================================================================================
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
For the Quarter Ended March 31, 1999.
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number: 814-00149
AMERICAN CAPITAL STRATEGIES, LTD.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-145-1377
- --------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 Bethesda Metro Center, Suite 860
Bethesda, Maryland 20814
---------------------------------------
(Address of principal executive office)
(301) 951-6122
-------------------------------
(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 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. The number of shares
of the issuer's Common Stock, $.01 par value, outstanding as of May 12, 1999 was
11,122,528.
================================================================================
<PAGE>
AMERICAN CAPITAL STRATEGIES, LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheets as of March 31, 1999 and December 31, 1998.....................................1
Schedules of Investments as of March 31, 1999 and December 31, 1998...........................2
Statements of Operations for the three months ended
March 31, 1999 and 1998..............................................................4
Statementof Shareholders' Equity for the three months ended
March 31, 1999 and the three months ended March 31, 1998.............................5
Statements of Cash Flows for the three months ended
March 31, 1999 and 1998.............................................................6
Financial Highlights for the three months ended
March 31, 1999 and 1998..............................................................7
Notes to Financial Statements.................................................................8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation
Overview.....................................................................................11
Results of Operations........................................................................12
Financial Condition, Liquidity and Capital Resources.........................................14
Portfolio Credit Quality.....................................................................14
Impact of the Year 2000......................................................................15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................17
Item 2. Changes in Securities........................................................................17
Item 3. Defaults upon Senior Securities..............................................................17
Item 4. Submission of Matters to a Vote of Security Holders..........................................17
Item 5. Other Information............................................................................17
Item 6. Exhibits and Reports on Form 8-K.............................................................17
Signature................................................................................................18
</TABLE>
i
<PAGE>
PART I. FINANCIAL INFORMATION
AMERICAN CAPITAL STRATEGIES, LTD.
BALANCE SHEETS
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Assets
Investments at fair value (cost of $247,238 and $252,718, respectively) $ 251,489 $ 254,983
Cash and cash equivalents 1,231 6,149
Investment in unconsolidated operating subsidiary 5,991 6,386
Due from unconsolidated operating subsidiary 1,818 778
Interest receivable 2,030 1,561
Other 992 162
--------- ---------
Total assets $ 263,551 $ 270,019
========= =========
Liabilities and Shareholders' Equity
Accounts payable and accrued liabilities $ 914 $ 126
Accrued dividends payable -- 1,222
Notes payable 77,091 85,948
Revolving credit facility 30,000 30,000
--------- ---------
Total liabilities 108,005 117,296
Shareholders' equity:
Undesignated preferred stock, $0.01 par value, 5,000 shares authorized,
0 issued and outstanding -- --
Common stock, $.01 par value, 20,000 shares authorized, and 11,122 and
11,081 issued and outstanding, respectively 111 111
Capital in excess of par value 145,879 145,245
Note receivable from sale of common stock (580) (300)
Undistributed (distributions in excess of) net realized earnings 372 (116)
Unrealized appreciation of investments 9,764 7,783
--------- ---------
Total shareholders' equity 155,546 152,723
--------- ---------
Total liabilities and shareholders' equity $ 263,551 $ 270,019
========= =========
</TABLE>
See accompanying notes.
1
<PAGE>
AMERICAN CAPITAL STRATEGIES, LTD.
SCHEDULE OF INVESTMENTS
MARCH 31, 1999
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Industry Cost Fair Value
-------- ---- ----------
<S> <C> <C> <C>
Senior Debt--10.92%
- -------------------
BIW Connector Systems, LLC Manufacturing 3,404 3,404
Chance Coach, Inc. (2) Bus Manufacturer 1,232 1,232
JAG Industries, Inc. (2) Manufacturing 1,200 1,200
Wilderness Systems, Inc. Canoes & Kayaks 11,475 11,475
Cycle Gear, Inc. Motor Cycle Accessories 750 750
Euro-Caribe, Inc. (2) Meat Processing 7,062 7,062
Patriot Medical Technologies, Inc. Repair Services 3,000 3,000
--------- --------
Subtotal 28,123 28,123
Subordinated Debt--46.89%
- -------------------------
BIW Connector Systems, LLC. Manufacturing 6,740 6,740
Westwind Group Holdings, Inc. Restaurant 2,945 2,945
JAG Industries, Inc. (2) Manufacturing 2,346 2,346
Specialty Transportation Services, Inc. Waste Hauler 7,386 7,386
Chance Coach, Inc. (2) Bus Manufacturer 7,171 7,171
The L.A. Studios, Inc. Audio Production 2,411 2,411
Decorative Surfaces International, Inc. (2) Decorative Paper & 5,516 5,516
Vinyl Mfg.
New Piper Aircraft, Inc. Aircraft Manufacturing 17,897 17,897
Electrolux, LLC Vacuum Cleaner 7,563 7,563
Cycle Gear, Inc. Motor Cycle Accessories 639 639
Wilderness System, Inc. Canoes & Kayaks 5,226 5,226
Euro-Caribe, Inc. (2) Meat Processing 8,921 8,921
ConStar International, Inc. Electrical 12,877 12,877
Centennial Broadcasting, Inc. Radio Stations 15,495 15,495
Lion Brewery, Inc. (2) Malt Beverages 5,958 5,958
Auxi-Health, Inc. Home Health Care 9,532 9,532
Patriot Medical Technologies, Inc. Repair Services 2,090 2,090
--------- --------
Subtotal 120,713 120,713
Convertible Preferred Stock--1.12%
- ----------------------------------
Chance Coach, Inc. (2) 12% dividend convertible into 20%
of Co. Bus Manufacturer 2,000 2,214
Decorative Surfaces International, Inc. (2) prime rate Decorative Paper &
plus 4% dividend convertible into 2.9% of Co. Vinyl Mfg. 665 665
--------- --------
Subtotal 2,665 2,879
Common Stock Warrants(1)--10.70%
- --------------------------------
BIW Connector Systems, LLC 8% of LLC Manufacturing 652 513
Westwind Group Holdings, Inc. 5% of Co. Restaurant 350 271
JAG Industries, Inc. (2) 75% of Co. Manufacturing 505 454
Specialty Transportation Services, Inc. up to 40% of Co. Waste Hauler 694 1,007
Chance Coach, Inc. (2) 43.7% of Co. Bus Manufacturer 4,041 4,839
The L.A. Studios, Inc. 17% of Co. Audio Production 902 839
Decorative Surfaces International, Inc. (2) 42.3% of Co. Decorative Paper &
Vinyl Mfg. 4,571 6,805
New Piper Aircraft, Inc. 4% of Co. Aircraft Manufacturing 2,231 2,528
Electrolux, LLC 2.5% of Co. Vacuum Cleaner 246 642
Cycle Gear, Inc. 16.5% of Co. Motor Cycle Accessories 374 374
Wilderness System, Inc. 18% of Co. Canoes & Kayaks 1,319 1,319
Euro-Caribe, Inc. (2) 37% of Co. Meat Processing 1,110 1,110
ConStar International, Inc. 17.5% of Co. Electrical 3,171 3,171
Lion Brewery, Inc. (2) 54% of Co. Malt Beverages 675 675
Auxi Health, Inc. 20% of Co. Home Health Care 2,599 2,599
Patriot Medical Technologies, Inc. 17% of Co. Repair Services 410 410
--------- --------
Subtotal 23,850 27,556
Common Stock (1)--1.25%
- ------------------------
Specialty Transportation Services, Inc. 9.1% of Co. Waste Hauler 500 458
Chance Coach, Inc. (2) 18.3% of Co. Bus Manufacturer 1,896 2,269
ConStar International, Inc. 2.8% Electrical 500 500
--------- --------
Subtotal 2,896 3,227
Subtotal--non-publicly traded securities--63.15% 178,247 182,498
Government Securities--26.79%
- -----------------------------
FMC Discount Note due 4/1/99 68,991 68,991
--------- --------
Total Investments 247,238 251,489
Investment in Unconsolidated Operating Subsidiary--2.33%
- --------------------------------------------------------
ACS Capital Investments Corporation(1)(2)--100% of Co. Investment Banking 403 5,991
--------- --------
Totals $ 247,641 $ 257,480
========= ========
</TABLE>
(1) Non-income producing
(2) Affiliate
See accompanying notes.
2
<PAGE>
AMERICAN CAPITAL STRATEGIES, LTD.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Industry Cost Fair Value
-------- ---- ----------
<S> <C> <C> <C>
Senior Debt--9.47%
- ------------------
Four S Baking Company (2).. Baking $ 1,266 $ 1,266
BIW Connector Systems, LLC. Manufacturing 3,404 3,404
Chance Coach, Inc. (2) Bus Manufacturer 1,286 1,286
JAG Industries, Inc. (2) Manufacturing 1,200 1,200
Wilderness Systems, Inc. Canoes & Kayaks 9,675 9,675
Cycle Gear, Inc. Motor Cycle Accessories 750 750
Euro-Caribe, Inc. (2) Meat Processing 7,181 7,181
--------- --------
Subtotal 24,762 24,762
Subordinated Debt--41.37%
- -------------------------
Four S Baking Company (2).. Baking 1,588 1,588
BIW Connector Systems, LLC. Manufacturing 6,710 6,710
Westwind Group Holdings, Inc. Restaurant 2,932 2,932
JAG Industries, Inc. (2) Manufacturing 2,335 2,335
Specialty Transportation Services, Inc. (2) Waste Hauler 7,368 7,368
Chance Coach, Inc. (2) Bus Manufacturer 7,060 7,060
The L.A. Studios, Inc. Audio Production 2,393 2,393
Decorative Surfaces International, Inc. (2) Decorative Paper & 10,490 10,490
Vinyl Mfg.
New Piper Aircraft, Inc. Aircraft Manufacturing 17,858 17,858
Electrolux, LLC Vacuum Cleaner 7,264 7,264
Cycle Gear, Inc. Motor Cycle Accessories 633 633
Wilderness System, Inc. Canoes & Kayaks 4,701 4,701
Euro-Caribe, Inc. (2) Meat Processing 8,905 8,905
ConStar International, Inc. Electrical 12,839 12,839
Centennial Broadcasting, Inc. Radio Stations 15,040 15,040
--------- --------
Subtotal 108,116 108,116
Convertible Preferred Stock--2.10%
- ----------------------------------
Four S Baking Company (2) 15% dividend convertible into
10.89% of Co. Baking 2,756 2,756
Chance Coach, Inc. (2) 12% dividend convertible into 20%
of Co. Bus Manufacturer 2,000 2,079
Decorative Surfaces International, Inc. (2) prime rate Decorative Paper &
plus 4% dividend convertible into 2.9% of Co. Vinyl Mfg. 646 646
--------- --------
Subtotal 5,402 5,481
Common Stock Warrants(1)--8.52%
- -------------------------------
Four S Baking Company (2) 3.26% of Co. Baking 462 600
BIW Connector Systems, LLC 8% of LLC Manufacturing 652 540
Westwind Group Holdings, Inc. 5% of Co. Restaurant 350 421
JAG Industries, Inc. (2) 75% of Co. Manufacturing 505 465
Specialty Transportation Services, Inc. (2) 9.1% of Co. Waste Hauler 694 784
Chance Coach, Inc. (2) 43.7% of Co. Bus Manufacturer 4,041 4,543
The L.A. Studios, Inc. 17% of Co. Audio Production 902 857
Decorative Surfaces International, Inc. (2) 42.3% of Co. Decorative Paper &
Vinyl Mfg. 4,571 5,596
New Piper Aircraft, Inc. 4% of Co. Aircraft Manufacturing 2,231 2,231
Electrolux, LLC 2.5% of Co. Vacuum Cleaner 246 246
Cycle Gear, Inc. 16.5% of Co. Motor Cycle Accessories 374 374
Wilderness System, Inc. 18% of Co. Canoes & Kayaks 1,319 1,319
Euro-Caribe, Inc. (2) 37% of Co. Meat Processing 1,110 1,110
ConStar International, Inc. 17.5% of Co. Electrical 3,171 3,171
--------- --------
Subtotal 20,628 22,257
Common Stock (1)--1.69%
- ------------------------
Four-S Baking Company (2) 5.5% of Co. Baking 966 1,004
Specialty Transportation Services, Inc. (2) 9.1% of Co. Waste Hauler 500 784
Chance Coach, Inc. (2) 18.3% of Co. Bus Manufacturer 1,896 2,131
ConStar International, Inc. 2.8% Electrical 500 500
--------- --------
Subtotal 3,862 4,419
--------- --------
Subtotal--non-publicly traded securities--63.15% 162,770 165,035
Government Securities--34.41%
- -----------------------------
FHLB Discount Note due 1/4/99 89,948 89,948
--------- --------
Total Investments 252,718 254,983
Investment in Unconsolidated Operating Subsidiary--2.44%
- --------------------------------------------------------
ACS Capital Investments Corporation(1)(2)--100% of Co. Investment Banking 403 6,386
--------- --------
Totals $ 253,121 $261,369
========= ========
</TABLE>
(1) Non-income producing
(2) Affiliate
See accompanying notes.
3
<PAGE>
AMERICAN CAPITAL STRATEGIES, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Operating income:
Interest and dividend income $ 5,854 $ 2,680
Loan fees 666 612
------- -------
Total operating income 6,520 3,292
Operating expenses:
Salaries and benefits 310 170
General, administrative and other 294 274
Interest 794 --
------- -------
Total operating expenses 1,398 444
Operating income before equity in (loss) earnings of unconsolidated
operating subsidiary 5,122 2,848
Equity in (loss) earnings of unconsolidated operating subsidiary (395) 101
------- -------
Net operating income 4,727 2,949
Net realized gain on investments 316 --
Increase in unrealized appreciation of investments 1,981 28
------- -------
Net increase in shareholders' equity resulting from operations $ 7,024 $ 2,977
======= =======
Net operating income per share Basic $ 0.43 $ 0.27
Diluted $ 0.42 $ 0.26
Net increase in shareholders' equity Basic $ 0.63 $ 0.27
resulting from operations per share Diluted $ 0.62 $ 0.26
Weighted average shares of Basic 11,070 11,069
common stock outstanding Diluted 11,279 11,480
</TABLE>
See accompanying notes.
4
<PAGE>
AMERICAN CAPITAL STRATEGIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Note
Capital in Receivable Undistributed Unrealized Total
Common Stock Excess of From Sale of Net Realized Appreciation Shareholders'
Shares Amount Par Value Common Stock Earnings of Investments Equity
------ ------ --------- ------------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 11,069 $ 111 $ 144,940 $ -- $ (55) $ 5,656 $ 150,652
Net increase in shareholders'
equity resulting from
operations -- -- -- -- 2,949 28 2,977
Distributions -- -- -- -- (2,676) -- (2,767)
------ ----- --------- ------ --------- ------- ---------
Balance at March 31, 1998 11,069 $ 111 $ 144,940 $ -- $ 127 $ 5,684 $ 150,862
====== ===== ========= ====== ========= ======= =========
Balance at December 31, 1998 11,081 $ 111 $ 145,245 $ (300) $ (116) $ 7,783 $ 152,723
Issuance of common stock under
the 1997 Stock Option Plan 20 -- 280 -- -- -- 280
Issue of common stock under the
Dividend Reinvestment Plan 11 -- 188 -- -- -- 188
Issuance of restricted stock 10 -- 166 -- -- -- 166
Issuance of note receivable
from sale of common stock -- -- -- (280) -- -- (280)
Net increase in shareholders'
equity resulting from -- -- -- -- 5,043 1,981 7,024
operations
Distributions -- -- -- -- (4,555) -- (4,555)
------ ----- --------- ------ --------- ------- ---------
Balance at March 31, 1999 11,122 $ 111 $ 145,879 $ (580) $ 372 $ 9,764 $ 155,546
====== ===== ========= ====== ========= ======= =========
</TABLE>
See accompanying notes.
5
<PAGE>
AMERICAN CAPITAL STRATEGIES, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1999 1998
------------ ------------
<S> <C> <C>
Operating activities
Net increase in shareholders' equity resulting from operations $ 7,024 $ 2,977
Adjustments to reconcile net increase in shareholders' equity resulting
from operations to net cash provided by operating activities:
Unrealized appreciation of investments (1,981) (28)
Net realized gain on investments (316) --
Net amortization of securities -- (845)
Accretion of loan discounts (408) (89)
Amortization of deferred finance costs 25 --
Amortization of goodwill 63 --
Increase in interest receivable (469) (402)
Increase in accrued payment-in-kind dividend and interest (380) --
(Increase) decrease in due from unconsolidated subsidiary (1,040) 149
Increase in other assets (153) (80)
Increase in accounts payable and accrued liabilities 788 116
Loss (earnings) of unconsolidated operating subsidiary 395 (101)
-------- --------
Net cash provided by operating activities 3,548 1,697
Investing activities
Proceeds from sale or maturity of investments 15,774 32,080
Principal repayments 6,860 303
Purchase of investments (28,012) (29,715)
Purchase of securities (6,900) --
-------- --------
Net cash (used in) provided by investing activities (12,278) 2,668
Financing activities
Drawings on revolving credit facilities, net 10,000 --
Increase in deferred financing costs (599) --
Issuance of common stock 188 --
Distributions paid (5,777) (2,767)
-------- --------
Net cash provided by (used in) financing activities 3,812 (2,767)
-------- --------
Net (decrease) increase in cash and cash equivalents (4,918) 1,598
Cash and cash equivalents at beginning of period 6,149 8,862
-------- --------
Cash and cash equivalents at end of period $ 1,231 $ 10,460
======== ========
Non-cash financing activities:
Note receivable issued in exchange for common stock $ 280 $ --
Net repayment of margin borrowings through sale of securities 18,857 --
</TABLE>
See accompanying notes.
6
<PAGE>
AMERICAN CAPITAL STRATEGIES, LTD.
FINANCIAL HIGHLIGHTS
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
-------------- ------------------
<S> <C> <C>
Per Share Data(1)
Net asset value at beginning of the period $ 13.80 $ 13.61
Net operating income 0.43 0.27
Increase in unrealized appreciation on investments 0.20 --
--------- ---------
Net increase in shareholders' equity from operations $ 0.63 $ 0.27
Distribution of net investment income 0.41 0.25
--------- ---------
Net asset value at end of period $ 14.02 $ 13.63
Per share market value at beginning of period $ 17.250 $ 18.125
Per share market value at end of period $ 17.125 $ 22.125
Total return (2) 1.65% 23.45%
Shares outstanding at end of period 11,122 11,069
Ratio/Supplemental Data
Net assets at end of period $ 155,546 $ 150,862
Ratio of operating expenses to average net assets 0.91% 0.29%
Ratio of net operating income to average net assets 3.07% 1.96%
</TABLE>
(1) Basic per share data.
(2) Amounts were not annualized for the results of the three month periods ended
March 31, 1999 and 1998.
See accompanying notes.
7
<PAGE>
AMERICAN CAPITAL STRATEGIES, LTD.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
Note 1. Unaudited Interim Financial Statements
Interim financial statements of American Capital Strategies, Ltd. (the
"Company") are prepared in accordance with generally accepted accounting
principles ("GAAP") for the interim financial information and pursuant to the
requirements for reporting on Form 10-Q and Article 10 of Regulation S-X.
Accordingly, certain disclosures accompanying annual financial statements
prepared in accordance with GAAP are omitted. In the opinion of management, all
adjustments, consisting solely of normal recurring accruals, necessary for the
fair presentation of financial statements for the interim periods have been
included. The current period's results of operations are not necessarily
indicative of results that ultimately may be achieved for the year. The interim
financial statements and notes thereto should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K/A for
the year ended December 31, 1998, as filed with the Securities and Exchange
Commission.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities. Actual results
could differ from those estimates.
Note 2. Organization
American Capital Strategies, Ltd., a Delaware corporation (the
"Company"), was incorporated in 1986 to provide financial advisory services to
and invest in middle market companies. On August 29, 1997, the Company completed
an initial public offering ("IPO") of 10,382,437 shares of common stock ("Common
Stock"), and became a non-diversified closed end investment company that has
elected to be treated as a business development company ("BDC") under the
Investment Company Act of 1940, as amended ("1940 Act"). On October 1, 1997, the
Company began operations so as to qualify to be taxed as a regulated investment
company ("RIC") as defined in Subtitle A, Chapter 1, under Subchapter M of the
Internal Revenue Code of 1986 as amended (the "Code"). As contemplated by these
transactions, the Company materially changed its business plan and format from
structuring and arranging financing for buyout transactions on a fee for
services basis to primarily being a lender to and investor in middle market
companies. The Company's investment objectives are to achieve current income
from the collection of interest and dividends, as well as long-term growth in
its shareholders' equity through appreciation in value of the Company's equity
interests. The Company provides financial advisory services to businesses
through ACS Capital Investments Corporation ("CIC"), a wholly-owned subsidiary.
The Company is headquartered in Bethesda, Maryland, and has offices in New York,
Boston, Pittsburgh, San Francisco, Chicago, and Dallas.
Note 3. Investment in Unconsolidated Operating Subsidiary
As discussed in Note 2, CIC is an operating subsidiary of the Company
and is accounted for under the equity method effective October 1, 1997. The
investment in CIC is carried at fair value as determined by the Board of
Directors.
Condensed financial information for CIC is as follows:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Assets
Investments in portfolio companies, at fair value $ 9,657 $10,837
Other assets, net 2,532 1,359
------- -------
Total assets $12,189 $12,196
======= =======
Liabilities and Shareholder's Equity
Deferred income taxes $ 2,678 $ 2,921
Due to parent 1,818 778
Other liabilities 1,702 2,111
Shareholder's equity 5,991 6,386
------- -------
Total liabilities and shareholder's equity $12,189 $12,196
======= =======
</TABLE>
8
<PAGE>
AMERICAN CAPITAL STRATEGIES, LTD.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------ ------------------
<S> <C> <C>
Operating income $ 1,435 $ 1,779
Operating expense 2,044 1,546
------- -------
Net operating loss (609) 233
Realized gains on investments 925 --
Change in unrealized appreciation of investments (954) (96)
Other income (expense) 243 (36)
------- -------
Net (loss) income $ (395) $ 101
======= =======
</TABLE>
Note 4. Notes Payable
During March 1999, the Company borrowed $62,091 secured by government
agency securities with a fair value of $68,991. The interest rate on the Note
was 6.0% and the note was fully repaid on April 1, 1999.
During November 1998, the Company entered into a credit agreement with
two banks under which the Company has the ability to borrow up to $30 million.
Interest on borrowings is accrued and paid monthly at the prime rate (7.75% at
March 31, 1999). At March 31, 1999, the outstanding balance was $30 million,
which is due in October, 2000. The credit facility is secured by certain
investments of the Company.
During February 1999, the Company borrowed $15 million from a
corporation. Interest is accrued and paid monthly at 7.75%. The note was fully
repaid on April 30, 1999.
Due to the short term of the borrowings, the fair value of the notes
payable approximates cost.
As of March 31, 1999, the Company closed a maximum $100,000 debt
funding facility. In connection with the closing, the Company established ACS
Funding Trust I (the "Trust"), an affiliated business trust and contributed or
sold to the Trust approximately $157,000 in loans. Subject to certain
conditions, the Company will remain servicer of the loans. Simultaneously with
the initial contribution, the Trust entered into a loan agreement with First
Union Capital Markets Corp., as deal agent, and certain other parties providing
for loans in an amount up to 50% of the eligible loan balance subject to certain
concentration limits. The term of the facility is two years and interest on
borrowings will be charged at LIBOR plus 2.50%. The full amount of principal is
payable over two years beginning at the end of the term and interest is payable
monthly. The transfer of assets to the Trust and the related borrowings by the
Trust will be treated as a financing arrangement by the Company under Statement
of Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities".
Note 5. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share for the three months ended March 31, 1999 and the three
months ended March 31, 1998.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Numerator for basic and diluted net increase in shareholders'
equity resulting from operations $ 7,024 $ 2,977
Denominator for basic-weighted average shares 11,070 11,069
Employee stock options 196 307
Warrants 13 104
------- -------
Dilutive potential shares 209 411
Denominator for diluted 11,279 11,480
------- -------
Basic earnings per share $ 0.63 $ 0.27
Diluted earnings per share $ 0.62 $ 0.26
</TABLE>
9
<PAGE>
AMERICAN CAPITAL STRATEGIES, LTD.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
Note 6. Realized Gain on Investments
During March, 1999, the Company sold its investment in Four S Baking
Company. The Company's investment included senior debt, subordinated debt,
preferred stock, common stock and common stock warrants. The Company received
$7,163 in total proceeds from the sale and recognized a net realized gain
of $316. The realized gain was comprised of a $331 realization of unamortized
loan discounts on the subordinated debt and a net loss of $15 on the common
stock and warrants. In addition, the Company earned prepayment fees of $87 from
the early repayment of the senior and subordinated debt. In conjunction with the
sale, the Company also recorded $177 of unrealized depreciation to reverse
previously recorded unrealized appreciation.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (In thousands except per share data)
All statements contained herein that are not historical facts
including, but not limited to, statements regarding anticipated activity are
forward looking in nature and involve a number of risks and uncertainties.
Actual results may differ materially. Among the factors that could cause actual
results to differ materially are the following: changes in the economic
conditions in which the Company operates negatively impacting the financial
resources of the Company; certain of the Company's competitors with
substantially greater financial resources than the Company reducing the number
of suitable investment opportunities offered to the Company or reducing the
yield necessary to consummate the investment; increased costs related to
compliance with laws, including environmental laws; general business and
economic conditions and other risk factors described in the Company's reports
filed from time to time with the Securities and Exchange Commission. The Company
cautions readers not to place undue reliance on any such forward looking
statements, which statements are made pursuant to the Private Securities
Litigation Reform Act of 1995 and, as such, speak only as of the date made.
The following analysis of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
financial statements and the notes thereto, included elsewhere in this report
and in the Company's annual report on Form 10-K/A for the year ended December
31, 1998.
Overview
The Company's primary business is investing in and lending to
privately-owned businesses through investments in senior debt, subordinated debt
with detachable common stock warrants, preferred stock and common stock. The
total portfolio value of investments in non-publicly traded securities was
$182,498 and $165,035 at March 31, 1999, and December 31, 1998, respectively.
During the three months ended March 31, 1999 (the "First Quarter 1999"), the
Company originated investments totaling $26,212 and advanced $1,800 previously
committed under working capital facilities. The Company also received repayments
of loans of $6.9 million and, in conjunction with the sale of one portfolio
company, the Company sold warrants of $0.6 million, common stock of $1.0
million, preferred stock of $2.9 million, and received repayment of senior and
subordinated debt of $2.8 million. As a result, the total portfolio increased by
11% from December 31, 1998 to March 31, 1999. The weighted average effective
interest rate on the investment portfolio was 13.1% and 13.0%, respectively, at
March 31, 1999 and December 31, 1998. A summary of the composition of the
Company's portfolio of non-publicly traded securities at March 31, 1999, and
December 31, 1998 is shown in the following table:
March 31, 1999 December 31, 1998
-------------- -----------------
Senior debt 15.4% 15.0%
Subordinated debt 66.2% 65.5%
Convertible preferred stock 1.6% 3.3%
Common stock warrants 15.0% 13.5%
Common stock 1.8% 2.7%
The Company expects its portfolio composition for the remainder of 1999
to be similar to its portfolio composition at March 31, 1999 and at December 31,
1998. The Company will continue to heavily weight its portfolio composition
toward investments in subordinated debt with detachable warrants.
