<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
For the fiscal quarter ended: Commission file number:
JANUARY 31, 1999 0-14939
</TABLE>
CROWN GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 63-0851141
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
4040 N. MACARTHUR BLVD., SUITE 100, IRVING, TEXAS
(Address of principal executive offices)
75038-6424
(Zip Code)
(972) 717-3423
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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 [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Title of Each Class March 15, 1999
------------------- --------------
<S> <C>
Common stock, par value $.01 per share 10,156,837
</TABLE>
1
<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS CROWN GROUP, INC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, 1999
(unaudited) April 30, 1998
---------------- --------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 3,713,699 $ 6,481,706
Marketable equity securities 8,659,385 4,742,180
Accounts and other receivables, net 7,085,701 2,311,668
Mortgage loans held for sale, net 11,726,315 14,350,437
Finance receivables, net 88,226,548 36,049,525
Inventory 7,457,556 3,783,290
Prepaid and other assets 1,388,045 572,089
Property and equipment, net 18,792,131 9,165,703
Investment in CMN and related assets, net 5,461,909 6,606,114
Goodwill, net 10,942,500 9,613,972
------------ ------------
$163,453,789 $ 93,676,684
============ ============
Liabilities and stockholders' equity:
Accounts payable $ 2,740,993 $ 2,014,698
Accrued liabilities 5,581,655 1,952,828
Income taxes payable 2,698,216 142,572
Revolving credit facilities 71,770,744 41,164,524
Other notes payable 18,005,345 4,870,074
Deferred sales tax 2,838,942 2,090,303
Deferred income taxes 4,273,447 2,961,727
------------ ------------
Total liabilities 107,909,342 55,196,726
------------ ------------
Minority interests 2,880,416 3,447,705
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share, 1,000,000 shares
authorized; none issued or outstanding
Common stock, par value $.01 per share, 50,000,000 shares
authorized; 9,930,438 issued and outstanding (9,433,963 at April 30, 1998) 99,304 94,340
Additional paid-in capital 36,980,767 35,547,369
Retained earnings (accumulated deficit) 11,555,285 (2,539,956)
Unrealized appreciation of securities 4,028,675 1,930,500
------------ ------------
Total stockholders' equity 52,664,031 35,032,253
------------ ------------
$163,453,789 $ 93,676,684
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
CONSOLIDATED STATEMENTS OF OPERATIONS CROWN GROUP, INC
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Sales $18,283,991
Rental income 637,044
Gain on sale of mortgage loans 788,361 $ 430,434
Interest income 3,172,473 586,423
Interest, fees and rentals from CMN 133,818 132,981
Other 273,279 14,800
----------- -----------
23,288,966 1,164,638
----------- -----------
Costs and expenses:
Cost of sales 11,259,644
Selling, general and administrative 6,958,791 1,180,806
Provision for credit losses 2,666,523 21,500
Interest expense 1,653,052 80,081
Depreciation and amortization 577,635 130,803
----------- -----------
23,115,645 1,413,190
----------- -----------
Other income:
Equity in earnings of CMN 38,017 125,203
Gain on sale of securities, net 18,964,236 40,895
----------- -----------
19,002,253 166,098
----------- -----------
Income (loss) before taxes and minority interests 19,175,574 (82,454)
Provision (benefit) for income taxes 6,556,915 (96,149)
Minority interests 31,807
----------- -----------
Net income $12,586,852 $ 13,695
=========== ===========
Earnings per share:
Basic $ 1.27 $ .00
Diluted $ 1.21 $ .00
Weighted average number of shares outstanding:
Basic 9,942,386 9,742,747
Diluted 10,372,333 9,959,643
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF OPERATIONS CROWN GROUP, INC
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
January 31,
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Sales $49,598,072
Rental income 1,909,059
Gain on sale of mortgage loans 3,102,014 $ 430,434
Interest income 8,441,975 1,380,770
Interest, fees and rentals from CMN 742,831 349,282
Other 314,829 53,995
----------- -----------
64,108,780 2,214,481
----------- -----------
Costs and expenses:
Cost of sales 31,202,646
Selling, general and administrative 18,483,250 3,308,260
Provision for credit losses 6,280,474 21,500
Interest expense 4,442,754 81,695
Depreciation and amortization 1,576,953 350,358
----------- -----------
61,986,077 3,761,813
----------- -----------
Other income:
Equity in earnings of CMN 754,445 532,888
Gain on sale of securities, net 18,889,833 64,569
----------- -----------
19,644,278 597,457
----------- -----------
Income (loss) before taxes and minority interests 21,766,981 (949,875)
Provision (benefit) for income taxes 7,299,292 (603,348)
Minority interests 372,448
----------- -----------
Net income (loss) $14,095,241 $ (346,527)
=========== ===========
Earnings (loss) per share:
Basic $ 1.40 $ (0.03)
Diluted $ 1.36 $ (0.03)
Weighted average number of shares outstanding:
Basic 10,076,775 9,951,226
Diluted 10,335,480 9,951,226
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF OPERATIONS CROWN GROUP, INC
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $12,586,852 $ 13,695 $14,095,241 $ (346,527)
Change in unrealized appreciation of securities, net of tax:
Unrealized appreciation arising during period 6,339,173 14,565,465
Less realized gain included in net income (12,516,396) (12,467,290)
----------- ----------- ----------- -----------
(6,177,223) 2,098,175
----------- ----------- ----------- -----------
Comprehensive income (loss) $ 6,409,629 $ 13,695 $16,193,416 $ (346,527)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS CROWN GROUP, INC
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
January 31,
1999 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net income (loss) $ 14,095,241 $ (346,527)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 1,576,953 350,358
Amortization of finance receivable discount (695,869)
Deferred income taxes 1,027,609 (1,373,569)
Provision for credit losses 6,280,474 21,500
Minority interests 372,448
Gain on sale of mortgage loans (3,102,014) (430,434)
Gain on sale of assets (265,387)
Gain on sale of securities (18,889,833) (64,569)
Equity in earnings of CMN (754,445) (532,888)
Changes in assets and liabilities, net of acquisition:
Accounts and other receivables (1,512,746) (543,126)
Mortgage loans originated or acquired (67,572,153) (17,252,309)
Mortgage loans sold and principal repayments 73,203,758 8,953,167
Inventory 3,603,362
Prepaids and other assets (197,171) (165,649)
Accounts payable, accrued liabilities and deferred sales tax 2,536,871 32,180
Income taxes payable 1,282,248 (247,500)
------------ ------------
Net cash provided (used) by operating activities 10,989,346 (11,599,366)
------------ ------------
Investing activities:
Finance receivable originations (44,465,402)
Finance receivable collections 18,629,316
Purchase of property and equipment (12,184,078) (1,105,157)
Sale of assets 1,802,286 15,250,000
Purchase of securities (1,995,030) (1,939,285)
Sale of securities 21,122,595 1,788,685
Dividends and collections of notes receivable from CMN 1,665,685 538,250
Loan to Paaco (3,000,000)
Purchase of CMN and related assets (7,000,001)
Purchase of Car-Mart, net of cash acquired (33,420,470)
------------ ------------
Net cash provided (used) by investing activities (48,845,098) 4,532,492
------------ ------------
Financing activities:
Capital contribution from minority owner 60,000
Purchase of common stock (1,213,746) (2,211,410)
Proceeds from revolving credit facilities, net 30,606,220 4,189,889
Proceeds from other debt, net 5,635,271
------------ ------------
Net cash provided by financing activities 35,087,745 1,978,479
------------ ------------
Decrease in cash and cash equivalents (2,768,007) (5,088,395)
Cash and cash equivalents at: Beginning of period 6,481,706 21,117,960
------------ ------------
End of period $ 3,713,699 $ 16,029,565
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CROWN GROUP, INC.
A - HISTORY AND DESCRIPTION OF BUSINESS
Crown Group, Inc. ("Crown"), and collectively with its subsidiaries (the
"Company"), is a publicly traded buy-out firm which presently owns (i) 100% of
America's Car-Mart, Inc. ("Car-Mart") and 80% of Paaco Automotive Group, Inc.
and Premium Auto Acceptance Corporation (collectively, "Paaco"), vertically
integrated used car sales and finance companies, (ii) 100% of Precision IBC,
Inc. ("Precision"), a firm specializing in the sale and rental of intermediate
bulk containers ("IBC's"), (iii) 80% of Concorde Acceptance Corporation
("Concorde"), a sub-prime mortgage lender, (iv) 49% of Casino Magic Neuquen S.A.
("CMN"), a casino operator in the Province of Neuquen, Argentina, (v) 50.1% of
CG Incorporated, S.A. de C.V. ("Crown El Salvador"), a newly formed company
focusing on the development and operation of casinos in El Salvador, and (vi)
80% of Home Stay Lodges I, Ltd. ("Home Stay"), a partnership focusing on the
development and operation of extended-stay lodging facilities. In addition, from
time to time the Company purchases and sells small ownership interests in
securities of privately held and publicly traded firms. The Company is presently
focusing on (i) the development and expansion of its existing businesses, and
(ii) the potential acquisition or development of other unrelated businesses.
Since its inception in 1983 through June 1993 the Company was engaged in
various facets of the cable and related programming businesses. From June 1993
until November 1996, the Company's primary business focus was that of owning,
operating and developing casino gaming properties. In November 1996 the Company
decided to expand its business interests beyond casino gaming and began pursuing
business opportunities in other fields. As a result the Company has acquired or
formed several businesses in a variety of industries.
B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine month period ended January 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ended April 30, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended April 30, 1998.
Marketable Equity Securities
Investments in marketable equity securities are recorded at market value
based upon closing stock prices as quoted on national stock exchanges or the
NASDAQ stock market. The Company considers all of its equity securities to be
"available for sale" securities, and the difference between the Company's cost
and such security's market value is included as a separate component of
stockholders' equity entitled "unrealized appreciation of securities," on a net
of tax basis.
As of April 30, 1998 and January 31, 1999 the Company held 444,444 and
124,444 shares respectively, of Inktomi Corporation common stock, which company
completed its initial public offering ("IPO") on or about June 9, 1998. The
Company's Inktomi shares were subject to an underwriter's lock-up agreement
which restricted the Company from selling its Inktomi stock until December 8,
1998. From December 9, 1998 through February 25, 1999 the Company could only
sell its Inktomi shares in private transactions in that these shares were not
registered and had not as yet met the one year holding period. The Company
valued its Inktomi shares based upon the closing stock price of $71.875 per
share on January 31, 1999, less a 10% discount on all unregistered shares.
Accordingly, at January 31, 1999 the carrying value of the Company's Inktomi
stock was $8,193,750 which reflects a gross unrealized gain of $6,417,364 over
the Company's cost of $1,776,386. Beginning in December 1998 through January 31,
1999 the Company sold 340,000 shares of its Inktomi common stock for
approximately $20.8 million, which net of a management bonus of $.9 million and
the Company's basis in the securities resulted in a gain of approximately $19.0
million. In February and March 1999 the Company sold the balance of its Inktomi
common stock resulting in a gain of approximately $6 million. The Company uses
the specific identification method for accounting for securities transactions.
Goodwill
Goodwill represents the excess of the Company's cost over the fair value of
net identifiable assets acquired in its purchases of Paaco and Precision.
Goodwill is amortized on a straight line basis over periods ranging from 15 to
25 years. The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows of the
acquired operation. At January 31, 1999 accumulated amortization of goodwill
amounted to $630,108.
Reclassifications
Certain prior year amounts in the accompanying financial statements have been
reclassified to conform to the fiscal 1999 presentation.
7
<PAGE> 8
C - ACQUISITIONS
Paaco Purchase
Effective February 1, 1998 the Company acquired 53% of the common stock of
Paaco for a purchase price of approximately $9.1 million in cash. Approximately
$4.9 million of Paaco common stock was purchased directly from Paaco, and the
remaining $4.2 million was purchased from Paaco management personnel who prior
to this transaction were the sole shareholders of Paaco (the "Paaco Management
Shareholders"). Effective May 1, 1998 and February 1, 1999 the Company acquired
an additional 12% and 15%, respectively, interests in Paaco directly from the
Paaco Management Shareholders. The May 1, 1998 purchase price of $1.5 million
was paid by issuing 375,000 shares of the Company's common stock. The February
1, 1999 purchase price of $2.6 million was paid by issuing 257,813 shares of the
Company's common stock and paying approximately $1.0 million in cash. The
Company presently owns 80% of Paaco.
Precision Purchase
On February 3, 1998 the Company acquired 80% of the common stock of Precision
IBC, Incorporated ("Original Precision") for a purchase price of approximately
$2.4 million in cash. On March 5, 1998 the Company acquired 80% of the common
stock of M&S Tank Rentals, Inc. ("M&S") for a purchase price of $1.65 million in
cash. Original Precision and M&S were subsequently merged together into a newly
formed corporation, Precision IBC, Inc. ("Precision"). Effective May 1, 1998 the
Company acquired the remaining 20% interest in Precision it did not previously
own by issuing 288,027 shares of the Company's common stock to the minority
shareholders of Precision in a private placement.
Car-Mart Purchase
On January 15, 1999 the Company acquired 100% of the outstanding common stock
of Fleeman Holding Company, including its wholly-owned subsidiary America's
Car-Mart, Inc., ("Car-Mart") for $41.35 million. The purchase price consisted of
$33.85 million in cash and the issuance of promissory notes aggregating $7.5
million (the "Notes"). The Notes bear interest at 8.5% per annum payable
quarterly, with the principal due in five years. Approximately $24 million of
the cash portion of the purchase price was obtained pursuant to a $30 million
revolving credit facility with a major banking institution. The remaining $9.85
million was funded from cash on hand. Car-Mart was founded in 1981 and presently
operates thirty "buy-here-pay-here" used car dealerships located in niche
markets throughout Arkansas, Oklahoma, Texas and Missouri. Car-Mart underwrites,
finances and services retail installment contracts generated at its dealerships.
The majority of Car-Mart's assets consist of over 15,000 retail installment
contracts.
The activities of Car-Mart have been included in the Company's consolidated
results of operations since the acquisition date. The acquisition of Car-Mart
has been accounted for using the purchase method of accounting with existing
assets and liabilities being marked to market. The preliminary purchase price
and purchase price allocation are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Purchase Price:
Cash $ 33,850
Notes to sellers 7,500
Transaction costs 648
----------
$ 41,998
==========
Purchase Price Allocation:
Cash $ 1,077
Finance receivables, net 37,579
Inventory 2,220
Other 4,446
Liabilities assumed (3,324)
----------
$ 41,998
==========
</TABLE>
Pro Forma Financial Information
The following unaudited pro forma condensed consolidated results of
operations of the Company for the nine months ended January 31, 1999 were
prepared as if the Car-Mart acquisition had occurred on May 1, 1998, and the
following unaudited pro forma condensed consolidated results of operations of
the Company for the nine months ended January 31, 1998 were prepared as if the
acquisitions of Paaco (65%), Precision and Car-Mart had occurred on May 1, 1997,
(in thousands, except per share amounts). The adjustments to the historical
financial statements principally consist of (i) eliminating interest income on
the cash used in the acquisitions, (ii) amortizing goodwill resulting from the
acquisitions, (iii) recording interest expense on the debt issued in the
Car-Mart acquisition, (iv) adjusting depreciation expense and interest income
resulting from purchase accounting entries, and (v) adjusting income tax expense
to reflect the elimination of an S-corporation in the case of Precision and to
take into account the above described adjustments.
<TABLE>
<CAPTION>
Nine Months Ended
January 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Revenues $ 113,903 $ 93,003
Net income 17,621 1,872
Earnings per share - diluted 1.70 .17
</TABLE>
8
<PAGE> 9
D - CMN OPERATING RESULTS
The operating results of CMN for the nine months ended January 31, 1999 and
1998 were as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
January 31,
1999 1998
---------- ----------
<S> <C> <C>
Revenues $ 16,081 $ 13,382
Costs and expenses 10,296 10,078
Lawsuit settlement and costs 917
Interest, fees, and rentals to shareholders 1,070 1,494
Provision for income taxes 1,513 581
---------- ----------
Net income $ 2,285 $ 1,229
========== ==========
</TABLE>
For the nine months ended January 31, 1999, the Company recorded an after tax
charge of approximately $365,000 relating to its share of the estimated costs of
a dispute between CMN and the City of Neuquen with respect to entrance taxes
being charged by the City of Neuquen for each patron entering CMN's casinos.
Such amount has been included in "equity in earnings of CMN" on the accompanying
statements of operations.
E - FINANCE RECEIVABLES
The Company originates installment sale contracts from the sale of used
vehicles at its dealerships. These installment sale contracts typically include
interest rates ranging from 10 to 26% per annum and provide for payments over
periods ranging from 14 to 36 months. A summary of finance receivables as of
January 31, 1999 and April 30, 1998 is as follows:
<TABLE>
<CAPTION>
January 31, April 30,
1999 1998
------------- -------------
<S> <C> <C>
Finance receivables $ 121,392,970 $ 51,417,981
Unearned finance charges (16,673,687) (9,930,356)
Allowance for credit losses (15,361,238) (4,727,679)
Valuation discount (1,131,497) (710,421)
------------- -------------
$ 88,226,548 $ 36,049,525
============= =============
</TABLE>
In accordance with APB Opinion No. 16, as of the dates the Company acquired
an interest in Paaco (53% on February 1, 1998 and 12% on May 1, 1998) and
Car-Mart, the Company valued Paaco's and Car-Mart's finance receivable
portfolios at market value and determined that an aggregate valuation discount
of $1,215,966 in the case of Paaco, and $864,165 in the case of Car-Mart, was
appropriate. These discounts are being amortized into interest income over the
life of the related finance receivable portfolios that existed on the dates of
purchase using the interest method.
A summary of the finance receivables allowance for credit losses for the
period from April 30, 1998 to January 31, 1999 is as follows:
<TABLE>
<S> <C>
Balance at April 30, 1998 $ 4,727,679
Acquisition of Car-Mart 8,726,309
Provision for credit losses 6,137,295
Net charge offs (4,230,045)
------------
Balance at January 31, 1999 $ 15,361,238
============
</TABLE>
In addition to the finance receivables allowance for credit losses the
Company also has an allowance for credit losses on mortgage loans held for sale
($147,100) and trade accounts receivable ($25,000) as of January 31, 1999.
9
<PAGE> 10
F - PROPERTY AND EQUIPMENT
A summary of property and equipment as of January 31, 1999 and April 30, 1998
is as follows:
<TABLE>
<CAPTION>
January 31, April 30,
1999 1998
------------ ------------
<S> <C> <C>
Land and buildings $ 3,417,979 $ 2,332,750
Construction in progress 4,505,003
Rental equipment 6,234,027 4,749,652
Furniture, fixtures and equipment 4,790,937 1,904,536
Leasehold improvements 1,367,172 920,583
Less accumulated depreciation and amortization (1,522,987) (741,818)
------------ ------------
$ 18,792,131 $ 9,165,703
============ ============
</TABLE>
G - DEBT
A summary of debt at January 31, 1999 is as follows:
<TABLE>
<CAPTION>
Revolving Credit Facilities
- -----------------------------------------------------------------------------------------------------------------
Facility Interest Primary Balance at
Borrower Lender Amount Rate Maturity Collateral January 31, 1999
- ------------- -------------- ----------- ------------ ---------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Paaco Finova $60 million Prime + 3.00% Jun 2000 Finance rec. $37,447,375
Car-Mart Bank America $30 million Prime + 1.13% Jan 2002 Finance rec. 22,139,722
Concorde Bank One $20 million Libor + 2.00% Jan 2000 Mortgage loans 7,991,604
Precision Wells Fargo $5 million Prime Jun 2000 IBC's and rec. 3,692,043
Paaco Comerica $500,000 Prime + 2.00% Demand Vehicle inv. 500,000
-----------
$71,770,744
===========
</TABLE>
<TABLE>
<CAPTION>
Other Notes Payable
- ---------------------------------------------------------------------------------------------------------------------
Facility Interest Primary Balance at
Borrower Lender Amount Rate Maturity Collateral January 31, 1999
- ------------- -------------- ----------- ------------ ---------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Crown Car-Mart sellers N/A 8.50% Jan 2004 Finance rec $ 7,500,000
Home Stay Bank of Pensacola $5.4 million 8.50% Feb 2004 Real estate 4,530,376
Precision South Trust Bank N/A 7.35% Jan 2014 Real estate 680,000
Paaco Chase Texas N/A 8.50% Oct 2003 Real estate 956,883
Paaco Heller Financial N/A Prime + 2.25% Dec 2015 Real estate 622,417
Paaco Various N/A Various 1999 None 3,715,669
-----------
$18,005,345
===========
</TABLE>
10
<PAGE> 11
H - COMPREHENSIVE INCOME INFORMATION
Supplemental comprehensive income disclosures for the nine months ended
January 31, 1999 are as follows:
<TABLE>
<CAPTION>
Nine Months
Ended
January 31, 1999
----------------
<S> <C>
Gross unrealized appreciation of securities arising during period $22,068,886
Provision for income taxes 7,503,421
-----------
Unrealized appreciation of securities arising during period $14,565,465
===========
</TABLE>
Changes to unrealized appreciation of securities for the nine months ended
January 31, 1999 are as follows:
<TABLE>
<CAPTION>
Nine Months
Ended
January 31, 1999
----------------
<S> <C>
Balance at April 30, 1998 $ 1,930,500
Unrealized appreciation of securities arising during period 14,565,465
Less realized gain included in net income (12,467,290)
------------
Balance at January 31, 1999 $ 4,028,675
============
</TABLE>
I - EARNINGS PER SHARE
A summary reconciliation of basic earnings per share to diluted earnings per
share for the nine months ended January 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
January 31,
1999 1998
----------- -----------
<S> <C> <C>
Net income (loss) $14,095,241 $ (346,527)
=========== ===========
Average shares outstanding-basic 10,076,775 9,951,226
Dilutive options 240,555
Dilutive warrants 18,150
----------- -----------
Average shares outstanding-diluted 10,335,480 9,951,226
=========== ===========
Earnings (loss) per share:
Basic $ 1.40 $ (.03)
Diluted $ 1.36 $ (.03)
Antidilutive securities not included:
Options 295,000 899,643
=========== ===========
Warrants 391,198 1,084,246
=========== ===========
</TABLE>
11
<PAGE> 12
J - COMMON STOCK ISSUANCES
Effective May 1, 1998 the Company issued 375,000 and 288,027 shares of its
common stock in the purchases of an additional 12% interest in Paaco and an
additional 20% interest in Precision, respectively (see Note C). Furthermore, in
June 1998 the Company issued 169,941 shares of its common stock to Nomura
Holding America, Inc. ("Nomura") in connection with Nomura's full exercise of a
warrant held by them to purchase 508,414 shares of the Company's common stock.
Nomura exercised the warrant pursuant to its "cashless exercise" feature.
Effective February 1, 1999 the Company issued 257,813 shares of its common stock
as partial consideration in the purchase of an additional 15% interest in Paaco.
Also effective February 1, 1999 the Company issued 37,500 shares of its common
stock in satisfaction of a liability in connection with the May 1, 1998 purchase
of an additional 12% interest in Paaco (see note K).
K - COMMITMENTS AND CONTINGENCIES
Mortgage Loan Sales
In connection with the Company's sale of mortgage loans in the ordinary
course of business, in certain circumstances such loan sales involve limited
recourse to the Company for up to the first twelve months following the sale.
Generally, the events which could give rise to these recourse provisions involve
the prepayment or foreclosure of a loan, and violations of customary
representations and warranties. If the recourse provisions are triggered the
Company may be required to refund all or part of the premium received on the
sale of such loan, and in some cases the Company may be required to repurchase
the loan. Periodically, the Company estimates the potential exposure related to
such recourse provisions and accrues a percentage of the total potential
liability.
Severance Agreements
The Company has entered into severance agreements with its three executive
officers which provide for payments to the executives in the event of their
termination after a change in control, as defined, of the Company. The
agreements provide, among other things, for a compensation payment equal to 2.99
times the annual compensation paid to the executive, as well as accelerated
vesting of any unvested options under the Company's stock option plans, in the
event of such executive's termination in connection with a change in control.
