W. Miller. By
execution hereof, William O. Merritt and Dennis W. Miller hereby resign from any
and all positions as officers directors and employees of AutoCorp Equities,
Inc., except that William O. Merritt shall continue as a director.
ARTICLE VII
MISCELLANEOUS
7.01. Notices. All notices that are required or may be given pursuant
to this Agreement must be in writing and delivered personally, by a recognized
courier service, by a recognized overnight delivery service, by telecopy or by
registered or certified mail, postage prepaid, to the parties at the following
addresses (or to the attention of such other person or such other address as any
party may provide to the other parties by notice in accordance with this Section
7.01) in accordance with the following:
If to Buyer:
AutoCorp Financial Services, Inc.
Ace Motor Company
5949 Sherry Lane, Suite 525
Dallas, Texas 75225
Attention: Mr. Charles Norman, President
Telecopy: (214) 378-8292
with a copy to:
Creel, Sussman & Moore, L.L.P.
5949 Sherry lane, Suite 525
Dallas, Texas 75225
Attn: Ronald L. Sussman
Telecopy: (214) 378-8290
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If to Seller:
Lenders Auto Resale Centers of Texas, Inc.
Lenders Liquidation Centers, Inc.
d/b/a Lenders Auto Resale Centers
Attn: William O. Merritt
Telecopy: (_____)
Any such notice or other communication will be deemed to have been given and
received (whether actually received or not) on the day it is personally
delivered or delivered by courier or overnight delivery service or sent by
telecopy or, if mailed, when actually received.
7.02. Attorneys= Fees and Costs. If attorneys= fees or other costs are
incurred to secure performance of any obligations under this Agreement, or to
establish damages for the breach thereof or to obtain any other appropriate
relief, whether by way of prosecution or defense, the prevailing party will be
entitled to recover reasonable attorneys= fees and costs incurred in connection
therewith.
7.03. Counterparts. This Agreement may be executed in one or more
counterparts for the convenience of the parties to this Agreement, each of which
shall be deemed an original and all of which together will constitute one and
the same instrument.
7.04. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement will be assigned or delegated by
any party, without the prior written consent of the other parties; provided,
that Buyer may assign its rights and obligations under this Agreement to any
affiliate of or successor-in-interest to Buyer. This Agreement is not intended
to confer any rights or benefits to any Person other than the parties to this
Agreement.
7.05. Entire Agreement. This Agreement and the related documents
contained as Exhibits and Schedules to this Agreement or expressly contemplated
by this Agreement contain the entire understanding of the parties relating to
the subject matter hereof and supersede all prior written or oral and all
contemporaneous oral agreements and understandings relating to the subject
matter hereof. This Agreement cannot be modified or amended except in writing
signed by the party against whom enforcement is sought. The Exhibits and
Schedules to this Agreement are hereby incorporated by reference into and made a
part of this Agreement for all purposes.
7.06. Governing Law; Venue; Jurisdiction. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE OBLIGATIONS,
RIGHTS, AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE
WITH SUCH LAWS WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
THIS AGREEMENT IS PERFORMABLE IN DALLAS COUNTY, TEXAS, AND VENUE FOR RESOLUTION
OF ANY DISPUTE ARISING HEREUNDER OR IN CONNECTION HEREWITH SHALL LIE EXCLUSIVELY
IN DALLAS COUNTY, TEXAS. EACH OF THE PARTIES EXPRESSLY CONSENTS TO THE PERSONAL
JURISDICTION OF THE COURTS OF THE STATE OF TEXAS.
IN WITNESS WHEREOF, each of the parties to this Agreement has caused
this Agreement to be executed as of the date and year first written above by
their respective officers thereunto duly authorized.
Buyer:
-----
AUTOCORP FINANCIAL SERVICES, INC.,
a Texas corporation
162
<PAGE>
By: /s/ Charles Norman
-------------------------
Charles Norman, President
ACE MOTOR COMPANY, a Texas corporation
By: /s/ Charles Norman
-------------------------
Charles Norman, President
Seller:
- ------
LENDERS LIQUIDATION CENTERS, INC.,
an Arizona corporation, d/b/a
Lenders Auto Resale Centers
By: /s/ William O. Merritt
------------------------------
William O. Merritt, President
LENDERS AUTO RESALE CENTERS OF
TEXAS, INC., an Arizona corporation
By: /s/ William O. Merritt
-----------------------------
William O. Merritt, President
/s/ William O. Merritt
- ---------------------------------
William O. Merritt, an individual
/s/ Dennis Miller
- ---------------------------------
Dennis Miller, an individual
163
EXHIBIT 21
List of Subsidiaries
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
ACE Motor Company Texas
AutoCorp Financial Services, Inc. Texas
(d/b/a ACE Financial Services in Kentucky)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000790066
<NAME> AutoCorp Equities, Inc.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 51,979
<SECURITIES> 0
<RECEIVABLES> 468
<ALLOWANCES> 0
<INVENTORY> 95,297
<CURRENT-ASSETS> 147,744
<PP&E> 35,000
<DEPRECIATION> (1,361)
<TOTAL-ASSETS> 181,383
<CURRENT-LIABILITIES> 8,344,265
<BONDS> 0
0
0
<COMMON> 6,099
<OTHER-SE> (12,023,587)
<TOTAL-LIABILITY-AND-EQUITY> 181,383
<SALES> 4,098,074
<TOTAL-REVENUES> 4,098,074
<CGS> 3,517,643
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 333,988
<LOSS-PROVISION> 7,327,403
<INTEREST-EXPENSE> 478,621
<INCOME-PRETAX> (12,504,470)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,504,470)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,504,470)
<EPS-BASIC> (2.28)
<EPS-DILUTED> (2.28)
</TABLE>