11
<PAGE>
The following table shows the portfolio composition by industry
grouping:
March 31, 1999 December 31, 1998
-------------- -----------------
Manufacturing 63.2% 66.1%
Health Care 9.6% --
Media 8.5% 9.1%
Construction 9.1% 10.0%
Wholesale & Retail 2.7% 7.4%
Transportation 4.9% 5.4%
Service 2.0% 2.0%
Management expects that thelargest percentage of its investments will
continue to be in manufacturing companies, however, the Company intends to
continue to diversify its portfolio and will explore new investment
opportunities in a variety of industries.
Results of Operations
The Company's financial performance, as reflected in its Statements of
Operations, is composed of three primary elements. The first element is "Net
operating income (loss)," which is primarily the interest and dividends earned
from investing in debt and equity securities and the equity in earnings of its
unconsolidated operating subsidiary less the operating expenses of the Company.
The second element is "Change in unrealized appreciation of investments," which
is the net change in the estimated fair value of the Company's portfolio assets
at the end of the period compared with their estimated fair values at the
beginning of the period or their stated costs, as appropriate. The third element
is "Realized gain on investments," which reflects the difference between the
proceeds from a sale or maturity of a portfolio investment and the cost at which
the investment was carried on the Company's balance sheet. In addition, the
Company operates so as to qualify to be taxed as a RIC. As long as the Company
qualifies as a RIC, it will be able to take a deduction against its otherwise
taxable income for certain dividends it pays, allowing it to substantially
reduce or eliminate its corporate-level tax liability. As a result, the
provisions for income taxes are expected to be minimal.
As discussed above, as a RIC, the Company is required to account for
investments in operating subsidiaries under the equity method, regardless of
ownership interest. Accordingly, the Company's investment in CIC is presented on
the equity method and, consistent with the equity method of accounting, the
portfolio companies owned by CIC are not reported separately by the Company.
12
<PAGE>
The operating results for the three months ended March 31, 1999 and
March 31, 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------ ------------------
<S> <C> <C>
Operating income $ 6,520 $ 3,292
Operating expenses 1,398 444
Equity in (loss) earnings of unconsolidated operating subsidiary (395) 101
------- -------
Net operating income 4,727 2,949
Net realized gain on investments 316 --
Increase in unrealized appreciation of investments 1,981 28
------- -------
Net increase in shareholders' equity resulting from operations $ 7,024 $ 2,977
======= =======
</TABLE>
Total operating income for the First Quarter 1999 increased $3,228, or
98%, compared to the three months ended March 31, 1998 (the "First Quarter
1998"). The increase in operating income is a result of the Company closing 15
investments in private companies totaling $141 million between March 31, 1998
and March 31, 1999. For the First Quarter 1999, operating income consisted of
$666 in loan fees, $5,813 in interest and dividends on non-publicly traded
securities and $41 in interest on government agency securities, bank deposits
and repurchase agreements; for the First Quarter 1998, operating income
consisted of $612 in loan fees, $1,207 in interest and dividends on non-publicly
traded securities and $1,473 in interest on government agency securities, bank
deposits and repurchase agreements. The First Quarter 1999 loan fees include
$288 in prepayment fees collected as a result of the repayment of $5,000 in
subordinated debt and the sale of senior and subordinated debt of $2,667. As
the Company increases its investment portfolio of non-publicly traded
securities, the interest and dividends the Company realizes on these securities
will also increase.
Operating expenses for the First Quarter 1999 increased $954, or 215%,
over the same period in 1998. The increase is primarily due to interest expense
of $794 in the First Quarter 1999, which resulted from the Company's $41,070
weighted average borrowings under credit facilities and notes payable. The
weighted average interest rates on borrowings at March 31, 1999 was 7.7%.
Operating expenses also increased due to the increase in salaries and benefits
from $170 for the three months ended March 31, 1998 to $310 for the same period
in 1999. The Company had 32 and 21 employees at March 31, 1999 and 1998,
respectively. The increase in salary and benefit expense is directly
attributable to the increase in the number of employees. The Company intends to
continue to hire new professionals in 1999 to support anticipated portfolio
growth.
Equity in (loss) earnings of unconsolidated operating subsidiary, which
represents CIC's results, decreased from a gain of $101 for First Quarter 1998
to a loss of $(395) for First Quarter 1999. For the three months ended March 31,
1999, CIC's results included $1,435 of operating income, $2,044 of operating
expenses, $925 of realized gains on investments, $954 of unrealized depreciation
of investments, and $243 in other income. The realized gain was a result of the
sale of CIC's common stock investment in Four S Baking Company and the
unrealized depreciation was due to the reversal of previously recorded
unrealized appreciation of CIC's Four S Baking Company investment. For the three
months ended March 31, 1998, CIC's results included $1,779 of operating income,
$1,546 of operating expenses, $96 of unrealized depreciation of investments, and
$36 of other expenses. The decrease in CIC's earnings was primarily attributable
to the $556 increase in salary and benefits expense caused by the increase in
the number of employees noted above.
During the First Quarter 1999, the Company recorded a net realized gain
of $316 on the sale of its investment of Four S Baking Company. Total proceeds
from the sale of securities, which included senior debt, subordinated debt,
preferred stock, common stock warrants, and common stock, were $7,163. The net
realized gain is primarily due to realization of the unamortized loan discount.
The increase in unrealized appreciation of investments is based on
portfolio asset valuations determined by the Company's Board of Directors. The
unrealized appreciation of investments for the First Quarter 1999 increased
$1,953 over the First Quarter 1998. The increase for the First Quarter 1999 was
comprised of valuation increases of $2,468 at four portfolio companies and
valuation decreases of $487 at six portfolio companies.
13
<PAGE>
Financial Condition, Liquidity, and Capital Resources
At March 31, 1999, the Company had $1,231 in cash and cash equivalents
and $68,991 in investments in Federal agency securities. In addition, the
Company had outstanding debt secured by assets of the Company of $30,000 in
borrowings under credit facilities and $77,091 in short term notes payable.
During 1998, the Company's primary source of funding was the proceeds received
in connection with its IPO. The Company completed investing the proceeds of its
IPO during 1998 and began funding its investments with proceeds from a line of
credit and short term borrowings.
As of March 31, 1999, the Company closed a maximum $100,000 debt
funding facility. In connection with the closing, the Company established ACS
Funding Trust I (the "Trust"), an affiliated business trust and contributed or
sold to the Trust approximately $157,000 in loans. Subject to certain
conditions, the Company will remain servicer of the loans. Simultaneously with
the initial contribution, the Trust entered into a loan agreement with First
Union Capital Markets Corp., as deal agent, and certain other parties providing
for loans in an amount up to 50% of the eligible loan balance subject to certain
concentration limits. The term of the facility is two years and interest on
borrowings will be charged at LIBOR plus 2.50%. The full amount of principal is
payable over two years beginning at the end of the term and interest is payable
monthly. The Company will use borrowings under this facility to repay existing
debt and to continue making investments in the debt and equity securities of
middle market companies. In order to manage interest rate risk associated with
the floating rate borrowings, the Company or ACAS Funding will enter into
hedging agreements. The Company intends to use derivative instruments for
non-trading and non-speculative purposes only.
As a RIC, the Company is required to distribute annually 90% or more of
its net operating income and net realized short-term capital gains to
shareholders. The Company anticipates having to issue debt or equity securities
in addition to the above borrowings to expand its investments in middle market
companies. The terms of the future debt and equity issuances can not be
determined and there can be no assurances that the debt or equity markets will
be available to the Company on terms it deems favorable.
Portfolio Credit Quality
The Company has implemented a system under which it grades all loans on
a scale of 1 to 4. This system is intended to reflect the performance of the
borrower's business, the collateral coverage of the loans and other factors
considered relevant. Under this system, management believes that loans with a
grade of 4 involve the least amount of risk in the Company's portfolio. The
borrower is performing above expectations and the trends and risk factors are
generally favorable. Management believes that loans graded 3 involve an
acceptable level of risk that is similar to the risk at the time of origination.
The borrower is performing as expected and the risk factors are neutral to
favorable. All new loans are initially graded 3.
Loans graded 2 involve a borrower performing below expectations and the
loan risk has increased since origination. The borrower may be out of compliance
with debt covenants, however, loan payments are not more than 120 days past due.
For loans graded 2, the Company's management will increase procedures to monitor
the borrower and will write down the fair value of the loan if it is deemed to
be impaired. A loan grade of 1 indicates that the borrower is performing
materially below expectations and the loan risk has substantially increased
since origination. Some or all of the debt covenants are out of compliance and
payments are delinquent. Loans graded 1 are not anticipated to be repaid in full
and the Company will reduce the fair market value of the loan to the amount it
anticipates will be recovered.
To monitor and manage the investment portfolio risk, management tracks
the weighted average portfolio grade. The weighted average portfolio grade was
3.0 and 3.2 at March 31, 1999, and December 31, 1998, respectively. In addition,
all of the Company's outstanding loans are performing and paying as agreed as of
March 31, 1999. At March 31, 1999, the Company's portfolio was graded as
follows:
Percentage of Total
Grade Investments at Value Portfolio
----- -------------------- ---------
4 $ 30,709 16.8%
3 142,938 78.3%
2 8,851 4.9%
1 -- --
-------- -----
$182,498 100.0%
======== =====
14
<PAGE>
Impact of the Year 2000
The "Year 2000 Issue" is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruption of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. The Company created a Year 2000 Compliance Committee to address the
Year 2000 compliance of the Company's information technology and non-information
technology systems, the systems of third parties, and the systems of the
portfolio companies. The Company has also engaged outside technology consultants
to assist with its Year 2000 project.
All of the software used by the Company in its information technology
systems is provided by outside vendors. The Company has taken an inventory of
all of its information technology systems and is in the process of obtaining
Year 2000 compliance designation from the vendors and internally conducting
compliance testing. Based on its assessment of its information technology
systems, management has identified the general ledger software package as the
significant system that is Year 2000 non-compliant. As such, the Company will
replace its accounting software with a new, Year 2000 compliant software
package. The new accounting software and all necessary modifications to other
information technology systems will be completed by August, 1999.
The Company is also evaluating the Year 2000 compliance of its
non-information technology systems, consisting of office equipment other than
computers and communications equipment. The Company has contacted the office
equipment vendors to obtain Year 2000 compliance designation. The Company
believes it will complete the remediation, testing and implementation of these
non-information technology systems by July, 1999.
The Company has contacted third parties that do not share information
systems with the Company ("external agents"). These third parties include the
Company's banks, landlords, utility companies, telecommunication providers and
other vendors. To date, the Company is not aware of any external agent Year 2000
issue that would materially impact the Company's results of operations,
liquidity, or capital resources. However, the Company has no means of ensuring
that external agents will be Year 2000 ready. The inability of external agents
to complete their Year 2000 resolution process in a timely fashion could
materially impact the Company. The effect of non-compliance by external agents
is not determinable.
The Company is also evaluating the Year 2000 readiness of its portfolio
companies. Beginning in the summer of 1998, the Company has required that each
portfolio company expressly warrant in its loan agreement that it is or will be
Year 2000 compliant prior to December 31, 1999. The Company has also submitted
questionnaires to all of its portfolio companies to determine their exposure to
the Year 2000 problem and the adequacy of their plans to address the issues.
Over 90% of the portfolio companies have responded to the questionnaire. Based
on the correspondence received from the portfolio companies, management believes
that over 80% of its portfolio companies have either no material exposure to the
Year 2000 issue or are adequately carrying out their plans to address their
exposure. The Company has either not received complete questionnaires from the
remaining 20% of the portfolio companies or has requested that the portfolio
companies improve the scope and detail of their responses. The Company intends
to follow up with the portfolio companies to ensure that they have executed
their compliance plan by June 30, 1999.
Throughout 1999, the Company will continue to address any issues of
Year 2000 non-compliance and further develop its contingency plan to ensure
business operations in the event of systems failure in the Year 2000. The
Company is utilizing both internal and external resources to reprogram or
replace, test, and implement the software and other systems for Year 2000
modifications. The Company estimates that the cost of its Year 2000 project will
be less than $125. This amount includes the cost of additional software,
reviewing the portfolio companies' readiness, and outside systems professionals
working on the Company's Year 2000 compliance.
15
<PAGE>
The Company's plans to complete the Year 2000 modifications are based
on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, estimates on the status of completion and the total expected costs.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those plans. Specific issues that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties. Significant
systems failures at the Company, a third party, or the portfolio companies could
have a materially adverse effect on the Company's business. While the Company
believes that its portfolio companies are adequately addressing the Year 2000
issue, no assurance can be given that some of its portfolio companies will not
suffer material adverse effects from Year 2000 issues. Management believes that
the most likely worst case Year 2000 scenario is a material decrease in interest
income and an impairment in the valuation of the Companies investment portfolio.
The magnitude of these material adverse effects on the portfolio companies and
the operating results and financial of the Company cannot be determined at this
time.
16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company, nor any of the Company's subsidiaries, is
currently subject to any material litigation nor, to the Company's knowledge, is
any material litigation threatened against the Company or any subsidiary, other
than routine litigation and administrative proceedings arising in the ordinary
course of business. Such proceedings are not expected to have a material adverse
effect on the business, financial conditions, or results of operation of the
Company or any subsidiary.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Number Description
- ------- -----------
3.1 Articles of Incorporation, incorporated herein by reference
to Exhibit 2.a of the Amendment No. 1 to the Form N-2 filed by
American Capital Strategies, Ltd., dated as of August 12, 1997
(Commission File No. 333-29943).
3.2 By-laws, incorporated herein by reference to Exhibit 2.b of the
Amendment No. 1 to the Form N-2 filed by American Capital
Strategies, Ltd., dated as of August 12, 1997 (Commission File
No. 333-29943).
4 Instruments defining rights of security holders, including
indentures, incorporated herein by reference to Exhibits 2.d.1
and 2.d.2 of the Amendment No. 1 to the Form N-2 filed by
American Capital Strategies, Ltd., dated as of August 12, 1997
(Commission File No. 333-29943).
10.1 Purchase and Sale Agreement between ACS Funding Trust I and
American Capital Strategies, Ltd., dated as of March 31, 1999.
10.2 Loan Funding and Servicing Agreement among ACS Funding Trust I,
American Capital Strategies, Ltd., Variable Funding Capital
Corporation, First Union Capital Markets Corp., First Union
National Bank, Norwest Bank Minnesota, N.A. and certain
investors named therein, together with all exhibits thereto,
dated as of March 31, 1999.
10.3 Promissory Note in the aggregate principal amount of
$100,000,000 made by ACS Funding Trust I in favor of First Union
National Bank, dated as of March 31, 1999.
10.4 Promissory Note in the aggregate principal amount of
$100,000,000 made by ACS Funding Trust I in favor of First Union
Capital Markets Corp., dated as of March 31, 1999.
10.5 Promissory Note in the aggregate principal amount of $10,000,000
made by ACS Funding Trust I in favor of First Union National
Bank, dated as of March 31, 1999.
10.6 Pledge and Security Agreement among American Capital Strategies,
Ltd., ACS Funding Trust I and Norwest Bank Minnesota, N.A.,
dated as of March 31, 1999.
10.7 Escrow Agreement between American Capital Strategies, Ltd. and
Norwest Bank Minnesota, N.A., dated as of March 31, 1999.
10.8 Lock-Box Agreement between ACS Funding Trust I and LaSalle
National Bank, dated as of March 31, 1999.
17
<PAGE>
10.9 Certificate of Trust of ACS Funding Trust I, dated as of March
26, 1999.
10.10 Trust Agreement among American Capital Strategies, Ltd., as
grantor and owner, Malon Wilkus, as beneficiary trustee, and
Evelyne Steward and William Holloran, as independent trustees,
dated as of March 26, 1999.
27 Financial Data Schedule
(b) The registrant has not filed any reports on a Current Report on
Form 8-K during the quarter for which this report 10-Q is filed.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN CAPITAL STRATEGIES, LTD.
By: /s/ John R. Erickson
-------------------------------
John R. Erickson
Vice President and
Chief Financial Officer
Date: May 17, 1999
19
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
Exhibit 3.1 Articles of Incorporation, incorporated herein by reference
to Exhibit 2.a of the Amendment No. 1 to the Form N-2 filed by
American Capital Strategies, Ltd., dated as of August 12, 1997
(Commission File No. 333-29943).
Exhibit 3.2 By-laws, incorporated herein by reference to Exhibit 2.b of the
Amendment No. 1 to the Form N-2 filed by American Capital
Strategies, Ltd., dated as of August 12, 1997 (Commission File
No. 333-29943).
Exhibit 4 Instruments defining rights of security holders, including
indentures, incorporated herein by reference to Exhibits 2.d.1
and 2.d.2 of the Amendment No. 1 to the Form N-2 filed by
American Capital Strategies, Ltd., dated as of August 12, 1997
(Commission File No. 333-29943).
Exhibit 10.1 Purchase and Sale Agreement between ACS Funding Trust I and
American Capital Strategies, Ltd., dated as of March 31, 1999.
Exhibit 10.2 Loan Funding and Servicing Agreement among ACS Funding Trust I,
American Capital Strategies, Ltd., Variable Funding Capital
Corporation, First Union Capital Markets Corp., First Union
National Bank, Norwest Bank Minnesota, N.A. and certain
investors named therein, together with all exhibits thereto,
dated as of March 31, 1999.
Exhibit 10.3 Promissory Note in the aggregate principal amount of
$100,000,000 made by ACS Funding Trust I in favor of First Union
National Bank, dated as of March 31, 1999.
Exhibit 10.4 Promissory Note in the aggregate principal amount of
$100,000,000 made by ACS Funding Trust I in favor of First Union
Capital Markets Corp., dated as of March 31, 1999.
Exhibit 10.5 Promissory Note in the aggregate principal amount of $10,000,000
made by ACS Funding Trust I in favor of First Union National
Bank, dated as of March 31, 1999.
Exhibit 10.6 Pledge and Security Agreement among American Capital Strategies,
Ltd., ACS Funding Trust I and Norwest Bank Minnesota, N.A.,
dated as of March 31, 1999.
<PAGE>
Exhibit 10.7 Escrow Agreement between American Capital Strategies, Ltd. and
Norwest Bank Minnesota, N.A., dated as of March 31, 1999.
Exhibit 10.8 Lock-Box Agreement between ACS Funding Trust I and LaSalle
National Bank, dated as of March 31, 1999.
Exhibit 10.9 Certificate of Trust of ACS Funding Trust I, dated as of March
26, 1999.
Exhibit 10.10 Trust Agreement among American Capital Strategies, Ltd., as
grantor and owner, Malon Wilkus, as beneficiary trustee, and
Evelyne Steward and William Holloran, as independent trustees,
dated as of March 26, 1999.
Exhibit 27 Financial Data Schedule.
Exhibit 10.1
================================================================================
PURCHASE AND SALE AGREEMENT
Dated as of March 31, 1999
Between
ACS FUNDING TRUST I
as Buyer
and
AMERICAN CAPITAL STRATEGIES, LTD.
as Seller
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I GENERAL............................................................1
Section 1.1 Certain Defined Terms...................................1
Section 1.2 Other Definitional Provisions...........................2
ARTICLE II SALE AND CONVEYANCE...............................................3
Section 2.1 Sale....................................................3
Section 2.2 Assignments, Etc........................................4
ARTICLE III PURCHASE PRICE AND PAYMENT; MONTHLY REPORT.......................5
Section 3.1 Purchase Price..........................................5
Section 3.2 Payment of Purchase Price...............................5
ARTICLE IV REPRESENTATIONS AND WARRANTIES....................................6
Section 4.1 Seller's Representations and Warranties.................6
Section 4.2 Seller's Representations and Warranties Regarding
the Agreement and the Loans.............................9
Section 4.3 Representations and Warranties of the Buyer.............10
ARTICLE V COVENANTS..........................................................11
Section 5.1 Seller Covenants........................................11
ARTICLE VI REPURCHASE OBLIGATION.............................................14
Section 6.1 Repurchase of Ineligible Loans..........................14
Section 6.2 [Reserved]..............................................15
Section 6.3 [Reserved]..............................................15
Section 6.4 [Reserved]..............................................15
ARTICLE VII CONDITIONS PRECEDENT.............................................15
Section 7.1 Conditions to the Buyer's Obligations Regarding Loans...15
ARTICLE VIII TERM AND TERMINATION............................................15
Section 8.1 Termination.............................................15
ARTICLE IX MISCELLANEOUS PROVISIONS..........................................16
Section 9.1 Amendment...............................................16
Section 9.2 Governing Law...........................................16
Section 9.3 Notices.................................................16
Section 9.4 Severability of Provisions..............................17
Section 9.5 Assignment..............................................17
Section 9.6 Further Assurances......................................18
Section 9.7 No Waiver; Cumulative Remedies..........................18
Section 9.8 Counterparts............................................19
<PAGE>
Section 9.9 Binding Effect; Third-Party Beneficiaries...............19
Section 9.10 Merger and Integration.................................19
Section 9.11 Headings...............................................19
Section 9.12 Schedules and Exhibits.................................19
Section 9.13 Merger or Consolidation of, or Assumption of the
Obligations of, the Seller.............................19
Section 9.14 Costs, Expenses and Taxes..............................20
Section 9.15 Recourse Against Certain Parties.......................21
Schedule I Loan List
Schedule II Tradenames, Fictitious Names and "Doing Business As" Names
Exhibit A Form of Assignment
Exhibit B Form of Notice of Sale
<PAGE>
PURCHASE AND SALE AGREEMENT
PURCHASE AND SALE AGREEMENT, dated as of March 31, 1999 by and between
American Capital Strategies, Ltd., a Delaware corporation, as seller (the
"Seller"), and ACS Funding Trust I, a Delaware trust, as buyer (the "Buyer").
W I T N E S S E T H :
WHEREAS, the Buyer desires to purchase from the Seller and the Seller
desires to sell to the Buyer certain loans originated or purchased by the Seller
in its normal course of business, together with, among other things, the related
rights of payment thereunder and the interest of the Seller in the related
property and other interests securing the payments to be made under such loans.
NOW, THEREFORE, it is hereby agreed by and between the Buyer and the
Seller as follows:
ARTICLE I
GENERAL
Section 1.1 Certain Defined Terms.
Certain capitalized terms used throughout this Agreement are defined
above or in this Section 1.1. In addition, capitalized terms used but not
defined herein have the meanings given to such terms in the Loan Funding
Agreement.
Agreement: This Purchase and Sale Agreement, as the same shall be
amended, supplemented, restated or replaced from time to time.
Ineligible Loan: Defined in Section 6.1.
Loan Funding Agreement: The Loan Funding and Servicing Agreement, dated
as of March 31, 1999, by and among the Buyer, as borrower thereunder, the
Seller, as servicer, Variable Funding Capital Corporation, as a lender, the
Investors named therein, Norwest Bank Minnesota, National Association, as backup
servicer and as collateral custodian, First Union Capital Markets Corp., as deal
agent, and First Union National Bank, as liquidity agent, as the same may be
amended, supplemented, restated or replaced from time to time.
Notice of Sale: A written notice, in the form of Exhibit B, to be used
for each transfer hereunder.
Pledge and Security Agreement: The Pledge and Security Agreement,
dated as of the date hereof, between the Seller and Buyer.
<PAGE>
Purchase: Any transfer made hereunder pursuant to Section 2.1.
Purchase Date: Any Business Day on which any Purchased Asset is
acquired by the Buyer pursuant to the terms of this Agreement.
Purchase Price: Defined in Section 3.1.
Purchased Assets: The interests and property purchased pursuant to
Sections 2.1(a).
Purchased Loans: The Loans listed on Schedule I hereto.
Sale Papers: Defined in Section 4.1(a).
Servicer: Initially, the Seller in its capacity as the Servicer under
the Loan Funding Agreement, and its permitted successors and assigns, and
thereafter any Person appointed as successor as provided therein to service the
Loans thereunder.
Substitute Loan: Any Loan which is substituted for an Ineligible Loan
pursuant to Section 6.1, which satisfies each of the following conditions: (a)
such Loan is an Eligible Loan on the date of such substitution: (b) the
aggregate Purchased Loan Balance of such Loan shall be equal to or greater than
the Purchased Loan Balance of the Loan to be replaced; (c) all representations
and warranties of the Seller contained in Section 4.1 and 4.2 shall be true and
correct as of the date of substitution of any such Substitute Loan; (d) the
substitution of any Substitute Loan does not cause a Termination Event to occur
under the Loan Funding Agreement; and (e) the Seller shall deliver to the Buyer
on the date of such substitution a certificate of a Responsible Officer
certifying that each of the foregoing is true and correct as of such date.
Substitution Date: Any date on which the Seller transfers a Substitute
Loan to the Buyer.
Section 1.2 Other Definitional Provisions.
The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement or any Sale Paper shall refer to this
Agreement as a whole and not to any particular provision of this Agreement; and
Section, Subsection, Schedule and Exhibit references contained in this Agreement
are references to Sections, Subsections, Schedules and Exhibits in or to this
Agreement unless otherwise specified.
In the event that any term or provision contained herein shall conflict
with or be inconsistent with any term or provision contained in the Loan Funding
Agreement, the terms and provisions contained herein shall govern with respect
to this Agreement.
2
<PAGE>
ARTICLE II
SALE AND CONVEYANCE
Section 2.1 Sale.
(a) On each Purchase Date, the Seller will sell, transfer, assign and
set over and otherwise convey to the Buyer and the Buyer will purchase from the
Seller, without recourse, all right, title and interest of the Seller in, to and
under the following property, whether now existing or hereafter created or
acquired:
(i) the Loans identified on the applicable Loan List delivered
by the Seller to the Buyer at least two (2) Business Days before the
requested Purchase Date, together with all monies due or to become due
in payment of such Loans on and after such Purchase Date;
(ii) the Related Property securing such Loans, including all
proceeds from any sale or other disposition of such Related Property;
(iii) the Loan Documents related to such Loans;
(iv) subject to Section 2.1(b) below, all Supplemental
Interests related to any Transferred Loans to the extent that the Buyer
has any ownership interest therein;
(v) all Collections and all other payments made or to be made
in the future with respect to such Loans or by the Obligor thereunder
and under any guarantee or similar credit enhancement with respect to
such Loans; and
(vi) all income and proceeds of the foregoing.
(b) On and after the Approval Date, but in no event later than three
(3) Business Days thereafter, the Seller will transfer, assign and set over and
otherwise convey to the Buyer, without recourse, as a capital contribution, all
right, title and interest of the Seller in, to and under the Supplemental
Interests. Prior to the Approval Date, the Seller will grant a first priority
perfected security interest in the Supplemental Interests to the Buyer, pursuant
to the Pledge and Security Agreement.
(c) In connection with the sale of any Purchased Assets, the Seller
agrees (i) to record and file, at its own expense, any financing statements,
assignments of financing statements (and continuation statements with respect to
such financing statements when applicable) and Assignments of Mortgage, as the
case may be, with respect to the Purchased Assets, meeting the requirements of
applicable state law in such manner and in such jurisdictions as are necessary
to evidence the sale of the Purchased Assets and to perfect, and maintain the
perfection of, the transfer of the Purchased Assets from the Seller to the Buyer
on and after the applicable Purchase Date, (ii) that such financing statements,
assignments of financing statements and Assignments of Mortgage, as the case may
be, shall name the Seller, as seller/debtor/assignor, and the Buyer,
3
<PAGE>
as purchaser/secured party/assignee, of the Purchased Assets and (iii) to
deliver a file-stamped copy of such financing statements or other evidence of
such filings (excluding continuation statements, which shall be delivered as
filed) and a recorded original of each Assignment of Mortgage, as the case may
be, to the Buyer on or prior to the related Purchase Date; provided, however,
that the recorded original of each Assignment of Mortgage shall be delivered to
the Buyer immediately upon receipt thereof.