Paaco Purchase Contingent Consideration
In connection with the Company's purchase of an additional 12% interest in
Paaco effective May 1, 1998, the Company agreed to pay the sellers as additional
consideration an amount equal to 60% of the excess of Paaco's pretax income in
excess of $2.5 million for the twelve months ending January 31, 1999. Effective
February 1, 1999 the Company issued 37,500 shares of its common stock to satisfy
its obligation to pay such additional consideration.
Litigation
In August 1998 an action was filed against the Company in the 8th Judicial
District Court of Clark County, Nevada by Resort Properties of America ("RPA").
In this action RPA alleges it had a verbal agreement with the Company pertaining
to the sale of the Company's Las Vegas land which was sold in September 1997.
RPA claims it is due a brokerage commission of $450,000 plus attorney's fees.
The Company has denied the material allegations of the claim and intends to
vigorously contest any liability in the matter. While no assurance can be given
as to the ultimate outcome of this litigation, management believes that the
resolution of this matter will not have a material adverse effect on the
Company.
Investment Fund
In November 1998 the Company committed $2.0 million to Monarch Venture
Partners' Fund I, L.P. ("Monarch"), a private venture capital fund focusing on
high technology businesses, such as Internet related concerns. As of January 31,
1999 the Company had funded approximately $.5 million of its $2.0 million
commitment. The Company expects it will fund the remaining $1.5 million over the
next 12 months. Principals of Monarch assisted the Company in its investment in
Inktomi common stock (see Note B).
L - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow disclosures for the nine months ended January 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
January 31,
1999 1998
---------- ----------
<S> <C> <C>
Issuance of notes in acquisition $7,500,000
Value of stock issued in acquisitions 2,652,108
Inventory acquired in repossession 5,057,773
Interest paid, net of amount capitalized 4,274,642 $ 58,620
Income taxes paid 4,954,189 925,000
Conversion of a portion of CMN note to equity 2,516,493
</TABLE>
12
<PAGE> 13
M - BUSINESS SEGMENTS
Operating results and other financial data are presented for the four
principal business segments of the Company for the three months ended January
31, 1999 and 1998. These segments are categorized by the lines of business of
the Company. The segments include (i) automobile, which pertains to Car-Mart's
and Paaco's selling and financing of used vehicles, (ii) IBC's, which pertains
to Precision's rental and sales of intermediate bulk containers, (iii) mortgage,
which pertains to Concorde's originating and selling of sub-prime mortgage
loans, and (iv) other, which includes corporate operations, Home Stay,
activities of relatively inactive subsidiaries and the Company's equity
investment in CMN. The Company's business segment data for the three months
ended January 31, 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended January 31, 1999
------------------------------------------------------------------------------------------
Automobile IBC's Mortgage Other Eliminations Consolidated
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sales and other $ 17,765 $ 1,188 $ 890 $ 274 $ 20,117
Interest income 2,542 3 388 429 $ (190) 3,172
---------- ---------- ---------- ---------- ---------- ----------
Total 20,307 1,191 1,278 703 (190) 23,289
---------- ---------- ---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 10,898 362 11,260
Selling, gen. and admin. 4,292 392 1,074 1,200 6,958
Prov. for credit losses 2,609 13 44 2,666
Interest expense 1,433 93 281 36 (190) 1,653
Depreciation and amort. 112 185 42 239 578
---------- ---------- ---------- ---------- ---------- ----------
Total 19,344 1,045 1,441 1,475 (190) 23,115
---------- ---------- ---------- ---------- ---------- ----------
Security gains and other 19,002 19,002
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before taxes
and minority interest $ 963 $ 146 $ (163) $ 18,230 $ -- $ 19,176
========== ========== ========== ========== ========== ==========
Capital expenditures $ 339 $ 670 $ 11 $ 3,032 $ -- $ 4,052
========== ========== ========== ========== ========== ==========
Total assets $ 103,389 $ 12,213 $ 13,539 $ 78,618 $ (44,305) $ 163,454
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended January 31, 1998
---------------------------------------------------------------------------------------------
Automobile IBC's Mortgage Other Eliminations Consolidated
------------ ----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sales and other $ 429 $ 148 $ 577
Interest income 322 448 $ (183) 587
---------- ---------- ------------ ------------
Total 751 596 (183) 1,164
---------- ---------- ------------ ------------
Costs and expenses:
Selling, gen. and admin. 627 555 1,182
Prov. for credit losses 21 21
Interest expense 249 14 (183) 80
Depreciation and amort. 11 119 130
---------- ---------- ------------ ------------
Total 908 688 (183) 1,413
---------- ---------- ------------ ------------
Security gains and other 166 166
---------- ---------- ------------ ------------
Income (loss) before taxes
and minority interest $ (157) $ 74 $ -- $ (83)
========== ========== ============ ============
Capital expenditures $ 244 $ 105 $ -- $ 349
========== ========== ============ ============
Total assets $ 16,134 $ 41,254 $ (18,993) $ 38,395
========== ========== ============ ============
</TABLE>
13
<PAGE> 14
The Company's business segment data for the nine months ended January 31, 1999
and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended January 31, 1999
---------------------------------------------------------------------------------------------
Automobile IBC's Mortgage Other Eliminations Consolidated
------------ ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sales and other $ 47,674 $ 3,865 $ 3,246 $ 882 $ 55,667
Interest income 6,461 6 1,192 1,232 $ (449) 8,442
----------- ---------- ---------- ---------- ---------- ------------
Total 54,135 3,871 4,438 2,114 (449) 64,109
----------- ---------- ---------- ---------- ---------- ------------
Costs and expenses:
Cost of sales 29,833 1,370 31,203
Selling, gen. and admin. 11,685 1,021 3,297 2,480 18,483
Prov. for credit losses 6,137 23 120 6,280
Interest expense 3,683 283 890 36 (449) 4,443
Depreciation and amort. 247 500 115 715 1,577
----------- ---------- ---------- ---------- ---------- ------------
Total 51,585 3,197 4,422 3,231 (449) 61,986
----------- ---------- ---------- ---------- ---------- ------------
Security gains and other 19,644 19,644
----------- ---------- ---------- ---------- ---------- ------------
Income before taxes
and minority interest $ 2,550 $ 674 $ 16 $ 18,527 $ -- $ 21,767
=========== ========== ========== ========== ========== ============
Capital expenditures $ 713 $ 2,838 $ 230 $ 8,403 $ -- $ 12,184
=========== ========== ========== ========== ========== ============
Total assets $ 103,389 $ 12,213 $ 13,539 $ 78,618 $ (44,305) $ 163,454
=========== ========== ========== ========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
Nine months ended january 31, 1998
----------------------------------------------------------------------------------------------
Automobile IBC's Mortgage Other Eliminations Consolidated
------------- ----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sales and other $ 430 $ 403 $ 833
Interest income 416 1,183 $ (218) 1,381
---------- ---------- ---------- ----------
Total 846 1,586 (218) 2,214
---------- ---------- ---------- ----------
Costs and expenses:
Selling, gen. and admin. 1,211 2,098 3,309
Prov. for credit losses 21 21
Interest expense 286 14 (218) 82
Depreciation and amort. 18 332 350
---------- ---------- ---------- ----------
Total 1,536 2,444 (218) 3,762
---------- ---------- ---------- ----------
Security gains and other 598 598
---------- ---------- ---------- ----------
Loss before taxes
and minority interest $ (690) $ (260) $ -- $ (950)
========== ========== =========== ==========
Capital expenditures $ 442 $ 663 $ -- $ 1,105
========== ========== =========== ==========
Total assets $ 16,134 $ 41,254 $ (18,993) $ 38,395
========== ========== =========== ==========
</TABLE>
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and notes thereto appearing elsewhere in this
report.
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. Certain information included in
this Quarterly Report on Form 10-Q contains, and other materials filed or to be
filed by the Company with the Securities and Exchange Commission (as well as
information included in oral statements or other written statements made or to
be made by the Company or its management) contain or will contain,
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933,
as amended. Such forward-looking statements address, among other things, the
Company's current focus on the development and expansion of its existing
businesses, and the potential acquisition or development of businesses in other
fields. Such forward-looking statements are based upon management's current
plans or expectations and are subject to a number of uncertainties and risks
that could significantly affect current plans, anticipated actions and the
Company's future financial condition and results. As a consequence, actual
results may differ materially from those expressed in any forward-looking
statements made by or on behalf of the Company as a result of various factors.
Uncertainties and risks related to such forward-looking statements include, but
are not limited to, those relating to the development of the Company's
businesses, continued availability of lines of credit for the Company's
businesses, changes in interest rates, changes in the industries in which the
Company operates, competition, dependence on existing management, the stability
of Argentina's government, currency exchange rate fluctuations, the repatriation
of funds from Argentina, domestic or global economic conditions (particularly in
the Dallas/Ft. Worth area and the State of Arkansas), changes in foreign or
domestic tax laws or the administration of such laws and changes in gaming or
lending laws or regulations. Any forward-looking statements are made pursuant to
the Private Securities Litigation Reform Act of 1995 and, as such, speak only as
of the date made.
OVERVIEW
Crown Group, Inc. ("Crown"), and collectively with its subsidiaries (the
"Company"), is a publicly traded buy-out firm which presently owns (i) 100% of
America's Car-Mart, Inc. ("Car-Mart") and 80% of Paaco Automotive Group, Inc.
and Premium Auto Acceptance Corporation (collectively, "Paaco"), vertically
integrated used car sales and finance companies (ii) 100% of Precision IBC, Inc.
("Precision"), a firm specializing in the sale and rental of intermediate bulk
containers, (iii) 80% of Concorde Acceptance Corporation ("Concorde"), a
sub-prime mortgage lender, (iv) 49% of Casino Magic Neuquen S.A. ("CMN"), a
casino operator in the Province of Neuquen, Argentina, (v) 50.1% of CG
Incorporated, S.A. de C.V. ("Crown El Salvador"), a newly formed company
focusing on the development and operation of casinos in El Salvador, and (vi)
80% of Home Stay Lodge I, Ltd. ("Home Stay"), a partnership focusing on the
development and operation of extended-stay lodging facilities. In addition, from
time to time the Company purchases and sells small ownership interests in
securities of privately held and publicly traded firms. The Company is presently
focusing on (i) the development and expansion of its existing businesses, and
(ii) the potential acquisition or development of other unrelated businesses.
Since its inception in 1983 through June 1993 the Company was engaged in
various facets of the cable and related programming businesses. From June 1993
until November 1996, the Company's primary business focus was that of owning,
operating and developing casino gaming properties. In November 1996 the Company
decided to expand its business interests beyond casino gaming and began pursuing
business opportunities in other fields. As a result the Company has acquired or
formed several businesses in a variety of industries as follows:
CMN - In June 1997 the Company acquired a 49% interest in CMN for a
purchase price of $7 million in cash. CMN operates casinos in the
cities of Neuquen and San Martin de los Andes in the Province of
Neuquen, Argentina under an exclusive concession contract.
CONCORDE - In June 1997 the Company, along with certain newly hired
management personnel, formed Concorde. Concorde is in the business of
originating, purchasing, servicing and selling sub-prime mortgage loans
which are secured primarily by first and second liens on residential
properties. These loans are sold in privately negotiated transactions
to institutional investors and other third parties.
PAACO - In February 1998 the Company acquired 53% of the common stock
of Paaco for a purchase price of approximately $9.1 million in cash.
Approximately $4.9 million of Paaco common stock was purchased directly
from Paaco, and the remaining $4.2 million was purchased from Paaco
management who prior to this transaction were the sole shareholders of
Paaco. Effective May 1, 1998 and February 1, 1999 the Company purchased
an additional 12% and 15% interest, respectively, in Paaco from the
management shareholders. The May 1, 1998 purchase price of $1.5 million
was paid by issuing 375,000 shares of the Company's common stock. The
February 1, 1999 purchase price of approximately $2.6 million consisted
of 257,813 shares of the Company's common stock and approximately $1.0
million in cash. Paaco is a vertically integrated used car sales and
finance company which operates eight used car dealerships in the
Dallas-Ft.
15
<PAGE> 16
Worth metropolitan area and one dealership in Houston, Texas. Paaco
sells, underwrites and finances used cars and trucks with a focus on
the Hispanic market.
PRECISION - In February 1998 the Company acquired 80% of the common
stock of Precision IBC, Incorporated ("Original Precision") for a
purchase price of approximately $2.4 million in cash. In March 1998 the
Company acquired 80% of the common stock of M&S Tank Rentals, Inc.
("M&S") for a purchase price of $1.65 million in cash. Original
Precision and M&S were subsequently merged together into a newly formed
corporation, Precision IBC, Inc. ("Precision"). Effective May 1, 1998
the Company purchased the remaining 20% of Precision. The purchase
price of approximately $1.1 million was paid by issuing 288,027 shares
of the Company's common stock. Precision is in the business of renting,
selling, testing and servicing principally stainless steel intermediate
bulk containers.
HOME STAY - In May 1998 the Company, along with a minority holder,
formed Home Stay. Home Stay is in the business of constructing and
operating extended-stay lodging facilities.
CAR-MART - In January 1999 the Company acquired 100% of the outstanding
common stock of Fleeman Holding Company, including its wholly-owned
subsidiary America's Car-Mart, Inc. ("Car-Mart") for $41.35 million.
The purchase price consisted of $33.85 million in cash and the issuance
of promissory notes aggregating $7.5 million. Car-Mart operates thirty
"Buy-Here Pay-Here" used car dealerships located in niche markets
throughout Arkansas, Oklahoma, Texas and Missouri. Car-Mart sells,
underwrites and finances used cars and trucks.
CROWN EL SALVADOR - In March 1999 the Company, along with minority
holders, formed Crown El Salvador. Crown El Salvador is in the business
of developing and operating casino properties in El Salvador.
RESULTS OF OPERATIONS
The Company's 49% investment in CMN is accounted for on the equity method.
Since the Company's investment in CMN was completed in June 1997, the nine
months ended January 31, 1998 only includes eight months of CMN operating
results. Concorde was formed in June 1997, and, as a result, only had limited
operations during the three and nine months ended January 31, 1998. Paaco and
Precision were acquired in February 1998, and, as a result, are not reflected in
the Company's operating results for the three and nine months ended January 31,
1998. Car-Mart was acquired on January 15, 1999, and, as a result, only reflects
17 days of activity during the nine months ended January 31, 1999. As a result,
of the above transactions, the Company's operating results for the three and
nine months ended January 31, 1999 and 1998 are not entirely comparable.
THREE MONTHS ENDED JANUARY 31, 1999 COMPARED TO THE THREE MONTHS ENDED JANUARY
31, 1998
Below is a presentation of the operating results for the four principal
business segments of the Company for the three months ended January 31, 1999 and
1998. The segments include (i) automobile, which pertains to Car-Mart's and
Paaco's selling and financing of used vehicles, (ii) IBC's, which pertains to
Precision's rental and sales of intermediate bulk containers, (iii) mortgage,
which pertains to Concorde's originating and selling of sub-prime mortgage
loans, and (iv) other, which includes corporate operations, Home Stay,
activities of relatively inactive subsidiaries and the Company's equity
investment in CMN. The Company's business segment data for the three months
ended January 31, 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended January 31, 1999
---------------------------------------------------------------------------------------------
Automobile IBC's Mortgage Other Eliminations Consolidated
------------ ----------- ----------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sales and other $ 17,765 $ 1,188 $ 890 $ 274 $ 20,117
Interest income 2,542 3 388 429 $ (190) 3,172
-------- -------- -------- -------- -------- --------
Total 20,307 1,191 1,278 703 (190) 23,289
-------- -------- -------- -------- -------- --------
Costs and expenses:
Cost of sales 10,898 362 11,260
Selling, gen. and admin. 4,292 392 1,074 1,200 6,958
Prov. for credit losses 2,609 13 44 2,666
Interest expense 1,433 93 281 36 (190) 1,653
Depreciation and amort. 112 185 42 239 578
-------- -------- -------- -------- -------- --------
Total 19,344 1,045 1,441 1,475 (190) 23,115
-------- -------- -------- -------- -------- --------
Security gains and other 19,002 19,002
-------- -------- -------- -------- -------- --------
Income (loss) before taxes
and minority interest $ 963 $ 146 $ (163) $ 18,230 $ -- $ 19,176
======== ======== ======== ======== ======== ========
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
Three Months Ended January 31, 1998
---------------------------------------------------------------------------------------------
Automobile IBC's Mortgage Other Eliminations Consolidated
------------ ----------- ----------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sales and other $ 429 $ 148 $ 577
Interest income 322 448 $ (183) 587
----------- ----------- ------------ ------------
Total 751 596 (183) 1,164
----------- ----------- ------------ ------------
Costs and expenses:
Selling, gen. and admin. 627 555 1,182
Prov. for credit losses 21 21
Interest expense 249 14 (183) 80
Depreciation and amort. 11 119 130
----------- ----------- ------------ ------------
Total 908 688 (183) 1,413
----------- ----------- ------------ ------------
Security gains and other 166 166
----------- ----------- ------------ ------------
Income (loss) before taxes
and minority interest $ (157) $ 74 $ -- $ (83)
=========== =========== ============ ============
</TABLE>
Net income for the three months ended January 31, 1999 increased $12,573,157
compared to the same period in the prior fiscal year. The increase was the
result of (i) recognizing a gain of $19.0 million on the sale of certain
securities (principally Inktomi common stock), and (ii) including the results of
operations of Car-Mart, Paaco and Precision in the current period.
Revenues from sales and rental income pertain to the businesses of Car-Mart,
Paaco and Precision. Interest income for the three months ended January 31, 1999
increased $2.6 million compared to the same period in the prior fiscal year. The
increase resulted principally from (i) interest earned on Car-Mart's and Paaco's
finance receivable portfolios ($2.5 million), and (ii) greater interest earned
on Concorde's mortgage loans ($.1 million) as a result of an increase in the
average amount of mortgage loans held for sale.
Cost of sales pertains to the operations of Car-Mart, Paaco and Precision.
Provision for credit losses pertains principally to Car-Mart's and Paaco's
operations. Selling, general and administrative expenses for the three months
ended January 31, 1999 increased $5.8 million compared to the same period in the
prior fiscal year. The increase resulted principally from (i) expenses relating
to Car-Mart, Paaco and Precision ($4.7 million), (ii) the development of
Concorde's mortgage based lending business ($.4 million), and (iii) Crown's
abandonment of certain business ventures which it had been pursuing ($.5
million). Interest expense for the three months ended January 31, 1999 increased
$1.6 million compared to the same period in the prior fiscal year. The increase
resulted from interest associated with the debt of Car-Mart, Paaco, Precision
and Concorde. Depreciation and amortization expense for the three months ended
January 31, 1999 increased $.4 million compared to the same period in the prior
fiscal year. The increase resulted principally from (i) amortizing goodwill that
was created in the acquisitions of Paaco and Precision ($164,712), (ii)
depreciating the assets of Car-Mart, Paaco and Precision ($260,893), and (iii)
greater depreciation at Concorde ($30,588).
The provision for income taxes for the three months ended January 31, 1999
was $6,556,915 on pretax income of $19,175,574. This equates to an effective tax
rate of 34.3% after removing from pretax income the equity in earnings of CMN
($38,017), which earnings are presented on an after tax basis. The benefit for
income taxes for the three months ended January 31, 1998 was $96,149 on a pretax
loss of $82,454. The prior period benefit differed from the amount determined by
applying the 34% federal statutory rate principally as a result of (i) equity in
earnings of CMN being reported on an after tax basis, and (ii) a change in the
valuation allowance of certain deferred tax assets. Minority interests for the
three months ended January 31, 1999 ($31,807) pertain to the portion of Paaco
(35%) not owned by the Company during the period.
17
<PAGE> 18
NINE MONTHS ENDED JANUARY 31, 1999 COMPARED TO THE NINE MONTHS ENDED
JANUARY 31, 1998
The Company's business segment data for the nine months ended January 31, 1999
and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended January 31, 1999
--------------------------------------------------------------------------------------------
Automobile IBC's Mortgage Other Eliminations Consolidated
---------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sales and other $ 47,674 $ 3,865 $ 3,246 $ 882 $ 55,667
Interest income 6,461 6 1,192 1,232 $ (449) 8,442
-------- -------- -------- -------- -------- --------
Total 54,135 3,871 4,438 2,114 (449) 64,109
-------- -------- -------- -------- -------- --------
Costs and expenses:
Cost of sales 29,833 1,370 31,203
Selling, gen. and admin. 11,685 1,021 3,297 2,480 18,483
Prov. for credit losses 6,137 23 120 6,280
Interest expense 3,683 283 890 36 (449) 4,443
Depreciation and amort. 247 500 115 715 1,577
-------- -------- -------- -------- -------- --------
Total 51,585 3,197 4,422 3,231 (449) 61,986
-------- -------- -------- -------- -------- --------
Security gains and other 19,644 19,644
-------- -------- -------- -------- -------- --------
Income before taxes
and minority interest $ 2,550 $ 674 $ 16 $ 18,527 $ -- $ 21,767
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended January 31, 1998
-------------------------------------------------------------------------------------------------
Automobile IBC's Mortgage Other Eliminations Consolidated
---------- --------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sales and other $ 430 $ 403 $ 833
Interest income 416 1,183 $ (218) 1,381
---------- ---------- ---------- ----------
Total 846 1,586 (218) 2,214
---------- ---------- ---------- ----------
Costs and expenses:
Selling, gen. and admin. 1,211 2,098 3,309
Prov. for credit losses 21 21
Interest expense 286 14 (218) 82
Depreciation and amort. 18 332 350
---------- ---------- ---------- ----------
Total 1,536 2,444 (218) 3,762
---------- ---------- ---------- ----------
Security gains and other 598 598
---------- ---------- ---------- ----------
Loss before taxes
and minority interest $ (690) $ (260) $ -- $ (950)
========== ========== ========== ==========
</TABLE>
Net income for the nine months ended January 31, 1999 increased $14.4 million
compared to the same period in the prior fiscal year. The increase was the
result of (i) recognizing a gain of $19.0 million on the sale of certain
securities (principally Inktomi common stock), (ii) including the results of
operations of Car-Mart, Paaco and Precision in the current period, and (iii)
Concorde reporting pretax earnings in the current period ($15,374) compared to a
pretax loss ($690,496) in the prior period.
Revenues from sales and rental income pertain to the businesses of Car-Mart,
Paaco and Precision. Interest income for the nine months ended January 31, 1999
increased $7.1 million compared to the same period in the prior fiscal year. The
increase resulted principally from (i) interest earned on Car-Mart's and Paaco's
finance receivable portfolios ($6.5 million), and (ii) greater interest earned
on Concorde's mortgage loans ($.8 million) as a result of an increase in the
average amount of mortgage loans held for sale.
Cost of sales pertains to the operations of Car-Mart, Paaco and Precision.
Provision for credit losses pertains principally to Car-Mart's and Paaco's
operations. Selling, general and administrative expenses for the nine months
ended January 31, 1999 increased $15.2 million compared to the same period in
the prior fiscal year. The increase resulted principally from (i) expenses
relating to Car-Mart, Paaco and Precision ($12.7 million), (ii) the development
of Concorde's mortgage based lending business ($2.1 million), and (iii) Crown's
abandonment of certain business ventures which it had been pursuing ($.5
million), offset partially by a decrease in costs associated with defending and
settling certain lawsuits ($.5 million). Interest expense for the nine months
ended January 31, 1999 increased $4.4 million compared to the
18
<PAGE> 19
same period in the prior fiscal year. The increase resulted from interest
associated with the debt of Car-Mart, Paaco, Precision and Concorde.
Depreciation and amortization expense for the nine months ended January 31, 1999
increased $1.2 million compared to the same period in the prior fiscal year. The
increase resulted principally from (i) amortizing goodwill that was created in
the acquisitions of Paaco and Precision ($.5 million), (ii) depreciating the
assets of Car-Mart, Paaco and Precision ($.6 million), and (iii) greater
depreciation at Concorde ($.1 million).
The provision for income taxes for the nine months ended January 31, 1999
was $7,299,292 on pretax income of $21,766,981. This equates to an effective tax
rate of 34.7% after removing from pretax income the equity in earnings of CMN
($754,445), which earnings are presented on an after tax basis. The benefit for
income taxes for the nine months ended January 31, 1998 was $603,348 on a pretax
loss of $949,875. This equates to an effective tax rate of 40.7% after removing
from the pretax loss the equity in earnings of CMN ($532,888), which earnings
are presented on an after tax basis. Minority interests for the nine months
ended January 31, 1999 ($372,448) pertain to the portion of Paaco (35%) not
owned by the Company during the period.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended January 31, 1999 net cash provided by operating
activities amounted to $11.0 million. The principal sources of cash resulted
from the sale of mortgage loans and net income generated by the Company. The
excess of mortgage loans sold and principal repayments over mortgage loans
originated or acquired was $5.6 million. Net cash used by investing activities
of $48.8 million included (i) a $33.4 million use of cash in the acquisition of
Car-Mart, (ii) a $25.8 million use of cash in finance receivable originations in
excess of finance receivable collections, (iii) a $12.2 million use of cash in
the purchase of assets (rental and other equipment and the construction of
lodging facilities), and (iv) a $21.1 million source of cash from the sale of
securities (principally Inktomi common stock). Net cash provided by financing
activities of $35.1 million principally relates to (i) $30.6 million of cash
provided by the asset based revolving credit facilities of Car-Mart, Paaco and
Precision, and (ii) $5.6 million of proceeds from the issuance of other debt
(Home Stay construction loan and financing of Paaco and Precision real estate).
As of January 31, 1999 the Company's sources of liquidity included
approximately (i) $3.7 million of cash on hand, of which $3.2 million was held
by Crown, (ii) $8.7 million of marketable equity securities held by Crown, (iii)
$44.6 million remaining to be drawn on the credit facilities of Car-Mart, Paaco,
Concorde, Precision and Home Stay, although the majority of such additional
draws may only be made in connection with a corresponding increase in the
related collateral asset (i.e., finance receivables, mortgage loans held for
sale, intermediate bulk containers and lodging facilities), and (iv) the
potential issuance of additional debt and/or equity, although the Company has no
specific commitments or arrangements to issue such additional debt and/or
equity. The loan agreements which govern the credit facilities of Crown's
subsidiaries limit dividends and other distributions from such subsidiaries to
Crown.
The Company is focusing on the development and expansion of its existing
businesses and the potential acquisition or development of other unrelated
businesses. Car-Mart's, Paaco's, Precision's, Concorde's, and Home Stay's credit
facilities can support the majority of their expected growth over the next
twelve months. As of January 31, 1999 the Company had an outstanding commitment
of approximately $1.5 million pertaining to an investment in a private venture
capital fund which focuses on high technology businesses, such as Internet
related concerns. The Company plans to fund this commitment from cash and liquid
securities on hand.
In March 1996 the Company's Board of Directors approved a program, as
amended, to repurchase up to 3,000,000 shares of the Company's common stock from
time to time in the open market. As of January 31, 1999 the Company had
repurchased 2,736,927 shares pursuant to this program. The timing and amount of
future share repurchases, if any, will depend on various factors including
market conditions, available alternative investments and the Company's financial
position.
DATA PROCESSING AND YEAR 2000
Each of Crown and its subsidiaries operate their data processing systems
independently. Almost all of the software utilized by the Company is licensed
from third parties. Most of the Company's hardware, software and networking
systems are year 2000 compliant, however, a more complete description on a
company by company basis is as follows:
PAACO - Paaco utilizes two primary software packages (operating and
accounting), and several secondary software packages (word
processing, spreadsheet and database) in the operation of its
business. Each of its operating, accounting and secondary software
applications are year 2000 compliant. Paaco utilizes two local area
networking systems, both of which are year 2000 compliant. All of
Paaco's data processing hardware is year 2000 compliant.
CONCORDE - Concorde utilizes three primary software packages
(front-end origination and processing, mortgage servicing and
accounting), and approximately nine secondary software packages
(document generation, scanning, telephone management, E-mail,
database, fax, credit bureau, word processing and spreadsheet) in the
operation of its business. All of its software applications are year
2000 compliant. In addition, Concorde's local area networking
software and all of its data processing hardware are year 2000
compliant.
19
<PAGE> 20
PRECISION - Precision utilizes two primary software packages (tank
tracking and accounting), and approximately five secondary software
packages (word processing, database, spreadsheet, desktop publishing
and lock box communication) in the operation of its business.
Precision's accounting software and most of its secondary software
applications are year 2000 compliant. Precision's tank tracking,
database and lock box communication software are not presently year
2000 compliant. Precision has purchased new tank tracking and
database software that is year 2000 compliant and is in the process
of transferring the data files to such new software. The bank which
designed Precision's lock box communication software is in the
process of making such software year 2000 compliant. All of
Precision's data processing equipment, which consists principally of
personal computers, is year 2000 compliant. Precision expects all of
its software applications to be year 2000 compliant by July 1999.
CMN - CMN utilizes one primary software package (accounting), and a
few secondary software packages (word processing and spreadsheet) in
the operation of its business. All of CMN's software applications are
year 2000 compliant. CMN's data processing equipment, which consists
principally of personal computers, is year 2000 compliant.
CROWN - Crown utilizes one primary software package (accounting), and
approximately three secondary software packages (word processing,
spreadsheet and desktop publishing) in the operation of its business.
All of its software applications are year 2000 compliant. In
addition, Crown's local area networking software and all of its data
processing hardware is year 2000 compliant
CAR-MART - Car-Mart utilizes two primary software packages (operating
and accounting), and several secondary software packages (word
processing, spreadsheet, database and communication) in the operation
of its business. The present version of the operating software
utilized by Car-Mart is not year 2000 compliant, but a more recent
version is available that is year 2000 compliant. The accounting
software utilized by Car-Mart is not year 2000 compliant, however,
Car-Mart recently purchased new accounting software that is year 2000
compliant and it plans to install such new software by May 1999. All
of Car-Mart's secondary software packages are year 2000 compliant.
The majority of Car-Mart's data processing hardware is year 2000
compliant, and the portion that is not will be updated or replaced by
July 1999.
Each of Crown and its subsidiaries rely to varying degrees on third parties
in the operation of their businesses. Such third parties include banking
institutions, telecommunications companies, utilities, manufacturers and parts
suppliers. The Company has made inquiries of some, but not all, of these third
parties as to their year 2000 compliance. The Company believes to the extent a
particular third party vendor does not become year 2000 compliant, and such lack
of compliance is expected to have a material impact on such vendor's ability to
effectively provide goods or services, the Company could replace such vendor to
obtain the goods or services it needs. The Company plans to monitor its more
material third party relationships and take appropriate action as necessary.
The Company has not incurred any appreciable costs in its process of becoming
year 2000 compliant, nor does it expect to do so in the future. The Company does
not presently have a contingency plan with respect to its year 2000 compliance
as it expects to be fully compliant by July of 1999.
SEASONALITY
The Company's automobile sales operation is seasonal in nature. In the
automobile business, the Company's third fiscal quarter (November through
January) is historically the slowest period of time for car and truck sales.
Many of the Company's operating expenses such as administrative personnel, rent
and insurance are fixed and cannot easily be reduced during periods of decreased
sales. None of the Company's other businesses experience significant seasonal
fluctuations.
20
<PAGE> 21
PART II
ITEM 1. LEGAL PROCEEDINGS
In August 1998 an action was filed against the Company in the 8th Judicial
District Court of Clark County, Nevada by Resort Properties of America ("RPA").
In this action RPA alleges it had a verbal agreement with the Company pertaining
to the sale of the Company's Las Vegas land which was sold in September 1997.
RPA claims it is due a brokerage commission of $450,000 plus attorney's fees.
The Company has denied the material allegations of the claim and intends to
vigorously contest any liability in the matter. While no assurance can be given
as to the ultimate outcome of this litigation, management believes that the
resolution of this matter will not have a material adverse effect on the
Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In January 1999 in connection with the acquisition of Car-Mart, the Company
issued six promissory notes aggregating $7.5 million (the "Notes"). The Notes
bear interest at 8.5% per annum payable quarterly and mature in January 2005.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
4.7.1 First Amended and Restated Loan and Security Agreement
by and among Finova Capital Corporation, Paaco Automotive
Group, Inc. and Premium Auto Acceptance Corporation including
the Schedule to First Amended and Restated Loan and Security
Agreement and the Twelfth Amended and Restated Promissory
Note. (1)
27.1 Financial data schedule (1).
(b) Reports on Form 8-K:
During the fiscal quarter ended January 31, 1999 the Company
filed a report on Form 8-K dated January 28, 1999 (event date
January 15, 1999) respecting the acquisition of 100% of
Car-Mart.
-----------------------
(1) Filed herewith.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CROWN GROUP, INC.
By: /s/ Mark D. Slusser
--------------------------------
Mark D. Slusser
Chief Financial Officer,
Vice President Finance and Secretary
(Principal Financial and Accounting
Officer)
Dated: March 16, 1999
22
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
4.7.1 First Amended and Restated Loan and Security Agreement by and
among Finova Capital Corporation, Paaco Automotive Group, Inc.
and Premium Auto Acceptance Corporation including the Schedule
to First Amended and Restated Loan and Security Agreement and
the Twelfth Amended and Restated Promissory Note. (1)
27.1 Financial data schedule (1).
</TABLE>
- ----------
(1) Filed herewith.
<PAGE> 1
[FINOVA LOGO]
FIRST AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
PREMIUM AUTO ACCEPTANCE CORPORATION
PAACO AUTOMOTIVE GROUP, INC.
-----------------------------------
CO-BORROWERS
PREMIUM AUTO ACCEPTANCE CORPORATION`S FEID NO. 75-2573171
PAACO AUTOMOTIVE GROUP, INC., INC.'S FEID NO. 75-2457739
605 SOUTH LOOP 12
-------------------
IRVING, TEXAS 75060
-------------------
$60,000,000.00
--------------
AMOUNT OF LOAN
MARCH 8, 1999
-------------
(DATE)
===============================================================================
REDISCOUNT FINANCE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS................................................................................................4
2. LOAN.......................................................................................................7
2.1. AMOUNT OF LOAN...............................................................................7
2.2. INTEREST RATE................................................................................7
2.3. PAYMENTS.....................................................................................8
2.4. PAYMENT DUE ON A NON-BUSINESS DAY............................................................8
2.5. MANDATORY PAYMENTS...........................................................................8
2.6. VOLUNTARY PREPAYMENTS........................................................................8
2.7. MAXIMUM INTEREST; CONTROLLING AGREEMENT......................................................8
2.8. INTEREST AFTER DEFAULT......................................................................10
2.9. STATEMENT OF ACCOUNT........................................................................10
2.10. APPLICATION OF PAYMENTS.....................................................................10
2.11. ALLOCATION OF PAYMENTS......................................................................10
2.12. ADVANCES TO LEAD BORROWER...................................................................10
2.13. APPOINTMENT OF AGENT........................................................................10
2.14. INVENTORY CREDIT LINE.......................................................................11
2.15. RECEIVABLES CREDIT FACILITY.................................................................11
3. SECURITY..................................................................................................11
3.1. SECURITY INTEREST...........................................................................11
3.2. FINANCING STATEMENTS AND FURTHER ASSURANCES.................................................12
3.3. PLEDGE OF RECEIVABLES.......................................................................12
3.4. FAILURE TO DELIVER..........................................................................12
3.5. NOTICE OF COLLATERAL ASSIGNMENT.............................................................12
3.6. LOCATION OF RECEIVABLES.....................................................................12
3.7. RECORDS AND INSPECTIONS.....................................................................12
3.8. ADDITIONAL DOCUMENTS........................................................................12
3.9. COLLECTION..................................................................................13
3.10. BLOCKED ACCOUNTS............................................................................13
3.11. PROTECTION OF RECEIVABLE RECORDS............................................................13
3.12. USE OF COLLECTIONS AND MODIFICATION OF RECEIVABLES..........................................13
3.13. USE OF PROCEEDS.............................................................................13
3.14. RETURN OF COLLATERAL........................................................................13
3.15. LENDER'S PAYMENT OF CLAIMS..................................................................13
3.16 CROSS COLLATERALIZATION.....................................................................13
4 CONDITIONS OF INITIAL ADVANCE; SUBSEQUENT ADVANCES........................................................14
4.1. INITIAL ADVANCE.............................................................................14
4.2. SUBSEQUENT ADVANCES.........................................................................14
4.3. ORAL REQUEST FOR ADVANCE....................................................................14
4.4. ALL ADVANCES TO CONSTITUTE ONE LOAN.........................................................15
4.5. ADVANCES....................................................................................15
5. REPRESENTATIONS AND WARRANTIES OF BORROWERS AND GUARANTOR.................................................15
5.1. REPRESENTATIONS AND WARRANTIES..............................................................15
5.2. WARRANTIES AND REPRESENTATIONS AS TO ELIGIBLE RECEIVABLES...................................17
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
6. COVENANTS AND OTHER AGREEMENTS............................................................................17
6.1. AFFIRMATIVE COVENANTS.......................................................................17
6.2. NEGATIVE COVENANTS..........................................................................18
6.3. JOINT NEGATIVE COVENANTS....................................................................19
6.4. REPORTING REQUIREMENTS AND ACCOUNTING PRACTICES.............................................19
6.5. PLEDGE OF RECEIVABLES.......................................................................19
6.6. ACCOUNT DEBTORS' ADDRESSES..................................................................19
6.7. FINANCIAL REPORTS...........................................................................19
6.8. FINANCIAL STATEMENTS OF GUARANTORS..........................................................20
6.9. NOTICE OF CHANGES...........................................................................20
7. EVENTS OF DEFAULT AND REMEDIES............................................................................20
7.1. EVENTS OF DEFAULT...........................................................................20
7.2. ACCELERATION OF THE INDEBTEDNESS............................................................21
7.3. LOUISIANA CONFESSION OF JUDGMENT............................................................21
7.4. REMEDIES....................................................................................22
7.5. NO WAIVER...................................................................................22
7.6. APPLICATION OF PROCEEDS.....................................................................23
7.7 APPOINTMENT OF LENDER AS ATTORNEY-IN-FACT...................................................23
8. EXPENSES AND INDEMNITIES..................................................................................23
8.1. REIMBURSEMENT FOR EXPENSES..................................................................23
8.2. LENDER'S EXPENSES AND ATTORNEY'S FEES.......................................................23
8.3. GENERAL INDEMNIFICATION.....................................................................24
9. MISCELLANEOUS.............................................................................................24
9.1. NOTICES.....................................................................................24
9.2. PARTICIPATIONS..............................................................................24
9.3. SURVIVAL OF AGREEMENTS......................................................................24
9.4. NO OBLIGATION BEYOND MATURITY...............................................................24
9.5. PRIOR AGREEMENTS SUPERSEDED.................................................................24
9.6. PARTIES BOUND...............................................................................24
9.7. NUMBER AND GENDER...........................................................................24
9.8. NO THIRD PARTY BENEFICIARY..................................................................25
9.9. EXECUTION IN COUNTERPARTS...................................................................25
9.10. SEVERABILITY OF PROVISIONS..................................................................25
9.11. HEADINGS....................................................................................25
9.12. SCHEDULES AND EXHIBITS......................................................................25
9.13. FURTHER INSTRUMENTS.........................................................................25
9.14. LENDER'S EXPENSES AND ATTORNEY'S FEES.......................................................25
9.15. GOVERNING LAW...............................................................................25
9.16. JURISDICTION AND VENUE......................................................................25
9.17. WAIVER......................................................................................25
9.18. ADVICE OF COUNSEL...........................................................................26
9.19. WAIVER OF RIGHT TO TRIAL BY JURY............................................................26
9.20. TIME OF ESSENCE.............................................................................26
</TABLE>
<PAGE> 4
[FINOVA LOGO]
- -------------------------------------------------------------------------------
Rediscount Finance
FIRST AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
BORROWER: PREMIUM AUTO ACCEPTANCE CORPORATION
BORROWER: PAACO AUTOMOTIVE GROUP, INC.
ADDRESS: 605 SOUTH LOOP 12
IRVING, TEXAS 75060
DATE: MARCH 8, 1999
===============================================================================
THIS FIRST AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered into on
the above date between FINOVA CAPITAL CORPORATION, a Delaware corporation
("Lender"), whose corporate address is 1850 N. Central Avenue, Phoenix, Arizona
85077 and whose Rediscount Finance Office address is 16633 North Dallas
Parkway, Suite 700, Addison Texas 75001 and the borrowers named above
(collectively referred to herein as the "Borrowers" and singularly as
"Borrower"), all of whose chief executive offices are located at the above
addresses (collectively referred to herein as "Borrowers' Address"), as an
amendment and restatement to that certain Loan and Security Agreement, dated
December 14, and not an extinguishment of any obligations evidenced thereby.
The terms and provisions set forth herein and in the other documents executed
in conjunction herewith shall supersede all prior agreements.
Each Borrower shall be separately defined as set forth in the
Schedule. All representations, warranties, covenants, agreements, undertaking
or other obligations of Borrowers as set forth in this Agreement and all other
Loan Documents are made by each Borrower as if separately set forth for each
Borrower in this Agreement and the other Loan Documents. All financial
covenants and ratios set forth herein shall be applied to the Borrowers in the
aggregate, except as otherwise specifically set forth in the Loan Documents.
1. DEFINITIONS
ACCOUNT DEBTOR. The term "Account Debtor" shall mean any person or persons
that are an obligor in any contractual arrangement with Borrower or any
co-signor in respect of any Receivable.
AGREEMENT. The term "Agreement" shall mean this Loan and Security
Agreement and any amendment, modifications or extension hereof.
BUSINESS DAY. The term "Business Day" shall mean a day, other than a
Saturday or Sunday, on which commercial banks are open for business to the
public in Phoenix, Arizona and New York, New York.
CASH SALES PERCENTAGE. The term "Cash Sales Percentage" shall mean the
percentage determined by dividing the aggregate sales price of all sales that
did not include a Receivable during the period of determination, by
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<PAGE> 5
the aggregate sales price of all sales by Borrower during the same period of
determination.
CHARGE OFFS. The term "Charge Offs" shall mean the amount due (including
the principal balance plus all earned fees and charges) pursuant to a
Receivable on the date that Borrower charges off such Receivable as
uncollectible, pursuant to Borrower's policies and/or procedures.
CODE. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
COLLATERAL. The term "Collateral" shall have the meaning set forth in
Section 3.1. hereof.
COLLATERAL PERFORMANCE PERCENTAGE. The term "Collateral Performance
Percentage" shall mean, on any date of determination, the percentage determined
by the aggregate of all of the outstanding balances, including accrued
interest, for all Receivables that are ineligible Receivables divided by the
aggregate of all of the outstanding balances, including accrued, but unpaid
interest, for all Receivables.
COLLATERAL RECOVERY RATE. The term "Collateral Recovery Rate" shall mean,
for any period of determination, (i) the total cash collected from all
Receivables (including but not limited to all cash proceeds from charge off
recoveries, with such charge off recoveries calculated at wholesale value),
divided by (ii) the sum of (a) the Included Rebates plus (b) the total cash
collected from all Receivables (excluding all cash proceeds from charge off
recoveries) plus (c) the aggregate of all Charge Offs for that period.
COMMONLY CONTROLLED ENTITY. The term "Commonly Controlled Entity" shall
mean an entity, whether or not incorporated, which is under common control with
Borrower within the meaning of Section 414(b) or (c) of the Code.
COST OF GOODS SOLD. The term "Cost of Goods Sold" shall mean, with respect
to the vehicle that secures the repayment of a Receivable, the sum of (i) the
direct cost paid for such vehicle, (ii) reconditioning costs, (iii) taxes paid
with respect to the sale of such vehicle, (iv) cost of registration and
application for title and (v) all commissions paid by Borrower with respect to
the sale of such vehicle that generated such Receivable.
DEFAULT. The term "Default" shall mean an event which with the passage of
time or notice or both would constitute an Event of Default (as defined in
Section 7.1).
DISTRIBUTIONS. The term "Distributions" shall mean any dividends or other
distribution of earnings to Borrower's shareholders, loans to officers,
directors, affiliates or shareholders.
ELIGIBLE INVENTORY. The term "Eligible Inventory"shall mean Inventory of
Borrower that are acceptable to Lender, in its reasonable discretion, and, in
each case, that meet, at a minimum, all of the following requirements (i)
consist of motor vehicles available for resale to consumers, which are not
obsolete or unmerchantable (ii) do not exceed the Maximum Mileage of Eligible
Inventory or the Maximum Age of Eligible Inventory (SCHEDULE SECTION 1.B.), or
the Maximum Cost of Eligible Inventory (SCHEDULE SECTION 1.C.); (iii) meets all
standards imposed by any governmental agency or authority; (iv) conforms in all
respects to the warranties and representations set forth herein; (v) is at all
times subject to Lender's duly perfected, first priority security interest;
(vi) is situated at the locations (SCHEDULE SECTION 3.2); (vii) if requested by
Lender, Lender has in its possession, the certificate of title or other similar
document (with all prior liens released), together with applicable assignments
or other transfer documents which if file with the appropriate governmental
agency could transfer such title to Borrower; (viii) such vehicle is not
purchased from an entity that has any common ownership, direct or indirect,
with that of Borrower; (ix) such vehicle has not been repossessed by Borrower
or any entity that has any common ownership, direct or indirect, with that of
Borrower; (x) such vehicle not be owned by Borrower for more than the Maximum
Ownership (SCHEDULE SECTION 1.D.); and (xi) such Inventory is owned by Borrower
free and clear of all liens and encumbrances, other than Lender's security
interest.
ELIGIBLE RECEIVABLES. The term "Eligible Receivables" shall mean those
Receivables of Borrower that are acceptable to Lender, in its reasonable
discretion, and, in each case, that meet, at a minimum, all of the following
requirements: (i) arise from the extension of credit, the sale and delivery of
a vehicle or the rendering of services in connection with such sale in the
ordinary course of Borrower's business; (ii) represent a valid and binding
obligation enforceable in accordance with its terms for the amount outstanding
thereof without offset, counterclaim or defense (whether actual or alleged);
(iii) comply in all respects with all applicable laws and regulations,
including, but not limited to, truth in lending and credit disclosure laws and
regulations; (iv) all amounts and information appearing thereon or furnished to
Lender in connection therewith are true and correct and undisputed by the
Account Debtor thereon or any guarantor thereof; (v) Borrower and the Account
Debtor are not engaged in any litigation regarding nonpayment of the
Receivable; (vi) to the best knowledge of Borrower neither the Account Debtor
thereon nor any guarantor thereof is subject to any receivership, insolvency or
bankruptcy proceeding, is insolvent or has failed to meet its debts as they
mature; (vii) Borrower has good and sufficient right to pledge, assign and
deliver the Receivables free from all liens, claims, encumbrances or
-5-
<PAGE> 6
security interests whatsoever, except as granted in this Agreement; (viii)
neither the Account Debtor thereon nor any guarantor thereof is employed by,
related to or affiliated with Borrower; (ix) to the best knowledge of Borrower
no condition exists that materially or adversely affects the value of the
Receivable or jeopardizes any security therefor; (x) if the Receivable arose
from the sale of goods, such goods have been delivered and accepted by the
Account Debtor and are still subject to the lawful possession and control of
the Account Debtor and have not been otherwise returned to or repossessed by
Borrower; (xi) is not a renewal or extension of any Receivable previously
ineligible hereunder; (xii) the principal amount thereof does not exceed the
Maximum Amount of an Eligible Receivable (SCHEDULE SECTION 1.E.) and the term
thereof does not exceed the Maximum Term of an Eligible Receivable (SCHEDULE
SECTION 1.F.); (xiii) meets the Eligibility Test and has been reported to
Lender in compliance with the Aging Procedures (SCHEDULE SECTION 1.G.); (xiv)
is not evidenced by a judgment or has not been reduced to judgment; (xv) is not
an open account; (xvi) is evidenced by a written payment agreement, bearing
interest or containing a time price differential, which has been executed by
the Account Debtor; (xvii) the Account Debtor thereunder is a legal resident of
the United States; (xviii) payments under the Receivable are to be made in
United States dollars; (xix) the number of days between contractual payment
dates of the Receivable does not exceed thirty-one (31) days, and (xxi) with
respect to the Receivable, Lender has in Lender's possession the original
contract or agreement that evidences the primary payment obligation of the
Account Debtor and the original certificate of title or other evidence of
title, pursuant to applicable law, or evidence that such certificate of title
or other evidence has been properly applied for with the proper state agency or
department for the issuance of such certificate or other evidence, satisfactory
in form and substance to Lender.