(d) In connection with the sale of the Purchased Assets, the Seller
further agrees that it will, at its own expense, indicate clearly and
unambiguously in its computer files, on or prior to the related Purchase Date,
that such Loans have been sold to the Buyer pursuant to this Agreement. The
Seller further agrees to deliver to the Buyer a computer file or microfiche list
containing a true and complete list of all Transferred Loans, identified by
account number and Outstanding Loan Balance as of each Purchase Date. Such file
or list shall be marked as Schedule I to this Agreement, shall be delivered to
the Buyer as confidential and proprietary, and is hereby incorporated into and
made a part of this Agreement.
(e) It is the intention of the parties hereto that the conveyance of
the Loans and the other Purchased Assets by the Seller to the Buyer as provided
in this Section 2.1 be, and be construed as, an absolute sale, without recourse,
of the Loans and the other Purchased Assets by the Seller to the Buyer.
Furthermore, it is not intended that such conveyance be deemed a pledge of the
Loans and the other Purchased Assets by the Seller to the Buyer to secure a debt
or other obligation of the Seller. If, however, notwithstanding the intention of
the parties, the conveyance provided for in this Section 2.1 is determined, for
any reason, not to be an absolute sale, then the parties intend that this
Agreement shall be deemed to be a "security agreement" within the meaning of
Article 9 of the UCC and the Seller hereby grants to the Buyer a "security
interest" within the meaning of Article 9 of the UCC in all of the Seller's
right, title and interest in and to the Loans and the other Purchased Assets,
now existing and hereafter created, to secure a loan in an amount equal to the
aggregate Purchase Price and each of the Seller's other payment obligations
under this Agreement.
Section 2.2 Assignments, Etc.
(a) The Seller shall on or prior to any Purchase Date with respect to
the Purchased Assets execute and deliver to the Buyer a written assignment from
Seller to the Buyer substantially in the form of Exhibit A hereto. From and
after such Purchase Date, such Purchased Assets shall be deemed to be part of
the Purchased Assets hereunder.
(b) Covenants of the Seller In Connection With Additions. On or before
any Purchase Date with respect to any Loans and other Purchased Assets acquired
by the Buyer, the Seller shall:
(i) clearly indicate in its files that such Loans and other
Purchased Assets have been sold to the Buyer and deliver to the Buyer a
list that the Seller shall represent to contain a true and complete
list of such Loans and the Purchased Assets, identified by
4
<PAGE>
account number, which computer file or microfiche list shall be as of
such date incorporated into and made a part of this Agreement;
(ii) provide the Buyer with an Officer's Certificate
certifying as follows: (A) each such Loan was, as of the related
Purchase Date, an Eligible Loan, (B) no selection procedures believed
by the Seller to be adverse to the interest of the Buyer were utilized
in selecting such Loans from the available Eligible Loans in the
Seller's portfolio, (C) such Loans and other Purchased Assets and all
proceeds thereof will be conveyed to the Buyer free and clear of any
lien of any Person claiming through or under the Seller or any of its
Affiliates, and (D) as of the related Purchase Date, (x) no Insolvency
Event with respect to the Seller has occurred, and (y) the sale of such
Loans and other Purchased Assets to the Buyer has not been made in
contemplation of the occurrence of any Insolvency Event with respect to
the Seller;
(iii) record and file financing statements and Assignments of
Mortgage with respect to such Loans and other Purchased Assets meeting
the requirements of applicable state law in such manner and in such
jurisdictions as are necessary to perfect the sale of such Loans and
other Purchased Assets by the Seller to the Buyer.
ARTICLE III
PURCHASE PRICE AND PAYMENT; MONTHLY REPORT
Section 3.1 Purchase Price.
The purchase price for each Purchased Asset sold to the Buyer by the
Seller under this Agreement (the "Purchase Price") shall be the outstanding
principal balance of such Loan plus any accrued interest thereon (each,
calculated as of such Purchase Date), discounted, if at all, for the
collectability thereof, and the anticipated cost of funding such purchase and
shall be determined and fixed prior to such purchase.
Section 3.2 Payment of Purchase Price.
(a) The Purchase Price shall be paid by the Buyer on each related
Purchase Date either (i) in cash or (ii) if the Buyer does not have sufficient
cash to pay the full amount of the Purchase Price, by means of a capital
contribution by the Seller to the Buyer.
(b) Unless otherwise specified herein, all payments of the Purchase
Price of any Purchased Asset sold hereunder shall be made not later than 3:00
p.m. (New York City time) on the date specified therefor in lawful money of the
United States in same day funds by depositing such amounts in the bank account
designated in writing by the Seller to the Purchaser.
5
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Seller's Representations and Warranties.
The Seller hereby represents and warrants to the Buyer, as of the
Closing Date and each Purchase Date, that:
(a) Organization and Good Standing. The Seller is a corporation duly
organized and validly existing in good standing under the laws of the
jurisdiction of its formation and has full power, authority and legal right to
own its properties and conduct its business as such properties are presently
owned and as such business is presently conducted and to execute, deliver and
perform its obligations under this Agreement and each other document or
instrument to be delivered by the Seller hereunder (collectively, the "Sale
Papers").
(b) Due Qualification. The Seller is duly qualified to do business and
is in good standing as a foreign corporation and has obtained all necessary
licenses and approvals, in each jurisdiction in which failure to so qualify or
to obtain such licenses and approvals would have a material adverse effect on
its ability to perform its obligations hereunder or under the Sale Papers.
(c) Due Authorization. The execution and delivery of this Agreement and
each of the Sale Papers, and the consummation of the transactions provided for
herein and therein have been duly authorized by the Seller by all necessary
corporate action on the part of the Seller.
(d) No Conflict. The execution and delivery of this Agreement and each
of the Sale Papers, the performance of the transactions contemplated hereby and
thereby and the fulfillment of the terms hereof and thereof, will not conflict
with, result in any breach of any of the material terms and provisions of, or
constitute (with or without notice or lapse of time or both) a material default
under, any material indenture, Loan, agreement, mortgage, deed of trust, or
other instrument to which the Seller is a party or by which it or any of its
property is bound.
(e) No Violation. The execution and delivery of this Agreement and each
of the Sale Papers, the performance of the transactions contemplated hereby and
thereby and the fulfillment of the terms hereof and thereof (including, without
limitation, the sale of Purchased Assets by the Seller or remittance of
Collections in accordance with the provisions of this Agreement), will not
conflict with or violate, in any material respect, any requirements of laws
applicable to the Seller.
(f) No Proceedings. There are no proceedings or investigations pending
or, to the best knowledge of the Seller, threatened against the Seller before
any court, regulatory body, administrative agency, or other tribunal or
governmental instrumentality (i) asserting the invalidity of this Agreement or
any of the Sale Papers, (ii) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or any of the Sale Papers, or (iii)
seeking any determination or ruling that could reasonably be expected to be
adversely determined, and if adversely
6
<PAGE>
determined, would materially and adversely affect the performance by the Seller
of its obligations under this Agreement or any of the Sale Papers.
(g) All Consents Required. All approvals, authorizations, consents,
orders or other actions of any Person or of any Governmental Authority required
in connection with the execution and delivery of this Agreement and the Sale
Papers, the performance of the transactions contemplated by this Agreement and
the Sale Papers and the fulfillment of or terms hereof and thereof, have been
obtained.
(h) Bulk Sales. The execution, delivery and performance of this
Agreement do not require compliance with any "bulk sales" law by the Seller.
(i) Solvency. The transactions contemplated under this Agreement and
the Sale Papers do not and will not render the Seller insolvent.
(j) Selection Procedures. No selection procedures believed by the
Seller to be adverse to the interests of the Buyer were utilized by the Seller
in selecting the Loans to be sold, assigned, transferred, set-over and otherwise
conveyed hereunder.
(k) Use of Proceeds. No proceeds of the sale of the Purchased Assets
hereunder received by the Seller will be used by the Seller to purchase or carry
any margin security.
(l) Not an Investment Company. The Seller is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
or is exempt from all provisions of such Act.
(m) Other Names. The legal name of the Seller is as set forth in this
Agreement and within the preceding five years the Seller has not used, and the
Seller currently does not use, any tradenames, fictitious names, assumed names
or "doing business as" names other than those set forth on Schedule II hereto.
(n) Taxes. The Seller has filed or caused to be filed all tax returns
that, to its knowledge, are required to be filed by it and has paid all taxes
shown to be due and payable on such returns or on any assessments made against
it or any of its property and all other taxes, fees or other charges imposed on
it or any of its property by any Governmental Authority (other than any amount
of tax due the validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which reserves in accordance with
generally accepted accounting principles have been provided on the books of the
Seller); no tax lien has been filed and, to the Seller's knowledge, no claim is
being asserted, with respect to any such tax, fee or other charge.
(o) Place of Business. The principal executive offices of the Seller
are at 3 Bethesda Metro Center, Suite 860, Bethesda, Maryland 20814, and the
offices where the Seller keeps its records concerning the Loans are at 3
Bethesda Metro Center, Suite 860, Bethesda, Maryland 20814.
7
<PAGE>
(p) Quality of Title. Each Purchased Asset, together with the Loan
related thereto, is, immediately prior to the sale hereunder to the Buyer, owned
by the Seller free and clear of any Lien, and upon the sale, transfer or
assignment hereunder, the Buyer shall acquire absolute title to and valid
ownership of each such Purchased Asset and the Collections with respect thereto,
free and clear of any lien and no effective financing statement or other
instrument similar in effect covering any Purchased Asset or the Collections
with respect thereto shall at any time be on file in any recording office except
such as may be filed in favor of the Buyer in accordance with the terms of this
Agreement.
(q) Security Interest. As described in Section 2.1(e) hereof, it is the
intention of the parties hereto that the conveyance of the Loans and the other
Purchased Assets by the Seller to the Buyer be, and be construed as, an absolute
sale, without recourse. If, however, notwithstanding the intention of the
parties, such conveyance is determined for any reason not to be an absolute
sale, the Seller grants a security interest (as defined in the UCC) to the Buyer
in the Purchased Assets and Collections, which is enforceable in accordance with
the UCC upon execution and delivery of this Agreement. Upon the filing of UCC-1
financing statements naming the Buyer as secured party and the Seller as debtor
and the recording of Assignments of Mortgage (if required), or in the case of
instruments the taking of possession thereof by the Buyer, the Buyer shall have
a first priority perfected security interest in the Purchased Assets and
Collections. All filings (including, without limitation, such UCC filings) as
are necessary in any jurisdiction to perfect the interest of the Buyer in the
Purchased Assets and Collections have been (or prior to the applicable purchase
hereunder will be) made.
(r) Accounting. The Seller will account for the transfers by it to the
Buyer of interests in Purchased Assets and Collections under this Agreement as
sales of such Purchased Assets in its books, records and financial statements,
in each case consistent with GAAP, as applicable, and with the requirements set
forth herein.
(s) Separate Entity. The Seller is operated as an entity with assets
and liabilities distinct from those of the Buyer and any Affiliates thereof, and
the Seller hereby acknowledges that the Deal Agent and the Lenders under the
Loan Funding Agreement are entering into the transactions contemplated by the
Loan Funding Agreement in reliance upon the Seller's identity as a separate
legal entity from the Buyer and from each such Affiliate of the Buyer.
(t) Value Given. The Purchase Price received by the Seller for each
Purchased Asset under this Agreement constitutes reasonably equivalent value
therefor and the transfer by the Seller thereof to the Buyer was not made for or
on account of an antecedent debt owed by the Seller to the Buyer, and such
transfer was not and is not voidable or subject to avoidance under any section
of the Bankruptcy Code.
(u) Reports Accurate. No report, information, exhibit, financial
statement, document, book, record or report, whether written, verbal or
electronic, furnished by the Seller to the Buyer in connection with this
Agreement is or was inaccurate in any material respect as of the date it is or
was dated or as of the date so furnished, and no such document contains or
contained any
8
<PAGE>
material misstatement of fact or omits or shall omit to state a material fact or
any fact necessary to make the statements contained therein not misleading.
(v) Accuracy of Representations and Warranties. Each representation or
warranty by the Seller contained herein or in any certificate or other document
furnished by the Seller pursuant hereto or in connection herewith is true and
correct in all material respects.
The representations and warranties set forth in this Section 4.1 shall
survive the sale, transfer and assignment of the Purchased Assets to the Buyer.
Upon discovery by the Seller or the Buyer of a breach of any of the foregoing
representations and warranties, the party discovering such breach shall give
prompt written notice thereof to the other immediately upon obtaining knowledge
of such breach.
Section 4.2 Seller's Representations and Warranties Regarding the
Agreement and the Loans.
The Seller hereby represents and warrants to the Buyer, as of each
Purchase Date that:
(a) Binding Obligation; Valid Transfer and Security Interest.
(i) This Agreement and each of the Sale Papers constitutes a
legal, valid and binding obligation of the Seller, enforceable against
the Seller in accordance with its terms, except as such enforceability
may be limited by Insolvency Laws and except as such enforceability may
be limited by general principles of equity (whether considered in a
suit at law or in equity) or by an implied covenant of good faith and
fair dealing.
(ii) This Agreement constitutes a valid transfer to the Buyer
of all right, title and interest of the Seller in, to and under the
Purchased Assets, and such transfer is free and clear of any lien of
any Person claiming through or under the Seller or its Affiliates.
(b) Eligibility of Loans. As of each Purchase Date, (i) the computer
file or microfiche or written list delivered in connection therewith is an
accurate and complete listing in all material respects of all the Loans and the
other Purchased Assets transferred hereunder as of such date and the information
contained therein with respect to the identity of such Loans and the other
Purchased Assets and the amounts owing thereunder is true and correct in all
material respects as of such date, (ii) each such Loan is an Eligible Loan,
(iii) each such Loan and the Seller's interest in the Related Property and other
related Purchased Assets, has been transferred absolutely to the Buyer free and
clear of any lien of any Person and in compliance, in all material respects,
with all requirements of laws applicable to the Seller and (iv) with respect to
each such Loan and other related Purchased Assets, all consents, licenses,
approvals or authorizations of or registrations or declarations with any
Governmental Authority required to be obtained, effected or given by the Seller
in connection with the transfer of such Loan and the Related Property and other
related Purchased Assets to the Buyer have been duly obtained, effected or given
and are in full force and effect.
9
<PAGE>
(c) Representations; Covenants and Notice of Breach. The
representations and warranties set forth in this Section 4.2 shall be true and
correct and the covenants set forth in Section 5.1 to be performed shall have
been performed, in each case as of each Purchase Date and, further, shall
survive the transfer and assignment of the respective Loans, Related Property
and other related Purchased Assets, or interests therein, to the Buyer. Upon
discovery by the Seller or the Buyer of a breach of any of the foregoing
representations and warranties, the party discovering such breach shall give
written notice thereof to the other immediately upon obtaining knowledge of such
breach.
Section 4.3 Representations and Warranties of the Buyer.
The Buyer hereby represents and warrants to the Seller, as of the
Closing Date and each Purchase Date, that:
(a) Organization and Good Standing. The Buyer is a trust duly organized
and validly existing in good standing under the laws of the State of Delaware,
and has full trust power, authority and legal right to own its properties and
conduct its business as such properties are presently owned and such business is
presently conducted, and to execute, deliver and perform its obligations under
this Agreement and each of the Sale Papers.
(b) Due Qualification. The Buyer is duly qualified to do business and
is in good standing as a foreign corporation (or is exempt from such
requirements), and has obtained or will obtain all necessary licenses and
approvals, in each jurisdiction in which failure to so qualify or to obtain such
licenses and approvals would have a material adverse effect on its ability to
perform its obligations hereunder or under the Sale Papers.
(c) Due Authorization. The execution and delivery of this Agreement and
each of the Sale Papers and the consummation of the transactions provided for
herein or therein have been duly authorized by the Buyer by all necessary
corporate action on the part of the Buyer.
(d) No Conflicts. The execution and delivery of this Agreement and each
of the Sale Papers, the performance of the transactions contemplated hereby or
thereby and the fulfillment of the terms hereof and thereof will not conflict
with, result in any breach of any of the material terms and provisions of, or
constitute (with or without notice or lapse of time or both) a material default
under, any material indenture, loan, agreement, mortgage, deed of trust, or
other instrument to which the Buyer is a party or by which it or any of its
property is bound.
(e) No Violation. The execution and delivery of this Agreement and each
of the Sale Papers, the performance of the transactions contemplated hereby and
thereby, and the fulfillment of the terms hereof and thereof (including, without
limitation, the purchase of Purchased Assets by the Buyer in accordance with the
provisions of this Agreement) will not conflict with or violate, in any material
respect, any requirements of law applicable to the Buyer.
(f) No Proceedings. There are no proceedings or investigations pending
or, to the best knowledge of the Buyer, threatened against the Buyer, before any
court, regulatory body,
10
<PAGE>
administrative agency, or other tribunal or governmental instrumentality (i)
asserting the invalidity of this Agreement or any of the Sale Papers, (ii)
seeking to prevent the consummation of any of the transactions contemplated by
this Agreement or any of the Sale Papers, or (iii) seeking any determination or
ruling that could reasonably be expected to be adversely determined, and if
adversely determined, would materially and adversely affect the performance by
the Buyer of its obligations under this Agreement or any of the Sale Papers.
(g) Separate Entity. The Buyer is operated as an entity with assets and
liabilities distinct from those of the Seller and any Affiliates thereof, and
the Buyer hereby acknowledges that the Deal Agent and the Lenders under the Loan
Funding Agreement are entering into the transactions contemplated by the Loan
Funding Agreement in reliance upon the Buyer's identity as a separate legal
entity from the Seller and from each Affiliate of the Seller.
ARTICLE V
COVENANTS
Section 5.1 Seller Covenants.
The Seller hereby covenants that:
(a) Preservation of Corporate Existence. The Seller will preserve and
maintain its corporate existence, rights, franchises, qualifications and
privileges.
(b) Security Interests. Except for the transfers hereunder, the Seller
will not sell, pledge, assign or transfer to any other Person, or grant, create,
incur, assume or suffer to exist any lien on any Loan transferred hereunder or
on any Related Property or other Purchased Assets, whether now existing or
hereafter transferred hereunder, or any interest therein, and Seller will not
sell, pledge, assign or suffer to exist any lien on any Purchased Asset. The
Seller will immediately notify the Buyer of the existence of any lien on any
Loan transferred hereunder or on any Related Property or other Purchased Asset;
and the Seller shall defend the right, title and interest of the Buyer in, to
and under the Loans transferred hereunder and the Related Property or other
Purchased Asset, against all claims of third parties.
(c) Delivery of Collections. Consistent with the Buyer's ownership of
the Purchased Assets, in the event the Seller shall receive any Collections in
respect of any Purchased Assets after the Purchase Date therefore, the Seller
agrees to promptly pay to the Buyer, or an account designated by the Buyer, (but
in no event later than two (2) Business Days after receipt) such Collections.
Further, on or before the related Purchase Date for any Purchased Asset, the
Seller shall instruct all banks or financial institutions to which Collections
received from the related Obligor are directed to (i) change the name on all
accounts at such banks or financial institutions in which such Collections are
deposited (each an "Obligor Account") to the name of the Buyer, to the extent
any such account is in the name of the Seller or any Affiliate of the Seller
(other than the Buyer) such that such Obligor Account shall be in the name of
the Buyer and shall be a segregated account and the funds deposited therein
shall not be commingled with other funds of
11
<PAGE>
the Buyer, Seller or any Affiliate thereof and (ii) Buyer shall notify each such
bank or financial institution and the Lockbox Bank to transfer all funds on
deposit in each Obligor Account to the Lockbox Account, by wire transfer in
immediately available funds two times on each day on which such bank or
financial institution is open for business.
(d) Compliance with Law. The Seller hereby agrees to comply in all
respects with all requirements of laws applicable to the Seller, the Loans and
the Related Property and the related Purchased Assets, to the extent that the
failure to so comply would have a material adverse effect on the Seller, the
Loans, the Related Property and the other related Purchased Assets.
(e) Activities of the Seller. The Seller shall not engage in any
business or activity of any kind with the Buyer, or enter into any transaction
or indenture, mortgage, instrument, agreement, loan, lease or other undertaking
with the Buyer, which is not directly related to the transactions contemplated
and authorized by this Agreement, and the Trust Agreement of the Buyer.
(f) Guarantees. The Seller shall not become or remain liable, directly
or contingently, in connection with any Indebtedness or other liability of the
Buyer, whether by guarantee, endorsement (other than endorsements of negotiable
instruments for deposit or collection in the ordinary course of business),
agreement to purchase or repurchase, agreement to supply or advance funds, or
otherwise.
(g) Merger; Sales. The Seller shall not enter into any transaction of
merger or consolidation, or liquidate or dissolve itself (or suffer any
liquidation or dissolution), or acquire or, subject to Section 9.13 be acquired
by any Person, or convey, sell, lease or otherwise dispose of all or
substantially all of its property or business, except as provided for in this
Agreement.
(h) Location of Seller, Records; Instruments. The Seller (x) shall not
move outside the State of Maryland, the location of its chief executive office,
without 30 days' prior written notice to the Buyer and the Deal Agent and (y)
shall not move the location of the Loan Files from the locations thereof on the
Closing Date, without 30 days' prior written notice to the Buyer and the Deal
Agent and (z) will promptly take all actions required (including, but not
limited to, all filings and other acts necessary or advisable under the UCC or
other applicable law, of each relevant jurisdiction in order to continue, in
accordance with Section 4.1(g), the ownership and security interest of the Buyer
in all Loans transferred hereunder. The Seller will give the Buyer and the Deal
Agent prompt notice of a change within the State of Maryland of the location of
its chief executive office.
(i) Accounting of Purchases. The Seller will not account for or treat
(whether in financial statements or otherwise) the transactions contemplated
hereby in any manner other than the sale of Purchased Assets by the Seller to
the Buyer or a capital contribution by the Seller to the Buyer.
(j) ERISA Matters. The Seller will not (a) engage in any prohibited
transaction for which an exemption is not available or has not previously been
obtained from the United States
12
<PAGE>
Department of Labor; (b) permit to exist any accumulated funding deficiency, as
defined in Section 302(a) of ERISA and Section 412(a) of the Code, or funding
deficiency with respect to any Benefit Plan other than a Multiemployer Plan; (c)
fail to make any payments to an Multiemployer Plan that the Seller may be
required to make under the agreement relating to such Multiemployer Plan or any
law pertaining thereto; (d) terminate any Benefit Plan so as to result in any
liability; or (e) permit to exist any occurrence of any reportable event
described in Title IV of ERISA that represents a material risk of a liability of
the Seller under ERISA or the Code.
(k) Exemptive Order.
(i) The Seller covenants to the Buyer that within ten (10)
days of the date hereof, it will file with the Securities and Exchange
Commission (the "SEC") an Application for An Order under Section 6(c)
of the Investment Company Act of 1940 for An Exemption from Section
12(d)(i), 18(a), 61(a) and 19(b) of the Investment Company Act of 1940
(the "Application"). The Seller further covenants to the Buyer hereto
that it will provide a true and complete copy of such Application to
the Buyer with five (5) Business Days after the Closing Date.
(ii) The Seller agrees to use its best efforts to obtain an
order from the SEC relating to the Application granting the exemptions
requested in the Application (such order being hereinafter referred to
as the "Order"). The Seller further agrees to promptly notify the Buyer
of: (i) communications the Seller or its counsel may from time to time
have with the SEC relating to the Application or the Order including,
without limitation, prompt delivery to the Buyer of copies of any
written communications by and between the Seller or its counsel and the
SEC; and (ii) the publication by the SEC of notice regarding the
Application. Immediately upon receiving such Order, the Seller agrees
to deliver written notice thereof, together with a copy thereof, to the
Buyer (such notice being the "Order Notice").
(iii) Upon receipt by the Buyer of the Order Notice and the
Order, the Buyer shall deliver same to the Deal Agent, on behalf of the
Secured Parties and the Investors, who shall review such Order, and if
such Order is satisfactory to the Deal Agent, in its sole discretion
(subject to any objection by VFCC or any Investor), the Deal Agent
shall notify the Buyer that such Order has been approved (such approval
being the "Order Approval" and the date of such approval by the Deal
Agent being the "Approval Date") and the Buyer shall then immediately
notify the Seller of such Order Approval.
(iv) The Seller and the Buyer each agree to at all times
comply with each and every condition and/or requirement set forth in
the Application and the Order to the extent any such condition and/or
requirement pertains to such Person.
13
<PAGE>
ARTICLE VI
REPURCHASE OBLIGATION
Section 6.1 Repurchase of Ineligible Loans.
In the event of a breach of any representation or warranty set forth in
Section 4.2 with respect to a Loan or other Purchased Asset transferred
hereunder (each such Loan, Related Property and other Related Purchased Asset an
"Ineligible Loan"), no later than 30 days after the earlier of (i) knowledge of
such breach on the part of the Seller and (ii) receipt by the Seller of written
notice thereof given by the Buyer, the Seller shall either (a) repurchase each
such Ineligible Loan to which such breach relates on the terms and conditions
set forth below, or (b) substitute for such Ineligible Loan a Substitute Loan;
provided, however, that no such repurchase shall be required to be made with
respect to such Ineligible Loan (and such Loan shall cease to be an Ineligible
Loan) if, on or before the expiration of such 30-day period, the representations
and warranties in Section 4.2 with respect to such Ineligible Loan shall be made
true and correct in all material respects with respect to such Ineligible Loan
as if such Ineligible Loan had been transferred to the Buyer on such day.
Notwithstanding anything contained in this Section 6.1 to the contrary, in the
event a of breach of any representation and warranty set forth in Section 4.2
with respect to each Loan, Related Property and other related Purchased Assets
having been (A) conveyed to the Buyer free and clear of any lien of any Person
claiming through or under the Seller and its Affiliates and (B) in compliance,
in all material respects, with all requirements of laws applicable to the
Seller, immediately upon the earlier to occur of the discovery of such breach by
the Seller or receipt by the Seller of written notice of such breach given by
the Buyer, the Seller shall repurchase and the Buyer shall convey, free and
clear of any Lien created pursuant to this Agreement or the Loan Funding
Agreement, all of the Buyer's right, title and interest in such Ineligible Loan,
and the Buyer shall, in connection with such conveyance and without further
action, be deemed to represent and warrant that it has the corporate authority
and has taken all necessary corporate action to accomplish such conveyance, but
without any other representation or warranty, express or implied. In the
foregoing instances, the Seller shall repurchase each such Ineligible Loan and
on and after the date of such repurchase, each Ineligible Loan so repurchased
shall not be included in the pool of Purchased Assets. In consideration of any
such repurchase the Seller shall, on the date of repurchase of such Ineligible
Loan, remit to the Buyer in immediately available funds an amount equal to the
Purchased Price therefore, after giving effect to the receipt of Collections
thereon. Upon each repurchase of such Ineligible Loan, the Buyer shall
automatically and without further action be deemed to transfer, assign and
set-over to the Seller all the right, title and interest of the Buyer in, to and
under such Ineligible Loan and all monies due or to become due with respect
thereto, all proceeds thereof and all rights to security for any such Ineligible
Loan, and all proceeds and products of the foregoing. The Buyer shall, at the
sole expense of the Seller, execute such documents and instruments of transfer
as may be prepared by the Seller and take such other actions as shall reasonably
be requested by the Seller to effect the transfer of such Ineligible Loan
pursuant to this Section 6.1.