ERISA. The term "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time.
GAAP. The term "GAAP" shall mean generally accepted accounting principles
and other standards as promulgated by the American Institute of Certified
Public Accountants.
GUARANTOR. The term "Guarantor" shall mean any person or persons who
execute a guaranty agreement in favor of Lender guaranteeing the repayment of
the Borrower's Indebtedness to Lender (SCHEDULE SECTION 1.H.).
GUARANTY AGREEMENT. The term "Guaranty Agreement" shall mean that certain
agreement executed by the Guarantor, in a form and substance approved by
Lender.
GOVERNING RATE. The term "Governing Rate" shall mean the "Prime" rate
publicly announced by Citibank N.A., New York, New York (or such other "money
center" bank as Lender, in its sole discretion, may select from time to time,
but shall not be more than the highest rate of the five largest banks in the
Continental United States as their respective corporate base, reference, prime
or similar benchmark rate), provided however, that such rate may not be the
lowest rate charged to such bank's customers.
INCLUDED REBATE PERCENTAGE. The term "Included Rebate Percentage" shall
mean, for any period of determination, the percentage determined by dividing
(i) the aggregate of all Charge Offs for that period, by (ii) the Nonpayment
Net Receivable Reductions for that period.
INCLUDED REBATES. The term "Included Rebates" shall mean, for any period
of determination, (i) the aggregate of all rebates of interest for that period,
multiplied by (ii) the Included Rebate Percentage.
INDEBTEDNESS. The term "Indebtedness" shall mean all amounts advanced
hereunder by Lender to Borrower together with all other amounts owing or
becoming owing to Lender by Borrower, direct or indirect, absolute or
contingent, now or hereafter existing, whether pursuant to the terms of this
Agreement or any document or instrument evidencing or securing the transaction
contemplated hereby.
INVENTORY. The term "Inventory" shall mean all of Borrower's now owned and
hereafter acquired motor vehicles, wherever located, held for sale to consumer,
that are not vehicles primarily used for a commercial purpose or for a off-road
purpose and all documents of title or other documents representing ownership of
such assets.
INVENTORY CREDIT FACILITY. The term "Inventory Credit Facility" shall mean
the credit facility as set forth in Section 2.14.
LEVERAGE RATIO. The term "Leverage Ratio" shall mean, at any date of
determination, total liabilities of Borrower, including the outstanding balance
of the Indebtedness, less the outstanding balance due pursuant to all
Subordinated Debt, divided by the sum of the amount of Borrower's Tangible Net
Worth plus the outstanding balance due pursuant to all Subordinated Debt.
LOAN DOCUMENTS. The term "Loan Documents" shall mean this Agreement, the
Note, the Schedule, the Guaranty, Subordination Agreements, Agency and
Custodian Agreements and all other documents executed in connection with this
Agreement, together with any and all renewals, amendments, restatements or
replacements of such documents.
-6-
<PAGE> 7
MAXIMUM RATE. The term "Maximum Rate" shall mean the highest lawful and
nonusurious rate of interest applicable to the Note made and delivered by
Borrower to Lender in connection herewith, that at any time or from time to
time may be contracted for, taken, reserved, charged, or received on the Note
and the Indebtedness under the laws of the United States and the laws of such
states as may be applicable thereto, that are in effect or, to the extent
allowed by such laws, that may be hereafter in effect and that allow a higher
maximum nonusurious and lawful interest rate than would any applicable laws now
allow.
NET INCOME. The term "Net Income" shall mean with respect to any fiscal
period, the net earnings of Borrower (excluding all extraordinary gains or
nonrecurring income) before provision for income taxes for such fiscal period
of Borrower, all as reflected on the financial statements of Borrower supplied
to Lender pursuant to Sections 6.4(A) and 6.4(B) hereof.
NONPAYMENT NET RECEIVABLE REDUCTIONS. The term "Nonpayment Net Receivable
Reductions" shall mean, for any period of determination, the sum of (i) the
aggregate of all Charge Offs for that period, plus (ii) the aggregate of all
net refinanced balances of Receivables for that period.
NOTE. The term "Note" shall mean the promissory note of even date
herewith, and all renewals, extensions, or modifications executed by Borrower
and payable to the order of Lender.
PLAN. The term "Plan" shall mean any pension plan that is covered by Title
IV of ERISA and with respect to which Borrower or a Commonly Controlled Entity
is an "Employer" as defined in Section 3(5) of ERISA.
RECEIVABLES. The term "Receivables" shall mean all accounts of Borrower
and any other right of Borrower to receive payment, including, without
limitation, all loans, extensions of credit or Borrower's right to payment for
goods sold or services rendered by Borrower.
RECEIVABLES CREDIT FACILITY. The term "Receivables Credit Facility" shall
mean the credit facility as set forth in Section 2.15.
REQUEST FOR ADVANCE. The term "Request for Advance" shall mean a written
request for an advance in the form of Exhibit "A" attached hereto and made a
part hereof.
SCHEDULE. The term "Schedule" shall mean the schedule executed in
conjunction with this Agreement of even date herewith, as may be amended from
time to time, upon written agreement of Lender and Borrower.
SUBORDINATED DEBT. The term "Subordinated Debt" shall mean the aggregate
amount of any indebtedness of Borrower to persons other than Lender that by its
terms is subordinated in all respects, including, but not limited to, the right
of payment, to the prior payment in full of the Indebtedness, pursuant to a
subordination and standstill agreement, in a form and substance satisfactory to
Lender, entered into by all holders of Subordinated Debt.
TANGIBLE NET WORTH. The term "Tangible Net Worth" shall mean, at any time
of determination, the shareholder's equity of Borrower determined in accordance
with GAAP minus the aggregate amount of all intangible assets and all assets
consisting of obligations due to Borrower from shareholders, directors,
officers, or any affiliate of Borrower or any Guarantor hereunder.
2. LOAN
2.1. AMOUNT OF LOAN. Subject to the terms, covenants and conditions
hereinafter set forth, Lender agrees upon the Borrower's request from time to
time, until the Maturity Date, to make advances to Borrower (collectively, the
"Loan"), in an aggregate amount not to exceed at any time outstanding the
lesser of the following: (i) the Amount of Revolving Credit Line (SCHEDULE
SECTION 2.1.A.) or (ii) the sum of (a) the Availability on Eligible Receivables
(SCHEDULE SECTION 2.1.B.), (b) the Availability on Eligible Inventory (SCHEDULE
SECTION 2.1. C.). Within the limits of this Section 2.1, Borrower may borrow,
repay and reborrow the advances. The Loan shall be evidenced by the Note.
2.2. INTEREST RATE. The outstanding principal balance of Loan shall bear
interest at the Stated Interest Rate (SCHEDULE SECTION 2.2). If Lender is ever
prevented from charging or collecting interest at the rate set forth in Stated
Interest Rate Section (i) because interest at such rate would exceed interest
at the Maximum Rate, then the rate set forth in Stated Interest Rate Section
(i) shall continue to be the Maximum Rate until Lender has charged and
collected the full amount of interest chargeable and collectable had interest
at the rate set forth in Stated Interest Rate Section (i) always been lawfully
chargeable and collectible. As the Governing Rate changes, the rate set forth
in Stated Interest Rate Section (i) shall be increased or decreased (subject to
the Maximum Rate) on the first day of each calendar month to correspond with
the change in the Governing Rate then in effect and shall remain fixed at such
rate until the first day of the next succeeding calendar month, notwithstanding
fluctuations in the Governing Rate during the month. All changes in the
Governing Rate shall be made without notice to Borrower. The monthly interest
due on the principal balance of the Loan outstanding shall be computed for the
actual number of days elapsed during the month in question on the basis of a
year consisting of three hundred sixty (360) days and
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shall be calculated by determining the average daily principal balance
outstanding for each day of the month in question. The daily rate shall be
equal to 1/360th times the Stated Interest Rate (but shall not exceed the
Maximum Rate).
2.3. PAYMENTS. All payments made by mail or other physical delivery methods
to Lender shall be payable at FINOVA Capital Corporation, File No. 96425, via
U.S. mail, P. O. Box 730495, Dallas, Texas 75373 or via overnight mail, Attn.
LB No. 730495, 1801 Royal Lane, Suite 600, Dallas, TX 75229. All payments made
by wire transfer or other method of electronic transfer methods to Lender shall
be payable to FINOVA Capital Corporation, CITIBANK, NEW YORK, NEW YORK, ABA#
021 000 089, ACCOUNT NAME: FINOVA CAPITAL CORP., ACCOUNT NUMBER: 4068-0485,
REFERENCE: REDISCOUNT FINANCE, ZQX(CLIENT ACCT. #XXX)ZQX.) All payments
received pursuant to this Agreement shall be applied to Borrower's Indebtedness
three (3) Business Days after the actual receipt of such payment by Lender's
depository bank if such payment is credited to Lender's account. The
Indebtedness shall be due and payable as follows::
A. Accrued but unpaid interest for each calendar month during the term
hereof shall be due and payable, in arrears, on or before the fifteenth (15th)
day of the immediately succeeding calendar month; if such accrued but unpaid
interest for the preceding month is not received by the fifteenth (15th) of the
month, such unpaid interest shall be added to the Indebtedness.
B. Costs, fees and expenses payable pursuant to this Agreement shall be
due and payable by Borrower to Lender or to such other person(s) designated by
Lender in writing on demand; and
C. The entire outstanding balance of the Indebtedness shall be due and
payable, if not prepaid, on the Maturity Date (SCHEDULE SECTION 2.3.).
2.4. PAYMENT DUE ON A NON-BUSINESS DAY. If any payment of the Indebtedness
falls due on a day other than a Business Day, then such due date shall be
extended to the next succeeding Business Day.
2.5. MANDATORY PAYMENTS. Provided that Borrower is not otherwise in Default
hereunder, if at any time the amount advanced by Lender to Borrower exceeds the
maximum amount of the Loan allowed pursuant to Section 2.1, Borrower shall
immediately and without notice, repay to Lender an amount sufficient to
eliminate such excess, or, at Lender's option, assign and deliver additional
Eligible Receivables sufficient for such purpose. In the event Borrower sells,
transfers, assigns or otherwise disposes of all or any portion of its
Receivables, other than in the ordinary course of business, Borrower shall
apply all proceeds of any such sale, transfer, assignment or other disposition
to reduce the outstanding balance of the Indebtedness.
2.6. VOLUNTARY PREPAYMENTS. Borrower may, at its option, voluntarily prepay
the Indebtedness in full at any time and request a termination of Lender's
security interest in the collateral, provided, however, that Borrower has given
Lender ninety (90) days written notice of any such intention to prepay the
Indebtedness in full, Borrower requests Lender to terminate its security
interest in the collateral upon such prepayment in full and as liquidated
damages, not as a penalty, Borrower pays to Lender the amount of liquidated
damages ("Liquidated Damages") (SCHEDULE SECTION 2.6). Borrower may not make
such prepayment prior to the expiration of such ninety (90) day period. Upon
written notice of Borrower's intent to prepay the Indebtedness in full, the
commitment by Lender to advance funds to Borrower and all the obligations of
Lender shall terminate on the expiration of said ninety (90) day notice period,
and the entire amount of the Indebtedness and the Liquidated Damages shall be
due and payable on such date.
2.7. MAXIMUM INTEREST; CONTROLLING AGREEMENT. If a court of competent
jurisdiction determines that the laws of any state other than the State of
Arizona apply to this Agreement then the following paragraph A. shall be
applicable to this Agreement and paragraph 2.7.B. hereinbelow shall be of no
force or effect.
A. It is the intent of the parties hereto to conform strictly to the usury laws
in force that apply to this transaction. Accordingly, all agreements between
Lender and Borrower, whether now existing or hereafter arising and whether
written or oral, are hereby limited so that in no contingency, whether by
reason of demand or acceleration of the maturity of the Indebtedness or
otherwise, shall the interest (and all other sums that are deemed to be
interest) contracted for, charged, received, paid or agreed to be paid to
Lender exceed interest computed at the Maximum Rate. If, from any circumstance
whatsoever, interest would otherwise be payable to Lender in excess of interest
computed at the Maximum Rate and, if from any circumstance Lender shall ever
receive anything of value deemed interest by applicable law in excess of
interest computed at the Maximum Rate, then Lender's receipt of the same shall
be deemed unintentional, the interest payable to Lender shall be reduced to
interest computed at the Maximum Rate; and such excess interest received by
Lender shall, at the option of Lender, be repaid to Borrower or credited to the
unpaid principal balance of the Indebtedness. If the Indebtedness is prepaid or
the maturity of the Indebtedness is accelerated by reason of an election of
Lender, then the unearned interest, if any, shall be canceled and, if
theretofore paid, shall be either refunded to Borrower or credited on the
Indebtedness as the Lender elects. All interest paid or agreed to be paid to
Lender shall, to the extent permitted by applicable law, be
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<PAGE> 9
amortized, prorated, allocated and spread throughout the full period until
payment in full of the principal (including the period of any renewal and
extension thereof) so that the interest so computed shall not exceed the
Maximum Rate. Notwithstanding that the parties hereto in good faith deem each
and every fee provided by this Agreement or paid to Lender in connection with
this Agreement to be a bona fide fee for services rendered and to be rendered
separate and apart from the lending of money or the provision of credit, if any
such fee is ever determined by a court of competent jurisdiction or other
tribunal or by Lender to constitute interest, then the treatment of such fee
for usury purposes shall be controlled by the provisions of this Section 2.7.
This paragraph shall control all agreements between Borrower and Lender.
If a court of competent jurisdiction determines that the laws of the State of
Arizona apply to this Agreement then the following paragraph B. shall be
applicable to this Agreement and paragraph 2.7.A. hereinabove shall be of no
force or effect.
B. The contracted for rate of interest of the Loan without limitation,
shall consist of the following: (i) the Stated Interest Rate, calculated and
applied to the principal balance of the Note in accordance with the provisions
of the Note, this Agreement and the other Loan Documents; (ii) interest after
Event of Default or due date, calculated and applied to the amounts due under
the Note in accordance with the provisions thereof; and (iii) all Additional
Sums (as herein defined), if any. Borrower agrees to pay an effective
contracted for rate of interest which is the sum of the above-referenced
elements.
All fees, charges, goods, things in action or any other sums or things of
value (other than amounts described in the immediately previous paragraph),
paid or payable by Borrower (collectively, the "Additional Sums"), whether
pursuant to the Note, this Agreement or any other documents or instruments in
any way pertaining to this lending transaction, or otherwise with respect to
this lending transaction, that under any applicable law may be deemed to be
interest with respect to this lending transaction, for the purpose of any
applicable law that may limit the maximum amount of interest to be charged with
respect to this lending transaction, shall be payable by Borrower as, and shall
be deemed to be, additional interest and for such purposes only, the agreed
upon and "contracted for rate of interest" of this lending transaction shall be
deemed to be increased by the rate of interest resulting from the inclusion of
the Additional Sums.
It is the intent of the parties to comply with the usury law ("Applicable
Usury Law") applicable pursuant to the terms of the preceding paragraph or such
other usury law which is applicable if the law chosen by the parties is not
applicable. Accordingly, it is agreed that notwithstanding any provisions to
the contrary in the Loan Documents, or in any of the documents securing payment
hereof or otherwise relating hereto, in no event shall the Loan Documents or
such documents require the payment or permit the collection of interest in
excess of the maximum contract rate permitted by the Applicable Usury Law. In
the event (a) any such excess of interest otherwise would be contracted for,
charged or received from Borrower or otherwise in connection with the loan
evidenced hereby, or (b) the maturity of the indebtedness evidenced by the Loan
Documents is accelerated in whole or in part, or (c) all or part of the
principal or interest of the Loan Documents shall be prepaid, so that under any
of such circumstances the amount of interest contracted for, charged or
received in connection with the loan evidenced hereby, would exceed the maximum
contract rate permitted by the Applicable Usury Law, then in any such event (1)
the provisions of this paragraph shall govern and control, (2) neither Borrower
nor any other person or entity now or hereafter liable for the payment hereof
will be obligated to pay the amount of such interest to the extent that it is
in excess of the maximum contract rate permitted by the Applicable Usury Law,
(3) any such excess which may have been collected shall be either applied as a
credit against the then unpaid principal amount hereof or refunded to Borrower,
at Lender's option, and (4) the effective rate of interest will be
automatically reduced to the maximum amount of interest permitted by the
Applicable Usury Law. It is further agreed, without limiting the generality of
the foregoing, that to the extent permitted by the Applicable Usury Law; (x)
all calculations of interest which are made for the purpose of determining
whether such rate would exceed the maximum contract rate permitted by the
Applicable Usury Law shall be made by amortizing, prorating, allocating and
spreading during the period of the full stated term of the loan evidenced
hereby, all interest at any time contracted for, charged or received from
Borrower or otherwise in connection with such loan; and (y) in the event that
the effective rate of interest on the loan should at any time exceed the
maximum contract rate allowed under the Applicable Usury Law, such excess
interest that would otherwise have been collected had there been no ceiling
imposed by the Applicable Usury Law shall be paid to Lender from time to time,
if and when the effective interest rate on the loan otherwise falls below the
maximum amount permitted by the Applicable Usury Law, to the extent that
interest paid to the date of calculation does not exceed the maximum contract
rate permitted by the Applicable Usury Law, until the entire amount of interest
which would have otherwise been collected had there been no ceiling imposed by
the Applicable Usury Law has been paid in full. Borrower further agrees that
should the maximum contract rate permitted by the Applicable Usury Law be
increased at any time hereafter because of a change in the law, then to the
extent not prohibited by the Applicable Usury Law, such increases shall apply
to all indebtedness evidenced hereby regardless of when incurred; but, again to
the extent not prohibited by the Applicable Usury Law, should the maximum
contract rate permitted by the Applicable Usury
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<PAGE> 10
Law be decreased because of a change in the law, such decreases shall not apply
to the indebtedness evidenced hereby regardless of when incurred.
2.8. INTEREST AFTER DEFAULT. Upon the occurrence and during the
continuation of an Event of Default, Borrower shall pay Lender interest on the
daily outstanding balance of the Indebtedness shall be the Stated Interest Rate
which would otherwise be applicable thereto pursuant to the Schedule (SCHEDULE
SECTION 2.2).
2.9. STATEMENT OF ACCOUNT. Lender shall provide Borrower, each month, with
a statement of Borrower's account, prepared from Lender's records, which shall
conclusively be deemed correct and accepted by Borrower, unless Borrower gives
Lender a written statement of exceptions within ten (10) days after receipt of
such statement.
2.10. APPLICATION OF PAYMENTS. The amount of all payments or amounts
received by Lender with respect to the Indebtedness shall be applied to the
extent applicable under this Agreement: (i) first, to accrued interest through
the date of such payment, including any Interest After Default; (ii) then, to
any late fees, overdue risk assessments, examination fees and expenses,
collection fees and expenses and any other fees and expenses due to Lender
hereunder; and (iii) last, the remaining balance, if any, to the unpaid
principal balance of the Indebtedness; provided, however, while a Default
exists under the Loan Documents, each payment hereunder shall be applied to
amounts owed to Lender by Borrower as Lender it is sole discretion may
determine. In calculating interest and applying payments as set forth above;
(a) interest shall be calculated and collected through the date a payment is
actually applied by Lender under the terms of this Agreement; (b) interest on
the outstanding balance shall be charged during any grace period permitted
hereunder; (c) at the end of each month, all accrued and unpaid interest and
other charges provided for hereunder shall be added to the principal balance of
the Loan; and (d) to the extent that Borrower makes a payment or Lender
receives any payment or proceeds of the Collateral for Borrower's benefit that
is subsequently invalidated, set aside or required to be repaid to any other
person or entity, then, to such extent, the obligations intended to be
satisfied shall be revived and continue as if such payment or proceeds had not
been received by Lender and Lender may adjust the outstanding balance of the
Indebtedness as Lender, in its sole discretion, deems appropriate under the
circumstances.
2.11. ALLOCATION OF PAYMENTS. All payments and collections shall be deemed
to be comprised of a pro rata remittance or payment made by each Borrower,
based upon the proportion that the Eligible Receivables of each Borrower bears
to the aggregate of all Eligible Receivables of the Borrowers, as of the date
on which such remittance or payment is received by Lender. In the event such
remittance or payment shall be made by the Lead Borrower, acting as agent or
trustee for the other Borrowers, each Borrower shall be deemed to have made
their proportionate amount of such remittance or payment to Lender by and
through such agent or trustee.
2.12. ADVANCES TO LEAD BORROWER. Borrower does hereby irrevocably agree
that in the event Lender makes advances to Lead Borrower, as agent or trustee
for each of Borrower, as contemplated in Section 2.13, each such advance shall
be deemed to be made to each Borrower based upon a proportion that each
Borrower's Eligible Receivables bear to the aggregate of all Eligible
Receivables of Borrower, notwithstanding any subsequent disbursement of said
advance by the Lead Borrower, acting as agent or trustee for the Borrowers. In
the event that the actual advances, direct or indirect, received by Lead
Borrower or any other Borrower or the balance due to Lender as shown in the
records of any Borrower shall be disproportionate when compared to the
proportion of the Eligible Receivables of each Borrower, whether by way of
subsequent disbursements by Lead Borrower, acting as agent or trustee, by way
of Lender electing to make advances to each Borrower, as contemplated in
Section 2.13 or otherwise, such disproportionalities shall be deemed to have
occurred by virtue of loans made between and among Borrowers.
2.13. APPOINTMENT OF AGENT. Lender agrees that, in the sole discretion of
Lender, Borrower may, by written notice to Lender, designate a Lead Borrower to
receive advances from Lender, make payments to Lender, communicate with Lender
and generally represent the interests of the Borrowers with respect to the
subject matter of this Agreement; notwithstanding the foregoing, Lender may, at
its sole discretion and upon notice to each of the Borrowers, make advances
directly to each of the Borrowers, require that payments due hereunder be made
to Lender by each of the Borrowers, require each of the Borrowers to
communicate directly with Lender, for its own account, and generally deal
independently and separately with each of the Borrowers. Until so notified by
Lender, each of the Borrowers hereby agree that any and all funds advanced by
Lender pursuant to the terms of this Agreement, shall be advanced to the Lead
Borrower and may be deposited or transferred into the general corporate account
of Lead Borrower, as agent and/or trustee for Borrowers. Lead Borrower hereby
agrees to keep detailed and accurate records of all such disbursements made to
any other Borrowers. Lead Borrower hereby agrees to keep detailed and accurate
records of all loans and dealings between or among Lead Borrower and the other
Borrowers. Borrowers agree to furnish copies of such records to Lender upon
request. Each Borrower, other than the Lead Borrower hereby irrevocably makes,
constitutes, designates and appoints Lead Borrower as its agent and/or trustee
with full power to receive all notices,
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<PAGE> 11
request all Advances hereunder and to deal generally with Lender as agent
and/or trustee for the Borrowers and Lead Borrower is hereby granted full power
and authority to bind the Borrowers in respect of any term, condition, covenant
or undertaking embraced in this Agreement. Lender may, without liability or
responsibility to the Borrowers rely upon the instructions or other
communications of Lead Borrower on behalf of each of the Borrowers in
connection with any notifications, requests or communications required or
permitted to be given hereunder with the same force and effect as if actually
given by each Borrower; each Borrower hereby agrees to indemnify and hold
Lender harmless from and against any liability, claim, suit, action, penalty,
fine or damage arising out of or incurred in connection with Lender's reliance
upon communications from Lead Borrower on behalf of the Borrowers. It is
specifically understood and agreed that any Advance made hereunder by Lender to
Lead Borrower shall be considered and treated as an Advance to the Borrowers
and each Borrower shall be jointly and severally liable therefor.
2.14. INVENTORY CREDIT LINE. The Inventory Credit Line shall be that
portion of the Amount of the Revolving Credit Line, that shall not exceed the
Availability on Eligible Inventory. Advances pursuant to the Inventory Credit
Line shall be based upon the Eligible Inventory.
The Stated Interest Rate applicable to the that portion of the outstanding
balance of the Indebtedness applicable to the Inventory Credit Line shall be at
the Inventory Stated Interest Rate (SCHEDULE SECTION 2.2.).
Borrower shall provide Lender such reporting and information as requested
by Lender with respect to all Inventory, including but not limited to the
reports and information set forth in Section 6.7.A.
Borrower shall not request, from any applicable governmental authority, a
duplicate title for any vehicle that is Collateral, without the prior written
consent of Lender.
Upon Lender's request, Borrower shall deliver to Lender all certificates
of title with respect to the vehicle Inventory which shall have been duly
executed or have the necessary executed documents attached, in a manner
sufficient to perfect all of the security interests granted to Lender and allow
Lender to transfer such titles, pursuant to Lender's rights pursuant to the
Loan Documents.
2.15. RECEIVABLES CREDIT FACILITY. The Receivables Credit Facility shall
be that portion of the Amount of the Revolving Credit Line, that shall not
exceed the Availability on Eligible Receivables. Advances pursuant to the
Receivables Credit Facility shall only be made directly to the Lead Borrower,
pursuant to the terms of the Loan Documents, based upon the Eligible
Receivables of the Borrower.
The Stated Interest Rate applicable to the that portion of the outstanding
balance of the Indebtedness applicable to the Receivables Credit Facility shall
be at the Receivables Stated Interest Rate (SCHEDULE SECTION 2.2.).
2.16. FACILITY FEE. Borrower agrees to pay Lender a monthly Facility Fee
(SCHEDULE SECTION 2.16) for and in consideration of Lender's management and
administration of credit facility set forth herein. This Facility Fee is due
and payable on the fifteenth (15th) day of each calendar month during the term
hereof.
3. SECURITY
3.1. SECURITY INTEREST. To secure the prompt payment to Lender of the
Indebtedness and any and all other obligations now existing or hereinafter
arising owed by Borrower to Lender, Borrower hereby irrevocably grants to
Lender a first and continuing security interest in the following property and
interests in property of Borrower, whether now owned or existing or hereafter
acquired or arising and wheresoever located:
A. All Receivables and all accounts, chattel paper, instruments, contract
rights and general intangibles, all of Borrower's right, remedies, security,
liens, guaranties, or other contracts of suretyship with respect thereto, all
deposits or other security or support for the obligation of any Account Debtor
thereunder and credit and other insurance acquired by Account Debtor or the
Borrower in connection therewith.;
B. All Inventory, new or used, including, but not limited to parts and
accessories;
C. All bank accounts of Borrower;
D. All monies, securities and property, now or hereafter held, received
by, or entrusted to, in the possession or under the control of Lender or a
bailee of Lender;
E. All accessions to, substitutions for and all replacements, products and
proceeds of the foregoing, including, without limitation, proceeds of insurance
policies referenced in Section 3.1.A above (including but not limited to claims
paid and premium refunds); and
F. All books and records (including, without limitation, customer lists,
credit files, tapes, ledger cards, computer software and hardware, electronic
data processing software, computer printouts and other computer materials and
records) of Borrower evidencing or containing information regarding any of the
foregoing.
3.2. FINANCING STATEMENTS AND FURTHER ASSURANCES. Borrower hereby agrees to
execute UCC-1 Financing Statements, in the form and substance of Exhibit "B"
hereto, and any other instruments or documents
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<PAGE> 12
reasonably necessary to evidence, preserve or protect Lender's security
interest in the Collateral. Borrower agrees that financing statements shall be
filed covering all of Borrower's locations (SCHEDULE SECTION 3.2.).
Upon Lender's request, Borrower agrees to deliver to Lender, at such
places as Lender may reasonably designate, schedules executed by Borrower,
listing the Receivables and fully and correctly specifying in adequate detail
the aggregate unmatured unpaid face amount of each Receivable and the amount of
the deferred installments thereof falling due each month. These schedules shall
be in form and tenor satisfactory to or supplied by Lender. All schedules
delivered and Collateral pledged to Lender shall be assigned to Lender pursuant
to the "Schedule of Receivables and Assignment" in the form and substance of
Exhibit "E" attached hereto. Borrower further warrants and agrees that in each
case where the terms of any Receivable require the Borrower or the Account
Debtor named in such Receivable to place or carry fire insurance or other
insurance in respect of the merchandise or property to which such Receivable
relates, the Borrower shall or shall cause the Account Debtor to maintain such
insurance until the full amount of such Receivable is collected and if not,
Lender, at its option, may place and maintain such insurance, charging the cost
thereof to Borrower.
3.3. PLEDGE OF RECEIVABLES. Borrower hereby agrees to pledge all
Receivables and, if so requested by Lender, Borrower shall deliver to Lender
all documents evidencing Receivables of Borrower, no less often than on the
twentieth (20th) day of each calendar month during the term of this Agreement,
together with the Schedule of Receivables and Assignment, as set forth in
Section 3.2 hereof.
3.4. FAILURE TO DELIVER. Failure to deliver physical possession of any
instruments, documents or writings in respect of any Receivable to Lender shall
not invalidate Lender's security interest therein. To the extent that
possession may be required by applicable law for the perfection of Lender's
security interest, the original chattel paper and instruments representing the
Receivables shall be deemed to be held by Lender, although kept by the Borrower
as the custodial agent of Lender.
3.5. NOTICE OF COLLATERAL ASSIGNMENT. All contracts, documents or
instruments representing or evidencing a Receivable shall contain (by way of
stamp or other method satisfactory to Lender) the following language: "PLEDGED
TO FINOVA CAPITAL CORPORATION AS COLLATERAL".
3.6. LOCATION OF RECEIVABLES. Borrower shall, at any reasonable time and at
Borrower's own expense, upon Lender's request, physically deliver to Lender all
Receivables (including any instruments, documents or writings in respect of any
Receivable together with all instruments, documents or writings in respect of
any collateral securing each Receivable) assigned to Lender to any reasonable
place or places designated by Lender. All Receivables shall, regardless of
their location, be deemed to be under Lender's dominion and control (with files
so labeled) and deemed to be in Lender's possession.
3.7. RECORDS AND INSPECTIONS. Borrower shall at all times keep complete and
accurate records pertaining to the Collateral, which records shall be current
on a daily basis and located only at the locations (SCHEDULE SECTION 3.2.).
Lender by or through any of its officers, agents, employees, attorneys or
accountants, shall have the right to enter any such locations, at any
reasonable time or times during regular business hours, for so long as Lender
may desire, to inspect the Collateral and to inspect, audit and make
extractions or copies from the books, records, journals, orders, receipts,
correspondence or other data relating to the Collateral or this Agreement.
3.8. ADDITIONAL DOCUMENTS. Borrower hereby agrees to execute any additional
documents or financing statements which Lender deems necessary in its
reasonable discretion in order to evidence Lender's security interest in the
Collateral. Borrower shall not allow any financing statement or notice of
assignment of accounts receivable, other than those executed in connection with
this Agreement, to be on file in any public office covering any Collateral,
proceeds thereof or other matters subject to the security interest granted to
Lender.
3.9. COLLECTION. Borrower agrees at its own expense to promptly and
diligently collect each installment of all Receivables in trust for the
exclusive account of Lender, to hold Lender harmless from any and all loss,
damage, penalty, liability, fine or expense arising from such collection by
Borrower or its agents and to faithfully account therefor to Lender. Upon the
occurrence of a Default, Lender expressly retains the unqualified right at any
time it so elects to take over the collection of the Receivables.
3.10. BLOCKED ACCOUNTS. Upon the occurrence of a Default or an Event of
Default, at Lender's request, any checks, notes, drafts or any other payment
upon and/or proceeds of the Collateral received by Borrower (or any
subsidiaries, divisions, affiliates, proprietorships, shareholders, directors,
officers, employees, agents or those persons acting for or in concert with
Borrower), shall no later than the next Business Day following receipt thereof,
be delivered to Lender, at Lender's address set forth above, for application on
account of the Indebtedness and shall be reflected in the Statement of Account
as provided in Section 2.9 herein, until such time as Lender has established a
depository account at a bank for the deposit of such payments, made
arrangements for such deposits to be transferred to Lender daily and thereafter
established a lock-box arrangement or otherwise.
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Borrower shall (i) deposit or cause all Items, as defined below, to be
deposited in the special account so established by Lender or transfer all Items
to Lender for application on account of the Indebtedness and to be reflected in
the Statement of Account as provided in Section 2.9 herein and (ii) maintain
copies of all checks or other items of payment and deposit slips related
thereto, together with a collection report in a form satisfactory to Lender.
All cash payments, checks, drafts, or similar items of payment upon and/or
proceeds of the Receivables (collectively "Items") by or for the account of
Borrower shall be the sole and exclusive property of Lender immediately upon
the earlier of the receipt of such Items by Lender or the receipt of such Items
by Borrower; provided, however, that no such Item received by Lender shall
constitute payment to Lender and be applied to reduce the Indebtedness until
the later of: (i) three (3) Business Days from collection of such Item by
Lender's depository bank, or (ii) such Item being actually collected by
Lender's depository bank and such collection being credited to Lender's
account. Notwithstanding anything to the contrary herein, all such items of
payment shall be deemed not received if the same is subsequently dishonored or
not duly credited to Lender's depository account for any reason whatsoever.
3.11. PROTECTION OF RECEIVABLE RECORDS. Borrower hereby agrees to take the
following protective actions to prevent destruction of Borrower's Collateral
and records pertaining to such Collateral: (i) if Borrower maintains its
Collateral records on a manual system such records shall be kept in a fire
proof cabinet or on no less than a monthly basis, a record of all payments on
Receivables and all other matters relating to the Collateral shall be placed in
an off site safety deposit box (and Lender shall have access to such safety
deposit box); or (ii) if the Collateral records are computerized, Borrower
agrees to create a tape or diskette "back-up" of the computerized information
and upon the request of Lender, provide Lender with a tape or diskette copy of
such "back-up" information.
3.12. USE OF COLLECTIONS AND MODIFICATION OF RECEIVABLES. Provided that
Lender has not required that Borrower remit all collections or proceeds of
Collateral to Lender, Borrower may use or dispose of the funds received on the
Receivables in the ordinary course of business (including returned or
repossessed goods); and unless an Event of Default is continuing, Borrower may
collect or compromise accounts or obligations and accept returned goods or make
repossessions, as Borrower shall determine based upon its reasonable
discretion.
3.13. USE OF PROCEEDS. Borrower shall use the proceeds of the Loan in the
ordinary course of business, in its operations for costs and expenses incurred
in the origination or acquisition (from a Borrower herein) of Receivables or
the acquisition of Inventory, payment of Comerica Bank to pay off any inventory
floor plan credit facilities, as of the date of this Agreement or for payments
to Lender hereunder.
3.14. RETURN OF COLLATERAL. Upon the payment in full or renewal of any
Receivable to which the written documents evidencing such Receivable are held
by Lender, Borrower shall submit all requests for the return of such documents
pursuant to the "Request For Return of Collateral" form, a copy of which is
attached hereto as Exhibit "C".
3.15. LENDER'S PAYMENT OF CLAIMS. Lender may, in its sole discretion,
discharge or obtain the release of any security interest, lien, claim or
encumbrance asserted by any person against the Collateral. All sums paid by
Lender in respect thereof shall be payable, on demand, by Borrower to Lender
and shall be a part of the Indebtedness.
3.16. CROSS COLLATERALIZATION. Each Borrower agrees that the Collateral of
each Borrower pledged hereunder shall secure all of the obligations of the
Borrowers to Lender hereunder. Upon and after an Event of Default by any
Borrower, Lender may pursue all rights and remedies it may have against all or
any part of the Collateral regardless of the status of legal title to such
Collateral. Each Borrower hereby acknowledges that this Cross Collateralization
of their Collateral is in consideration of Lender's extending the credit
hereunder and mutually beneficial to each Borrower.
4 CONDITIONS OF INITIAL ADVANCE; SUBSEQUENT ADVANCES
4.1. INITIAL ADVANCE. The obligation of Lender to make the initial advance
hereunder is subject to the fulfillment, to the satisfaction of Lender and its
counsel, of each of the following conditions prior to the initial advance
hereunder:
A. Loan Documents. Lender shall have received each of the following Loan
Documents: (i) this Loan and Security Agreement executed by the respective
parties; (ii) Schedule to Loan and Security Agreement executed by the
respective parties; (iii) the Note executed by Borrower; (iv) Guaranty
Agreement executed by the respective Guarantors; (v) such Blocked Account or
Dominion Account agreements as it shall determine; and (vi) such other
documents, instruments and agreements in connection herewith as Lender shall
reasonably require, executed, certified and/or acknowledged by such parties as
Lender shall designate;
B. Terminations by Existing Lender. Borrower's existing lender(s) shall
have executed and delivered UCC termination statements and other and execution
and
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delivery of this Agreement and the other Loan Documents to which Borrower and
Guarantor are a party, and authorizing specific officers of Borrower and
Guarantor to execute same, and (ii) the authenticity of original specimen
signatures of such officers;
G. Initial Availability Report. Lender shall have received an Availability
Report from Borrower executed by an authorized corporate officer of Borrower;
H. Property Insurance. If applicable, Lender shall have received the
insurance certificates and certified copies of policies required herein, along
with a Lender's Loss Payable Endorsement naming Lender as sole loss payee, all
in form and substance satisfactory to Lender and its counsel;
I. Searches; Certificates of Title. Lender shall have received searches
reflecting the filing of its financing statements and other filings in such
jurisdictions as it shall determine;
J. Fees. Borrower shall have paid all fees payable by it on the Closing
Date pursuant to this Agreement;
K. Opinion of Counsel. Lender shall have received an opinion of Borrower's
counsel covering such matters as Lender shall determine in its sole discretion;
L. Solvency Certificate. If requested by Lender, a signed certificate of
the Borrower's duly elected Chief Financial Officer concerning the solvency and
financial condition of Borrower, on Lender's standard form;
M. Other Matters. All other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have been delivered,
executed and recorded and shall be in form and substance satisfactory to Lender
and its counsel.
4.2. SUBSEQUENT ADVANCES. The obligation of Lender to make any advance
hereunder (including the initial advance) shall be subject to the further
conditions precedent that, on and as of the date of such advance: (a) the
representations and warranties of Borrower set forth in this Agreement shall be
accurate, before and after giving effect to such advance or issuance and to the
application of any proceeds thereof; (b) no Default or Event of Default has
occurred and is continuing, or would result from such advance or issuance or
from the application of any proceeds thereof; (c) no material adverse change
has occurred in the Borrower's business subsequent to the immediately preceding
advance hereunder, operations, financial condition, or assets or in the
prospect of repayment of the Indebtedness; (d) Lender shall have received such
other approvals, opinions or documents as Lender shall reasonably request; and
(e) Borrower shall submit to Lender a completed Request for Advance Report in
the form and substance of Exhibit "A" attached hereto, on the date such advance
is requested or shall have complied with the provisions concerning oral
advances hereunder as set forth in Section 4.3 hereof.
4.3. ORAL REQUEST FOR ADVANCE. All oral requests for advances shall be made
only by an authorized agent of Borrower designated by or acting under the
authority of a resolution of the Board of Directors of Borrower, a duly
certified or executed copy of which shall be furnished to Lender prior to any
oral request. Lender shall be entitled to rely upon such authorization until
written notice to the contrary is received by Lender. Borrower covenants and
agrees to furnish to Lender written confirmation of any such oral request
within two (2) days after such oral request, in a form set forth on Exhibit "A"
attached hereto and incorporated herein, but any such loan or advance shall be
deemed to be made under and entitled to the benefits of this Agreement and any
other documents or instruments executed in connection herewith irrespective of
any failure by Borrower to furnish such written confirmation. Any loan or
advance shall be conclusively presumed to have been made under the terms of
this Agreement, to or for the benefit of Borrower, when made pursuant to the
terms of any written agreement executed in connection herewith; or in
accordance with such requests and directions; or when an advance is deposited
to the credit of the account of any person or persons, corporation or
corporations comprising Borrower, regardless of the fact that persons other
than those authorized hereunder may have authority to draw against such account
or regardless of the fact that the advance was not made or deposited for the
benefit of all persons or corporations comprising Borrower.
4.4. ALL ADVANCES TO CONSTITUTE ONE LOAN. All evidences of credit, loans
and advances made by Lender to Borrower under this Agreement and any other
documents or instruments executed in connection herewith shall constitute one
loan, and all indebtedness and obligations of Borrower to Lender under this
Agreement and all other such documents and instruments shall constitute one
general obligation secured by Lender's security interest in all of the
Collateral and by all other security interests, liens, claims and encumbrances
heretofore, now, or at any time or times hereafter granted by Borrower to
Lender. Borrower agrees that all of the rights of Lender set forth in this
Agreement shall apply to any modification of or supplement to this Agreement
and any other such documents and instruments.
4.5. ADVANCES. Lender shall have the right in Lender's discretion, subject
to availability hereunder on behalf of and without notice to Borrower, to make
and use advances to pay Lender for any amounts due to Lender pursuant to this
Agreement or otherwise, to cure any default hereunder, notwithstanding the
expiration of any applicable cure period.
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<PAGE> 15
5. REPRESENTATIONS AND WARRANTIES OF BORROWERS AND GUARANTOR.
5.1. REPRESENTATIONS AND WARRANTIES. Borrower and Guarantor, provided that
only those provisions of 5.1 that specifically referred to Guarantor shall be
applicable to Guarantor and each Guarantor's representations and warranties are
limited to its own representations and warranties, severally and not jointly,
hereby continuously represent and warrant to Lender as follows:
A. Borrower is a corporation duly incorporated, validly existing and in
good standing under the laws of the state of its incorporation, is duly
qualified to do business and is in good standing as a foreign corporation in
all states where such qualification is required, has all necessary corporate
power and authority to enter into this Agreement and each of the documents and
instruments relating hereto and to perform all of its obligations hereunder and
thereunder.
B. Borrower operates its business only under the assumed names (SCHEDULE
SECTION 5.1.) and has not used any other assumed name for the operation of its
business activities for the previous seven (7) years.
C. Borrower has all requisite corporate right and power and is duly
authorized and empowered to enter into, execute, deliver and perform this
Agreement and all documents and instruments relating hereto and this Agreement
and all documents and instruments relating hereto are the legal, valid and
binding obligations of Borrower and are enforceable against Borrower in
accordance with their terms.
D. Each Guarantor is competent to enter into this Agreement and the
Guaranty and to perform all of Guarantor's obligations thereunder.
E. The execution, delivery and performance by Borrower of this Agreement
does not and shall not (i) violate any provision of any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award presently in
effect having applicability to Borrower; (ii) violate any provision of its
Articles of Incorporation or Bylaws; or (iii) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which Borrower is a party or by which
it or any of its assets or properties may be bound or affected; and Borrower is
not in default of any such law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award or any such indenture, agreement,
lease or instrument.
F. No consent, approval, license, exemption of or filing or registration
with, giving of notice to, or other authorization of or by, any court,
administrative agency or other governmental authority is or shall be required
in connection with the execution, delivery or performance by Borrower for the
valid consummation of the transactions contemplated by this Agreement.
G. No event has occurred and is continuing which constitutes a Default or
an Event of Default, as defined in this Agreement. There is no action, suit,
proceeding or investigation pending or threatened against or affecting Borrower
before or by any court, administrative agency or other governmental authority
that brings into question the validity of the transactions contemplated hereby,
or that might result in any material adverse change in the businesses, assets,
properties or financial conditions of Borrower or Guarantor.
H. Borrower and/or Guarantor are not in default in the payment of any
taxes levied or assessed against either of them or any of their assets or
properties, except for taxes being contested in good faith and by appropriate
proceedings.
I. Borrower and Guarantor have good and marketable title to their assets
and properties as reflected in their financial statements furnished to Lender.
J. Each of the financial statements furnished to Lender by the Borrower
and Guarantor (except for an individual Guarantor) was prepared in accordance
with GAAP and fairly and accurately reflects their financial condition as of
the date thereof and each hereby certifies that there have been no material
adverse changes in their condition, financial or otherwise, since the date of
such statements, and there are no material contingent liabilities not provided
for or disclosed in such statements.
K. Neither this Agreement, any Availability Report or any statement or
document referred to herein or delivered to Lender by Borrower and/or Guarantor
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements made herein or therein not misleading.
L. Borrower has good, indefeasible and merchantable title to and ownership
of the Collateral, free and clear of all liens, claims, security interests and
encumbrances, except those of Lender and except where such liens, claims,
charges, security interests and encumbrances are removed contemporaneously with
the execution of this Agreement or are subordinate to those of Lender, in a
form and substance acceptable to Lender.
M. All books, records and documents relating to the Collateral are and
shall be genuine and in all respects what they purport to be; the original
amount and the unpaid balance of each Receivable shown on the books and records
of Borrower and in the schedules represented as owing by each Account Debtor is
and shall be the correct
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amount actually owing or to be owing by such Account Debtor at maturity; each
Account Debtor liable upon the Receivables has and shall have capacity to
contract; Borrower has no knowledge of any fact which would impair the validity
or collectibility of any of the Receivables; and the payments shown to have
been made by each Account Debtor on the books and records of Borrower shall
reflect the amounts of and dates on which said payments were actually made.
N. Borrower has places of business only at the locations (SCHEDULE SECTION
3.2.). Borrower shall not begin or do business (either directly or through
subsidiaries) at other locations or cease to do business at any of the above
locations or at Borrower's principal place of business without first notifying
Lender.
O. The present value of all benefits vested under all Plans of Borrower or
any Commonly Controlled Entity (based on the assumptions used to fund the
Plans) did not, as of the last annual valuation date (which in case of any Plan
was not earlier than December 31, 1982) exceed the value of the assets of the
Plans applicable to such vested benefits.
P. The liability to which Borrower or any Commonly Controlled Entity would
become subject under Sections 4063 or 4064 of ERISA if Borrower or any Commonly
Controlled Entity were to withdraw from all Multi-employer Plans or if such
Multi-employer Plans were to be terminated as of the valuation date most
closely preceding the date hereof, is not in excess of One Thousand Dollars
($1,000.00);
Q. Borrower is not engaged nor shall it engage, principally or as one of
its important activities, in a business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" within the respective meanings of
each of the quoted terms under Regulations G or X of the Board of Governors of
the Federal Reserve System as now and from time to time hereafter in effect. No
part of the proceeds of any advances hereunder shall be used for "purchasing"
or "carrying" "margin stock" as so defined or for any purpose which violates,
or which would be inconsistent with, the provisions of the Regulations of such
Board of Governors. If requested by Lender, Borrower shall furnish to Lender a
statement in conformity with the requirement of Federal Reserve Form G-3
referred to in said Regulation G to the foregoing effect. All of the
outstanding securities of Borrower have been offered, issued, sold and
delivered in compliance with, or are exempt from, all federal and state laws
and rules and regulations of federal and state regulatory bodies governing the
offering, issuance, sale and delivery of securities.
R. Borrower is not an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
S. Each of the Exhibits and Schedules to this Agreement contain true,
complete and correct information.
T. To the best of Borrower's knowledge, the land and improvements owned or
leased by Borrower for use in its business operations are free of dangerous
levels of contaminates, oils, asbestos, radon, PCB's, hazardous substances or
waste as defined by federal, state or local environmental laws, regulations or
administrative orders or other materials, the removal of which is required or
the maintenance of which is prohibited, regulated or penalized by any federal,
state or local governmental authority.