14
<PAGE>
Section 6.2 [Reserved]
Section 6.3 [Reserved]
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to the Buyer's Obligations Regarding
Loans.
The obligations of the Buyer to purchase Purchased Assets from the
Seller on any Purchase Date shall be subject to the satisfaction of the
following conditions:
(a) all representations and warranties of the Seller contained in
Sections 4.1 and 4.2 shall be true and correct in all material respects on and
as of such day as though made on and as of such date;
(b) on and as of such day, the Seller shall have performed all
obligations required to be performed by it on or prior to such day pursuant to
the provisions of this Agreement;
(c) no event has occurred and is continuing, or would result from such
purchase that constitutes a Termination Event;
(d) no law or regulation shall prohibit, and no order, judgment or
decree of any federal, state or local court or governmental body, agency or
instrumentality shall prohibit or enjoin, the making of any such purchase by the
Buyer in accordance with the provisions hereof; and
(e) all corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Buyer, and the Buyer shall have
received from the Seller copies of all documents (including, without limitation,
records of corporate proceedings, approvals and opinions) relevant to the
transactions herein contemplated as the Buyer may reasonably have requested.
ARTICLE VIII
TERM AND TERMINATION
Section 8.1 Termination.
This Agreement shall commence as of the date of execution and delivery
hereof and shall continue in full force and effect until the later of (i) the
occurrence of the Collection Date pursuant to the Loan Funding Agreement or (ii)
either party terminates this Agreement upon 90 days prior written notice to the
other party; provided, however, that the termination of this Agreement pursuant
to this Section 8.1 shall not discharge any Person from obligations incurred
15
<PAGE>
prior to any such termination of this Agreement, including, without limitation,
any obligations to repurchase Loans sold prior to such termination pursuant to
Section 6.1 hereof.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.1 Amendment.
This Agreement and the rights and obligations of the parties hereunder
may not be amended, waived or changed orally, but only by an instrument in
writing signed by the Buyer and the Seller. The Buyer shall provide not less
than ten (10) Business Days prior written notice of any such amendment to the
Deal Agent.
Section 9.2 Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO HEREBY AGREES TO
THE JURISDICTION OF ANY FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK. EACH
OF THE PARTIES HERETO HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS,
AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER IN ANY OF THE
AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.
Section 9.3 Notices.
All notices and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing (including telex communication and
communication by facsimile copy) and mailed, telexed, transmitted or delivered,
as to each party hereto, at its address set forth below or at such other address
as shall be designated by such party in a written notice to the other party
hereto. All such notices and communications shall be effective upon receipt, or
in the case of (a) notice by mail, five days after being deposited in the United
States mail, first class postage prepaid, (b) notice by telex, when telexed
against receipt of answer back, or (c) notice by facsimile copy, when verbal
communication of receipt is obtained.
16
<PAGE>
(a) In the case of notice to the Buyer, to:
ACS Funding Trust I
c/o American Capital Strategies, Ltd.
3 Bethesda Metro Center, Suite 860
Bethesda, MD 20814
Attention: President
Facsimile No.: (301) 654-6714
Confirmation No.: (301) 951-6122
(b) In the case of notice to the Seller, to:
American Capital Strategies, Ltd.
3 Bethesda Metro Center, Suite 860
Bethesda, MD 20814
Attention: President
Facsimile No.: (301) 654-6714
Confirmation No.: (301) 951-6122
(c) In the case of notice to the Deal Agent, to:
First Union Capital Markets Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention: Conduit Administration
Facsimile No.: (704) 383-6036
Confirmation No.: (704) 383-9343
Section 9.4 Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement or any of the Sale Papers shall for any reason whatsoever be held
invalid, then such covenants, agreements, provisions, or terms shall be deemed
severable from the remaining covenants, agreements, provisions, or terms of this
Agreement and the Sale Papers and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or any of the Sale
Papers.
Section 9.5 Assignment.
(a) Notwithstanding anything to the contrary contained herein, this
Agreement may not be assigned by the Buyer or the Seller except as permitted by
this Section 9.5. Simultaneously with the execution and delivery of this
Agreement, the Buyer shall assign all of
17
<PAGE>
its right, title and interest herein to the Deal Agent as agent for the Secured
Parties under the Loan Funding Agreement as provided in the Loan Funding
Agreement, to which assignment the Seller hereby expressly consents. The Seller
agrees that the Deal Agent, as agent for the Secured Parties under the Loan
Funding Agreement, shall be a third party beneficiary hereof. The Deal Agent as
agent for the Secured Parties under the Loan Funding Agreement may enforce the
provisions of this Agreement, exercise the rights of the Buyer and enforce the
obligations of the Seller hereunder following a Termination Event and as
provided in of the Loan Funding Agreement. This Agreement may not be assigned by
the Seller except in connection with a merger or consolidation of the Seller
with or into, or disposition of the Seller's properties and assets to, another
Person, provided, however, that any such merger, consolidation or disposition
shall satisfy the requirements of Section 9.13, and shall be upon not less than
ten (10) Business Days' prior written notice to the Buyer and the Deal Agent.
(b) In connection with any permitted assignment of this Agreement by
the Seller, the Seller shall deliver to the Buyer and the Deal Agent an
Officer's Certificate that such assignment complies with this Section 9.5, and
shall cause such assignee to execute an agreement supplemental hereto, in form
and substance satisfactory to the Seller, pursuant to which such assignee shall
expressly assume and agree to the performance of every covenant and obligation
of the Seller hereunder, to provide for the delivery of an Opinion of Counsel
that such supplemental agreement is legal, valid and binding with respect to
such assignee, and to take such other actions and execute such other instruments
as may reasonably be required to effectuate such assignment.
Section 9.6 Further Assurances.
The Buyer and the Seller agree to do and perform, from time to time,
any and all acts and to execute any and all further instruments required or
reasonably requested by the other party more fully to effect the purposes of
this Agreement and the Sale Papers, including, without limitation, the execution
of any financing statements, continuation statements, termination statements,
releases or equivalent documents relating to the Purchased Assets for filing
under the provisions of the UCC or other applicable laws of any applicable
jurisdiction.
Section 9.7 No Waiver; Cumulative Remedies.
No failure to exercise and no delay in exercising, on the part of the
Buyer or the Seller, any right, remedy, power or privilege hereunder, shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exhaustive of any rights, remedies, powers and privilege provided by law.
18
<PAGE>
Section 9.8 Counterparts.
This Agreement may be executed in two or more counterparts including
telefax transmission thereof (and by different parties on separate
counterparts), each of which shall be an original, but all of which together
shall constitute one and the same instrument.
Section 9.9 Binding Effect; Third-Party Beneficiaries.
This Agreement shall inure to the benefit of and the obligations
thereunder shall be binding upon the parties hereto and their respective
successors and permitted assigns. Any permitted assigns of the Buyer shall be
third-party beneficiaries of this Agreement.
Section 9.10 Merger and Integration.
Except as specifically stated otherwise herein, this Agreement,
together with the Loan Funding Agreement and the other Transaction Documents, to
the extent that a party is a signatory thereto, sets forth the entire
understanding of the parties relating to the subject matter hereof, there are no
other agreements between the parties for transactions relating to or similar to
the transactions contemplated by this Agreement, and all prior understandings,
written or oral, are superseded by this Agreement. This Agreement may not be
modified, amended, waived or supplemented except as provided herein.
Section 9.11 Headings.
The headings herein are for purposes of reference only and shall not
otherwise affect the meaning or interpretation of any provision hereof.
Section 9.12 Schedules and Exhibits.
The schedules and exhibits attached hereto and referred to herein shall
constitute a part of this Agreement and are incorporated into this Agreement for
all purposes.
Section 9.13 Merger or Consolidation of, or Assumption of the
Obligations of, the Seller.
The Seller shall not consolidate with or merge into any other
corporation or convey or transfer its properties and assets substantially as an
entirety to any Person, unless:
(i) the Person formed by such consolidation or into which the
Seller is merged or the Person that acquires by conveyance or transfer
the properties and assets of the Seller substantially as an entirety
shall be, if the Seller is not the surviving entity, organized and
existing under the laws of the United States of America or any State or
the District of Columbia and shall expressly assume, by an agreement
supplemental hereto, executed and delivered to the Buyer, in form
satisfactory to the Buyer, the performance of every covenant and
obligation of the Seller hereunder (to the extent that any right,
19
<PAGE>
covenant or obligation of the Seller, as applicable hereunder, is
inapplicable to the successor entity, such successor entity shall be
subject to such covenant or obligation, or benefit from such right, as
would apply, to the extent practicable, to such successor entity); and
(ii) the Seller shall have delivered to the Buyer an Officer's
Certificate that such consolidation, merger, conveyance or transfer and
such supplemental agreement comply with this Section 9.13 and that all
conditions precedent herein provided for relating to such transaction
have been complied with and an Opinion of Counsel that such
supplemental agreement is legal, valid and binding with respect to the
successor entity and that the entity surviving such consolidation,
conveyance or transfer is organized and existing under the laws of the
United States of America or any State or the District of Columbia. The
Deal Agent shall receive prompt written notice of such merger or
consolidation of the Seller.
Section 9.14 Costs, Expenses and Taxes.
(a) The Seller agrees to pay on demand all costs and expenses of the
Buyer incurred in connection with the preparation, execution, delivery,
administration (including periodic auditing), amendment or modification of, or
any waiver or consent issued in connection with, this Agreement and the other
documents to be delivered hereunder or in connection herewith to which the
Seller is a party, including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for the Buyer with respect thereto and with
respect to advising the Buyer as to its rights and remedies under this Agreement
and the other documents to be delivered hereunder or in connection herewith to
which the Seller is a party, and all costs and out-of-pocket expenses, if any
(including reasonable counsel fees and expenses), incurred by the Buyer in
connection with the enforcement of this Agreement and the other documents to be
delivered hereunder or in connection herewith to which the Seller is a party.
(b) The Seller shall pay on demand any and all stamp, sales, excise and
other taxes (excluding income and franchise taxes of the Buyer) and fees payable
or determined to be payable in connection with the execution, delivery, filing
and recording of this Agreement or any agreement or other document delivered in
connection with this Agreement
(c) The Seller shall pay on demand any and all damages, losses, claims,
liabilities, fees and related costs and expenses, including attorney's fees and
expenses (collectively, the "Indemnified Amounts"), incurred by or awarded
against the Buyer or any of its Affiliates (each, an "Indemnified Party")
arising out of or resulting from any breach by the Seller of any representation,
warranty or covenant under this Agreement or any Transaction Document to which
the Seller is a party or the use by the Seller of the proceeds of any purchase
hereunder or in respect of any Purchased Asset in violation of the terms hereof,
excluding, however, (a) Indemnified Amounts to the extent resulting from the
gross negligence or willful misconduct of an Indemnified Party or the breach of
a requirement of law by an Indemnified Party, and (b) Indemnified Amounts which
have the effect of constituting recourse for uncollectible or uncollected
Purchased Assets.
20
<PAGE>
Section 9.15 Recourse Against Certain Parties.
(a) No recourse under or with respect to any obligation, covenant or
agreement (including, without limitation, the payment of any fees or any other
obligations) of the Seller as contained in this Agreement or any other
agreement, instrument or document entered into by it pursuant hereto or in
connection herewith shall be had against any administrator of the Seller or any
incorporator, officer, employee, shareholder or director of the Seller or of any
such administrator, as such, by the enforcement of any assessment or by any
legal or equitable proceeding, by virtue of any statute or otherwise; it being
expressly agreed and understood that the agreements of the Seller contained in
this Agreement and all of the other agreements, instruments and documents
entered into by it pursuant hereto or in connection herewith are, in each case,
solely the corporate obligations of the Seller, and that no personal liability
whatsoever shall attach to or be incurred by any administrator of the Seller or
any incorporator, officer, employee, shareholder or director of the Seller or of
any such administrator, as such, or any other them, under or by reason of any of
the obligations, covenants or agreements of the Seller contained in this
Agreement or in any other such instruments, documents or agreements, or that are
implied therefrom, and that any and all personal liability of every such
administrator of the Seller and each incorporator, officer, employee or director
of the Seller or of any such administrator, or any of them, for breaches by the
Seller of any such obligations, covenants or agreements, which liability may
arise either at common law or at equity, by statute or constitution, or
otherwise, is hereby expressly waived as a condition of and in consideration for
the execution of this Agreement. The provisions of this Section 9.16(a) shall
survive the termination of this Agreement.
(b) No recourse under or with respect to any obligation, covenant or
agreement (including, without limitation, the payment of any fees or any other
obligations) of the Buyer as contained in this Agreement or any other agreement,
instrument or document entered into by it pursuant hereto or in connection
herewith shall be had against any administrator of the Buyer or any
incorporator, officer, employee, shareholder or director of the Buyer or of any
such administrator, as such, by the enforcement of any assessment or by any
legal or equitable proceeding, by virtue of any statute or otherwise; it being
expressly agreed and understood that the agreements of the Buyer contained in
this Agreement and all of the other agreements, instruments and documents
entered into by it pursuant hereto or in connection herewith are, in each case,
solely the corporate obligations of the Buyer, and that no personal liability
whatsoever shall attach to or be incurred by any administrator of the Buyer or
any incorporator, officer, employee, shareholder or director of the Buyer or of
any such administrator, as such, or any other them, under or by reason of any of
the obligations, covenants or agreements of the Buyer contained in this
Agreement or in any other such instruments, documents or agreements, or that are
implied therefrom, and that any and all personal liability of every such
administrator of the Buyer and each incorporator, officer, employee or director
of the Buyer or of any such administrator, or any of them, for breaches by the
Buyer of any such obligations, covenants or agreements, which liability may
arise either at common law or at equity, by statute or constitution, or
otherwise, is hereby expressly waived as a condition of and in consideration for
21
<PAGE>
the execution of this Agreement. The provisions of this Section 9.16(b) shall
survive the termination of this Agreement.
(c) From and after the Closing Date, the Buyer shall have the right, in
its discretion, to direct all Obligors to henceforth direct their payments to
the respective Obligor Account.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
22
<PAGE>
IN WITNESS WHEREOF, the Buyer and the Seller have caused this Agreement
to be duly executed by their respective officers as of the day and year first
above written.
ACS FUNDING TRUST I
By:_______________________________
AMERICAN CAPITAL STRATEGIES, LTD.
By:_______________________________
<PAGE>
SCHEDULE I
LOAN LIST
[to be delivered for initial Purchase]
<PAGE>
SCHEDULE II
TRADENAMES, FICTITIOUS NAMES AND "DOING BUSINESS AS" NAMES
None
<PAGE>
EXHIBIT A
FORM OF ASSIGNMENT
ASSIGNMENT, dated as of ______, from American Capital Strategies, Ltd.,
a Delaware corporation (the "Seller"), to ACS Funding Trust I, a Delaware
business trust (the "Buyer").
1. We refer to the Purchase and Sale Agreement, dated as of March 31,
1999 (as amended, modified, supplemented or restated from time to time, the
"Agreement"), by and between the Seller and the Buyer. All capitalized terms
used herein shall have the meanings set forth in the Agreement.
2. The Seller does hereby convey, set over and assign to the Buyer,
without recourse, all of the Seller's right, title and interest in and to the
following, in each case whether now or hereafter existing or in which the Seller
now has or hereafter acquires an interest and wherever the same may be located
(collectively, the "Purchased Assets"):
(i) the Loans identified on the applicable Loan List delivered
by the Seller to the Buyer at least two (2) Business Days before the
requested Purchase Date, together with all monies due or to become due
in payment of such Loans on and after such Purchase Date;
(ii) the Related Property securing such Loans, including all
proceeds from any sale or other disposition of such Related Property;
(iii) the Loan Documents related to such Loans;
(iv) subject to Section 2.1(b) of the Agreement, all
Supplemental Interests related to any Transferred Loans to the extent
that the Buyer has any ownership interest therein;
(v) all Collections and all other payments made or to be made
in the future with respect to such Loans or by the Obligor thereunder
and under any guarantee or similar credit enhancement with respect to
such Loans; and
(vi) all income and proceeds of the foregoing.
3. Simultaneously with the execution and delivery hereof the Seller has
delivered to or at the direction of the Buyer such endorsements and assignments,
made without recourse, of the Loan Files as are necessary to properly complete
the absolute assignment of the Purchased Assets to the Buyer.
A-1
<PAGE>
4. THIS CERTIFICATE OF ASSIGNMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CHOICE OF LAW PROVISIONS.
IN WITNESS WHEREOF, the Seller has caused this Assignment to be
executed by its authorized officer as of the date first above written.
AMERICAN CAPITAL STRATEGIES, LTD.
By:______________________________
Name:_______________________
Title:______________________
A-2
<PAGE>
EXHIBIT B
[FORM OF ]
NOTICE OF SALE
AMERICAN CAPITAL STRATEGIES, LTD.
I, _______________________, _____________________ of AMERICAN CAPITAL
STRATEGIES, LTD. ("ACS"), hereby certify that, with respect to that certain
Purchase and Sale Agreement (as amended, modified, supplemented or restated from
time to time, the "Agreement"), dated as of March 31, 1999, by and between ACS,
as seller, and ACS FUNDING TRUST I.
ACS hereby certifies as follows:
1. The Purchase to be made will be in accordance with the following
terms:
(a) The aggregate Purchase Price of such Purchase shall
be $_____________.
(b) The date of such Purchase shall be _________________.
2. The representations and warranties contained in Sections 4.1 and 4.2
of the Agreement are true and correct as though made on the date thereof.
3. On and as of such day, ACS has each performed in all material
respects all of the agreements contained in the Agreement and all other
Transaction Documents to which it is a party, to be performed by ACS at or prior
to such day.
4. No law, rule or regulation prohibits, and no order, judgment or
decree of any federal, state or local court or governmental body, agency or
instrumentality prohibits or enjoins, the making of such Purchase.
IN WITNESS WHEREOF, the undersigned has caused this Purchase Notice to
be duly executed this __________ day of ______, ________ .
AMERICAN CAPITAL STRATEGIES, LTD.,
as Seller
By:_______________________________
Name:_________________________
Title:________________________
B-1
Exhibit 10.2
================================================================================
$100,000,000
LOAN FUNDING AND SERVICING AGREEMENT
Dated as of March 31, 1999
Among
ACS FUNDING TRUST I
as the Borrower
AMERICAN CAPITAL STRATEGIES, LTD.
as the Servicer
the INVESTORS
named herein
VARIABLE FUNDING CAPITAL CORPORATION
as a Lender
FIRST UNION CAPITAL MARKETS CORP.
as the Deal Agent
FIRST UNION NATIONAL BANK
as a Lender and as the Liquidity Agent
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
as the Backup Servicer
and
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
as the Collateral Custodian
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS............................................................................................1
Section 1.1 Certain Defined Terms........................................................................1
Section 1.2 Other Terms.................................................................................29
Section 1.3 Computation of Time Periods.................................................................29
Section 1.4 Interpretation..............................................................................29
ARTICLE II ADVANCES.............................................................................................30
Section 2.1 Advances....................................................................................30
Section 2.2 Procedures for Advances.....................................................................31
Section 2.3 Optional Changes in Facility Amount; Prepayments............................................32
Section 2.4 Sources and Designation of Advances.........................................................33
Section 2.5 The Notes...................................................................................33
Section 2.6 Principal Repayments........................................................................34
Section 2.7 Interest Payments...........................................................................34
Section 2.8 Settlement Procedures.......................................................................35
Section 2.9 Security Interest...........................................................................36
Section 2.10 Collections and Allocations................................................................37
Section 2.11 Payments, Computations, Etc................................................................37
Section 2.12 Breakage Costs.............................................................................38
Section 2.13 Fees.......................................................................................38
Section 2.14 Increased Costs; Capital Adequacy; Illegality..............................................39
Section 2.15 Taxes......................................................................................40
Section 2.16 Assignment of the Purchase Agreement.......................................................42
ARTICLE III CLOSING; CONDITIONS OF CLOSING AND ADVANCES.........................................................42
Section 3.1 Conditions to Closing and Initial Advances..................................................42
Section 3.2 Conditions Precedent to All Advances........................................................43
ARTICLE IV REPRESENTATIONS AND WARRANTIES.......................................................................44
Section 4.1 Representations and Warranties of the Borrower..............................................44
Section 4.2 Representations and Warranties of the Borrower Relating to the Agreement and the Loans......48
ARTICLE V GENERAL COVENANTS OF THE BORROWER.....................................................................49
Section 5.1 Covenants of the Borrower...................................................................49
Section 5.2 Release of Lien on Supplemental Interests...................................................54
Section 5.3 Hedging Agreement...........................................................................54
Section 5.4 Exemptive Order.............................................................................55
ARTICLE VI ADMINISTRATION AND SERVICING OF LOANS................................................................56
Section 6.1 Appointment of the Servicer.................................................................56
i
<PAGE>
<CAPTION>
Section 6.2 Duties and Responsibilities of the Servicer.................................................56
Section 6.3 Authorization of the Servicer...............................................................58
Section 6.4 Collection of Payments......................................................................58
Section 6.5 Servicer Advances...........................................................................60
Section 6.6 Realization Upon Defaulted Loans or Charged-Off Loans.......................................60
Section 6.7 Maintenance of Insurance Policies...........................................................61
Section 6.8 Representations and Warranties of the Servicer..............................................61
Section 6.9 Covenants of the Servicer...................................................................62
Section 6.10 The Collateral Custodian...................................................................64
Section 6.11 Representations and Warranties of the Collateral Custodian.................................67
Section 6.12 Covenants of the Collateral Custodian......................................................68
Section 6.13 The Backup Servicer........................................................................69
Section 6.14 Representations and Warranties of the Backup Servicer......................................71
Section 6.15 Covenants of the Backup Servicer...........................................................72
Section 6.16 Payment of Certain Expenses by Servicer....................................................73
Section 6.17 Reports....................................................................................73
Section 6.18 Annual Statement as to Compliance..........................................................74
Section 6.19 Annual Independent Public Accountant's Servicing Reports...................................74
Section 6.20 Limitation on Liability of the Servicer and Others.........................................75
Section 6.21 The Servicer, the Backup Servicer and the Collateral Custodian Not to Resign...............75
Section 6.22 Access to Certain Documentation and Information Regarding the Loans........................75
Section 6.23 Merger or Consolidation of the Servicer....................................................76
Section 6.24 Identification of Records..................................................................77
Section 6.25 Servicer Termination Events................................................................77
Section 6.26 Appointment of Successor Servicer..........................................................78
Section 6.27 Market Servicing Fee.......................................................................79
ARTICLE VII TERMINATION EVENTS..................................................................................80
Section 7.1 Termination Events..........................................................................80
ARTICLE VIII INDEMNIFICATION....................................................................................82
Section 8.1 Indemnities by the Borrower.................................................................82
Section 8.2 Indemnities by the Servicer.................................................................85
ARTICLE IX THE DEAL AGENT AND THE LIQUIDITY AGENT...............................................................86
Section 9.1 Authorization and Action....................................................................86
Section 9.2 Delegation of Duties........................................................................87
Section 9.3 Exculpatory Provisions......................................................................87
Section 9.4 Reliance....................................................................................88
Section 9.5 Non-Reliance on Deal Agent, Liquidity Agent and Other Lenders...............................88
Section 9.6 Reimbursement and Indemnification...........................................................89
Section 9.7 Deal Agent and Liquidity Agent in their Individual Capacities...............................89
Section 9.8 Successor Deal Agent or Liquidity Agent.....................................................89
ii
<PAGE>
<CAPTION>
ARTICLE X ASSIGNMENTS; PARTICIPATIONS...........................................................................90
Section 10.1 Assignments and Participations.............................................................90
ARTICLE XI MISCELLANEOUS........................................................................................93
Section 11.1 Amendments and Waivers.....................................................................93
Section 11.2 Notices, Etc...............................................................................94
Section 11.3 [Reserved].................................................................................94
Section 11.4 No Waiver, Rights and Remedies.............................................................94
Section 11.5 Binding Effect.............................................................................94
Section 11.6 Term of this Agreement.....................................................................95
Section 11.7 GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF OBJECTION TO VENUE.......................95
Section 11.8 WAIVER OF JURY TRIAL.......................................................................95
Section 11.9 Costs, Expenses and Taxes..................................................................95
Section 11.10 No Proceedings............................................................................96
Section 11.11 Recourse Against Certain Parties..........................................................96
Section 11.12 Protection of Security Interest; Appointment of Deal Agent as Attorney-in-Fact............97
Section 11.13 Confidentiality...........................................................................98
Section 11.14 Execution in Counterparts; Severability; Integration.....................................100
EXHIBITS
EXHIBIT A Form of Borrower Notice
EXHIBIT B-1 FUNB Note
EXHIBIT B-2 VFCC Note
EXHIBIT B-3 Investors' Note
EXHIBIT C "Limited Purpose" Provisions
EXHIBIT D Form of Assignment and Acceptance
EXHIBIT E Form of Monthly Report
EXHIBIT F Form of Servicer's Certificate
EXHIBIT G Credit and Collection Policy
EXHIBIT H Form of Hedging Agreement (including Schedule and Confirmation)
EXHIBIT I Form of Certificate of Borrower's Counsel
EXHIBIT J Form of Trust Receipt and Initial Certification
EXHIBIT K Form of Trust Receipt and Final Certification
EXHIBIT L Form of Release of Loan File
EXHIBIT M Form of Assignment of Mortgage
EXHIBIT N Form of Reinvestment Certification
EXHIBIT O-1 Officer's Certificate as to Solvency from Originator
EXHIBIT O-2 Officer's Certificate as to Solvency from Borrower
EXHIBIT P Officer's Closing Certificate
EXHIBIT P-1 Officer's Closing Certificate from Originator
iii
<PAGE>
<CAPTION>
EXHIBIT P-2 Officer's Closing Certificate from Borrower
EXHIBIT Q-1 Power of Attorney from Originator
EXHIBIT Q-2 Power of Attorney from Borrower
EXHIBIT R Form of Lock-Box Agreement
EXHIBIT S Credit Report and Transaction Summary
SCHEDULES
---------
SCHEDULE I Schedule of Documents
SCHEDULE II List of Lock-Box Banks and Lock-Box Accounts
SCHEDULE III Tradenames, Fictitious Names and "Doing Business As" Names
SCHEDULE IV Loan List
SCHEDULE V Location of Loan Files
SCHEDULE VI Form of Loans
</TABLE>
iv
<PAGE>
THIS LOAN FUNDING AND SERVICING AGREEMENT (the "Agreement" or "Loan
Funding Agreement") is made as of March 31, 1999, among:
(1) ACS FUNDING TRUST I, a Delaware business trust, as borrower (the
"Borrower");
(2) AMERICAN CAPITAL STRATEGIES, LTD., a Delaware corporation, as
servicer (the "Servicer");
(3) the financial institutions listed on the signature pages of this
Agreement under the heading "Investors" and their respective successors and
assigns (the "Investors");
(4) VARIABLE FUNDING CAPITAL CORPORATION, a Delaware corporation
("VFCC") and as a lender ("Lender");
(5) FIRST UNION CAPITAL MARKETS CORP. ("FCM"), as deal agent (the "Deal
Agent"), and as documentation agent (the "Documentation Agent");
(6) FIRST UNION NATIONAL BANK ("First Union"), as a lender ("Lender")
and as liquidity agent (the "Liquidity Agent"); and
(7) NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION ("Norwest"), as backup
servicer (the "Backup Servicer") and as collateral custodian (the "Collateral
Custodian")
IT IS AGREED as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Defined Terms.
(a) Certain capitalized terms used throughout this Agreement are
defined above or in this Section 1.1.
(b) As used in this Agreement and its exhibits, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined).
Accrual Period: For any Payment Date, the period from and including the
Payment Date immediately preceding such Payment Date (or in the case of the
first Accrual Period, from and including the Closing Date) to but excluding such
Payment Date.
<PAGE>
Add-On Loan: Any additional loan or extension of credit made subsequent
to any Loan made by the Originator or one of its subsidiaries to the Obligor of
such Loan.
Adjusted Eurodollar Rate: For any Accrual Period, an interest rate per
annum equal to the quotient, expressed as a percentage and rounded upwards (if
necessary), to the nearest 1/100 of 1%, (i) the numerator of which is equal to
the LIBOR Rate for such Accrual Period and (ii) the denominator of which is
equal to 100% minus the Eurodollar Reserve Percentage for such Accrual Period.
Administration Agreement: That certain Amended and Restated
Administration Agreement, dated as of July 1, 1998, executed between VFCC and
FCM, as the same may be amended, supplemented, or otherwise modified from time
to time.
Advance: Defined in Section 2.1(a).
Advances Outstanding: On any day, the aggregate principal amount of
Advances outstanding on such day, after giving effect to all repayments of
Advances and makings of new Advances on such day.
Adverse Claim: A lien, security interest, pledge, charge, encumbrance
or other right or claim of any Person.
Affected Party: Defined in Section 2.14(a).
Affiliate: With respect to a Person means any other Person controlling,
controlled by or under common control with such Person. For purposes of this
definition, "control" when used with respect to any specified Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" or "controlled" have meanings correlative
to the foregoing.
Agent's Account: A special account (account number 01 41 96 47) in the
name of the Deal Agent, or so long as VFCC is the sole Lender hereunder, in the
name of VFCC, at Bankers Trust Company.
Aggregate Outstanding Loan Balance: On any day, the sum of the
Outstanding Loan Balances of all Eligible Loans included as part of the
Collateral on such date.
Aggregate Purchased Loan Balance: On any day, the sum of the Purchased
Loan Balances of all Eligible Loans included as part of the Collateral on such
date.
Agreement: This Loan Funding and Servicing Agreement, dated as of March
31, 1999, as amended, modified, supplemented or restated from time to time.
2
<PAGE>
Alternative Rate: An interest rate per annum equal to the Adjusted
Eurodollar Rate; provided, however, that the Alternative Rate shall be the Base
Rate if a Eurodollar Disruption Event occurs; and, provided, further, that the
Alternative Rate for the first two (2) Business Days following any Advance made
by an Investor shall be the Base Rate unless such Investor has received at least
two (2) Business Days prior notice of such Advance.
Amortization Period: The period beginning on the Termination Date and
ending on the Collection Date.
Applicable Law: For any Person, all existing and future applicable
laws, rules, regulations (including proposed, temporary and final income tax
regulations), statutes, treaties, codes ordinances, permits, certificates,
orders and licenses of and interpretations by any Governmental Authority
(including, without limitation, usury laws, the Federal Truth in Lending Act,
and Regulation Z and Regulation B of the Federal Reserve Board), and applicable
judgments, decrees, injunctions, writs, orders, or line action of any court,
arbitrator or other administrative, judicial, or quasi-judicial tribunal or
agency of competent jurisdiction.
Approval Date: Defined in Section 5.4(c).
Assignment and Acceptance: An assignment and acceptance entered into by
an Investor and an Eligible Assignee, and accepted by the Deal Agent, in
substantially the form of Exhibit D hereto.
Assignment of Mortgage: As to each Loan secured by an interest in real
property, one or more assignments, notices of transfer or equivalent
instruments, each in recordable form and sufficient under the laws of the
relevant jurisdiction to reflect the transfer of the related mortgage, deed of
trust, security deed or similar security instrument and all other documents
related to such Loan and to the Borrower and to grant a perfected lien thereon
by the Borrower in favor of the Deal Agent on behalf of the Secured Parties,
each such Assignment of Mortgage to be substantially in the form of Exhibit M
hereto.
Availability: On any day, the excess of (I) the amount by which (a) the
lesser of (i) the product of (A) the Borrowing Base and (B) 50% and (ii) the
Facility Amount exceeds (b) an amount necessary to cure any
Overcollateralization Shortfall and any Required Equity Shortfall over (II) the
Advances Outstanding on such day; provided, however, during the Amortization
Period, the Availability shall be zero.
Backup Servicer: Norwest Bank Minnesota, National Association, in its
capacity as Backup Servicer hereunder, together with its successors and assigns.
Backup Servicer Expenses: The reasonable out-of-pocket expenses to be
paid to the Backup Servicer under the Backup Servicer and Collateral Custodian
Fee Letter.
Backup Servicer Fee: The fee to be paid to the Backup Servicer as set
forth in the Backup Servicer and Collateral Custodian Fee Letter.
3
<PAGE>
Backup Servicer and Collateral Custodian Fee Letter: The Backup
Servicer and Collateral Custodian Fee Letter, dated as of the date hereof, among
the Servicer, the Borrower, the Backup Servicer and Collateral Custodian, the
Deal Agent and First Union.
Bankruptcy Code: The United States Bankruptcy Reform Act of 1978 (11
U.S.C.ss.ss.101, et seq.), as amended from time to time.
Base Rate: On any date, a fluctuating rate of interest per annum equal
to the higher of (a) the Prime Rate or (b) the Federal Funds Rate plus 1.0%.
Benefit Plan: Any employee benefit plan as defined in Section 3(3) of
ERISA in respect of which the Borrower or any ERISA Affiliate of the Borrower
is, or at any time during the immediately preceding six years was, an "employer"
as defined in Section 3(5) of ERISA.
Borrower: ACS Funding Trust I, or any permitted successor thereto.
Borrowing Base: On any date of determination, an amount equal to the
sum of (a) the Aggregate Purchased Loan Balance and (b) the Purchased Loan
Balance of all Eligible Loans to become included as part of the Collateral on
such date.
Borrower Notice: A written notice, in the form of Exhibit A, to be used
for each borrowing, repayment of each Advance or termination or reduction of the
Facility Amount or Prepayments of Advances.
Breakage Costs: Defined in Section 2.12.
Business Day: Any day of the year other than a Saturday or a Sunday on
which (a) banks are not required or authorized to be closed in New York City,
New York, Minneapolis, Minnesota, Charlotte, North Carolina and Baltimore,
Maryland, and (b) if the term "Business Day" is used in connection with the
Adjusted Eurodollar Rate, means the foregoing only if such day is also a day of
year on which dealings in United States dollar deposits are carried on in the
London interbank market.
Change-in-Control: The date on which (i) any Person or "group" acquires
any "beneficial ownership" (as such terms are defined under Rule 13d-3 of, and
Regulation 13D under, the Securities Exchange Act of 1934, as amended), either
directly or indirectly, of membership interests or other equity interests or any
interest convertible into any such interest in the Originator having more than
fifty percent (50%) of the voting power for the election of managers of the
Originator, if any, under ordinary circumstances, or (ii) (except in connection
with any Securitization) the Originator sells, transfers, conveys, assigns or
otherwise disposes of all or substantially all of the assets of the Originator.
4
<PAGE>
Charged-Off Loan: Any Loan (i) that is 180 days past due with respect
to any interest or principal payment, (ii) for which an Insolvency Event has
occurred with respect to the related Obligor, (iii) for which the related
Obligor has suffered any Material Adverse Change, or (iv) that is or should be
written off as uncollectible by the Servicer in accordance with the Credit and
Collection Policy.
Charged-Off Ratio: With respect to any Collection Period, the
percentage equivalent of a fraction, calculated as of the Determination Date for
such Collection Period, (a) the numerator of which is equal to the aggregate
Outstanding Loan Balance of all Loans that become Charged-Off Loans during such
Collection Period and (ii) the denominator of which is equal to the decimal
equivalent of a fraction the numerator of which is equal to the sum of (A) the
Aggregate Outstanding Loan Balance as of the first day of such Collection Period
and (B) the Aggregate Outstanding Loan Balance as of the last day of such
Collection Period and the denominator of which is 2.
Closing Date: March 31, 1999.
Code: The Internal Revenue Code of 1986, as amended.
Collateral: All right, title and interest, whether now owned or
hereafter acquired or arising, and wherever located, of the Borrower in, to and
under any and all of the following:
(i) the Transferred Loans, and all monies due or to become due
in payment of such Loans on and after the related Purchase Date;
(ii) any Related Property securing the Transferred Loans
including all proceeds from any sale or other disposition of such
Related Property;
(iii) the Loan Documents;
(iv) all Supplemental Interests related to any Transferred
Loans to the extent that the Borrower has any ownership interest
therein;
(v) the Collection Account, all funds held in such account,
and all certificates and instruments, if any, from time to time
representing or evidencing the Collection Account or such funds;
(vi) the Excess Spread Account, all funds held in such
account, and all certificates and instruments, if any, from time to
time representing or evidencing the Excess Spread Account or such
funds;
5
<PAGE>
(vii) all Collections and all other payments made or to be
made in the future with respect to such Loans or by the Obligor
thereunder and under any guarantee or similar credit enhancement with
respect to such Loans;
(viii) all Hedge Collateral;
(ix) all income and Proceeds of the foregoing;
Collateral Custodian: Norwest Bank Minnesota, National Association, in
its capacity as Collateral Custodian hereunder, together with its successors and
assigns.
Collateral Custodian Expenses: The reasonable out-of-pocket expenses to
be paid to the Collateral Custodian under the Backup Servicer and Collateral
Custodian Fee Letter.
Collateral Custodian Fee: The fee set forth in the Backup Servicer and
Collateral Custodian Fee Letter.
Collection Account: Defined in Section 6.4(e).
Collection Date: The date following the Termination Date on which all
Advances Outstanding have been reduced to zero, the Lenders have received all
accrued Interest, fees, and all other amounts owing to them under this Agreement
and the Hedging Agreement, the Hedge Counterparties have received all amounts
due and owing hereunder and under the Hedge Transactions, and each of the Backup
Servicer, the Collateral Custodian, the Deal Agent and Liquidity Agent have each
received all amounts due to them in connection with this Agreement.
Collection Period: Each calendar month, except in the case of the first
Collection Period, the period beginning on the Closing Date to and including the
last day of the calendar month in which the Closing Date occurs.
Collections: (a) All cash collections or other cash proceeds of such
Loan received by or on behalf of the Borrower by the Servicer or Originator from
or on behalf of any Obligor in payment of any amounts owed in respect of such
Loan, including, without limitation, any Interest Collections, any Principal
Collections, Deemed Collections, Insurance Proceeds, interest earnings in the
Collection Account, and all Recoveries, (b) all amounts received by the Buyer in
connection with the Repurchase of an Ineligible Loan pursuant to Section 6.1 of
the Purchase Agreement, (c) any other funds so received by or on behalf of the
Borrower with respect to any Loan or related security therefor, and (d) all
payments received pursuant to any Hedging Agreement or Hedge Transaction.
Commercial Paper Notes: On any day, any short-term promissory notes
issued by VFCC with respect to financing any Advance hereunder.
6
<PAGE>
Commitment: For each Investor and Lender, the commitment of such
Investor and Lender to fund any Advance to the Borrower in an amount not to
exceed the amount set forth opposite such Investor's and Lender's name on the
signature pages of this Agreement, as such amount may be modified in accordance
with the terms hereof.
Commitment Termination Date: March 31, 2001 or such later date to which
the Commitment Termination Date may be extended (if extended) in the sole
discretion of VFCC and each Investor in accordance with the terms of Section
2.2(b); provided, however, in the event that the Borrower fails to deliver or
fails to cause the Servicer to deliver a formal Credit and Collection Policy and
revised loan grading system in a form satisfactory to the Deal Agent (in its
sole discretion) on or before September 30, 1999, then the Commitment
Termination Date shall be March 29, 2000.
Concentration Limits: On any date of determination, each of the
following (calculated on the basis of Aggregate Outstanding Loan Balance):
(a) the sum of the Outstanding Loan Balances of Eligible Loans the
Obligors of which are residents of any one state shall not exceed 35%;
(b) the sum of the Outstanding Loan Balances of Eligible Loans the
Obligors of which are in the same Industry shall not exceed 10%;
(c) the Outstanding Loan Balance of any Eligible Loan shall not exceed
the Large Loan Limit;
(d) the sum of the Outstanding Loan Balances of Eligible Loans the
Obligors of which are Grade 2 Obligors shall not exceed 10%;
(e) the sum of the Outstanding Loan Balances of Eligible Loans that
have interest due and payable monthly shall not be less than 50%; and
(f) the sum of the Outstanding Loan Balances of Eligible Loans that are
secured by a security interest in all assets of the related Obligor shall not be
less than 75%.
Contractual Obligation: With respect to any Person, means any provision
of any securities issued by such Person or any indenture, mortgage, deed of
trust, contract, undertaking, agreement, instrument or other document to which
such Person is a party or by which it or any of its property is bound or is
subject.
Costs of Funds Adjustment: For any Accrual Period, the positive excess
(if any) of the CP Rate for the immediately preceding Accrual Period over the
Adjusted Eurodollar Rate for the immediately preceding Accrual Period, as set
forth in a written statement delivered by the Deal Agent to the Borrower and the
Servicer.
7
<PAGE>
CP Rate: For any Accrual Period, the per annum rate equivalent to the
weighted average of the per annum rates paid or payable by VFCC from time to
time as interest on or otherwise (by means of interest rate hedges or otherwise
taking into consideration any incremental carrying costs associated with
short-term promissory notes issued by VFCC maturing on dates other than those
certain dates on which VFCC is to receive funds) in respect of the promissory
notes issued by VFCC that are allocated, in whole or in part, by the Deal Agent
(on behalf of VFCC) to fund or maintain the Advances Outstanding during such
period, as determined by the Deal Agent (on behalf of VFCC) and reported to the
Borrower and the Servicer, which rates shall reflect and give effect to (i) the
commissions of placement agents and dealers in respect of such promissory notes,
to the extent such commissions are allocated, in whole or in part, to such
promissory notes by the Deal Agent (on behalf of VFCC) and (ii) other borrowings
by VFCC, including, without limitation, borrowings to fund small or odd dollar
amounts that are not easily accommodated in the commercial paper market;
provided, however, that if any component of such rate is a discount rate, in
calculating the CP Rate, the Deal Agent shall for such component use the rate
resulting from converting such discount rate to an interest bearing equivalent
rate per annum.
Credit and Collection Policy: Those credit, collection, customer
relation and service policies (i) determined by the Borrower, the Originator and
the initial Servicer as of the date hereof relating to the Loans and related
Loan Documents, described in Exhibit G, as the same may be amended or modified
from time to time in accordance with Section 6.9(g); and (ii) with respect to
any Successor Servicer, the collection procedures and policies of such person
(as approved by the Deal Agent) at the time such Person becomes Successor
Servicer.
Deal Agent: FCM, as Deal Agent hereunder, together with its successors
and assigns.
Deemed Collections: On any day, an amount equal to the unpaid balance
(including any accrued interest thereon) of any Loan included as part of the
Collateral if on such day (a) the Deal Agent, as agent for the Secured Parties,
does not have a valid perfected security interest in such Loan and any Related
Property, or (b) a Warranty Event occurred with respect to such Loan.
Defaulted Loan: Any Loan (i) that is 45 days past due with respect to
any interest or principal payments, (ii) for which an Insolvency Event has
occurred with respect to the related Obligor, (iii) for which the related
Obligor has suffered any Material Adverse Change, or (iv) that is or otherwise
should be considered a Defaulted Loan by the Servicer in accordance with the
Credit and Collection Policy.
Default Ratio: With respect to any Collection Period, the percentage
equivalent of a fraction, calculated as of the Determination Date for such
Collection Period, (a) the numerator of which is equal to the aggregate
Outstanding Loan Balance of all Loans (excluding Charged-Off Loans) included as
part of the Collateral that became Defaulted Loans during such Collection Period
and (b) the denominator of which is equal to the decimal equivalent of a
fraction the numerator of which is equal to the sum of (i) the Aggregate
Outstanding Loan Balance as of the
8
<PAGE>
first day of such Collection Period and (ii) the Aggregate Outstanding Loan
Balance as of the last day of such Collection Period and the denominator of
which is 2.
Delinquent: On any day with respect to any Loan and any specified time
period any payment, or portion thereof, due with respect thereto, has not been
made by the Obligor of such Loan for the specified time period from the due date
of such payment.
Derivatives: Any exchange-traded or over-the-counter (i) forward,
future, option, swap, cap, collar, floor, foreign exchange contract, any
combination thereof, whether for physical delivery or cash settlement, relating
to any interest rate, interest rate index, currency, currency exchange rate,
currency exchange rate index, debt instrument, debt price, debt index,
depository instrument, depository price, depository index, equity instrument,
equity price, equity index, commodity, commodity price or commodity index, (ii)
any similar transaction, contract, instrument, undertaking or security, or (iii)
any transaction, contract, instrument, undertaking or security containing any of
the foregoing.
Determination Date: The last day of each Collection Period.
Eligible Assignee: (a) A Person whose short-term rating is at least A-1
from S&P and P-1 from Moody's, or whose obligations under this Agreement are
guaranteed by a Person whose short-term rating is at least A-1 from S&P and P-1
from Moody's, or (b) such other Person satisfactory to VFCC, Deal Agent, and
each of the rating agencies rating the Commercial Paper.
Eligible Loan: On any date of determination, each Loan which satisfies
each of the following requirements:
(i) the Loan is evidenced by a promissory note that has been
duly authorized and that, together with the related Loan Documents, is
in full force and effect and constitutes the legal, valid and binding
obligation of the Obligor of such Loan to pay the stated amount of the
Loan and interest thereon, and the related Loan Documents are
enforceable against such Obligor in accordance with their respective
terms;
(ii) the Loan was originated in accordance with the terms of
the Credit and Collection Policy and arose in the ordinary course of
the Originator's business from the loaning of money to the Obligor
thereof;
(iii) the Loan is not a Defaulted Loan, and no payment or
portion thereof is more than 10 days Delinquent;
(iv) the Obligor of such Loan has executed all appropriate
documentation required by the Originator;
9
<PAGE>
(v) the Loan, together with the Loan Documents related
thereto, is a "general intangible", an "instrument", an "account", or
"chattel paper" within the meaning of the UCC of all jurisdictions that
govern the perfection of the security interest granted therein;
(vi) all material consents, licenses, approvals or
authorizations of, or registrations or declarations with, any
Governmental Authority required to be obtained, effected or given in
connection with the making of such Loan have been duly obtained,
effected or given and are in full force and effect;
(vii) the Loan is denominated and payable only in United
States Dollars in the United States;
(viii) except for PIK Loans, the Loan bears interest, which is
due and payable monthly or quarterly;
(ix) the Loan, together with the Loan Documents related
thereto, does not contravene in any material respect any Applicable
Laws (including, without limitation, laws, rules and regulations
relating to usury, truth in lending, fair credit billing, fair credit
reporting, equal credit opportunity, fair debt collection practices and
privacy) and with respect to which no party to the Loan Documents
related thereto is in material violation of any such Applicable Laws;
(x) the Loan, together with the related Loan Documents, is
fully assignable, (and with respect to the Loan Funding Agreement only,
if such Loan is secured by an interest in real property, an Assignment
of Mortgage has been delivered to the Collateral Custodian);
(xi) the Loan was documented and closed in accordance with the
Credit and Collection Policy, including the relevant opinions and
assignments, and there is only one current original promissory note
(and with respect to the Loan Funding Agreement only, with respect to
such Loan such promissory note has been delivered to the Collateral
Custodian, duly endorsed as collateral under the Loan Funding
Agreement);
(xii) the Loan and all Related Property are free of any Liens;
(and with respect to the Loan Funding Agreement only, except for
Permitted Liens, and all filings and other actions required to perfect
the security interest of the Deal Agent as agent for the Second Parties
in the Collateral have been made or taken);
(xiii) the Loan has an original term to maturity of no more
than 120 months, and is either fully amortizing in installments (which
installments need not be in identical amounts) over such term or the
principal amount thereof is due in a single installment at the end of
such term;
10
<PAGE>
(xiv) no right of rescission, set off, counterclaim, defense
or other material dispute has been asserted with respect to such Loan;
(xv) any Related Property with respect to such Loan is insured
in accordance with the Credit and Collection Policy;
(xvi) the Loan Documents with respect to such Loan are
complete in accordance with the Credit and Collection Policy;
(xvii) the Obligor with respect to such Loan is an Eligible
Obligor;
(xviii) such Loan does not represent capitalized interest or
payment obligations relating to "put" rights;
(xix) for purposes of the Loan Funding Agreement only, if such
Loan is an Add-On Loan, the Deal Agent (in its sole discretion) has
approved in writing its inclusion in the Collateral;
(xx) the Loan is not a loan or extension of credit made by the
Originator or one of its subsidiaries to an Obligor for the purpose of
making any principal, interest or other payment on such Loan necessary
in order to keep such Loan from becoming Delinquent; and
(xxi) the Euro-Caribe Loan.
Eligible Obligor: On any day, any Obligor that satisfies each
of the following requirements at all times:
(i) such Obligor is not in the gaming, nuclear waste,
bio-tech, oil and gas or real estate industries;
(ii) such Obligor is a legal operating entity, duly organized
and validly existing under the laws of its jurisdiction of
organization;
(iii) the business being financed by such Obligor has an
Operating History of at least 60 months from the date of its
incorporation or formation;
(iv) such Obligor is not the subject of any Insolvency Event
(and for purposes of the Loan Funding Agreement only, and, as of the
Funding Date on which such Loan became part of the Collateral, such
Obligor has not experienced a Material Adverse Change);
(v) such Obligor is not an Affiliate of any other Obligor
hereto (other than as a result of being an Affiliate of the
Originator);
11
<PAGE>
(vi) no other Loan of such Obligor is Delinquent for more than
thirty (30) days;
(vii) such Obligor is not a Governmental Authority;
(viii) such Obligor is in compliance with all material terms
and conditions of its Loan Documents;
(ix) such Obligor's principal office and any Related Property
are located in the United States or any other country or territory of
the United States (and, for purposes of the Loan Funding Agreement
only, approved by the Deal Agent upon receipt and review of
satisfactory legal due diligence, Rating Agency discussions and credit
approval); and
(x) such Obligor has an Eligible Risk Rating.
Eligible Risk Rating: As of any date of determination, with respect to
a designated Obligor, a risk rating of "Grade 2," "Grade 3," or "Grade 4."
ERISA: The U.S. Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
ERISA Affiliate: (a) Any corporation that is a member of the same
controlled group of corporations (within the meaning of Section 414(b) of the
Code) as the Borrower; (b) A trade or business (whether or not incorporated)
under common control (within the meaning of Section 414(c) of the Code) with the
Borrower or (c) A member of the same affiliated service group (within the
meaning of Section 414(m) of the Code) as the Borrower, any corporation
described in clause (a) above or any trade or business described in clause (b)
above.
Euro-Caribe Loan: The Loan to Euro-Caribe Packing Company, Inc. in the
principal aggregate amount of $18,000,000.
Eurodollar Disruption Event: With respect to any Advance as to which
Interest accrues or is to accrue at a rate based upon the Adjusted Eurodollar
Rate, any of the following: (a) a determination by a Lender that it would be
contrary to law or to the directive of any central bank or other governmental
authority (whether or not having the force of law) to obtain United States
dollars in the London interbank market to make, fund or maintain any Advance;
(b) the inability of any Lender to obtain timely information for purposes of
determining the Adjusted Eurodollar Rate; (c) a determination by a Lender that
the rate at which deposits of United States dollars are being offered to such
Lender in the London interbank market does not accurately reflect the cost to
such Lender of making, funding or maintaining any Advance; or (d) the inability
of a Lender to obtain United States dollars in the London interbank market to
make, fund or maintain any Advance.
12
<PAGE>
Eurodollar Reserve Percentage: On any day, the then applicable
percentage (expressed as a decimal) prescribed by the Federal Reserve Board (or
any successor) for determining reserve requirements applicable to "Eurocurrency
Liabilities" pursuant to Regulation D or any other then applicable regulation of
the Federal Reserve Board (or any successor) that prescribes reserve
requirements applicable to "Eurocurrency Liabilities" as presently defined in
Regulation D.
Excess Spread Account: Defined in Section 6.4(f).
Facility Amount: At any time, $100,000,000; provided, however, on or
after the Termination Date, the Facility Amount shall be zero.
Facility Fee: For any Accrual Period, the fee payable by the Borrower
to the Deal Agent, on behalf of the Lenders, in an amount equal to the sum of
products, for each day during such Collection Period, of (i) the Facility Fee
Rate, (ii) the Facility Amount minus Advances Outstanding, and (iii) the
quotient of (a) 1 and (b) 360.
Facility Fee Rate: Defined in the Fee Letter.
Fair Market Value: With respect to each Eligible Loan, the lesser of
(a) the original principal amount of such Eligible Loan, and (b) if such
Eligible Loan has been reduced in value below the original principal amount
thereof (other than as a result of the allocation of a portion of the original
principal amount to warrants) the fair market value of such Eligible Loan as
required by, and in accordance with, the 1940 Act, as amended, and any orders of
the SEC issued to the Originator, to be determined by the Board of Directors of
the Originator and reviewed by its auditors.
Federal Funds Rate: For any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the
federal funds rates as quoted by First Union and confirmed in Federal Reserve
Board Statistical Release H.15(519) or any successor or substitute publication
selected by First Union (or, if such day is not a Business Day, for the
preceding Business Day), or, if, for any reason, such rate is not available on
any day, the rate determined, in the sole opinion of First Union, to be the rate
at which federal funds are being offered for sale in the national federal funds
market at 9:00 a.m. Charlotte, North Carolina time.
Federal Reserve Board: The Board of Governors of the Federal Reserve
System.
Fee Letter: The Fee Letter, dated as of the date hereof, among the
Borrower, the Servicer, the Deal Agent and First Union setting forth, among
other things, the Program Fee Rate, and the Facility Fee Rate.
First Union: First Union National Bank, in its individual capacity, and
its successors or assigns.
Funding Date: Any day on which an Advance is made.
13
<PAGE>
Funding Request: A Borrower Notice requesting an Advance and including
the items required by Section 2.2.
GAAP: Generally accepted accounting principles as in effect from time
to time in the United States.
Governmental Authority: With respect to any Person, any nation or
government, any state or other political subdivision thereof, any central bank
(or similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government and any court or arbitrator having jurisdiction over
such Person.
Grade 1 Obligor: As of any date of determination, (i) an Obligor of any
Loan that the Servicer determines to be or, in accordance with the Credit and
Collection Policy should have determined to be, classified as "Grade 1," or (ii)
an Obligor designated by the Servicer as a "Grade 1 Obligor" with the prior
written consent of the Deal Agent.