U. Borrower is solvent, generally able to pay its obligations as they
become due, has sufficient capital to carry on its business and transactions
and all businesses and transactions in which it intends to engage, and the
current value of Borrower's assets, at fair saleable valuation, exceeds the sum
of its liabilities. Borrower shall not be rendered insolvent by the execution
and delivery of the Loan Documents and the consummation of the transactions
contemplated thereby and the capital remaining in Borrower is not now and shall
not foreseeably become unreasonably small to permit Borrower to carry on its
business and transactions and all businesses and transactions in which it is
about to engage. Borrower does not intend to, nor does it reasonably believe it
shall, incur debts beyond its ability to repay the same as they mature.
V. Lender has a perfected security interest in favor of Lender in all of
Borrower's right, title and interest in the Collateral, prior and superior to
any other security interest or lien, except any statutory or constitutional
lien for taxes not yet due and payable.
W. There are no material actions, suits or proceedings pending, or
threatened against or affecting the assets of Borrower or the consummation of
the transactions contemplated hereby, at law, or in equity, or before or by any
governmental authority or instrumentality or before any arbitrator of any kind.
Neither Borrower nor Guarantor is subject to any judgment, order, writ,
injunction or decree of any court or governmental agency. There is not a
reasonable likelihood of an adverse determination of any pending proceeding
which would, individually or in the aggregate, have a material adverse effect
on the business operations or financial condition of Borrower or Guarantor.
5.2. WARRANTIES AND REPRESENTATIONS AS TO ELIGIBLE RECEIVABLES. With
respect to Eligible Receivables, Borrower continuously warrants and represents
to Lender that during the term of this Agreement and so long as any of the
Indebtedness remains unpaid: (i) in determining which Receivables are "Eligible
Receivables," Lender may rely upon all statements
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or representations made by Borrower; and (ii) those Receivables designated as
Eligible Receivables meet each requirement set forth below at the time any
request for advance is provided to Lender.
A. The Eligible Receivables are genuine; are in all respects what they
purport to be; and are evidenced by at least one executed original instrument,
agreement, contract or document which has been or shall be delivered to Lender;
B. The Eligible Receivables represent undisputed, bona fide transactions
completed in accordance with the terms and provisions contained in any
documents related thereto;
C. The amounts of the face value shown on any schedule of Receivables
provided to Lender, and/or all invoices or statements delivered to Lender with
respect to any Eligible Receivables, are actually and absolutely owing to
Borrower and are not contingent for any reason;
D. No set-offs, counterclaims or disputes as to payments or liability
thereon exist or have been asserted with respect thereto and Borrower has not
made any agreement with any Account Debtor thereunder for any deduction
therefrom, except a discount or allowance allowed by Borrower in the ordinary
course of its business for prompt payment, all of which discounts or allowances
are reflected in the calculation of the outstanding amount of the Receivable;
E. No facts, events or occurrences exist that, in any way, impair the
validity or enforcement thereof or tend to reduce the amount payable thereunder
from the amount of the Receivable shown on any schedule, or on all contracts,
invoices or statements delivered to Lender with respect thereto;
F. All Account Debtors in connection with Eligible Receivables: (i) had
the capacity to contract at the time any contract or other document giving rise
to the Receivable was executed; and (ii) generally have the ability to pay
their debts as become due;
G. Within Borrower's knowledge, no proceedings or actions are threatened
or pending against any Account Debtor that might result in any material adverse
change in the Account Debtor's financial condition;
H. The Eligible Receivables have not been assigned or pledged to any
person or entity, other than Lender;
I. The goods giving rise to the Eligible Receivables are not, and were not
at the time of the sale, rental and/or lease thereof, subject to any lien,
claim, encumbrance or security interest except those of Lender, those removed
or terminated prior to the date hereof or those subordinated to Lender's
security interest, by a subordination and standstill agreement acceptable to
Lender;
J. The End of Month Delinquency set forth in Section 12 of the
Availability Report shall be delivered to Lender by Borrower hereunder as
determined pursuant to the Aging Procedures and Eligibility Test (SCHEDULE
SECTION 1.G.).
6. COVENANTS AND OTHER AGREEMENTS
6.1. AFFIRMATIVE COVENANTS. During the term of this Agreement and so long
as any of the Indebtedness remains unpaid, Borrower agrees and covenants,
jointly and severally, that they shall:
A. Pay or cause to be paid currently all of their expenses, including all
payments on their obligations whenever due, as well as all payments of any and
all taxes of whatever nature when due. This provision shall not apply to taxes
or expenses which are due, but which are challenged in good faith.
B. Maintain, preserve, and protect the Collateral, including, but not
limited to, keeping documents, instruments or other written records otherwise
evidencing the Collateral in accordance with Section 3.11 hereof.
C. Furnish to Lender written notice as to the occurrence of any Default or
Event of Default hereunder.
D. Furnish to Lender notice of: (i) any development related to the
business, financial condition, properties or assets of Borrower, that would
have or has a materially adverse effect on such business, financial condition,
properties or assets, or ability to perform their obligations under this
Agreement and (ii) any material and adverse litigation or investigation to
which either of them may be a party.
E. Carry on and conduct their business in the same manner and in the same
fields of enterprise as they are presently engaged, and Borrower shall preserve
its corporate existence, licenses or qualifications as a domestic corporation
in the jurisdiction of its incorporation and as a foreign corporation in every
jurisdiction in which the character of its assets or properties or the nature
of the business transacted by it at any time makes qualification as a foreign
corporation necessary and the failure to be so qualified would have a material
adverse effect on Borrower or its assets or business, and to maintain all other
material corporate rights and franchises, provided, however, nothing herein
shall be construed to prevent Borrower from closing any retail location in the
good faith exercise of its business judgment.
F. Comply, and cause each affiliate to comply, with all statutes,
governmental rules and regulations applicable to them.
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<PAGE> 18
G. Permit and authorize Lender, without notifying Borrower, to make such
inquiries through business credit or other credit reporting services concerning
Borrower as Lender shall deem appropriate.
H. Provide Lender with evidence of insurance issued by a reputable
carrier, as reasonably required by Lender. This insurance shall reflect Lender
as a loss payee or additional insured, as required by Lender, and contain a
provision that Lender shall be notified by the carrier thirty (30) days prior
to the termination or cancellation of any such insurance. Borrower shall
maintain insurance, with respect to all Inventory, in an amount equal to or
greater than the cost of such Inventory.
I. Borrower shall take all action necessary to assure that there will be
no material adverse change to Borrower's business by reason of the advent of
the year 2000, including without limitation that all computer-based systems,
embedded microchips and other processing capabilities effectively recognize and
process dates after April 1, 1999. At Lender's request, Borrower shall provide
to Lender assurance reasonably acceptable to Lender that Borrower's
computer-based systems, embedded microchips and other processing capabilities
are year 2000 compatible.
6.2. NEGATIVE COVENANTS. During the term of this Agreement and until the
Indebtedness has been paid in full, Borrower covenants and agrees that they
shall not, without Lender's prior written consent, which consent shall not be
unreasonably withheld, do any of the following:
A. Incur or permit or exist any mortgage, pledge, title retention lien or
other lien, encumbrance or security interest with respect to the Collateral now
owned or hereafter acquired by Borrower, except liens in favor of Lender or in
favor of a floor plan lender who has executed an intercreditor agreement with
Lender, in a form and substance acceptable to Lender.
B. Delegate, transfer or assign any of their obligations or liabilities
under this Agreement, or any part thereof, to any other person or entity.
C. Be a party to or participate in: (i) any merger or consolidation; (ii)
any purchase or other acquisition of all or substantially all of the assets or
properties or shares of any class of, or any partnership or joint venture
interest in, any other corporation or entity; (iii) any sale, transfer,
conveyance or lease of all or substantially all of Borrower's assets or
properties; or (iv) any sale or assignment with or without recourse of any
Receivables.
D. Cause or take any of the following actions with respect to Borrower:
(i) redeem, retire, purchase or otherwise acquire, directly or indirectly, any
of Borrower's outstanding securities or (ii) purchase or acquire, directly or
indirectly, any shares of capital stock, evidences of indebtedness or other
securities of any person or entity.
E. Amend, supplement or otherwise modify Borrower's Articles of
Incorporation or Bylaws which would have a material adverse effect on the
condition and operations, prospects or financial condition of the Borrower.
F. Incur, assume or suffer to exist any debt (including capitalized
leases) other than (i) the Indebtedness, (ii) accounts payable incurred in the
ordinary course of business, (iii) Subordinated Debt, or (iv) other debt
consented to in writing by Lender.
G. Directly or indirectly make loans to, invest in, extend credit to, or
guaranty the debt of any person or entity, other than in the ordinary course of
Borrower's business.
H. Amend, modify, or otherwise change in any material adverse respect any
material agreement, instrument, or arrangement (written or oral) by which
Borrower, or any of its assets, are bound.
I. Allow Borrower to be owned and controlled, directly or indirectly, by
any person or entity other than the shareholders that own and control Borrower
as of the date hereof.
6.3. JOINT NEGATIVE COVENANTS. During the term of this Agreement until the
Indebtedness secured hereby has been paid in full, both Borrowers, as defined
in (Schedule Section 1.A.) jointly covenant and agree that they shall not,
allow or permit any of the following, which covenants shall be applied in the
aggregate by combining each element of such financial covenants for each
Borrower:
A. Permit the Leverage Ratio to be more than the Leverage Ratio Limit
(SCHEDULE SECTION 6.3.A.).
B. Permit the aggregate Net Income to be less than the Minimum Net Income
Requirement (SCHEDULE SECTION 6.3.B.)
C. Make or allow Distributions, in the aggregate, to exceed without
Lender's prior written consent, which consent shall not be unreasonably
withheld, the Distributions Limitation (SCHEDULE SECTION 6.3.C.); provided,
however, that no Distribution shall be made if a Default or an Event of Default
shall exist.
6.4. REPORTING REQUIREMENTS AND ACCOUNTING PRACTICES. Borrower shall
maintain (i) a modern system of accounting in accordance with GAAP or other
systems of accounting acceptable to Lender and (ii) standard operating
procedures applicable to all of its locations with respect to the handling and
disposition of
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<PAGE> 19
cash receipts and other proceeds of Collateral on a daily basis, including the
depositing thereof, aging of account receivables, record keeping and such other
matters as Lender may reasonably request. For the purpose of determining
compliance with the covenants and representations in the Loan Documents, Lender
shall have the right to recast any financial statement or report presented to
Lender by or on behalf of Borrower to comply with GAAP.
6.5. PLEDGE OF RECEIVABLES. Borrower hereby agrees to pledge all
Receivables and deliver documentation evidencing such Receivables (the original
contract or agreement that evidences Account Debtor's primary payment
obligation to Borrower ("Payment Agreement") and a certificate of title or
application therefore in the name of Account Debtor, with the Borrower as the
only secured party, of the collateral that secures such payment obligation to
Lender ["Certificate of Title"]), no less often than on the twentieth (20th)
day of each calendar month during the term of this Agreement. If such evidence
of title of the collateral securing a pledged Receivable is not delivered to
Lender with the original Receivable documentation, Borrower shall deliver
evidence that such original title has been applied for in the name of the
respective Account Debtor with Borrower as the only secured party ("White
Slip"), in a form and substance satisfactory to Lender, and such evidence of
title shall be delivered to Lender not later than fifteen (15) days after such
evidence of title is received by Borrower. Any Receivable for which Borrower
has not delivered the original Payment Obligation and the Certificate of Title
or White Slip, such Receivables shall not be an Eligible Receivable hereunder,
until such delivery is made. Borrower will deliver monthly, with the delivery
of the documentation evidencing the Receivables above, a "Vehicle Title
Exception Report" listing all Certificates of Titles which have not been
received by Lender or are due from the appropriate state motor vehicle
department.
6.6. ACCOUNT DEBTORS' ADDRESSES. Borrower agrees to furnish to Lender from
time to time, promptly upon request, a list of all Account Debtors' names and
their most current addresses. Borrower agrees that Lender may from time to
time, consistent with standard or generally accepted auditing practices, verify
the validity, amount and any other matters relating to the Receivables by means
of mail, telephone or otherwise, in the name of Borrower and during the
continuance of an Event of Default in the name of Lender or such other name as
Lender may choose.
6.7. FINANCIAL REPORTS. Borrower shall furnish to Lender the following
financial statements and reports, in a form satisfactory to Lender:
A. As soon as practicable and in any event mailed within thirty (30) days
after the end of each fiscal month: (i) "Availability Report," in the form and
substance of Exhibit "D" attached hereto; (ii) Statement of Accounts Receivable
showing the detailed aging of each Receivable according to the procedures
(SCHEDULE SECTION 1.G.); (iii) a monthly Profit and Loss Statement and Balance
Sheet, certified by Borrower's chief financial officer or equivalent duly
elected officer of Borrower; (iv) Schedule of Receivables and Assignment in the
form and substance of Exhibit "E" attached hereto; (v) with respect to the
Inventory, weekly availability reports (reflecting additions and deletions),
with the original title (open status), the purchase invoice and, upon Lender's
request, applicable Black Book valuation of each vehicle; and (vi) monthly
availability report (as a summary of the weekly reports) with a detailed aging
of all inventory by location.
B. Within one hundred twenty (120) days after the end of each of
Borrower's fiscal years, annual financial statements, or combined statements,
as the case may be, of Borrower prepared in accordance with GAAP, consistently
applied and certified by its chief financial officer or equivalent duly elected
officer. The financial statements shall consist of a balance sheet as of the
end of such fiscal year and comparative statements of earnings, cash flows, and
change in stockholders' equity for such fiscal year (SCHEDULE SECTION 6.7.).
Notwithstanding the foregoing, because of the Crown Group, Inc.'s increase in
its ownership to eighty percent (80%), Borrower has changed its fiscal year end
to April 30th and comparative statements will not be required for the fiscal
year ending April 30, 1999.
C. With reasonable promptness, such other financial data as Lender may
reasonably request, including but not limited to tax returns, business plans
and reports.
Together with each delivery of financial statements required by
subsections A, B and C above, Borrower shall deliver to Lender and shall cause
each of its subsidiaries to deliver to Lender, if requested by Lender, a
certificate in form satisfactory to Lender, certifying that no Default or Event
of Default exists under this Agreement as of the date of such certificate, or
if a Default or an Event of Default exists, specifying the nature and period of
existence thereof and what action Borrower proposes to take with respect
thereto.
6.8. FINANCIAL STATEMENTS OF GUARANTORS. Each of the Guarantors (SCHEDULE
SECTION 1.H.) shall furnish to Lender annual financial statements in form
reasonably satisfactory to Lender, with Crown Group, Inc., as long as it is a
reporting company, delivering its 10-Ks and 10-Qs, within thirty (30) days of
the filing of such reports. The financial statements received from the
individual Guarantors shall be certified by such Guarantor. Additionally, each
individual Guarantor shall deliver a copy of such Guarantor's Federal Income
Tax Return (including all schedules thereto and amendments thereof) filed
during the term hereof, within thirty (30) days of the filing of the same.
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6.9. NOTICE OF CHANGES. Borrower shall promptly notify Lender in writing
of any change of its officers, directors or key employees; change of location
of its principal offices, change of location of any of its principal assets;
any acquisition, disposition or reorganization of any corporate subsidiary,
affiliate or parent of Borrower; change of Borrower's name; death or withdrawal
of any partner (if Borrower is a partnership); any sale or purchase out of the
regular course of Borrower's business; material litigation of which Borrower is
a party; and any other material change in the business or financial affairs of
Borrower.
Notwithstanding the foregoing to the contrary, Borrower shall not open a
new location without Lender's prior written consent.
7. EVENTS OF DEFAULT AND REMEDIES
7.1. EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an "Event of Default":
A. If any payment of principal or interest or any other amount due Lender
is not paid within five (5) days after the same shall be due and payable.
B. If Borrower fails or neglects to perform, keep or observe any of the
terms, provisions, conditions or covenants, contained in this Agreement, any of
the other Loan Documents or any other agreement or document executed in
connection with the transactions contemplated by this Agreement or if any
representation, warranty or certification made by Borrower herein or in any
certificate or other writing delivered pursuant hereto shall prove to be untrue
in any material respect as of the date upon which the same was made or at any
time thereafter, and the same is not cured to Lender's satisfaction within ten
(10) days after Lender has given written notice to Borrower identifying such
Default.
C. If the validity or enforceability of any lien, charge, security
interest, mortgage, pledge or other encumbrance granted to Lender to secure the
Indebtedness shall be impaired in any respect or to any degree, for any reason,
or if any other lien, charge, security interest, mortgage, pledge or other
encumbrance shall be created or imposed upon the Collateral unless such lien,
charge, security interest, mortgage, pledge or other encumbrance is subordinate
to that of Lender, pursuant to a subordination and standstill agreement in a
form and substance acceptable to Lender.
D. If any judgment against Borrower not covered by insurance in an amount
in excess of Twenty-Five Thousand Dollars ($25,000.00), or any attachment or
other levy against the properties or assets of Borrower with respect to a claim
for any amount in excess of Twenty-Five Thousand Dollars ($25,000.00), remains
unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period
of thirty (30) days.
E. Default, which has not been cured within the terms of the documents
evidencing such obligations, in the payment of any sum due under any instrument
of indebtedness for borrowed money owed by Borrower to any person, or any other
continuing default under such instrument of indebtedness for borrowed money
that permits such indebtedness for borrowed money to become due prior to its
stated maturity or permits the holders of such indebtedness for borrowed money
to elect a majority of the board of directors or manage the business of
Borrower.
F. If a court or governmental authority of competent jurisdiction shall
enter an order, judgment or decree appointing, with or without Borrower's or
Guarantor's consent or acquiescence, a receiver, custodian, liquidator, trustee
or other officer with similar powers of Borrower or Guarantor or of the whole
or any substantial part of its properties or assets, or approving a petition
filed against Borrower or Guarantor seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under the
federal bankruptcy laws or any other applicable law, and such order, judgment
or decree shall remain unvacated, unstayed or not set aside for an aggregate of
thirty (30) days (whether or not consecutive) from the date of the entry
thereof or if any petition seeking such relief shall be filed against Borrower
or Guarantor and such petition shall not be dismissed within thirty (30) days.
G. An event shall occur which shall have a material adverse affect on the
operations or financial condition of the Borrower.
H. If Borrower shall: (i) be generally not paying their respective debts
as they become due; (ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency act or other act for the relief or aid of debtors;
(iii) make an assignment for the benefit of their creditors; (iv) consent to or
acquiesce in the appointment of a receiver, custodian, liquidator, trustee or
other officer with similar powers of either of their properties or assets; (v)
file a petition or answer seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the federal
bankruptcy laws or any other applicable law; (vi) be adjudicated insolvent or
be liquidated; (vii) admit in writing either of their inability to pay debts as
they become due; (viii) voluntarily suspend transaction of usual business; or
(ix) take any action, corporate or otherwise, for the purpose of any of the
foregoing.
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I. Any of the following shall occur: (i) entry of a court order that
enjoins, restrains or in any way prevents Borrower from conducting all or any
material part of its business affairs in the ordinary course of business or
(ii) withdrawal or suspension of any license or authority required for the
conduct of any material part of Borrower's business, provided, however,
Borrower shall have thirty (30) days to cure the suspension of any license or
authority, on the condition that Borrower is pursuing such cure continuously
and diligently during such thirty (30) days.
J. If any Guarantor gives notice of termination or terminates their
respective liability pursuant to the Guaranty Agreement executed in conjunction
with this Agreement.
7.2. ACCELERATION OF THE INDEBTEDNESS. Upon and after an Event of Default,
the outstanding principal balance together with all accrued but unpaid interest
on the Indebtedness and all other sums due and payable by Borrower to Lender
may, at the option of Lender and without demand, presentment, notice of
dishonor, notice of intent to demand or accelerate payment, diligence in
collecting, grace, notice and protest or a legal process of any kind, all of
which are hereby expressly waived, be declared, and immediately shall become
due and payable.
7.3. LOUISIANA CONFESSION OF JUDGMENT. In the event that Borrower is
domiciled in, or Collateral is located in, Louisiana, and to the extent of such
domicile or location where Louisiana law is applicable to this Agreement:
A. Borrower hereby CONFESSES JUDGMENT, up to the full amount of principal,
interest and attorney's fees and for any sums that Lender may advance during
the life of this Agreement for the payment of premiums of insurance, taxes and
assessments or for the protection and preservation of this Agreement as
authorized elsewhere in this Agreement, and does by these presents, consent,
agree and stipulate that, in the event of any payment of principal or interest
due hereunder not being promptly and fully paid when the same becomes due and
payable, or in the event of failure to comply with any of the obligations set
forth herein, the Indebtedness shall, at the option of Lender become due and
payable, and it shall be lawful for Lender, without making a demand and without
notice or putting in default, the same being hereby expressly waived, to cause
all and singular the Collateral herein secured to be seized and sold by
executory process issued by any competent court or to proceed with enforcement
of its security interest in any other manner provided by law; and
B. Borrower hereby expressly waives: (a) the benefit of appraisement, as
provided in Articles 2332, 2336, 2723, and 2724, Louisiana Code of Civil
Procedure, and all other laws conferring the same; (b) the demand and three (3)
days delay according by Articles 2639 and 2721, Louisiana Code of Civil
Procedure, and all other laws conferring the same; (c) the notice of seizure
required by Articles 2293 and 2721, Louisiana Code of Civil Procedure, and all
other laws conferring the same; (d) the three (3) days delay provided by
Articles 2331 and 2722, Louisiana Code of Civil Procedure, and all other laws
conferring the same; and (e) the benefit of the other provisions of Articles
2331, 2722 and 2723, Louisiana Code of Civil Procedure, and all other Articles
not specifically mentioned above; and Borrower expressly agrees to the
immediate seizure of the Collateral in the event of suit thereon.
7.4. REMEDIES. Upon and after an Event of Default, Lender shall have the
following rights and remedies, which individual remedies shall be
non-exclusive, cumulative and in addition to each and every other remedy set
forth in the Loan Documents or in this Agreement:
A. All of the rights and remedies of a secured party under the Uniform
Commercial Code as enacted in the State of Arizona, as amended, or other
applicable law.
B. The right, to the fullest extent permissible by law, to: (i) enter upon
the premises of Borrower, or any other place or places where the Collateral is
located and kept, without any obligation to pay rent to Borrower, through
self-help and without judicial process, without first obtaining a final
judgment or giving Borrower notice and opportunity for a hearing on the
validity of Lender's claim, and remove the Collateral therefrom to the premises
of Lender or any agent of Lender, for such time as Lender may desire, in order
to effectively collect and liquidate the Collateral; and/or (ii) require
Borrower to assemble the Collateral and make it available to Lender at a place
to be designated by Lender, in Lender's reasonable discretion.
C. The right to sell or otherwise dispose of any or all Collateral in its
then condition at public or private sale or sales, in lots or in bulk, for cash
or on credit, all as Lender, in its discretion, may deem advisable; provided
that such sales may be adjourned from time to time with or without notice. The
requirement of reasonable notice to Borrower of the time and place of any
public sale of the Collateral or of the time after which any private sale
either by Lender or at its option, a broker, or any other intended disposition
thereof is to be made, shall be met if such notice is mailed, postage prepaid,
to Borrower at the address of Borrower designated herein at least ten (10)
Business Days before the date of any public sale or at least ten (10) Business
Days before the time after which any private sale or other disposition is to be
made unless applicable law requires otherwise.
Lender shall have the right to conduct such sales on Borrower's premises
or elsewhere and shall have the right to use Borrower's premises without charge
for such sales for such time or times as Lender may see fit. Lender is hereby
granted a license or other right to use, without
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<PAGE> 22
charge, Borrower's labels, copyrights, rights of use of any name, trade
secrets, trade names, trademarks and advertising matter, or any property of a
similar nature, as it pertains to the Collateral, in advertising for sale and
selling any Collateral and Borrower's rights under all licenses and all
franchise agreements shall inure to Lender's benefit. Lender agrees to hold
Borrower harmless from any liability arising out of Lender's use of Borrower's
premises, labels, copyrights, rights of use of any name, trade secrets, trade
names, trademarks and advertising matter, or any property of a similar nature
as it pertains to advertising for sale, marshaling or selling the Collateral.