Grade 2 Obligor: As of any date of determination, (i) an Obligor of any
Loan that the Servicer determines to be or, in accordance with the Credit and
Collection Policy should have determined to be, classified as "Grade 2," or (ii)
an Obligor designated by the Servicer as a "Grade 2 Obligor" with the prior
written consent of the Deal Agent.
Grade 3 Obligor: As of any date of determination, (i) any Obligor of
any Loan that the Servicer determines to be or, in accordance with the Credit
and Collection Policy should have determined to be, classified as "Grade 3," or
(ii) an Obligor designated by the Servicer as a "Grade 3 Obligor" with the prior
written consent of the Deal Agent.
Grade 4 Obligor: As of any date of determination, (i) an Obligor of any
Loan that the Servicer determines to be or, in accordance with the Credit and
Collection Policy should have determined to be, classified as "Grade 4," or (ii)
an Obligor designated by the Servicer as a "Grade 4 Obligor" with the prior
written consent of the Deal Agent.
H.15: Federal Reserve Statistical Release H.15.
Hedge Breakage Costs: For any Hedge Transaction, any amount payable by
the Borrower for the early termination of that Hedge Transaction or any portion
thereof.
Hedge Collateral: Defined in Section 5.3(b).
Hedge Counterparty: Any entity that (a) on the date of entering into
any Hedge Transaction (i) is an interest rate swap dealer that is either a
Lender or an Affiliate of a Lender, or has been approved in writing by the Deal
Agent (which approval shall not be unreasonably withheld), and (ii) has a
long-term unsecured debt rating of not less than "A" by S&P and not
14
<PAGE>
less than "A-2" by Moody's ("Long-term Rating Requirement") and a short-term
unsecured debt rating of not less than "A-1" by S&P and not less than "P-1" by
Moody's ("Short-term Rating Requirement"), and (b) in a Hedging Agreement (i)
consents to the assignment of the Borrower's rights under the Hedging Agreement
to the Deal Agent pursuant to Section 5.3(b) and (ii) agrees that in the event
that Moody's or S&P reduces its long-term unsecured debt rating below the
Long-term Rating Requirement, it shall transfer its rights and obligations under
each Hedging Transaction to another entity that meets the requirements of clause
(a) and (b) hereof and has entered onto a Hedging Agreement with the Borrower on
or prior to the date of such transfer.
Hedge Notional Amount: The aggregate notional amount in effect on any
day under all Hedge Transactions entered into pursuant to Section 5.3(a) which
have not matured, been terminated or cancelled.
Hedge Transaction: Each interest rate swap transaction between the
Borrower and a Hedge Counterparty that is entered into pursuant to Section
5.3(a) and is governed by a Hedging Agreement.
Hedging Agreement: Each agreement between the Borrower and a Hedge
Counterparty that governs one or more Hedge Transactions entered into pursuant
to Section 5.3, which agreement shall consist of a "Master Agreement" in a form
published by the International Swaps and Derivatives Association, Inc., together
with a "Schedule" thereto substantially in the form of Exhibit H hereto or such
other form as the Deal Agent shall approve in writing, and each "Confirmation"
thereunder confirming the specific terms of each such Hedge Transaction.
Increased Costs: Any amounts required to be paid by the Borrower to an
Affected Party pursuant to Section 2.14.
Indebtedness: With respect to any Person at any date, (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than current liabilities incurred in the
ordinary course of business and payable in accordance with customary trade
practices) or that is evidenced by a note, bond, debenture or similar
instrument, (b) all obligations of such Person under capital leases, (c) all
obligations of such Person in respect of acceptances issued or created for the
account of such Person, (d) all liabilities secured by any Lien on any property
owned by such Person even though such Person has not assumed or otherwise become
liable for the payment thereof, and (e) all indebtedness, obligations or
liabilities of that Person in respect of Derivatives, and (f) obligations under
direct or indirect guaranties in respect of obligation (contingent or otherwise)
to purchase or otherwise acquire, or to otherwise assure a creditor against loss
in respect of, clauses (a) through (e) above.
Indemnified Amounts: Defined in Section 8.1.
Indemnified Party: Defined in Section 8.1.
15
<PAGE>
Industry: The industry of an Obligor as determined by reference to the
four digit standard industry classification codes.
Insolvency Event: With respect to a specified Person, (a) the filing of
a decree or order for relief by a court having jurisdiction in the premises in
respect of such Person or any substantial part of its property in an involuntary
case under any applicable Insolvency Law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official for such Person or for any substantial part of its property, or
ordering the winding-up or liquidation of such Person's affairs, and such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or (b) the commencement by such Person of a voluntary case under any
applicable Insolvency Law now or hereafter in effect, or the consent by such
Person to the entry of an order for relief in an involuntary case under any such
law, or the consent by such Person to the appointment of or taking possession by
a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property, or the
making by such Person of any general assignment for the benefit of creditors, or
the failure by such Person generally to pay its debts as such debts become due,
or the taking of action by such Person in furtherance of any of the foregoing.
Insolvency Laws: The Bankruptcy Code and all other applicable
liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization, suspension of payments, or similar
debtor relief laws from time to time in effect affecting the rights of creditors
generally.
Insolvency Proceeding: Any case, action or proceeding before any court
or Governmental Authority relating to an Insolvency Event.
Insurance Policy: With respect to any Loan included in the Collateral,
an insurance policy covering physical damage to or loss to any assets or Related
Property of the Obligor securing such Loan.
Insurance Proceeds: Any amounts payable or any payments made, to the
Borrower or to the Servicer on its behalf under any Insurance Policy.
Interest: For each Accrual Period and each Advance outstanding during
such Accrual Period, the product of:
IR x P x AD
----
360
where
IR = the Interest Rate applicable to such Advance;
P = the principal amount of such Advance on
the first day of such Accrual Period, or if
such Advance was first made during such
16
<PAGE>
Accrual Period, the principal amount of such
Advance on the day such Advance is made; and
AD = the actual number of days in such Accrual
Period, or if such Advance was first made
during such Accrual Period, the actual
number of days beginning on the day such
Advance was first made through the end of
such Accrual Period;
provided, however, that (i) no provision of this Agreement shall require or
permit the collection of Interest in excess of the maximum permitted by
Applicable Law and (ii) Interest shall not be considered paid by any
distribution if at any time such distribution is rescinded or must otherwise be
returned for any reason.
Interest Collection Account: The subaccount of the Collection Account
into which all Interest Collections are deposited by the Borrower or the
Servicer on behalf of the Borrower in accordance with Section 2.10.
Interest Collections: Any and all amounts received in respect of any
interest, fees or other similar charges on a Loan from or on behalf of any
Obligors that are deposited into the Collection Account, or received by or on
behalf of the Borrower by the Servicer or Originator in respect of Loans, in the
form of cash, checks, wire transfers, electronic transfers or any other form of
cash payment (net of any payment owed by the Borrower to, and including any
receipts from, any Hedge Counterparties) and, solely for purposes of calculating
the Portfolio Rate, any and all amounts accrued in respect of any fees (but only
to the extent such fees were not received during such Collection Period) owed by
any Obligor in respect of any Eligible Loan.
Interest Rate: For any Accrual Period:
(a) to the extent the Lender is VFCC and it has funded the applicable
Advance through the issuance of Commercial Paper Notes, a rate equal to the sum
of the applicable Adjusted Eurodollar Rate for such Accrual Period and the Cost
of Funds Adjustment (if any) for such Accrual Period; or
(b) to the extent the relevant Lender did not fund its Advance through
the issuance of commercial paper, a rate equal to the Alternative Rate;
provided, however, the Interest Rate shall be the Base Rate if the relevant
Lender shall have notified the Deal Agent that a Eurodollar Disruption Event has
occurred.
Investment: With respect to any Person, any direct or indirect loan,
advance or investment by such Person in any other Person, whether by means of
share purchase, capital contribution, loan or otherwise, excluding the
acquisition of assets pursuant to the Purchase Agreement and excluding
commission, travel and similar advances to officers, employees and directors
made in the ordinary course of business.
17
<PAGE>
ISDA Definitions: The 1991 ISDA Definitions, as amended and
supplemented by the 1998 Supplement to the 1991 ISDA Definitions, published by
the International Swaps and Derivatives Association, Inc.
Issuer: VFCC and any other Lender whose principal business consists of
issuing commercial paper or other securities to fund its acquisition and
maintenance of receivables, accounts, instruments, chattel paper, general
intangibles and other similar Collateral.
Large Loan Limit: $10,000,000.
Lenders: Collectively, VFCC, First Union, and the Investors and any
other Person that agrees, pursuant to the pertinent Assignment and Acceptance,
to fund Advances pursuant to this Agreement.
LIBOR Rate: For any Accrual Period and any Advance, an interest rate
per annum equal to:
(a) to the extent that the relevant Lender is VFCC and it has funded
the applicable Advance through the issuance of Commercial Paper Notes:
(i) the posted rate for 30-day deposits in United States
Dollars appearing on Telerate page 3750 as of 11:00 a.m.
(London time) on the Business Day that is the second Business
Day immediately preceding the first day of such Accrual
Period; or
(ii) if no such rate appears on Telerate page 3750 at such
time and day, then the LIBOR Rate shall be determined by First
Union at its principal office in Charlotte, North Carolina as
its rate (each such determination, absent manifest error, to
be conclusive and binding on all parties hereto and their
assignees) at which 30-day deposits in United States Dollars
are being, have been, or would be offered or quoted by First
Union to major banks in the applicable interbank market for
Eurodollar deposits at or about 11:00 a.m. (Charlotte, North
Carolina time) on such day; and
(b) in all other cases:
(i) the posted rate for 30-day deposits in United States
Dollars appearing on Telerate page 3750 as of 11:00 a.m.
(London time) on the Business Day that is the second Business
Day immediately preceding the applicable Funding Date (with
respect to the initial Accrual Period for such Advance) and as
of the second Business Day immediately preceding the first day
of the applicable Accrual Period (with respect to all
subsequent Accrual Periods for such Advance); or
18
<PAGE>
(ii) if no rate appears on Telerate page 3750 at such time and
day, then the LIBOR Rate shall be determined by First Union at
its principal office in Charlotte, North Carolina as its rate
(each such determination, absent manifest error, to be
conclusive and binding on all parties hereto and their
assignees) at which 30-day deposits in United States Dollars
are being, have been, or would be offered or quoted by First
Union to major banks in the applicable interbank market for
Eurodollar deposits at or about 11:00 a.m. (Charlotte, North
Carolina time) on such day.
Lien: With respect to any Collateral, (a) any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
Collateral, or (b) the interest of a vendor or lessor under any conditional sale
agreement, financing Loan or other title retention agreement relating to such
Collateral.
Liquidation Expenses: With respect to any Defaulted Loan or Charged-Off
Loan, the aggregate amount of all out-of-pocket expenses reasonably incurred by
the Borrower or on behalf of the Borrower by the Servicer (including amounts
paid to any subservicer) in connection with the repossession, refurbishing and
disposition of any related assets securing such Loan including the attempted
collection of any amount owing pursuant to such Loan.
Liquidity Bank: Each liquidity bank that is a party to the Liquidity
Purchase Agreement.
Liquidity Purchase Agreement: The Liquidity Purchase Agreement, dated
as of March 31, 1999, among VFCC, the Deal Agent, the Liquidity Agent, and First
Union, as an investor, and each other liquidity bank a party thereto.
Loan: Any senior or subordinate loan arising from the extension of
credit to an Obligor by the Originator in the ordinary course of the
Originator's business including, without limitation, all Add-On Loans, monies
due or owing and all Interest Collections, Principal Collections and other
amounts received from time to time with respect to such loan receivable and all
Proceeds.
Loan Documents: With respect to any Loan, the related promissory note
and any related loan agreement, security agreement, mortgage, assignment of
Loans, all guarantees, and UCC financing statements and continuation statements
(including amendments or modifications thereof) executed by the Obligor thereof
or by another Person on the Obligor's behalf in respect of such Loan and related
promissory note, including, without limitation, general or limited guaranties
and, for each Loan secured by real property an Assignment of Mortgage, and for
all Loans with a Note, an assignment (which may be by allonge), in blank, signed
by an officer of the Originator.
Loan File: With respect to any Loan, each of the Loan Documents related
thereto.
19
<PAGE>
Loan List: The Loan List provided by the Borrower to the Deal Agent and
the Collateral Custodian, as set forth in Schedule IV hereto (which shall
include the specific documents that should be included in each Loan File), as
the same may be changed from time to time in accordance with the provisions
hereof.
Lock-Box: A post office box to which Collections are remitted for
retrieval by a Lock-Box Bank and deposited by such Lock-Box Bank into a Lock-Box
Account.
Lock-Box Account: An account maintained in the name of the Borrower for
the purpose of receiving Collections at a Lock-Box Bank.
Lock-Box Agreement: A letter agreement, substantially in the form of
Exhibit R, among the Borrower, the Servicer and any Lock-Box Bank.
Lock-Box Bank: Any of the banks or other financial institutions listed
on Schedule II holding one or more Lock-Box Accounts.
Market Servicing Fee: Defined in Section 6.27.
Market Servicing Fee Differential: On any date of determination, an
amount equal to the positive difference between the Market Servicing Fee and
Servicing Fee.
Material Adverse Change: With respect to any Person, any material
adverse change in the business, condition (financial or otherwise), operations,
performance, properties or prospects of such Person.
Material Adverse Effect: With respect to any event or circumstance,
means a material adverse effect on (a) the business, condition (financial or
otherwise), operations, performance, properties or prospects of the Servicer or
the Borrower, (b) the validity, enforceability or collectibility of this
Agreement or any other Transaction Document or the validity, enforceability or
collectibility of the Loans, (c) the rights and remedies of the Deal Agent or
any Secured Party under this Agreement or any Transaction Document or (d) the
ability of the Borrower or the Servicer to perform its obligations under this
Agreement or any other Transaction Document, or (e) the status, existence,
perfection, priority, or enforceability of the Deal Agent's or Secured Parties'
interest in the Collateral.
Minimum Overcollateralization Percentage: 200%.
Minimum Portfolio Yield: 4.0%
Minimum Purchased Loan Balance: $105,000,000.
Monthly Report: Defined in Section 6.17(a).
20
<PAGE>
Moody's: Moody's Investors Service, Inc., and any successor thereto.
Multiemployer Plan: A "multiemployer plan" as defined in Section
4001(a)(3) of ERISA that is or was at any time during the current year or the
immediately preceding five years contributed to by the Borrower or any ERISA
Affiliate on behalf of its employees.
Net Worth: The total of stockholder's equity (determined in accordance
with GAAP) plus Subordinated Debt, less (i) the total amount of loans to
officers, directors, or employees and (ii) the total amount of any intangible
assets, including without limitation, deferred charges and goodwill.
Notes: Defined in Section 2.5(a).
Obligations: All loans, advances, debts, liabilities and obligations,
for monetary amounts owing by the Borrower to the Lenders, the Deal Agent, the
Liquidity Agent, or any of their assigns, as the case may be, whether due or to
become due, matured or unmatured, liquidated or unliquidated, contingent or
non-contingent, and all covenants and duties regarding such amounts, of any kind
or nature, present or future, arising under or in respect of any of this
Agreement, any fee letter (including, without limitation, the Fee Letter and the
Backup Servicer and Collateral Custodian Fee Letter) delivered in connection
with the transactions contemplated by this Agreement, or any Hedging Agreement,
as amended or supplemented from time to time, whether or not evidenced by any
separate note, agreement or other instrument. This term includes, without
limitation, all principal, interest (including interest that accrues after the
commencement against the Borrower of any action under the Bankruptcy Code),
Breakage Costs, Hedge Breakage Costs, fees, including, without limitation, any
and all arrangement fees, loan fees, facility fees, and any and all other fees,
expenses, costs or other sums (including attorney costs) chargeable to the
Borrower under any of the Transaction Documents or under any Hedging Agreement.
Obligor: With respect to any Loan, the Person or Persons obligated to
make payments pursuant to such Loan, including any guarantor thereof. For
purposes of calculating any of the Concentration Limits, all Loans included in
the Collateral or to become part of the Collateral the Obligor of which is an
Affiliate of another Obligor shall be aggregated with all Loans of such other
Obligor, for example, if Corporation A is an Affiliate of Corporation B; and the
aggregate Outstanding Loan Balance of all of Corporation A's Loans in the
Collateral constitutes 10% of the Aggregate Outstanding Loan Balance and the
aggregate Outstanding Loan Balance of all Corporation B's Loans in the
Collateral constitute 10% of the Aggregate Outstanding Loan Balance, the Obligor
concentration for Corporation A would be 20% and the Obligor concentration for
Corporation B would be 20%.
Officer's Certificate: A certificate signed by any officer of the
Borrower or the Servicer, as the case may be, and delivered to the Deal Agent.
21
<PAGE>
Operating History: With respect to any specified Person, the time since
the date of such Person's incorporation or formation that it has continuously
operated its business; provided, however, the Operating History of any Person,
newly formed as a result of a merger of two or more Persons or as a result of
the acquisition of one or more Persons by a newly formed Person ("Merged
Parties") shall be based on the weighted average (by relative sales) of the
Operating Histories of the Merged Parties (excluding for such purposes, entities
that are created only for the purpose of being acquisition entities), for
example, if Corporation A with sales of $10 million has an Operating History of
four years and Corporation B with sales of $20 million has an Operating History
of eight years, merge to form NEWCO, the Operating History of NEWCO will be 6.67
years.
Opinion of Counsel: A written opinion of counsel, who may be counsel
for the Borrower or the Servicer, as the case may be, and who shall be
reasonably acceptable to the Deal Agent.
Originator: American Capital Strategies, Ltd.
Outstanding Loan Balance: With respect to any Loan, the then
outstanding principal balance thereof.
Overcollateralization Percentage: As of any date of determination, a
fraction expressed as a percentage, the numerator of which is equal to the sum
of (i) the Aggregate Purchased Loan Balance as of such date, (ii) the amount on
deposit in the Excess Spread Account on such day and (iii) all Principal
Collections on deposit in the Principal Collection Account on such day and the
denominator of which is equal to the Advances Outstanding on such day.
Overcollateralization Shortfall: On any day, the positive difference,
if any, between the Minimum Overcollateralization Percentage and the
Overcollateralization Percentage on such day.
Payment Date: The tenth (10th) day of each calendar month or, if such
day is not a Business Day, the next succeeding Business Day.
Permitted Investments: Any one or more of the following types of
investments:
(a) marketable obligations of the United States, the full and timely
payment of which are backed by the full faith and credit of the United States
and that have a maturity of not more than 270 days from the date of acquisition;
(b) marketable obligations, the full and timely payment of which are
directly and fully guaranteed by the full faith and credit of the United States
and that have a maturity of not more than 270 days from the date of acquisition;
(c) bankers' acceptances and certificates of deposit and other
interest-bearing obligations (in each case having a maturity of not more than
270 days from the date of
22
<PAGE>
acquisition) denominated in dollars and issued by any bank with capital, surplus
and undivided profits aggregating at least $100,000,000, the short-term
obligations of which are rated A-1 by S&P and P-1 by Moody's;
(d) repurchase obligations with a term of not more than ten days for
underlying securities of the types described in clauses (a), (b) and (c) above
entered into with any bank of the type described in clause (c) above;
(e) commercial paper rated at least A-1 by S&P and P-1 by Moody's; and,
(f) demand deposits, time deposits or certificates of deposit (having
original maturities of no more than 365 days) of depository institutions or
trust companies incorporated under the laws of the United States or any state
thereof (or domestic branches of any foreign bank) and subject to supervision
and examination by federal or state banking or depository institution
authorities; provided, however that at the time such investment, or the
commitment to make such investment, is entered into, the short-term debt rating
of such depository institution or trust company shall be at least A-1 by S&P and
P-1 by Moody's.
Permitted Liens: Liens in favor of the Deal Agent, as agent for the
Secured Parties, created pursuant to this Agreement.
Person: An individual, partnership, corporation (including a business
trust), limited liability company, joint stock company, trust, unincorporated
association, sole proprietorship, joint venture, government (or any agency or
political subdivision thereof) or other entity.
PIK Loan: A Loan to an Obligor, which provides for a portion of the
interest that accrues thereon to be added to the principal amount of such Loan
for some period of the time prior to such Loan requiring the cash payment of
interest on a monthly or quarterly basis.
Portfolio Rate: On any day, with respect to any Collection Period, the
annualized percentage equivalent of a fraction, the numerator of which is equal
to all Interest Collections deposited in the Collection Account for such
Collection Period, and the denominator of which is equal to the Advances
Outstanding on the last day of such Collection Period.
Portfolio Yield: On any day, the excess, if any, of (a) the Rolling
Three Month Portfolio Rate on such day over (b) the Interest Rate plus the
Program Fee on such day.
Prime Rate: The rate announced by First Union from time to time as its
prime rate in the United States, such rate to change as and when such designated
rate changes. The Prime Rate is not intended to be the lowest rate of interest
charged by First Union in connection with extensions of credit to debtors.
23
<PAGE>
Principal Collection Account: The subaccount of the Collection Account
into which all Principal Collections are deposited by the Borrower or by the
Servicer on its behalf in accordance with Section 2.10.
Principal Collections: Any and all amounts received in respect of any
principal due and payable under any Loan from or on behalf of Obligors that are
deposited into the Principal Collection Account, or received by or on behalf of
the Borrower by the Servicer or Originator in respect of Loans, in the form of
cash, checks, wire transfers, electronic transfers or any other form of cash
payment.
Proceeds: With respect to any Collateral, whatever is receivable or
received when such Collateral is sold, collected, liquidated, foreclosed,
exchanged, or otherwise disposed of, whether such disposition is voluntary or
involuntary, and includes all rights to payment with respect to any insurance
relating to such Collateral.
Program Fee: For each Accrual Period and each Advance Outstanding
during such Accrual Period, the product of:
PFR x P x AD/360
where
PFR = the Program Fee Rate;
P = the principal amount of such Advance on
the first day of such Accrual Period, or if
such Advance was first made during such
Accrual Period, the principal amount of such
Advance on the day such Advance is made; and
AD = the actual days comprising such Accrual
Period, or if such Advance was first made
during such Accrual Period, the actual
number of days beginning, on the day such
Advance was first made through the end of
such Accrual Period.
Program Fee Rate: Defined in the Fee Letter.
Pro-Rata Share: With respect to any Investor on any day, the percentage
equivalent of a fraction the numerator of which is such Investor's Commitment
and the denominator of which is the Facility Amount.
Purchase Agreement: The Purchase and Sale Agreement dated as of the
date hereof, between the Originator and the Borrower, as amended, modified,
supplemented or restated from time to time.
24
<PAGE>
Purchase Date: Defined in the Purchase Agreement.
Purchased Loan Balance: As of any date of determination and any Loan,
the lesser of (i) the Outstanding Loan Balance of such Loan, and (ii) the Fair
Market Value of such Loan, net of all amounts in excess of applicable
Concentration Limits.
Qualified Institution: Defined in Section 6.4(d).
Rating Agency: Each of S&P, Moody's and any other rating agency that
has been requested to issue a rating with respect to the commercial paper notes
issued by the Issuer.
Records: With respect to any Loans, all documents, books, records and
other information (including without limitation, computer programs, tapes,
disks, punch cards, data processing software and related property and rights)
maintained with respect to any item of Collateral and the related Obligors,
other than the Loan Documents.
Recoveries: With respect to any Defaulted Loan or Charged-Off Loan,
proceeds of the sale of any Related Property, proceeds of any related Insurance
Policy, and any other recoveries with respect to such Loan and Related Property,
and amounts representing late fees and penalties, net of Liquidation Expenses
and amounts, if any, received that are required to be refunded to the Obligor on
such Loan.
Reference Bank: Any bank that furnishes information for purposes of
determining the Adjusted Eurodollar Rate.
Register: Defined in Section 10.1(c).
Related Property: With respect to a Loan, any property or other assets
of the Obligor thereunder pledged as collateral to the Originator to secure the
repayment of such Loan.
Reporting Date: The date that is two (2) Business Days prior to each
Payment Date.
Required Equity Contribution: A capital contribution to the Borrower by
the Originator, on or before the Closing Date, in the form of Eligible Loans,
Related Property and/or cash having an outstanding principal balance on the
Closing Date and at all times prior to the Termination Date of at least
$115,000,000.
Required Equity Shortfall: On any day, the positive difference, if any,
between the Required Equity Contribution and $115,000,000 on such day.
Required Investors: At a particular time, Investors with Commitments in
excess of 66 2/3% of the Facility Amount.
25
<PAGE>
Required Notional Amount: For any day, the product of (i) 75% and (ii)
the Advances Outstanding on such day.
Required Reports: Collectively, the Monthly Report, the Servicer's
Certificate and the quarterly financial statement of the Servicer required to be
delivered to the Borrower, Deal Agent and the Backup Servicer pursuant to
Section 6.17 hereof.
Responsible Officer: As to any Person, any officer of such Person with
direct responsibility for the administration of this Agreement and also, with
respect to a particular matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
Revolving Period: The period commencing on the Closing Date and ending
on the day immediately preceding the Termination Date.
Rolling Three-Month Charged-Off Ratio: For any day, beginning after the
end of the third Collection Period following the Closing Date, the percentage
equivalent of a fraction the numerator of which is equal to the sum of the three
(3) most recent Charged-Off Ratios and the denominator of which is equal to
three (3). For any day from the end of the first Collection Period following the
Closing Date through the end of the second Collection Period following the
Closing Date, the Rolling Three-Month Charged-Off Ratio shall be equal to
Charged-Off Ratio calculated for the first Collection Period following the
Closing Date and for any day from the end of the second Collection Period
following the Closing Date through the end of the third Collection Period
following the Closing Date, the Rolling Three-Month Charged-Off Ratio shall be
equal to the percentage equivalent of a fraction the numerator of which is equal
to the sum of the Charged-Off Ratios for the first two Collection Periods
following the Closing Date and the Denominator of which is equal to two (2).
Rolling Three-Month Default Ratio: For any day, beginning after the end
of the third Collection Period following the Closing Date, the percentage
equivalent of a fraction the numerator of which is equal to the sum of the three
(3) most recent Default Ratios and the denominator of which is equal to three
(3). For any day from the end of the first Collection Period following the
Closing Date through the end of the second Collection Period following the
Closing Date, the Rolling Three-Month Default Ratio shall be equal to Default
Ratio calculated for the first Collection Period following the Closing Date;
and, for any day from the end of the second Collection Period following the
Closing Date through the end of the third Collection Period following the
Closing Date, the Rolling Three-Month Default Ratio shall be equal to the
percentage equivalent of a fraction the numerator of which is equal to the sum
of the Default Ratios for the first two collection Periods following the Closing
Date and the denominator of which is equal to two (2).
Rolling Three-Month Portfolio Rate: For any day, beginning after the
end of the third Collection Period following the Closing Date, the percentage
equivalent of a fraction the numerator of which is equal to the sum of the three
(3) most recent Portfolio Rates and the
26
<PAGE>
denominator of which is equal to three (3). For any day from the end of the
first Collection Period following the Closing Date through the end of the second
Collection Period following the Closing Date, the Rolling Three-Month Portfolio
Rate shall be equal to the Portfolio Rate calculated for the first Collection
Period following the Closing Date and for any day from the end of the second
Collection Period following the Closing Date through the end of the third
Collection Period following the Closing Date, the Rolling Three-Month Portfolio
Rate shall be equal to the percentage equivalent of a fraction the numerator of
which is equal to the sum of the Portfolio Rates for the first two Collection
Periods following the Closing Date and the denominator of which is equal to two
(2).