Lender shall have the right to sell, lease or otherwise dispose of the
Collateral, or any part thereof, for cash, credit or any combination thereof,
and Lender may purchase all or part of the Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment of such purchase
price, may set off the amount of such price against the Indebtedness owing by
Borrower to Lender. The proceeds realized from the sale of any Collateral shall
be applied first to reasonable costs and expenses, attorney's fees, expert
witness fees incurred by Lender for collection and for acquisition, completion,
protection, removal, storage, sale and delivery of the Collateral; second to
all payments, other than principal and interest, due under this Agreement;
third to interest due upon any of the Indebtedness; fourth to the principal
balance owing on the Indebtedness; and fifth the remainder, if any, to
Borrower, its successors or assigns, or to whomsoever may be lawfully entitled
to receive the same. If any deficiency shall arise, Borrower shall remain
liable to Lender therefor.
D. In the event that Borrower is domiciled in, or Collateral is located
in, Louisiana, and to the extent of such domicile or location where Louisiana
law is applicable to this Agreement, the right to cause all and singular the
hereinabove described Collateral to be seized and sold under executory process
without appraisement, appraisement being hereby expressly waived, as an
entirety or in parcels, as Lender may determine, to the highest bidder for
cash.
E. The right to appoint or seek appointment of a receiver, custodian or
trustee of Borrower or any of its properties or assets pursuant to court order.
F. The right to cease all advances hereunder.
G. All other rights and remedies that Lender may have at law or in equity.
7.5. NO WAIVER. No delay, failure or omission of Lender to exercise any
right upon the occurrence of any Default or Event of Default shall impair any
such right or shall be construed to be a waiver of any such Default or Event of
Default or an acquiescence therein. Lender may, from time to time, in a writing
waive compliance by the other parties with any of the terms of this Agreement
and its rights and remedies upon any Default or Event of Default, and, Borrower
agrees that no waiver by Lender shall ever be legally effective unless such
waiver shall be acknowledged and agreed in writing by Lender. No waiver of any
Default or Event of Default shall impair any right or remedy of Lender not
specifically waived. No single, partial or full exercise of any right of Lender
shall preclude any other or further exercise thereof. No modification or
amendment of or supplement to this Agreement or any other written agreement
between the parties hereto shall be valid or effective (or serve as a basis of
reliance by way of estoppel) unless the same is in writing and signed by the
party against whom it is sought to be enforced. The acceptance by Lender at any
time and from to time of a partial payment or partial performance of any of
Borrower's obligations set forth herein shall not be deemed a waiver,
reduction, modification or release from any Default or Event of Default then
existing. No waiver by Lender of any Default or Event of Default shall be
deemed to be a waiver of any other existing or any subsequent Default or Event
of Default.
7.6. APPLICATION OF PROCEEDS. After an Event of Default shall have
occurred and is continuing, all amounts received by Lender on account of any
Indebtedness and realized by Lender with respect to the Collateral, including
any sums which may be held by Lender, or the proceeds of any thereof, shall be
applied in the same manner as proceeds of Collateral as set forth in Section
7.4.C. hereof.
7.7 APPOINTMENT OF LENDER AS ATTORNEY-IN-FACT. Borrower irrevocably
designates, makes, constitutes and appoints Lender (and all persons reasonably
designated by Lender), with full power of substitution, as Borrower's true and
lawful attorney-in-fact (and not agent-in-fact) and Lender, or Lender's agent,
may, without notice to Borrower, and at such time or times thereafter as Lender
or said agent, in its discretion, may determine, in Borrower's or Lender's
name, at no duty or obligation on Lender, do the following:
A. All acts and things necessary to fulfill Borrower's administrative
duties pursuant to this Agreement, including, but not limited to, the execution
of financing statements;
B. Upon the occurrence of any Default, all acts and things necessary to
fulfill Borrower's obligations under this Agreement and the Loan Documents,
except as set forth in Section 7.7.C below, at the cost and expense of
Borrower.
C. In addition to, but not in limitation of the foregoing, at any time or
times upon the occurrence and during the continuance of an Event of Default,
Lender shall have the right: (i) to enter upon Borrower's premises and to
receive and open all mail directed to Borrower and remove all
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<PAGE> 23
payments to Borrower on the Receivables; however, Lender shall turn over to
Borrower all of such mail not relating to Receivables; (ii) in the name of
Borrower, to notify the Post Office authorities to change the address for the
delivery of mail addressed to Borrower to such address as Lender may designate
(notwithstanding the foregoing, for the purposes of notice and service of
process to or upon Borrower as set forth in this Agreement, Lender's rights to
change the address for the delivery of mail shall not give Lender the right to
change the address for notice and service of process to or upon Borrower in
this Agreement); (iii) demand, collect, receive for and give renewals,
extensions, discharges and releases of any Receivable; (iv) institute and
prosecute legal and equitable proceedings to realize upon the Receivables; (v)
settle, compromise, compound or adjust claims in respect of any Receivable or
any legal proceedings brought in respect thereof; (vi) generally, sell in whole
or in part for cash, credit or property to others or to itself at any public or
private sale, assign, make any agreement with respect to or otherwise deal with
any of the Receivables as fully and completely as though Lender were the
absolute owner thereof for all purposes, except to the extent limited by any
applicable laws and subject to any requirements of notice to Borrower or other
persons under applicable laws; (vii) take possession and control in any manner
and in any place of any cash or non-cash items of payment or proceeds of
Receivables; (viii) endorse the name of Borrower upon any notes, acceptances,
checks, drafts, money orders, chattel paper or other evidences of payment of
Receivables that may come into Lender's possession; and (ix) sign Borrower's
name on any instruments or documents relating to any of the Collateral, or on
drafts against Account Debtors; .
The appointment of Lender as attorney-in-fact for Borrower is coupled with
an interest and is irrevocable.
8. EXPENSES AND INDEMNITIES.
8.1. REIMBURSEMENT FOR EXPENSES. Upon the occurrence of a Default, except
as set forth in the SCHEDULE SECTION 8.1., Borrower agrees to reimburse Lender,
upon demand, for all reasonable out-of-pocket expenses (including costs of
establishing and maintaining accounts or arrangements set forth in Section
3.10, attorney's fees, expert witness fees and legal expenses) incurred in
connection with the evaluation of collateral, preservation of collateral, or
collection of the Indebtedness.
8.2. LENDER'S EXPENSES AND ATTORNEY'S FEES. UPON AND AFTER AN EVENT OF
DEFAULT, LENDER SHALL BE ENTITLED TO RECOVER FROM BORROWER AND GUARANTORS ALL
OF LENDER'S ATTORNEY'S FEES AND REASONABLE COSTS AND EXPENSES INCURRED IN THE
EXERCISE OF LENDER'S RIGHTS SET FORTH IN THIS AGREEMENT, AND ALL DAMAGES
SUSTAINED BY LENDER BY REASON OF MISREPRESENTATION, BREACH OF WARRANTY OR
BREACH OF COVENANT OF BORROWER HEREIN, EXPRESSED OR IMPLIED, WHETHER CAUSED BY
THE ACTS OR DEFAULTS OF BORROWER, ACCOUNT DEBTORS OR OTHERS; INCLUDING WITHOUT
LIMITATION, ALL ATTORNEY'S FEES ARISING FROM SUCH SERVICES, EXPERT WITNESS FEES
AND ANY EXPENSES, COSTS AND CHARGES RELATING THERETO, AND ALL OF THE FOREGOING
SHALL CONSTITUTE PART OF THE INDEBTEDNESS SECURED BY THE COLLATERAL AND SHALL
BE PAYABLE ON DEMAND.
8.3. GENERAL INDEMNIFICATION. Borrower hereby agrees to indemnify and hold
Lender harmless from and against any and all claims, liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements (collectively "Claim" or "Claims") of any kind or nature
whatsoever, asserted by any party other than Borrower, or with respect to
Borrower only as otherwise provided in this Agreement or pursuant to applicable
law regarding Lender's obligations to Borrower, which may be imposed on,
incurred by or asserted against Lender, or any of its officers, directors,
employees or agents (including accountants, attorneys or other professionals
hired by Lender) in any way relating to or arising out of the Loan Documents or
any action taken or omitted by Lender, or any of its officers, directors,
employees or agents (including accountants, attorneys or other professionals
hired by Lender) under the Loan Documents, except to the extent such
indemnified matters are finally found by a court to be caused by Lender's gross
negligence or wilful misconduct.
9. MISCELLANEOUS
9.1. NOTICES. All notices, demands, billings, requests and other written
communications hereunder shall be deemed to have been properly given: (i) upon
personal delivery; (ii) on the third Business Day following the day sent, if
sent by registered or certified mail; (iii) on the next Business Day following
the day sent, if sent by overnight express courier; or (iv) on the day sent or
if such day is not a Business Day on the next Business Day after the day sent
if sent by telecopy providing the receiving party has acknowledged receipt by
return telecopy, in each case, to Lender, Borrower or Guarantors at its address
and/or telecopy number as set forth in this Agreement or SCHEDULE SECTION 9.1,
or at such other address and/or telecopy number as either party may designate
for such purpose in a written notice given to the other party.
Lender shall have the right, on or after initial funding pursuant to the
terms of this Agreement, to issue a press release or other brochure announcing
the consummation of the Loan Documents and to distribute that information to
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third parties in the normal course of Lender's business, at no cost to
Borrower.
9.2. PARTICIPATIONS. Borrower and Guarantors acknowledge and agree that
Lender may from time to time sell or offer to sell interests in the
Indebtedness and the Loan Documents to one or more participants. Borrower and
Guarantors authorize Lender to disseminate any information it has pertaining to
the Indebtedness, including without limitation, complete and current credit
information on Borrower and any of its principals and Guarantors, to any such
participant or prospective participant.
9.3. SURVIVAL OF AGREEMENTS. All of the various representations,
warranties, covenants and agreements of Borrower (including without limitation,
any agreements to pay costs and expenses and to indemnify Lender) in the Loan
Documents shall survive the execution and delivery of the Loan Documents and
the performance under such Loan Documents, and shall further survive until one
(1) year and one (1) month after all of the Indebtedness is paid in full to
Lender and all of Lender's obligations to Borrower under the Loan Documents are
terminated.
9.4. NO OBLIGATION BEYOND MATURITY. Borrower agrees and acknowledges that
upon the Maturity Date, Lender shall have no obligation to renew, extend,
modify or rearrange the Loan and shall have the right to require all amounts
due and owing under the Loan to be paid in full upon such date.
9.5. PRIOR AGREEMENTS SUPERSEDED. This Agreement constitutes the sole and
only agreement of the parties hereto and supersedes any prior understandings or
written or oral agreements between the parties respecting the subject matter of
this Agreement. No provision of this Agreement or other document or instrument
relating hereto may be modified, waived or terminated except by instrument in
writing executed by the party against whom a modification, waiver or
termination is sought to be enforced.
9.6. PARTIES BOUND. This Agreement shall be binding on and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and assigns, except as
otherwise expressly provided for herein. Borrower and Guarantor shall not
assign any of their respective rights or obligations pursuant this Agreement.
9.7. NUMBER AND GENDER. Whenever used herein, the singular number shall
include the plural and the plural the singular, and the use of any gender shall
be applicable to all genders. The duties, covenants, obligations and warranties
of Borrower in this Agreement shall be joint and several obligations of
Borrower and of each Borrower if more than one.
9.8. NO THIRD PARTY BENEFICIARY. This Agreement is for the sole benefit of
Lender and Borrower and is not for the benefit of any third party.
9.9. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original, and
all of which taken together shall constitute but one and the same instrument.
9.10. SEVERABILITY OF PROVISIONS. Any provision which is determined to be
unconscionable, against public policy or any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
9.11. HEADINGS. The Article and Section headings used in this Agreement
are for convenience only and shall not affect the construction of this
Agreement.
9.12. SCHEDULES AND EXHIBITS. Any and all exhibits hereto are hereby
expressly incorporated by reference as though fully set forth at that point
verbatim. All terms and provisions as defined or set forth in Article 1 and in
any Schedule are hereby incorporated into and made a part of this Agreement.
Each reference in this Agreement and the Schedule hereto to any information or
definitions contained in Article 1 or the Schedule shall mean and refer to the
information or definitions as set forth in Article 1 and the Schedule unless
the context specifically requires otherwise. Any terms used in Article 1 and in
the Schedule which are not defined shall have the meanings ascribed to such
terms, as of the date of this Agreement, by the Uniform Commercial Code as
enacted in the State of Arizona to the extent the same are defined therein.
9.13. FURTHER INSTRUMENTS. Borrower and Guarantors shall from time to time
execute and deliver, and shall cause each of Borrower's subsidiaries to execute
and deliver, all such amendments, supplements and other modifications hereto
and to the other Loan Documents and all such financing statements or
continuation statements, instruments of further assurance and any other
instruments, and shall take such other actions, as Lender reasonably requests
and deems necessary or advisable in furtherance of the agreements contained
herein.
9.14. LENDER'S EXPENSES AND ATTORNEY'S FEES. UPON AND AFTER AN EVENT OF
DEFAULT, LENDER SHALL BE ENTITLED TO RECOVER FROM BORROWER AND GUARANTORS ALL
OF LENDER'S ATTORNEY'S FEES AND REASONABLE COSTS AND EXPENSES INCURRED IN THE
EXERCISE OF
-24-
<PAGE> 25
LENDER'S RIGHTS SET FORTH IN THIS AGREEMENT, AND ALL DAMAGES SUSTAINED BY
LENDER BY REASON OF MISREPRESENTATION, BREACH OF WARRANTY OR BREACH OF COVENANT
OF BORROWER HEREIN, EXPRESSED OR IMPLIED, WHETHER CAUSED BY THE ACTS OR
DEFAULTS OF BORROWER, ACCOUNT DEBTORS OR OTHERS; INCLUDING WITHOUT LIMITATION,
ALL ATTORNEY'S FEES ARISING FROM SUCH SERVICES, EXPERT WITNESS FEES AND ANY
EXPENSES, COSTS AND CHARGES RELATING THERETO, AND ALL OF THE FOREGOING SHALL
CONSTITUTE PART OF THE INDEBTEDNESS SECURED BY THE COLLATERAL AND SHALL BE
PAYABLE ON DEMAND.
9.15. GOVERNING LAW. THIS AGREEMENT HAS BEEN EXECUTED AND DELIVERED BY
BORROWER AND GUARANTOR AND ACCEPTED BY LENDER IN MARICOPA COUNTY, ARIZONA AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS
OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF ARIZONA.
9.16. JURISDICTION AND VENUE. TO INDUCE THE LENDER TO ENTER INTO THIS
AGREEMENT, BORROWER, GUARANTORS AND LENDER IRREVOCABLY AGREE THAT, SUBJECT TO
THE LENDER'S ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR
RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS OR THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN
THE COUNTY OF MARICOPA, STATE OF ARIZONA. BORROWER, GUARANTORS AND LENDER
HEREBY CONSENT AND SUBMIT TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL
COURT LOCATED WITHIN SAID COUNTY AND STATE AND WAIVE PERSONAL SERVICE OF ANY
AND ALL PROCESS UPON BORROWER, AND AGREE THAT ALL SUCH SERVICE OF PROCESS MAY
BE MADE BY REGISTERED MAIL DIRECTED TO BORROWER AT THE ADDRESS SET FORTH IN
SCHEDULE SECTION 9.16 AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON
ACTUAL RECEIPT THEREOF.
9.17. WAIVER. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT AND TO
THE EXTENT NOT PROHIBITED BY APPLICABLE LAW, BORROWER AND EACH GUARANTOR HEREBY
WAIVES (i) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST,
DEFAULT, NON-PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, AND ONE OR
MORE EXTENSIONS OR RENEWALS OF ANY OR ALL ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS,
INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY THE LENDER ON
WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS
WHATEVER THE LENDER MAY DO IN THIS REGARD; (ii) ALL RIGHTS TO NOTICE AND
HEARING PRIOR TO THE LENDER'S TAKING POSSESSION OR CONTROL OF, OR THE LENDER'S
REPLEVIN, ATTACHMENT OR LEVY ON OR OF THE COLLATERAL OR ANY BOND OR SECURITY
WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING THE LENDER TO EXERCISE
ANY OF THE LENDER'S REMEDIES; AND (iii) THE BENEFIT OF ALL VALUATION,
APPRAISEMENT OR EXEMPTION LAWS.
9.18. ADVICE OF COUNSEL. BORROWER AND EACH GUARANTOR ACKNOWLEDGES THAT
THEY HAVE BEEN REPRESENTED AND ADVISED BY INDEPENDENT LEGAL COUNSEL WITH
RESPECT TO THE NEGOTIATION, EXECUTION AND ACCEPTANCE OF THIS AGREEMENT AND THE
TRANSACTION GOVERNED BY THIS AGREEMENT AND SPECIFICALLY WITH RESPECT TO THE
PROVISIONS CONTAINED IN SECTIONS 8.3, 9.15, 9.16, 9.17, 9.18, 9.19 and 9.20
HEREOF AND HAS RELIED UPON THE ADVICE OF ITS INDEPENDENT LEGAL COUNSEL IN
AGREEING TO THE TERMS AND CONDITIONS HEREIN AND IN EXECUTING AND DELIVERING
THIS AGREEMENT, AND THAT THEY HAVE FREELY AND VOLUNTARILY ENTERED INTO THIS
AGREEMENT AS THE PRODUCT OF ARMS' LENGTH NEGOTIATIONS.
9.19. WAIVER OF RIGHT TO TRIAL BY JURY. LENDER, BORROWER AND GUARANTORS
HEREBY COVENANT AND AGREE THAT IN ANY SUIT, ACTION OR PROCEEDING IN RESPECT OF
ANY MATTER ARISING OUT OF THIS AGREEMENT, THE DOCUMENTS EXECUTED IN CONNECTION
HEREWITH, ANY WRITTEN AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER NOW
EXISTING OR HEREAFTER ARISING OR IN ANY WAY RELATED TO, CONNECTED WITH OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE, TRIAL
SHALL BE TO A COURT OF COMPETENT JURISDICTION AND NOT TO A JURY; LENDER,
BORROWER AND EACH GUARANTOR HEREBY EXPRESSLY WAIVE ANY RIGHT THEY MAY HAVE TO A
TRIAL BY JURY. ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
9.20. TIME OF ESSENCE. Subject to any grace periods, cure periods or other
such provisions herein, time
-25-
<PAGE> 26
is of the essence for the performance the obligations set forth in this
Agreement and the Loan Documents.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first set forth above.
BORROWER:
PREMIUM AUTO ACCEPTANCE CORPORATION
By:
--------------------------------------------
Daniel Chu, President (Date)
75-2573171
Tax Payer Identification No.
PAACO AUTOMOTIVE GROUP, INC.
By:
--------------------------------------------
Daniel Chu, President (Date)
75-2457739
Tax Payer Identification No.
GUARANTORS:
- -----------------------------------------------
Larry W. Lange
###-##-####
Social Security No.
- -----------------------------------------------
Daniel Chu
###-##-####
Social Security No.
- -----------------------------------------------
Vicky Chu
###-##-####
Social Security No.
- -----------------------------------------------
Theodore Lange
###-##-####
Social Security No.
Crown Group, Inc.
By:
--------------------------------------------
Daniel Chu, Authorized Agent (Date)
- -------------------------------
Tax Payer Identification Number
LENDER:
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By:
--------------------------------------------
J. Steven Cammack, Vice President (Date)
94-1278569
Tax Payer Identification Number
-26-
<PAGE> 27
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
Rediscount Finance
SCHEDULE TO
FIRST AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
BORROWER: PREMIUM AUTO ACCEPTANCE CORPORATION
ADDRESS: 605 SOUTH LOOP 12
IRVING, TEXAS 75060
BORROWER: PAACO AUTOMOTIVE GROUP, INC.
ADDRESS: 605 SOUTH LOOP 12
IRVING, TEXAS 75060
DATE: MARCH 8, 1999
This Schedule to First Amended and Restated Loan and Security Agreement
("A Schedule") is executed in conjunction with a certain First Amended and
Restated Loan and Security Agreement ("Agreement"), dated of even date herewith,
by and between FINOVA Capital Corporation, as Lender, and the borrowers named
above (collectively referred to herein as the "Borrowers" and singularly as
"Borrower"), all of whose chief executive offices are located at the above
addresses (collectively referred to herein as "Borrowers' Address"). Each
Borrower shall be separately defined as set forth in the Schedule. All
representations, warranties, covenants, agreements, undertaking or other
obligations of Borrower as set forth in this Agreement and all other Loan
Documents are made by each Borrower as separately set forth for each Borrower in
this Agreement and the other Loan Documents. All financial covenants and ratios
set forth herein shall be applied to the Borrowers in the aggregate.
================================================================================
1.A. BORROWERS (SECTION 1).
Each Borrower shall be referred to herein as follows:
Premium Auto Acceptance Corporation - "Premium"
PACCO AUTOMOTIVE GROUP, INC. - "PAACO" or "Lead Borrower"
================================================================================
1.B. MAXIMUM MILEAGE OF ELIGIBLE INVENTORY AND MAXIMUM AGE OF ELIGIBLE
INVENTORY (SECTION 1)
The term "Maximum Mileage of Eligible Inventory" shall mean,
with respect to each item of Inventory, the actual mileage,
according to the odometer of the vehicle, with respect to cars
shall be ninety thousand (90,000) miles and with respect to
trucks and sport utility vehicles shall be one hundred twenty
thousand (120,000) miles.
-1-
<PAGE> 28
The term "Maximum Age of Eligible Inventory" shall mean, with
respect to each item of Inventory, the number years from the
year of determination to the model year, eight (8) years.
================================================================================
1.C. MAXIMUM COST OF ELIGIBLE INVENTORY (SECTION 1)
The term "Maximum Cost of Eligible Inventory" shall mean, with
respect to each item of Inventory, the purchase price of such
item of Inventory shall be Ten Thousand Dollars ($10,000.00).
Only that portion of the purchase price that exceeds Ten
Thousand Dollars ($10,000.00) shall be ineligible for the
purposes of determining availability.
================================================================================
1.D. MAXIMUM OWNERSHIP (SECTION 1)
The term "Maximum Ownership" shall mean ninety (90) days from
the date of the invoice that evidences the purchase of each
vehicle of Inventory by Borrower.
================================================================================
1.E. MAXIMUM AMOUNT OF AN ELIGIBLE RECEIVABLE (SECTION 1).
The term "Maximum Amount of an Eligible Receivable" shall mean
the sum of Nineteen Thousand Dollars ($19,000.00) remaining
due thereon at any date of determination, excluding all
unearned finance charges pursuant to the Eligible Receivables.
================================================================================
1.F. MAXIMUM TERM OF AN ELIGIBLE RECEIVABLE (SECTION 1).
The "Maximum Term of an Eligible Receivable" shall be
thirty-six (36) months remaining until the due date of such
Eligible Receivable at any date of determination.
================================================================================
1.G. AGING PROCEDURES AND ELIGIBILITY TEST (SECTION 1).
AGING PROCEDURES FOR A CONTRACTUAL AGING:
1. No payment missed or due = Current.
2. 1 to 30 days past due = "30 day Account".
3. 31 to 60 days past due = "60 day Account".
4. 61 or more days past due = "60 + day Account"
ELIGIBILITY TEST:
The term "Eligibility Test" shall mean the test to determine the eligibility of
a Receivable for the purposes of Section 1.11 hereof, that test, no payment due
on said Receivable remains unpaid more than sixty (60) days from the specific
date on which such payment was due pursuant to the terms of said Receivable.
-2-
<PAGE> 29
================================================================================
1.H. GUARANTOR (WHETHER ONE OR MORE) (SECTION 1).