S&P: Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. and any successor thereto.
Scheduled Payment: On any Determination Date, with respect to any Loan,
each monthly payment (whether principal, interest or principal and interest)
scheduled to be made by the Obligor thereof after such Determination Date under
the terms of such Loan.
Secured Party: (i) Each Lender and (ii) each Hedge Counterparty that is
either a Lender or an Affiliate of a Lender if that Affiliate executes a
counterpart of this Agreement agreeing to be bound by the terms of this
Agreement applicable to a Secured Party.
Securitization: A disposition of Loans in one or a series of structured
finance securitization transactions.
Servicer: The Originator, and its permitted successors and assigns.
Servicer Advance: An advance of Scheduled Payments made by the Servicer
pursuant to Section 6.5.
Servicer Termination Event: Defined in Section 6.25.
Servicer's Certificate: Defined in Section 6.17(b).
Servicing Duties: Defined in Section 6.2.
Servicing Fee: For each Payment Date, an amount equal to the sum of the
products, for each day during the related Collection Period, of (i) Aggregate
Outstanding Loan Balance as of the preceding Determination Date, (ii) the
Servicing Fee Rate, and (iii) a fraction, the numerator of which is 1 and the
denominator of which is 360.
Servicing Fee Rate: A rate equal to 1.0% per annum.
Servicing Records: All documents, books, records and other information
(including, without limitation, computer programs, tapes, disks, data processing
software and related
27
<PAGE>
property rights) prepared and maintained by the Servicer with respect to the
Loans and the related Obligors.
Solvent: As to any Person at any time, having a state of affairs such
that all of the following conditions are met: (a) the fair value of the property
owned by such Person is greater than the amount of such Person's liabilities
(including disputed, contingent and unliquidated liabilities) as such value is
established and liabilities evaluated for purposes of Section 101(32) of the
Bankruptcy Code; (b) the present fair salable value of the property owned by
such Person in an orderly liquidation of such Person is not less than the amount
that will be required to pay the probable liability of such Person on its debts
as they become absolute and matured; (c) such Person is able to realize upon its
property and pay its debts and other liabilities (including disputed, contingent
and unliquidated liabilities) as they mature in the normal course of business;
(d) such Person does not intend to, and does not believe that it will, incur
debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature; and (e) such Person is not engaged in business or a
transaction, and is not about to engage in a business or a transaction, for
which such Person's property would constitute unreasonably small capital.
Structuring Fee: The structuring fee agreed to between the Borrower and
the Deal Agent in the Fee Letter.
Subordinated Debt: Any debt that is subordinated in right of payment to
the obligations of the Borrower under this Agreement.
Successor Servicer: Defined in Section 6.26(a).
Supplemental Interests: With respect to any Loan, any warrants, equity
or other equity interests or interests convertible into or exchangeable for any
such interests received by the Originator from the Obligor in connection with
such Loan.
Taxes: Any present or future taxes, levies, imposts, duties, charges,
assessments or fees of any nature (including interest, penalties, and additions
thereto) that are imposed by any Government Authority.
Termination Date: The earliest to occur of (a) the date of the
occurrence of a Termination Event pursuant to Section 7.1, (b) the date that the
Liquidity Purchase Agreement shall cease to be in full force and effect, and (c)
the Commitment Termination Date.
Termination Event: Defined in Section 7.1.
Termination Notice: Defined in Section 6.25.
Transaction Documents: This Agreement, the Purchase Agreement, the
Liquidity Purchase Agreement, all Hedging Agreements, the Pledge and Security
Agreement, Release and Extinguishment of Rights in Certain Collateral, the
Bailee Letter, and any additional document,
28
<PAGE>
letter, fee letter, certificate, opinion, agreement or writing the execution of
which is necessary or incidental to carrying out the terms of the foregoing
documents.
Transferred Loans: Each Loan that is acquired by the Borrower under the
Purchase Agreement and all Loans received by the Borrower in respect of the
Required Equity Contribution.
Transition Costs: The reasonable costs and expenses incurred by the
Backup Servicer in transitioning to Servicer; provided, however, in no event
shall such Transition Costs exceed $50,000.00 in the aggregate.
UCC: The Uniform Commercial Code as from time to time in effect in the
specified jurisdiction.
United States: The United States of America.
Unmatured Termination Event: An event that, with the giving of notice
or lapse of time, or both, would become a Termination Event.
Unreimbursed Servicer Advances: At any time, the amount of all previous
Servicer Advances (or portions thereof) as to which the Servicer has not been
reimbursed as of such time pursuant to Section 2.8(a)(ii) and that the Servicer
has determined in its sole discretion will not be recoverable from Collections
with respect to the related Loan.
Warranty Event: Occurs as to any Loan included as part of the
Collateral, if any representation or warranty relating to such Loan was not true
and correct in any material respect when made and such breach is not cured
within the relevant cure period.
Section 1.2 Other Terms.
All accounting terms not specifically defined herein shall be construed
in accordance with GAAP. All terms used in Article 9 of the UCC in the State of
New York, and not specifically defined herein, are used herein as defined in
such Article 9.
Section 1.3 Computation of Time Periods.
Unless otherwise stated in this Agreement, in the computation of a
period of time from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding."
29
<PAGE>
Section 1.4 Interpretation.
In each Transaction Document, unless a contrary intention appears:
(i) the singular number includes the plural number and vice
versa;
(ii) reference to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns are
permitted by the Transaction Document;
(iii) reference to any gender includes each other gender;
(iv) reference to any agreement (including any Transaction
Document), document or instrument means such agreement, document or
instrument as amended, supplemented or modified and in effect from time
to time in accordance with the terms thereof and, if applicable, the
terms of the other Transaction Documents and reference to any
promissory note includes any promissory note that is an extension or
renewal thereof or a substitute or replacement therefor; and
(v) reference to any Applicable Law means such Applicable Law
as amended, modified, codified, replaced or reenacted, in whole or in
part, and in effect from time to time, including rules and regulations
promulgated thereunder and reference to any section or other provision
of any Applicable Law means that provision of such Applicable Law from
time to time in effect and constituting the substantive amendment,
modification, codification, replacement or reenactment of such section
or other provision.
ARTICLE II
ADVANCES
Section 2.1 Advances.
(a) On the terms and conditions hereinafter set forth, the Borrower
may, at its option, from time to time on any Business Day during the Revolving
Period, at its option, request that the Lenders make advances (each, an
"Advance") to it in an amount which, at any time, shall not exceed the
Availability in effect on the related Funding Date. Following receipt by the
Deal Agent of a Funding Request, the Deal Agent shall first decide whether the
Advance will be made by VFCC or by First Union. If the Deal Agent decides that
VFCC will make the Advance, it shall ask VFCC to make the Advance and VFCC may
from time to time during the Revolving Period, in its sole discretion, agree or
decline to make the Advance. The Deal Agent shall promptly notify the Liquidity
Agent and the Investors in writing of any declination by VFCC to make an
Advance. If VFCC declines to make an Advance, then the Investors shall fund such
Advance. If the Deal Agent decides that First Union will make the Advance, it
shall ask First
30
<PAGE>
Union to make the Advance, and First Union subject to the conditions described
in Section 2.5, shall from time to time during the Revolving Period make the
Advance. Under no circumstances shall any Investor make any Advance on any
Funding Date in excess of the lesser of (i) such Investor's Pro-Rata Share of
the portion of the Advance not funded by VFCC, and the amount by which such
Investor's Commitment exceeds the aggregate outstanding principal amount of
Advances made by such Investor prior to such Funding Date.
(b) The Borrower may, within 60 days, but no later than 45 days, prior
to the then Commitment Termination Date, by written notice to the Deal Agent,
make written requests for VFCC, First Union and the Investors to extend the
Commitment Termination Date for an additional revolving period of 364 days. The
Deal Agent will give prompt notice to VFCC, First Union and each of the
Investors of its receipt of such request for extension of the Commitment
Termination Date. VFCC, First Union and each Investor shall make a
determination, in their sole discretion and after a full credit review, not less
than fifteen (15) days prior to the then applicable Commitment Termination Date
as to whether or not they will agree to extend the Commitment Termination Date;
provided, however, that the failure of VFCC, First Union or any Investor to make
a timely response to the Borrower's request for extension of the Commitment
Termination Date shall be deemed to constitute a refusal by VFCC, First Union or
the Investor, as the case may be, to extend the Commitment Termination Date. The
Commitment Termination Date shall only be extended upon the consent of (i) VFCC,
(ii) First Union, and (iii) 100% of the Investors.
Section 2.2 Procedures for Advances.
(a) In the case of the making of any Advance, the repayment of any
Advance, or any termination, increase or reduction of the Facility Amount and
Prepayments of Advances, the Borrower shall give the Deal Agent a Borrower
Notice. Each Borrower Notice shall specify the amount (subject to Section 2.1
hereof) of Advances to be borrowed or repaid and the Funding Date or repayment
date (which, in all cases, shall be a Business Day).
(b) Subject to the conditions described in Section 2.1, the Borrower
may request an Advance from the Lenders by delivering to the Deal Agent at
certain times the information and documents set forth in this Section 2.2.
(c) No later than 10:00 a.m. (New York City time) three (3) Business
Days prior to the proposed Funding Date, the Borrower shall notify (I) the
Collateral Custodian by delivery to the Collateral Custodian of written notice
of such Proposed Funding Date, and (ii) the Deal Agent by delivery to the Deal
Agent of a credit report and transaction summary for each Loan that is the
subject of the proposed Advance setting forth the credit underwriting by the
Originator of such Loan, including without limitation a description of the
Obligor and the proposed loan transaction in the form of Exhibit S hereto. By
5:00 p.m. (New York City time) on the next Business Day, the Deal Agent shall
use its best efforts to confirm to the Borrower the receipt of such items and
whether it has reviewed such items and found them to be complete and in proper
form. If the Deal Agent makes a determination that the items are incomplete or
not in proper
31
<PAGE>
form, it will communicate such determination to the Borrower. Failure by the
Deal Agent to respond to the Borrower by 5:00 on the day such Funding Request is
delivered by the Borrower shall constitute an implied determination that the
items are incomplete or not in proper form. The Borrower will take such steps
requested by the Deal Agent to correct the problem(s). In the event of a delay
in the actual Funding Date due to the need to correct any such problems, Funding
Date shall be two (2) Business Days after the day on which the Deal Agent
confirms to the Borrower that the problems have been corrected.
(d) No later than 12:00 a.m. (New York City time) on the proposed
Funding Date, the Deal Agent and the Collateral Custodian, as applicable, shall
receive the following:
(i) a Funding Request meeting the requirements set forth in Section
2.2(e) below;
(ii) a wire disbursement and authorization form shall be delivered to
the Deal Agent; and
(iii) a certification substantially in the form of Exhibit I from
outside counsel to the Borrower concerning the Collateral Custodian's receipt of
certain documentation relating to the funding of Eligible Loan(s) related to
such Advance shall be delivered to the Deal Agent and the Collateral Custodian.
(e) Each Funding Request shall specify the aggregate amount of the
requested Advance, which shall be in an amount equal to at least (i) $5,000,000
in the case of the initial Advance and (ii) $500,000 in the case of any
subsequent Advance. Each Funding Request shall be accompanied by (i) a Borrower
Notice, depicting the outstanding amount of Advances under this Agreement and
representing that all conditions precedent for a funding have been met,
including a representation by the Borrower that the requested Advance does not
on the Funding Date exceed the Availability, (ii) a calculation of the Borrowing
Base as of the date the Advance is requested, and (iii) an updated Loan List
including each Loan that is subject to the requested Advance. Any Funding
Request shall be irrevocable.
(f) On the Funding Date following the satisfaction of the applicable
conditions set forth in this Section 2.2 and Article III, the Deal Agent, on
behalf of VFCC, the Liquidity Agent (based on the receipt of funds from the
Investors) or First Union, shall make available to the Borrower or its designee
in same day funds, at the account specified in the Funding Request, the
principal amount of such Advance.
Section 2.3 Optional Changes in Facility Amount; Prepayments.
(a) The Borrower shall be entitled at its option, at any time prior to
the occurrence of a Termination Event, to reduce the Facility Amount in whole or
in part; provided that the Borrower shall give prior written notice of such
reduction to the Deal Agent as provided in paragraph (b) of this Section 2.3 and
that any partial reduction of the Facility Amount shall be in
32
<PAGE>
an amount equal to $5,000,000 or integral multiples thereof to a minimum of
$500,000. Any request for a reduction or termination pursuant to this Section
2.3 shall be irrevocable.
(b) From time to time during the Revolving Period the Borrower may
prepay any portion or all of the Advances Outstanding, other than with respect
to prepayments of Advances Outstanding to be made by the Borrower to reduce
Advances Outstanding to an amount equal to the Borrowing Base, by delivering to
the Deal Agent a Borrower Notice at least two (2) Business Days prior to the
date of such prepayment (or such later time as the Deal Agent, in its sole and
unreviewable discretion may agree), specifying the date and amount of the
prepayment and certifying that, following such prepayment, the Borrower will be
in compliance with the terms of this Agreement; provided, that no such reduction
shall be given effect unless all conditions precedent thereto have been
satisfied and the Borrower has complied with the terms of any Hedging Agreement
requiring that one or more Hedge Transactions be terminated in whole or in part
as the result of any such prepayment of the Advances Outstanding, and the
Borrower has paid all Hedge Breakage Costs owing to the relevant Hedge
Counterparty for any such termination. If any Borrower Notice is given, the
amount specified in such Borrower Notice shall be due and payable on the date
specified therein, together with accrued Interest to the payment date on the
amount prepaid and any Breakage Costs (including Hedge Breakage Costs) related
thereto. Any partial prepayment by the Borrower of Advances hereunder, other
than with respect to prepayments of Advances Outstanding to be made by the
Borrower to reduce Advances Outstanding to an amount equal to the Borrowing
Base, shall be in a minimum amount of $1,000,000 with integral multiples of
$100,000. Any amount so prepaid may, subject to the terms and conditions hereof,
be reborrowed during the Revolving Period. Any Borrower Notice relating to any
prepayment shall be irrevocable.
Section 2.4 Sources and Designation of Advances.
For purposes of this Agreement, Advances made by First Union shall be
designated as "FUNB Advances." VFCC and the Investors hereby agree that if the
Deal Agent decides that First Union will fund Advances on a Funding Date, VFCC
or the Investors shall acquire such Advances from First Union or repay such
Advances not later than one (1) Business Day after such Funding Date. For
purposes of this Agreement, any Advances made, acquired or repaid by VFCC shall
be designated as "VFCC Advances" and any Advances made by the Liquidity Agent on
behalf of the Investors following a decision by VFCC not to fund certain
Advances shall be designated as "Investor Advances." At all times, the aggregate
outstanding amount of FUNB Advances, VFCC Advances and Investor Advances shall
not exceed the Facility Amount.
Section 2.5 The Notes.
(a) The Advances made by the Lenders hereunder shall be evidenced by a
duly executed promissory note of the Borrower payable to each applicable lender
in substantially the form of Exhibit B-1 hereto in the case of FUNB Advances
(the "FUNB Note"), Exhibit B-2 hereto in the case of VFCC Advances (the "VFCC
Note"), and Exhibit B-3 hereto in the case of Investor Advances (the "Investor
Note" and together with the FUNB Note and the VFCC Note,
33
<PAGE>
the "Notes"). The Notes shall be dated the Closing Date and shall be in a
maximum principal amount equal to (i) $100,000,000 in the case of the VFCC Note,
(ii) $100,000,000 in the case of the Investor Note, and (iii) $10,000,000 in the
case of the FUNB Note, and shall otherwise be duly completed; provided, however,
that anything herein to the contrary notwithstanding, the indebtedness of the
Borrower evidenced by the Notes shall not in the aggregate exceed the Facility
Amount. The initial term of the Note will be a twenty-four (24) month revolving
period.
(b) The Deal Agent is hereby authorized to enter on a schedule attached
to the Notes notations (which may be computer generated) with respect to each
Advance made by each Lender hereunder: (i) the date and principal amount thereof
and (ii) each payment and repayment of principal thereof and any such
recordation shall constitute prima facie evidence of the accuracy of the
information so recorded. The failure of the Deal Agent to make any such notation
on the schedule attached to the Notes shall not limit or otherwise affect the
obligation of the Borrower to repay the Advances in accordance with their
respective terms as set forth herein.
Section 2.6 Principal Repayments.
(a) Unless sooner prepaid pursuant to Section 2.3(b), the Advances
Outstanding shall be repaid in full on the date that occurs twenty-four (24)
months following the Termination Date. In addition, Advances Outstanding shall
be repaid as and when necessary to cause (i) the Advances Outstanding not to
exceed the Borrowing Base and (ii) the Overcollateralization Percentage to equal
or exceed on each day the Minimum Overcollateralization Percentage, and any
amount so repaid may, subject to the terms and conditions hereof, be reborrowed
hereunder during the Revolving Period.
(b) All repayments of any Advance or any portion thereof shall be made
together with payment of (i) all Interest accrued and unpaid on the amount
repaid to (but excluding) the date of such repayment, (ii) any and all Breakage
Costs, and (iii) all Hedge Breakage Costs and any other amounts payable by the
Borrower under or with respect to any Hedging Agreement.
Section 2.7 Interest Payments.
(a) Interest shall accrue on each Advance during each Accrual Period at
the applicable Interest Rate. The Borrower shall pay Interest on the unpaid
principal amount of each Advance for the period commencing on and including the
Funding Date of such Advance until but excluding the date that such Advance
shall be paid in full. Interest shall accrue during each Accrual Period and be
payable on the Advances Outstanding on each Payment Date, unless earlier paid
pursuant to (i) a prepayment in accordance with Section 2.3 or (ii) a repayment
in accordance with Section 2.6.
(b) The Deal Agent shall determine the Interest (including unpaid
Interest, if any due and payable on a prior Payment Date) to be paid on each
Payment Date for the Accrual Period and shall advise the Servicer on behalf of
the Borrower thereof three (3) Business Days prior to each Payment Date. Failure
to set aside any amount so accrued shall not relieve the Borrower or
34
<PAGE>
the Servicer on behalf of the Borrower of its obligation to remit or cause the
Servicer to remit Collections to the Deal Agent with respect to such accrued
amount as and to the extent provided in Section 2.8(a)(vi).
(c) Anything in this Agreement or the other Transaction Documents to
the contrary notwithstanding, if at any time the rate of interest payable by any
Person under this Agreement and the Transaction Documents exceeds the highest
rate of interest permissible under Applicable Law (the "Maximum Lawful Rate"),
then, so long as the Maximum Lawful Rate would be exceeded, the rate of interest
under this Agreement and the Transaction Documents shall be equal to the Maximum
Lawful Rate. If at any time thereafter the rate of interest payable under this
Agreement and the Transaction Documents is less than the Maximum Lawful Rate,
such Person shall continue to pay interest under this Agreement and the
Transaction Documents at the Maximum Lawful Rate until such time as the total
interest received from such Person is equal to the total interest that would
have been received had Applicable Law not limited the interest rate payable
under this Agreement and the Transaction Documents. In no event shall the total
interest received by a Lender under this Agreement and the Transaction Documents
exceed the amount that such Lender could lawfully have received, had the
interest due under this Agreement and the Transaction Documents been calculated
since the Closing Date at the Maximum Lawful Rate.
Section 2.8 Settlement Procedures.
(a) On each Payment Date, the Servicer on behalf of the Borrower shall
pay to the following Persons, from (i) the Collection Account, to the extent of
available funds, (ii) Servicer Advances, and (iii) amounts received in respect
of any Hedge Agreement during such Collection Period (the sum of such amounts
described in clauses (i), (ii) and (iii) being the "Available Collections") the
following amounts in the following order of priority:
(i) FIRST, to each Hedge Counterparty, any amounts, including
any Hedge Breakage Costs, owing that Hedge Counterparty under its
respective Hedging Agreement in respect of any Hedge Transaction(s),
for the payment thereof;
(ii) SECOND, to the Servicer, in an amount equal to any
Unreimbursed Servicer Advances, for the payment thereof;
(iii) THIRD, to the Servicer, in an amount equal to its
accrued and unpaid Servicing Fees to the end of the preceding
Collection Period, for the payment thereof;
(iv) FOURTH, to the extent not paid by the Servicer, to the
Backup Servicer, in amount equal to any accrued and unpaid currently
due Backup Servicing Fee, for the payment thereof;
(v) FIFTH, to the extent not paid by the Servicer, to the
Collateral Custodian in an amount equal to any accrued and unpaid
currently due Collateral Custodian Fee, for the payment thereof;
35
<PAGE>
(vi) SIXTH, to the Deal Agent for the ratable payment to each
Lender, in an amount equal to any accrued and unpaid Interest
(including any adjustments required due to the Deal Agent's estimate of
the Cost of Funds Adjustment) and Breakage Costs;
(vii) SEVENTH, to the Deal Agent for the ratable payment to
each Lender, in an amount equal to any accrued and unpaid Program Fee
and Facility Fee for such Payment Date;
(viii) EIGHTH, to the Deal Agent, in the amount of unpaid
Increased Costs and/or Taxes (if any), for payment to the Lenders in
respect thereof;
(ix) NINTH, if on any Business Day during the Revolving Period
the Advances Outstanding shall exceed the lesser of (i) the Borrowing
Base or (ii) the Facility Amount, then the Borrower shall remit to the
Deal Agent a payment in such amount as may be necessary to reduce the
Advances Outstanding to an amount less than or equal to the lesser of
(i) the Borrowing Base or (ii) the Facility Amount.
(x) TENTH, to the Deal Agent, all other amounts (other than
Advances Outstanding) then due under this Agreement to the Deal Agent,
the Lenders, the Affected Parties or Indemnified Parties;
(xi) ELEVENTH, to the extent not paid by the Servicer, to the
Backup Servicer, to the Collateral Custodian, and to any Successor
Servicer, as applicable, in an amount equal to any accrued and unpaid
Transition Costs, Backup Servicer Expenses, Collateral Custodian
Expenses and Market Servicing Fee Differential, for the payment
thereof;
(xii) TWELFTH, if such Payment Date occurs during the
Revolving Period, to the extent that funds are available, any remaining
amounts may be reinvested in Eligible Loans;
(xiii) THIRTEENTH, (A) if such Payment Date occurs during the
Revolving Period, first to the Excess Spread Account, in an amount
necessary to cure any shortfall in the Required Equity Shortfall and
any Overcollateralization Shortfall, second, all remaining amounts of
Available Collections to the Borrower; and (B) if such Payment Date
occurs during the Amortization Period, first to the Deal Agent for the
ratable payment to each Lender, in an amount to reduce Advances
Outstanding to zero and to pay in full the Obligations, second any
remaining amounts of Available Collections to the Borrower.
36
<PAGE>
Section 2.9 Security Interest.
As collateral security for the prompt, complete and indefeasible
payment and performance in full when due, whether by lapse of time, acceleration
or otherwise, of the Obligations, the Borrower hereby assigns, pledges and
grants to the Deal Agent, as agent for the Secured Parties, a lien on and
security interest in all of the Borrower's right, title and interest in, to and
under (but none of its obligations under) the Collateral, whether now existing
or owned or hereafter arising or acquired by the Borrower, and wherever located.
The assignment under this Section 2.9 does not constitute and is not intended to
result in a creation or an assumption by the Deal Agent, the Liquidity Agent or
any of the Secured Parties of any obligation of the Borrower or any other Person
in connection with any or all of the Collateral or under any agreement or
instrument relating thereto. Anything herein to the contrary notwithstanding,
(a) the Borrower shall remain liable under the Loans to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the Deal
Agent, as agent for the Secured Parties, of any of its rights in the Collateral
shall not release the Borrower from any of its duties or obligations under the
Collateral, and (c) none of the Deal Agent, the Liquidity Agent or any Secured
Party shall have any obligations or liability under the Collateral by reason of
this Agreement, nor shall the Deal Agent, the Liquidity Agent or any Secured
Party be obligated to perform any of the obligations or duties of the Borrower
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
Section 2.10 Collections and Allocations.
(a) The Borrower or the Servicer on behalf of the Borrower shall
promptly (but in no event later than two (2) Business Days after the receipt
thereof) identify any Collections received by it as being an account of Interest
Collections or Principal Collections and deposit all such Interest Collections
or Principal Collections received directly by it into the Collection Account and
corresponding Interest Collection Account or Principal Collection Account. The
Servicer on behalf of the Borrower shall make such deposits or payments on the
date indicated by wire transfer, in immediately available funds.
(b) Except as otherwise provided in Section 6.4(f), until the
occurrence of a Termination Event, to the extent there are uninvested amounts
deposited in the Collection Account and/or the Excess Spread Account, all
amounts shall be invested in Permitted Investments selected by the Servicer on
behalf of the Borrower that mature no later than the next Business Day; from and
after the occurrence of a Termination Event, to the extent there are uninvested
amounts deposited in the Collection Account and/or the Excess Spread Account,
all amounts may be invested in Permitted Investments selected by the Deal Agent
that mature no later than the next Business Day. Any earnings (and losses)
thereon shall be for the account of the Servicer on behalf of the Borrower.
37
<PAGE>
Section 2.11 Payments, Computations, Etc.
(a) Unless otherwise expressly provided herein, all amounts to be paid
or deposited by the Borrower or the Servicer on behalf of the Borrower hereunder
shall be paid or deposited in accordance with the terms hereof no later than
10:00 a.m. (Charlotte, North Carolina time) on the day when due in lawful money
of the United States in immediately available funds to the Agent's Account. The
Borrower shall, to the extent permitted by law, pay to the Secured Parties
interest on all amounts not paid or deposited when due hereunder at 1% per annum
above the Base Rate, payable on demand; provided, however, that such interest
rate shall not at any time exceed the Maximum Lawful Rate. All computations of
interest and all computations of the Interest Rate and other fees hereunder
shall be made on the basis of a year of 360 days for the actual number of days
(including the first but excluding the last day) elapsed.
(b) Whenever any payment hereunder shall be stated to be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of payment of Interest, other interest or any fee payable hereunder,
as the case may be.
(c) All payments hereunder shall be made without set-off or
counterclaim and in such amounts as may be necessary in order that all such
payments shall not be less than the amounts otherwise specified to be paid under
this Agreement (after withholding for or on account of any Taxes). Promptly
following the Collection Date, the Deal Agent shall mark the Notes "Paid" and
return them to the Borrower.
Section 2.12 Breakage Costs.
The Borrower shall pay to the Deal Agent for the account of each
Lender, upon the request of the Liquidity Agent or Deal Agent, such amount or
amounts as shall compensate the Lenders for any loss, cost or expense incurred
by the Lenders (as reasonably determined by the Liquidity Agent or Deal Agent)
as a result of any prepayment of an Advance (and interest thereon) (the
"Breakage Costs"). The determination by any Lender of the amount of any such
loss or expense shall be set forth in a written notice to the Borrower and shall
be conclusive absent manifest error.
Section 2.13 Fees.
(a) The Borrower shall pay to the Deal Agent from the Collection
Account on each Payment Date, monthly in arrears in accordance with Section
2.8(a)(vii), the Program Fee and Facility Fee.
(b) The Borrower shall pay to the Servicer from the Collection Account
on each Payment Date, monthly in arrears in accordance with Section 2.8(a)(iii),
the Servicing Fee.