Crown Group, Inc. (Limited)
Larry Lange
Daniel and Vicky Chu
Theodore Lange
Upon the execution of this Schedule to First Amended
and Restated Loan and Security Agreement by Lender
Mary Lange's Guaranty shall be released. Such release
is conditioned upon that upon any partitioning or
other division of assets between Mary Lange and Larry
Lange, that Larry Lange retains or receives assets,
after such partitioning or division, wherein he has
at least fifty percent (50%) of the value of the
combined assets of Mary Lange and Larry Lange.
================================================================================
2.1.A. AMOUNT OF REVOLVING CREDIT LINE AND THE AMOUNT OF THE INVENTORY CREDIT
LINE (SECTION 2.1):
(i) The "Amount of the Revolving Credit Line" shall be:
(a) if the date of determination is prior to
June 30, 1999, Forty-Eight Million Dollars
($48,000,000.00);
(b) if the date of determination is on or after
July 1, 1999, Sixty Million Dollars
($60,000,000.00).
(ii) The "Amount of the Inventory Credit Line" shall be
Three Million Dollars ($3,000,000.00).
================================================================================
2.1.B. AVAILABILITY ON ELIGIBLE RECEIVABLES (SECTION 2.1):
The "Availability on Eligible Receivables" shall be an amount
equal to sixty-seven and one-half percent (67.5%) of the
aggregate unmatured and unpaid amount due to Borrower from the
Account Debtor named thereon, excluding all unearned finance
charges, pursuant to the Eligible Receivables.
Notwithstanding any provision contained in the Loan Documents
to the contrary, if (i) for the twelve (12) calendar month
period immediately prior to any date of determination, the
Collateral Recovery Rate is less than seventy-two percent
(72%),(ii) on any date of determination the Collateral
Performance Percentage is greater than seven percent (7%) or
(iii) for the twelve (12) calendar month period immediately
prior to any date of determination, the Cash Sales Percentage
is greater than five percent (5%), then upon the occurrence of
any of these events, Lender, in its sole and absolute
discretion, may modify the Availability on Eligible
Receivables advance percentage set forth above and/or the
Availability on Eligible Inventory advance percentage set
forth below in SCHEDULE SECTION 2.1.C. .
================================================================================
2.1.C. AVAILABILITY ON ELIGIBLE INVENTORY (SECTION 2.1)
The "Availability on Eligible Inventory" shall be lesser of
(i) the Amount of the Inventory Credit Line, or (ii) the
aggregate amount with respect to all Eligible Inventory of the
lesser of (a) fifty percent (50%) of the invoice cost, as
evidence by a bill of sale or other documents evidencing the
purchase price of such Inventory (provided that the cost of a
"trade-in" shall not exceed fifty percent (50%) of "average
value" Black Book, as defined below), or (b) fifty percent
(50%) of the "average value" Black Book (pursuant to the most
current
-3-
<PAGE> 30
edition of the "Black Book" as published by National Auto
Research Division, Hearst Business Media Corporation, for the
market area of Borrower).
================================================================================
2.2. STATED INTEREST RATE (SECTION 2.2).
The Receivables Stated Interest Rate shall be the lesser of
(i) the Governing Rate plus three percent (3.0%) per annum or
(ii) the Maximum Rate.
The Inventory Stated Interest Rate shall be the lesser of (a)
the Governing Rate plus three percent (3.00%) per annum; or
(b) the Maximum Rate.
================================================================================
2.3. MATURITY DATE (SECTION 2.3.C).
The primary term of this Agreement shall expire on June 30,
2000. If Borrower desires to extend the primary term or any
term thereafter of this Agreement, Borrower shall give Lender
notice of its intent to extend the term no earlier than one
hundred and eighty (180) days and no later than one hundred
and fifty (150) days prior to any expiration date of this
Agreement. Upon the receipt by Lender of Borrower's notice to
extend the term of this Agreement, if Lender desires to renew
and extend the term of this Agreement, Lender shall give
Borrower notice of Lender's intent to extend the term of this
Agreement, within sixty (60) days of Lender's receipt of
Borrower's notice to extend. If Lender does not give Borrower
notice of Lender's intent to extend the term of this Agreement
within the sixty (60) days period, then it shall be deemed
that Lender does not intend to renew and extend the term of
this Agreement. Notwithstanding the foregoing, this Agreement
shall remain in full force and effect until the Indebtedness
due and owing to Lender has been paid in full.
================================================================================
2.6. LIQUIDATED DAMAGES (SECTION 2.6).
The amount of "Liquidated Damages" shall be:
(i) if prior to April 30, 2000, if Borrower pays the
balance of the Indebtedness in full and Borrower
requests Lender to terminate Lender's security
interest in the Collateral, an amount equal to three
percent (3%) of the Amount of the Revolving Credit
Line; and
(ii) if after April 30, 2000, if Borrower pays the balance
of the Indebtedness in full and Borrower requests
Lender to terminate Lender's security interest in the
Collateral, an amount equal to zero percent (0%) of
the Amount of the Revolving Credit Line; and
================================================================================
2.16. FACILITY FEE (SECTION 2.16).
The Facility Fee shall be One Thousand Dollars ($1,000.00) per month.
================================================================================
-4-
<PAGE> 31
3.2. BUSINESS LOCATIONS OF BORROWER (SECTIONS 3.2, 3.6 AND 5.1.N.).
All locations are as follows: 605 South Loop 12
Irving, Texas 75060
3200 E. Randol Mill Road
Arlington, Texas 76011
3500 N.E. 28th Street
Ft. Worth, Texas 76111
3363 W. Northwest Hwy
Dallas, Texas 75220
5125 Ross Avenue
Dallas, Texas 75206
945 E. Jefferson Street
Dallas, Texas 75203
2751-2781 S. Garland Road
Garland, Texas 75041
1640 S. Stemmons Frwy.
Carrollton, Texas 75006
9751 Webbs Chapel (Payment Center)
Dallas, Texas 75220
5334 Ross Avenue (Payment Center)
Dallas, Texas 75206\
5715 North Freeway
Houston, TX 77076
8011 Gulf Freeway
Houston, TX 77017
================================================================================
4.4. ANNUAL FINANCIAL STATEMENTS (SECTION 4.4).
Annual financial statements shall be audited annually by
independent certified public accountants acceptable to Lender.
================================================================================
5.1. BORROWER'S TRADENAMES (WHETHER ONE OR MORE)(SECTION 5.1.B.)
PAACO
PAACO, Inc.
================================================================================
-5-
<PAGE> 32
6.3.A. LEVERAGE RATIO LIMIT (SECTION 6.3.A).
The term "Leverage Ratio Limit" shall mean 4.0 to 1.0.
================================================================================
6.3.B. MINIMUM NET INCOME (SECTION 6.3.B).
The Minimum Net Income shall be One Dollar ($1.00) for any
fiscal year of Borrower.
================================================================================
6.3.C. DISTRIBUTIONS LIMITATION (SECTION 6.3.C).
Maximum Distributions shall not exceed seventy-five percent
(75%) of Net Income of the fiscal year in which such
Distributions are made.
================================================================================
8.1. REIMBURSEMENT OF EXPENSES (SECTION 8.1).
None, except as otherwise set forth in the Loan Agreement.
================================================================================
8.2. NOTICES (SECTION 8.2).
Lender: FINOVA Capital Corporation
(copy each office below with all notices)
CORPORATE FINANCE OFFICE:
FINOVA Capital Corporation
355 South Grand Avenue, Suite 2400
Los Angeles, CA 90071
Attn: John J. Bonano, Senior Vice President
Telephone: (213) 253-1600
Telecopy No.: (213) 625-0268
CORPORATE OFFICE:
FINOVA Capital Corporation
1850 N. Central Avenue
Phoenix, AZ 85077
Attn: Joseph R. D'Amore, Vice President - Group Counsel
Telephone: (602) 207-4900
Telecopy No.: (602) 207-5543
REDISCOUNT FINANCE OFFICE:
FINOVA Capital Corporation
16633 Dallas Parkway, Suite 700
Addison, TX 75001
Attn: Dan Black (Account Executive)
Telephone: (972) 764-1100
Telecopy No.: (972) 764-1135
-6-
<PAGE> 33
Borrower: Premium Auto Acceptance Corporation
605 South Loop 12
Irving, Texas 75060
Telephone: (972) 445-2180
Telecopy No. (972) 445-2328
Borrower: PAACO Automotive Group, Inc.
605 South Loop 12
Irving, Texas 75060
Telephone: (972) 445-2180
Telecopy No.: (972) 445-2328
Guarantor: Larry W. Lange
6 Braewick Ct.
Dallas, TX 75225
Telephone:
Telecopy No.:
Guarantor: Daniel Chu & Vicky Chu
10165 Gaywood
Dallas, TX 75229
Telephone:
Telecopy No.:
Guarantor: Theodore Lange
4040 Avondale, #408
Dallas, TX 75219
Telephone:
Telecopy No.:
Guarantor: Crown Group, Inc.
4040 North MacArthur Blvd., Suite 1000
Irving, Texas 75038
Telephone: (972) 717-3423
Telecopy No.: (972) 719-4466
Attn: Edward R. McMurphy, President
with a copy to: T.J. Falgout, III,
Executive Vice President and General Counsel
================================================================================
8.17. AGENT FOR SERVICE OF PROCESS (SECTION 8.17).
Daniel Chu, whose address is 605 South Loop 12, Irving, Texas 75225.
(Agent)
================================================================================
-7-
<PAGE> 34
IN WITNESS WHEREOF, the parties have executed this Schedule on the day and
year first set forth above.
LENDER:
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By:
--------------------------------------------------
J. Steven Cammack, Vice President (Date)
BORROWER:
PREMIUM AUTO ACCEPTANCE CORPORATION
By:
--------------------------------------------------
Daniel Chu, President (Date)
PAACO AUTOMOTIVE GROUP, INC.
By:
--------------------------------------------------
Daniel Chu, President (Date)
GUARANTORS:
Crown Group, Inc.
By:
--------------------------------------------------
Daniel Chu, Authorized Agent
-----------------------------------------------------
Larry W. Lange
-----------------------------------------------------
Daniel Chu
-----------------------------------------------------
Vicky Chu
-----------------------------------------------------
Theodore Lange
-8-
<PAGE> 35
[FINOVA FINANCIAL INNOVATORS LOGO]
Rediscount Finance
TWELFTH AMENDED AND RESTATED
PROMISSORY NOTE
$60,000,000.00 PHOENIX, ARIZONA MARCH 8, 1999
FOR VALUE RECEIVED, the undersigned ("MAKER"), hereby unconditionally
promises to pay to the order of FINOVA CAPITAL CORPORATION, a Delaware
corporation, ("HOLDER") formerly known as Greyhound Financial Corporation, at
HOLDER's branch address at 16633 Dallas Parkway, Suite 700, Dallas, Texas 75001,
or at such other place as HOLDER may designate in writing, the principal sum of
Sixty Million Dollars ($60,000,000.00) or so much thereof as shall be advanced
or readvanced, with interest thereon at the Stated Interest Rate calculated on
the average daily balance outstanding, as follows:
1. DEFINITIONS. When used herein, the following terms have the meanings
given in this paragraph:
A. Loan Agreement. The term "Loan Agreement" shall mean that
certain First Amended and Restated Loan and Security Agreement dated
March 8, 1999, entered into by and between FINOVA Capital Corporation,
as Lender, and MAKER, as Borrower, and all amendments, substitutions,
renewals and extensions thereof. All terms used herein which are not
expressly defined herein shall have the meanings ascribed to them in
the Loan Agreement.
B. Maximum Rate. The term "Maximum Rate" shall mean the
highest lawful rate of interest applicable to this NOTE. In determining
the Maximum Rate, due regard shall be given to all payments, fees,
charges, deposits, balances and agreements which may constitute
interest or be deducted from principal when calculating interest.
2. PAYMENT. The principal and interest of this NOTE are payable as
follows:
A. Accrued but unpaid interest for each calendar month during
the term hereof shall be due and payable monthly, in arrears, on the
fifteenth (15th) day of the immediately succeeding calendar month that
commences on March 15, 1999. All outstanding principal together with
all accrued and unpaid interest shall be due and payable, if not sooner
paid, on June 30, 2000. All payments received hereunder shall be
applied as set forth in the Loan Agreement.
B. Notwithstanding the foregoing, principal shall be
immediately due and payable without written notice and demand from
Lender in such amounts so that the outstanding balance hereunder does
not, at anytime, exceed the amount of the Loan as determined pursuant
to Section 2.1 of the Loan Agreement. The amount of such payments shall
be determined by HOLDER pursuant to the terms of the Loan Agreement and
based upon the principal balance of this NOTE then outstanding as
determined pursuant to the Loan Agreement and as shown on the books and
records of HOLDER, maintained in accordance with its usual practice,
the entries of which being conclusive evidence of the existence and
amounts as therein recorded.
C. All of the principal hereunder may be prepaid in full or in
part at any time; however, such voluntary prepayments shall be subject
to the voluntary prepayment provisions set forth in Article 2.6 of the
Loan Agreement.
-1-
<PAGE> 36
3. PRINCIPAL BALANCE. The unpaid principal balance of this NOTE at any
time shall be the total amounts loaned or advanced hereunder by HOLDER, less the
amount of payments or prepayments of principal made hereon by or for the account
of MAKER. It is contemplated that by reason of payments or prepayments hereon
there may be times when no indebtedness is owing hereunder; but notwithstanding
such occurrences, this NOTE shall remain valid and shall be in force and effect
as to loans or advances made pursuant to and under the terms of this NOTE
subsequent to each such occurrence. All loans or advances and all payments or
prepayments made hereunder on account of principal or interest may be evidenced
by HOLDER, or any subsequent holder, maintaining in accordance with its usual
practice an account or accounts evidencing the indebtedness of MAKER resulting
from all loans or advances and all payments or prepayments hereunder from time
to time in the amounts of principal and interest payable and paid from time to
time hereunder, in which event, in any legal action or proceeding in respect of
this NOTE, subject to Section 2.8 of the Loan Agreement, the entries made in
such account or accounts shall be conclusive evidence of the existence and
amounts of the obligations of MAKER therein recorded. In the event that the
unpaid principal amount hereof, at any time and for any reason, exceeds the
maximum amount hereinabove specified, MAKER covenants and agrees to pay the
excess principal amount immediately without notice or demand; such excess
principal amount shall in all respects be deemed to be included among the loans
or advances made pursuant to the other terms of this NOTE and shall bear
interest at the rate hereinabove stated.
4. ADVANCES. This Promissory Note is the "Note" referred to in the Loan
Agreement and the Holder is entitled to all the rights, remedies and benefits of
the Lender thereunder. Reference is hereby made to the Loan Agreement for the
terms and conditions under which this Note is to be made and to be repaid.
5. DEFAULT, REMEDIES. Upon the occurrence of any one or more of the
Events of Default set forth in the Loan Agreement, at the option of the holder
of this NOTE, the entire unpaid principal balance and accrued and unpaid
interest hereon shall at once become due and payable without notice or demand
and the Holder may foreclose and enforce all liens and security interests
securing this NOTE.
If this NOTE is not paid when due, whether at maturity or by
acceleration, or if it is collected through a bankruptcy, probate, or other
judicial proceeding, whether before or after maturity, MAKER agrees to pay
attorney's fees, together with all actual expenses of collection and litigation
and costs of court incurred by the Holder, whether or not suit is actually filed
or not.
6. WAIVER. MAKER and all other makers, signers, sureties, guarantors
and endorsers of this NOTE waive demand, presentment, notice of dishonor, notice
of intent to demand or accelerate payment hereof, diligence in the collecting,
grace, notice and protest, and agree to one or more extensions for any period or
periods of time and partial payments, before or after maturity, without
prejudice to HOLDER.
7. SECURITY. This NOTE is secured by certain security interests as set
forth in the Loan Agreement.
8. CONTROLLING AGREEMENT. The contracted for rate of interest of the
Loan without limitation, shall consist of the following: (i) the Stated Interest
Rate, calculated and applied to the principal balance of the Note in accordance
with the provisions of this Note and the Loan Agreement; (ii) Interest After
Event of Default or Due Date, calculated and applied to the amounts due under
this Note in accordance with the provisions thereof; and (iii) all Additional
Sums (as herein defined), if any. Borrower agrees to pay an effective contracted
for rate of interest which is the sum of the above-referenced elements.
All fees, charges, goods, things in action or any other sums or things
of value (other than amounts described in the immediately previous paragraph),
paid or payable by Borrower (collectively, the "Additional Sums"), whether
pursuant to this Note, the Loan Agreement or any other documents or instruments
in any way pertaining to this lending transaction, or otherwise with respect to
this lending transaction, that under any applicable law may be deemed to be
interest with respect to this lending transaction, for the purpose of any
applicable law that may limit the maximum amount of interest to be charged with
respect to this lending transaction, shall be payable by Borrower as, and shall
be deemed to be, additional interest and for such purposes only, the agreed upon
and "contracted for rate of interest" of this lending transaction shall be
deemed to be increased by the rate of interest resulting from the inclusion of
the Additional Sums.
-2-
<PAGE> 37
It is the intent of the parties to comply with the usury law
("Applicable Usury Law") applicable pursuant to the terms of the preceding
paragraph or such other usury law which is applicable if the law chosen by the
parties is not applicable. Accordingly, it is agreed that notwithstanding any
provisions to the contrary in this NOTE, or in any of the documents securing
payment hereof or otherwise relating hereto, in no event shall this NOTE or such
documents require the payment or permit the collection of interest in excess of
the maximum contract rate permitted by the Applicable Usury Law. In the event
(a) any such excess of interest otherwise would be contracted for, charged or
received from Maker or otherwise in connection with the loan evidenced hereby,
or (b) the maturity of the indebtedness evidenced by this NOTE is accelerated in
whole or in part, or (c) all or part of the principal or interest of this NOTE
shall be prepaid, so that under any of such circumstances the amount of interest
contracted for, shared or received in connection with the loan evidenced hereby,
would exceed the maximum contract rate permitted by the Applicable Usury Law,
then in any such event (1) the provisions of this paragraph shall govern and
control, (2) neither Maker nor any other person or entity now or hereafter
liable for the payment hereof will be obligated to pay the amount of such
interest to the extent that it is in excess of the maximum contract rate
permitted by the Applicable Usury Law, (3) any such excess which may have been
collected shall be either applied as a credit against the then unpaid principal
amount hereof or refunded to Maker, at Holder's option, and (4) the effective
rate of interest will be automatically reduced to the maximum amount of interest
permitted by the Applicable Usury Law. It is further agreed, without limiting
the generality of the foregoing, that to the extent permitted by the Applicable
Usury Law; (x) all calculations of interest which are made for the purpose of
determining whether such rate would exceed the maximum contract rate permitted
by the Applicable Usury Law shall be made by amortizing, prorating, allocating
and spreading during the period of the full stated term of the loan evidenced
hereby, all interest at any time contracted for, charged or received from Maker
or otherwise in connection with such loan; and (y) in the event that the
effective rate of interest on the loan should at any time exceed the maximum
contract rate allowed under the Applicable Usury Law, such excess interest that
would otherwise have been collected had there been no ceiling imposed by the
Applicable Usury Law shall be paid to Holder from time to time, if and when the
effective interest rate on the loan otherwise falls below the maximum amount
permitted by the Applicable Usury Law, to the extent that interest paid to the
date of calculation does not exceed the maximum contract rate permitted by the
Applicable Usury Law, until the entire amount of interest which would have
otherwise been collected had there been no ceiling imposed by the Applicable
Usury Law has been paid in full. Maker further agrees that should the maximum
contract rate permitted by the Applicable Usury Law be increased at any time
hereafter because of a change in the law, then to the extent not prohibited by
the Applicable Usury Law, such increases shall apply to all indebtedness
evidenced hereby regardless of when incurred; but, again to the extent not
prohibited by the Applicable Usury Law, should the maximum contract rate
permitted by the Applicable Usury Law be decreased because of a change in the
law, such decreases shall not apply to the indebtedness evidenced hereby
regardless of when incurred.
9. APPLICABLE LAW. This NOTE shall be construed in accordance with the
laws of the State of Arizona and the laws of the United States applicable to
transactions in the State of Arizona.
10. NO WAIVER. No delay on the part of the HOLDER in the exercise of
any power or right under this NOTE, or under the LOAN AGREEMENT or any other
instrument executed in connection herewith, shall operate as a waiver thereof,
nor shall a single or partial exercise of any power or right preclude other or
further exercise thereof or exercise of any other power or right. Enforcement by
HOLDER of any security for the payment hereof shall not constitute any election
by it of remedies so as to preclude the exercise of any other remedy available
to it.
11. SUCCESSORS, ASSIGNS. The term "HOLDER" shall include all of
HOLDER's successors and assigns to whom the benefits of this NOTE shall inure.
12. RENEWAL AND EXTENSION. This Twelfth Amended and Restated Promissory
Note is executed in conjunction with that certain First Amended and Restated
Loan and Security Agreement and other documents executed in conjunction
therewith, dated of even date herewith, by and between HOLDER and MAKER amending
that certain Loan and Security Agreement, dated December 14, 1995. This Twelfth
Amended and Restated Promissory Note is a renewal and extension of and not an
extinguishment of that certain Promissory Note, dated December 14, 1995, in the
stated principal amount of $6,500,000.00, that certain Amended and Restated
Promissory Note, dated May 22, 1996, in the stated principal amount of Twelve
Million Dollars ($12,000,000.00), that certain Second Amended and Restated
Promissory Note, dated January 7, 1997, in the stated principal amount of
Thirteen Million Dollars ($13,000,000.00), that certain Third Amended and
Restated Promissory Note, dated March 24, 1997, in the stated principal amount
of Fourteen Million Dollars ($14,000,000.00), that certain Fourth Amended and
Restated Promissory Note, dated April 17, 1997, in the
-3-
<PAGE> 38
stated principal amount of Twenty Million Dollars ($20,000,000.00), that certain
Fifth Amended and Restated Promissory Note, dated October 2, 1997, in the stated
principal amount of Twenty One Million Dollars ($21,000,000.00), that certain
Sixth Amended and Restated Promissory Note, dated October 27, 1997, in the
stated principal amount of Twenty Two Million Dollars ($22,000,000.00), that
certain Seventh Amended and Restated Promissory Note, dated November 25, 1997,
in the stated principal amount of Twenty Five Million Dollars ($25,000,000.00)
Eighth Amended and Restated Promissory Note, dated February 5, 1998, in the
stated principal amount of Thirty-Five Million Dollars ($35,000,000.00), that
certain Ninth Amended and Restated Promissory Note, dated October 26, 1998, in
the stated principal amount of Thirty-Six Million Five Hundred Thousand Dollars
($36,500,000.00), that certain Tenth Amended and Restated Promissory Note, dated
December 10, 1998, in the stated principal amount of Thirty Eight Million
Dollars ($38,000,000.00), and that certain Eleventh Amended and Restated
Promissory Note, dated March 3, 1999, in the stated principal amount of
Forty-Three Million Dollars ($43,000,000.00), each executed by MAKER in favor of
HOLDER. This Twelfth Amended and Restated Promissory Note is secured by liens
granted to Holder on certain collateral, this Twelfth Amended and Restated
Promissory Note is a continuation of MAKER's obligations to HOLDER and such
obligations and liens, mortgages, deeds of trust or security interests are not
extinguished by this Twelfth Amended and Restated Promissory Note but are hereby
renewed and extended.
MAKER:
Premium Auto Acceptance Corporation,
a Texas corporation
By:
---------------------------------------------
Daniel Chu, President
PAACO Automotive Group, Inc.,
a Texas corporation
By:
---------------------------------------------
Daniel Chu, President
-4-
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<PERIOD-END> JAN-31-1999
<CASH> 3,713,699
<SECURITIES> 8,659,385
<RECEIVABLES> 122,571,902
<ALLOWANCES> (15,533,338)
<INVENTORY> 7,457,556
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0
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<TOTAL-LIABILITY-AND-EQUITY> 163,453,789
<SALES> 49,598,072
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