38
<PAGE>
(c) The Backup Servicer shall be entitled to receive from the
Collection Account on each Payment Date, monthly in arrears in accordance with
Section 2.8(a)(iv), the Backup Servicing Fee.
(d) The Collateral Custodian shall be entitled to receive from the
Collection Account on each Payment Date, monthly in arrears in accordance with
Section 2.8(a)(v), the Collateral Custodian Fee.
(e) The Borrower shall pay to the Deal Agent, on the Closing Date, the
Structuring Fee (net of any amounts previously paid) in immediately available
funds.
(f) The Borrower shall pay to Moore & Van Allen, PLLC, as counsel to
the Deal Agent, on the Closing Date, in accordance with Section 11.9, (i) its
estimated legal fees and out-of-pocket expenses as of such date, and (ii) all
additional reasonable fees and out-of-pocket expenses of Moore & Van Allen, PLLC
within thirty (30) days Business Days after receiving an invoice for such
amounts; provided, however, all such fees shall be broken down by time and
hourly rates and not value billed.
Section 2.14 Increased Costs; Capital Adequacy; Illegality.
(a) If either (i) the introduction of or any change (including, without
limitation, any change by way of imposition or increase of reserve requirements)
in or in the interpretation of any law or regulation or (ii) the compliance by a
Lender or any Affiliate thereof (each of which, an "Affected Party") with any
guideline or request from any central bank or other governmental agency or
authority (whether or not having the force of law), (A) shall subject an
Affected Party to any Tax (except for Taxes on the overall net income of such
Affected Party), duty or other charge with respect to an Advance hereunder, or
on any payment made hereunder or (B) shall impose, modify or deem applicable any
reserve requirement (including, without limitation, any reserve requirement
imposed by the Federal Reserve Board, but excluding any reserve requirement, if
any, included in the determination of Interest), special deposit or similar
requirement against assets of, deposits with or for the amount of, or credit
extended by, any Affected Party or (C) shall impose any other condition
affecting an Advance or a Lender's rights hereunder, the result of which is to
increase the cost to any Affected Party or to reduce the amount of any sum
received or receivable by an Affected Party under this Agreement, then within
ten days after demand by such Affected Party (which demand shall be accompanied
by a statement setting forth the basis for such demand), the Borrower shall pay
directly to such Affected Party such additional amount or amounts as will
compensate such Affected Party for such additional or increased cost incurred or
such reduction suffered.
(b) If either (i) the introduction of or any change in or in the
interpretation of any law, guideline, rule, regulation, directive or request or
(ii) compliance by any Affected Party with any law, guideline, rule, regulation,
directive or request from any central bank or other governmental authority or
agency (whether or not having the force of law), including, without limitation,
compliance by an Affected Party with any request or directive regarding capital
adequacy, has or
39
<PAGE>
would have the effect of reducing the rate of return on the capital of any
Affected Party as a consequence of its obligations hereunder or arising in
connection herewith to a level below that which any such Affected Party could
have achieved but for such introduction, change or compliance (taking into
consideration the policies of such Affected Party with respect to capital
adequacy) by an amount deemed by such Affected Party to be material, then from
time to time, within ten days after demand by such Affected Party (which demand
shall be accompanied by a statement setting forth the basis for such demand),
the Borrower shall pay directly to such Affected Party such additional amount or
amounts as will compensate such Affected Party for such reduction.
(c) If as a result of any event or circumstance similar to those
described in clauses (a) or (b) of this Section 2.14, any Affected Party is
required to compensate a bank or other financial institution providing liquidity
support, credit enhancement or other similar support to such Affected Party in
connection with this Agreement or the funding or maintenance of Advances
hereunder, then within ten days after demand by such Affected Party, the
Borrower shall pay to such Affected Party such additional amount or amounts as
may be necessary to reimburse such Affected Party for any such amounts paid by
it.
(d) In determining any amount provided for in this section, the
Affected Party may use any reasonable averaging and attribution methods. Any
Affected Party making a claim under this section shall submit to the Borrower a
certificate as to such additional or increased cost or reduction, which
certificate shall calculate in reasonable detail any such charges and shall be
conclusive absent demonstrable error.
(e) If a Lender shall notify the Deal Agent that a Eurodollar
Disruption Event as described in clause (a) of the definition of "Eurodollar
Disruption Event" has occurred, the Deal Agent shall in turn so notify the
Borrower, whereupon all Advances in respect of which Interest accrues at the
LIBOR Rate shall immediately be converted into Advances in respect of which
Interest accrues at the Base Rate.
Section 2.15 Taxes.
(a) All payments made by the Borrower in respect of any Advance and all
payments made by the Borrower under this Agreement will be made free and clear
of and without deduction or withholding for or on account of any Taxes, unless
such withholding or deduction is required by law. In such event, the Borrower
shall pay to the appropriate taxing authority any such Taxes required to be
deducted or withheld and the amount payable to each Lender or the Deal Agent (as
the case may be) will be increased (such increase, the "Additional Amount") such
that every net payment made under this Agreement after deduction or withholding
for or on account of any Taxes (including, without limitation, any Taxes on such
increase) is not less than the amount that would have been paid had no such
deduction or withholding been deducted or withheld. The foregoing obligation to
pay Additional Amounts, however, will not apply with respect to, and the term
"Additional Amount" shall be deemed not to include net income or franchise taxes
imposed on a Lender or the Deal Agent, respectively, with respect to payments
40
<PAGE>
required to be made by the Borrower or Servicer on behalf of the Borrower under
this Agreement, by a taxing jurisdiction in which such Lender or Deal Agent is
organized, conducts business or is paying taxes as of the Closing Date (as the
case may be). If a Lender or the Deal Agent pays any Taxes in respect of which
the Borrower is obligated to pay Additional Amounts under this Section 2.15(a),
the Borrower shall promptly reimburse such Lender or Deal Agent in full.
(b) The Borrower will indemnify each Lender and the Deal Agent for the
full amount of Taxes in respect of which the Borrower is required to pay
Additional Amounts (including, without limitation, any Taxes imposed by any
jurisdiction on such Additional Amounts) paid by such Lender or the Deal Agent
(as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto; provided, however, that
such Lender or the Deal Agent, as appropriate, making a demand for indemnity
payment, shall provide the Borrower, at its address set forth under its name on
the signature pages hereof, with a certificate from the relevant taxing
authority or from a Responsible Officer of such Lender or the Deal Agent stating
or otherwise evidencing that such Lender or the Deal Agent has made payment of
such Taxes and will provide a copy of or extract from documentation, if
available, furnished by such taxing authority evidencing assertion or payment of
such Taxes. This indemnification shall be made within ten days from the date the
Lender or the Deal Agent (as the case may be) makes written demand therefor.
(c) Within 30 days after the date of any payment by the Borrower of any
Taxes, the Borrower will furnish to the Deal Agent, at its address set forth
under its name on the signature pages hereof, appropriate evidence of payment
thereof.
(d) If a Lender is not created or organized under the laws of the
United States or a political subdivision thereof, such Lender shall, to the
extent that it may then do so under Applicable Laws, deliver to the Borrower
with a copy to the Deal Agent (i) within 15 days after the date hereof, or, if
later, the date on which such Lender becomes a Lender hereof two (or such other
number as may from time to time be prescribed by Applicable Laws) duly completed
copies of IRS Form W-8EC1 or Form W-8BEN (or any successor forms or other
certificates or statements that may be required from time to time by the
relevant United States taxing authorities or Applicable Laws), as appropriate,
to permit the Borrower to make payments hereunder for the account of such
Lender, as the case may be, without deduction or withholding of United States
federal income or similar Taxes and (ii) upon the obsolescence of or after the
occurrence of any event requiring a change in, any form or certificate
previously delivered pursuant to this Section 2.15(d), two copies (or such other
number as may from time to time be prescribed by Applicable Laws) of such
additional, amended or successor forms, certificates or statements as may be
required under Applicable Laws to permit the Borrower to make payments hereunder
for the account of such Lender, without deduction or withholding of United
States federal income or similar Taxes.
(e) For any period with respect to which a Lender or the Deal Agent has
failed to provide the Borrower with the appropriate form, certificate or
statement described in clause (d)
41
<PAGE>
of this section (other than if such failure is due to a change in law occurring
after the date of this Agreement), the Deal Agent or such Lender, as the case
may be, shall not be entitled to indemnification under clauses (a) or (b) of
this section with respect to any Taxes.
(f) Within 30 days of the written request of the Borrower therefor, the
Deal Agent and the Lender, as appropriate, shall execute and deliver to the
Borrower such certificates, forms or other documents that can be furnished
consistent with the facts and that are reasonably necessary to assist the
Borrower in applying for refunds of Taxes remitted hereunder; provided, however,
that the Deal Agent and the Lender shall not be required to deliver such
certificates forms or other documents if in their respective sole discretion it
is determined that the delivery of such certificate, form or other document
would have a material adverse effect on the Deal Agent or Lender and provided
further, however, that the Borrower shall reimburse the Deal Agent or Lender for
any reasonable expenses incurred in the delivery of such certificate, form or
other document.
(g) If, in connection with an agreement or other document providing
liquidity support, credit enhancement or other similar support to the Lenders in
connection with this Agreement or the funding or maintenance of Advances
hereunder, the Lenders are required to compensate a bank or other financial
institution in respect of Taxes under circumstances similar to those described
in this section then within ten days after demand by the Lenders, the Borrower
shall pay to the Lenders such additional amount or amounts as may be necessary
to reimburse the Lenders for any amounts paid by them.
Section 2.16 Assignment of the Purchase Agreement.
The Borrower hereby represents, warrants and confirms to the Deal Agent
that the Borrower has assigned to the Deal Agent, for the ratable benefit of the
Secured Parties hereunder, all of the Borrower's right and title to and interest
in the Purchase Agreement. The Borrower confirms that following a Termination
Event the Deal Agent shall have the sole right to enforce the Borrower's rights
and remedies under the Purchase Agreement for the benefit of the Secured
Parties, but without any obligation on the part of the Deal Agent, the Secured
Parties or any of their respective Affiliates, to perform any of the obligations
of the Borrower under the Purchase Agreement. The Borrower further confirms and
agrees that such assignment to the Deal Agent shall terminate upon the
Collection Date; provided, however, that the rights of the Deal Agent and the
Secured Parties pursuant to such assignment with respect to rights and remedies
in connection with any indemnities and any breach of any representation,
warranty or covenants made by the Originator pursuant to the Purchase Agreement,
which rights and remedies survive the Termination of the Purchase Agreement,
shall be continuing and shall survive any termination of such assignment.
42
<PAGE>
ARTICLE III
CLOSING; CONDITIONS OF CLOSING AND ADVANCES
Section 3.1 Conditions to Closing and Initial Advances.
No Lender shall be obligated to make any Advance hereunder on the
occasion of the initial Advance, nor shall any Lender, the Deal Agent, the
Liquidity Agent, the Backup Servicer or the Collateral Custodian be obligated to
take, fulfill or perform any other action hereunder, until the following
conditions have been satisfied, in the sole discretion of, or waived in writing
by, the Deal Agent:
(a) This Agreement and all other Transaction Documents or counterparts
hereof or thereof shall have been duly executed by, and delivered to, the
parties hereto and thereto and the Deal Agent shall have received such other
documents, instruments, agreements and legal opinions as the Deal Agent shall
request in connection with the transactions contemplated by this Agreement,
including all those listed in the Schedule of Documents, attached hereto as
Schedule I, as due on the Closing Date, each in form and substance satisfactory
to the Deal Agent.
(b) The Deal Agent shall have received (i) satisfactory evidence that
the Borrower and the Servicer have obtained all required consents and approvals
of all Persons, including all requisite Governmental Authorities, to the
execution, delivery and performance of this Agreement and other Transaction
Documents to which each is a party and the consummation of the transactions
contemplated hereby or thereby or (ii) an Officer's Certificate from each of the
Borrower and the Servicer in form and substance satisfactory to the Deal Agent
affirming that no such consents or approvals are required.
(c) The Borrower and the Servicer shall each be in compliance in all
material respects with all Applicable Laws.
(d) The Borrower shall have paid all fees required to be paid by it on
the Closing Date, including all fees required hereunder and under the Fee Letter
to be paid as of such date, and shall have reimbursed each Lender and the Deal
Agent for all fees, costs and expenses of closing the transactions contemplated
hereunder and under the other Transaction Documents, including the legal and
other document preparation costs incurred by any Lender and/or the Deal Agent.
Section 3.2 Conditions Precedent to All Advances.
Each Advance (including the Initial Advance) and each reinvestment of
Available Collections made pursuant to Section 2.8(a)(xii) shall be subject to
the further conditions precedent that:
43
<PAGE>
(a) On the related Funding Date or date of reinvestment, the Borrower
or the Servicer, as the case may be, shall have certified in the related
Borrower Notice that:
(i) The representations and warranties set forth in Sections
4.1, 4.2 and 6.8 are true and correct on and as of such date, before
and after giving effect to such borrowing and to the application of the
proceeds therefrom, as though made on and as of such date;
(ii) No event has occurred, or would result from such Advance
or from the application of the proceeds therefrom, that constitutes an
Termination Event;
(iii) Such Person is in material compliance with each of its
covenants set forth herein; and
(iv) No event has occurred that constitutes a Servicer
Termination Event;
(b) (i) With respect to the initial Funding Date, the Deal Agent shall
have received all Transaction Documents listed on the Schedule of Documents,
attached hereto as Schedule I, as due on the initial Funding Date, or
counterparts thereof, each of which has been duly executed by, and delivered to,
the parties hereto and each shall be in form and substance satisfactory to the
Deal Agent and (ii) on any date on which Principal Collections are reinvested
pursuant to Section 2.8(a)(xii), the Deal Agent shall have received a
certification in the form of Exhibit N;
(c) The Termination Date shall not have occurred;
(d) Before and after giving effect to such borrowing and to the
application of proceeds therefrom, Advances Outstanding do not exceed the
Borrowing Base, as calculated on such date:
(e) Each Loan submitted by the Borrower for funding on the related
Funding Date or date of reinvestment of Collections pursuant to Section
2.8(a)(xii) is an Eligible Loan;
(f) No claim has been asserted or proceeding commenced challenging
enforceability or validity of any of the Loan Documents, excluding any
instruments, certificates or other documents relating to Loans that were the
subject of prior Advances;
(g) There shall have been no Material Adverse Change since the
preceding Advance; and
(h) The Servicer and Borrower shall have taken such other action,
including delivery of approvals, consents, opinions, documents, and instruments
to the Lender and the Deal Agent as each may reasonably request.
44
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) Organization and Good Standing. The Borrower is a Delaware business
trust duly organized, validly existing, and in good standing under the laws of
the jurisdiction of its formation, and has full trust power, authority and legal
right to own or lease its properties and conduct its business as such business
is presently conducted.
(b) Due Qualification. The Borrower is duly qualified to do business
and is in good standing as a business trust, and has obtained or will obtain all
necessary licenses and approvals, in each jurisdiction in which the nature of
its business requires it to be so qualified.
(c) Due Authorization. The execution and delivery of this Agreement and
each Transaction Document to which the Borrower is a party and the consummation
of the transactions provided for herein and therein have been duly authorized by
the Borrower by all necessary trust action on the part of the Borrower.
(d) No Conflict. The execution and delivery of this Agreement and each
Transaction Document to which the Borrower is a party, the performance by the
Borrower of the transactions contemplated hereby and thereby and the fulfillment
of the terms hereof and thereof will not conflict with or result in any breach
of any of the material terms and provisions of, and will not constitute (with or
without notice or lapse of time or both) a default under, the Borrower's trust
agreement or any Contractual Obligation of the Borrower.
(e) No Violation. The execution and delivery of this Agreement and each
Transaction Document to which the Borrower is a party, the performance of the
transactions contemplated hereby and thereby and the fulfillment of the terms
hereof and thereof will not conflict with or violate, in any material respect,
any Applicable Law.
(f) No Proceedings. There are no proceedings or investigations pending
or, to the best knowledge of the Borrower, threatened against the Borrower,
before any Governmental Authority (i) asserting the invalidity of this Agreement
or any Transaction Document to which the Borrower is a party, (ii) seeking to
prevent the consummation of any of the transactions contemplated by this
Agreement or any Transaction Document to which the Borrower is a party or (iii)
seeking any determination or ruling that could reasonably be expected to have a
Material Adverse Effect.
(g) All Consents Required. All approvals, authorizations, consents,
orders or other actions of any Person or of any Governmental Authority (if any)
required in connection with the
45
<PAGE>
due execution, delivery and performance by the Borrower of this Agreement and
any Transaction Document to which the Borrower is a party, have been obtained.
(h) Bulk Sales. The execution, delivery and performance of this
Agreement do not require compliance with any "bulk sales" law by Borrower.
(i) Solvency. The transactions contemplated under this Agreement and
each Transaction Document to which the Borrower is a party do not and will not
render the Borrower not Solvent.
(j) Selection Procedures. No procedures believed by the Borrower to be
materially adverse to the interests of the Secured Parties were utilized by the
Borrower in identifying and/or selecting the Loans that are part of the
Collateral.
(k) Taxes. The Borrower has filed or caused to be filed all Tax returns
required to be filed by it. The Borrower has paid all Taxes and all assessments
made against it or any of its property (other than any amount of Tax the
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which reserves in accordance with GAAP have been
provided on the books of the Borrower), and no Tax lien has been filed and, to
the Borrower's knowledge, no claim is being asserted, with respect to any such
Tax, fee or other charge.
(l) Agreements Enforceable. This Agreement and each Transaction
Document to which the Borrower is a party constitute the legal, valid and
binding obligation of the Borrower enforceable against the Borrower in
accordance with their respective terms, except as such enforceability may be
limited by Insolvency Laws and except as such enforceability may be limited by
general principles of equity (whether considered in a suit at law or in equity).
(m) No Liens. The Collateral is owned by the Borrower free and clear of
any Adverse Claim except for Permitted Liens as provided herein, and the Deal
Agent, as agent for the Secured Parties, has a valid and perfected first
priority security interest in the Collateral then existing or thereafter
arising, free and clear of any Adverse Claim except for Permitted Liens. No
effective financing statement or other instrument similar in effect covering any
Collateral is on file in any recording office except such as may be filed in
favor of the Deal Agent relating to this Agreement or reflecting the transfer of
the Collateral from the Originator to the Borrower.
(n) Reports Accurate. All Monthly Reports (if prepared by the Borrower,
or to the extent that information contained therein is supplied by the
Borrower), information, exhibit, financial statement, document, book, record or
report furnished or to be furnished by the Borrower to the Deal Agent or a
Lender in connection with this Agreement are true, complete and accurate.
(o) Location of Offices. The principal place of business and chief
executive office of the Borrower and the office where the Borrower keeps all the
Records is located at the address of
46
<PAGE>
the Borrower referred to in Section 11.2 hereof (or at such other locations as
to which the notice and other requirements specified in Section 5.1(m) shall
have been satisfied).
(p) Tradenames. Except as described in Schedule III, the Borrower has
no trade names, fictitious names, assumed names or "doing business as" names or
other names under which it has done or is doing business.
(q) Purchase Agreement. The Purchase Agreement is the only agreement
pursuant to which the Borrower acquires Collateral (other than the Hedge
Collateral).
(r) Value Given. The Borrower gave reasonably equivalent value to the
Originator in consideration for the transfer to the Borrower of the Loans under
the Purchase Agreement, no such transfer was made for or on account of an
antecedent debt owed by the Originator to the Borrower, and no such transfer is
voidable or subject to avoidance under any Insolvency Law.
(s) Special Purpose Entity. The trust agreement of the Borrower
includes substantially the provisions set forth on Exhibit C hereto.
(t) Accounting. The Borrower accounts for the transfers to it from the
Originator of interests in the Loans under the Purchase Agreement as sales of
such Loans in its books, records and financial statements, in each case
consistent with GAAP.
(u) Separate Entity. The Borrower is operated as an entity with assets
and liabilities distinct from those of the Originator and any Affiliates thereof
(other than the Borrower), and the Borrower hereby acknowledges that the Deal
Agent and the Lenders are entering into the transactions contemplated by this
Agreement in reliance upon the Borrower's identity as a separate legal entity
from the Originator and from each such other Affiliate of the Originator.
(v) Security Interest. The Borrower has granted a security interest (as
defined in the UCC) to the Deal Agent, as agent for the Secured Parties, in the
Collateral, which is enforceable in accordance with Applicable Law. The Deal
Agent as secured parties, has a first priority perfected security interest in
the Collateral. All filings (including, without limitation, such UCC filings) as
are necessary in any jurisdiction to perfect the interest of the Deal Agent as
agent for the Secured Parties, in the Collateral have been made.
(w) Investments. Except for Supplemental Interests or Supplemental
Interests that convert into an equity interest in any Person, the Borrower does
not own or hold directly or indirectly, any capital stock or equity security of,
or any equity interest in, any Person.
(x) Business. Since its formation, the Borrower has conducted no
business other than the purchase and receipt of Loans and Related Property from
the Originator under the Purchase Agreement, the borrowing of funds under this
Agreement and such other activities as are incidental to the foregoing.
47
<PAGE>
(y) ERISA. The Borrower is in compliance with ERISA and has not
incurred and does not expect to incur any liabilities (except for premium
payments arising in the ordinary course of business) payable to the Pension
Benefit Guaranty Corporation under ERISA.
(z) No Broker. No broker or finder acting on behalf of the Borrower was
employed or utilized in connection with this Agreement or the other Transaction
Documents or the transactions contemplated hereby or thereby and the Borrower
has no obligation to any Person in respect of any finder's or brokerage fees in
connection therewith.
(aa) Investment Company Act.
(i) The Borrower represents and warrants that the Borrower is
exempt and will remain exempt from registration as an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act"), until it receives the Order Approval.
(ii) The Borrower represents and warrants that, if the
Borrower operates in such a manner as to be an "investment company"
within the meaning of the 1940 Act after receiving the Order Approval,
the Borrower will register as an investment company under the 1940 Act
immediately upon being required to do so under the 1940 Act and will
conduct its business and other activities in compliance with the
provisions of the 1940 Act and any rules, regulations or orders issued
by the SEC thereunder.
(iii) The business and other activities of the Borrower,
including but not limited to, the making of the Advances by the
Lenders, the application of the proceeds and repayment thereof by the
Borrower and the consummation of the transactions contemplated by the
Transaction Documents to which the Borrower is a party do not now and
will not at any time result in any violations, with respect to the
Borrower, of the provisions of the 1940 Act or any rules, regulations
or orders issued by the SEC thereunder.
(bb) Accuracy of Representations and Warranties. Each representation or
warranty by the Borrower contained herein or in any certificate or other
document furnished by the Borrower pursuant hereto or in connection herewith is
true and correct.
(cc) Government Regulations. The Borrower is not engaged in the
business of extending credit for the purpose of "purchasing" or "carrying" any
"margin security," as such terms are defined in Regulation U of the Federal
Reserve Board as now and from time to time hereafter in effect (such securities
being referred to herein as "Margin Stock"). The Borrower owns no Margin Stock,
and no portion of the proceeds of any Advance hereunder will be used, directly
or indirectly, for the purpose of purchasing or carrying any Margin Stock, for
the purpose of reducing or retiring any Indebtedness that was originally
incurred to purchase or carry any Margin Stock or for any other purpose that
might cause any portion of such proceeds to be considered a "purpose credit"
within the meaning of Regulation T, U or X of the Federal Reserve
48
<PAGE>
Board. The Borrower will not take or permit to be taken any action that might
cause any Related Document to violate any regulation of the Federal Reserve
Board.
(dd) Supplemental Interests. The Supplemental Interests are not Margin
Stock.
Section 4.2 Representations and Warranties of the Borrower Relating to
the Agreement and the Loans.
The Borrower hereby represents and warrants to the Deal Agent, each
Secured Party, the Liquidity Agent and each Investor that, as of the Closing
Date and as of each Funding Date:
(a) Security Interest. This Agreement constitutes a grant of a security
interest by the Borrower in all Collateral to the Deal Agent as agent for the
Secured Parties. The Deal Agent as agent for the Secured Parties has a first
priority perfected security interest in the Collateral. Neither the Borrower nor
any Person claiming through or under the Borrower shall have any claim to or
interest in the Collection Account or Excess Spread Account, except for the
interest of the Borrower in such property as a debtor for purposes of the UCC.
(b) Eligibility of Loans. As of the Closing Date, (i) the Loan List and
the information contained in the Borrower Notice delivered pursuant to Sections
2.1 and 2.2 is an accurate and complete listing in all material respects of all
the Loans that are part of the Collateral as of the Closing Date, and the
information contained therein with respect to the identity of such Loans and the
amounts owing thereunder is true and correct in all material respects as of such
date, (ii) each such Loan is an Eligible Loan, (iii) each such Loan and the
Related Property is free and clear of any Lien of any Person (other than
Permitted Liens) and in compliance with all Applicable Laws and (iv) with
respect to each such Loan, all consents, licenses, approvals or authorizations
of or registrations or declarations with any Governmental Authority required to
be obtained, effected or given by the Borrower in connection with the transfer
of an interest in such Loan and the Related Property to the Deal Agent, as agent
for the Secured Parties, have been duly obtained, effected or given and are in
full force and effect. On each Funding Date, the Borrower shall be deemed to
represent and warrant that (i) any additional Loan referenced on the related
Borrower Notice delivered pursuant to Sections 2.1 and 2.2 is an Eligible Loan,
(ii) each such Loan and the related Property is free and clear of any Lien of
any Person (other than Permitted Liens) and in compliance with all Applicable
Laws, (iii) with respect to each such Loan, all consents, licenses, approvals,
authorizations, registrations or declarations with any Governmental Authority
required to be obtained, effected or given by the Borrower in connection with
the addition of such Loan and the Related Property to the Collateral have been
duly obtained, effected or given and are in full force and effect and (iv) the
representations and warranties set forth in Section 4.2(a) are true and correct
with respect to each Loan transferred on such day as if made on such day.
49
<PAGE>
ARTICLE V
GENERAL COVENANTS OF THE BORROWER
Section 5.1 Covenants of the Borrower.
The Borrower hereby covenants that:
(a) Compliance with Laws. The Borrower will comply in all material
respects with all Applicable Laws, including those with respect to the Loans in
the Collateral and any Related Property.
(b) Preservation of Corporate Existence. The Borrower will preserve and
maintain its existence, rights, franchises and privileges in the jurisdiction of
its formation, and qualify and remain qualified in good standing in each
jurisdiction where the failure to maintain such existence, rights, franchises,
privileges and qualification has had, or could reasonably be expected to have, a
Material Adverse Effect.
(c) Security Interests. Except as contemplated in this Agreement, the
Borrower will not sell, pledge, assign or transfer to any other Person, or
grant, create, incur, assume or suffer to exist any Lien on any Loan or Related
Property that is part of the Collateral, whether now existing or hereafter
transferred hereunder, or any interest therein. The Borrower will promptly
notify the Deal Agent of the existence of any Lien on any Loan or Related
Property that is part of the Collateral and the Borrower shall defend the right,
title and interest of the Deal Agent as agent for the Secured Parties in, to and
under any Loan and the Related Property that is part of the Collateral, against
all claims of third parties; provided, however, that nothing in this Section
5.1(c) shall prevent or be deemed to prohibit the Borrower from suffering to
exist Permitted Liens upon any Loan or any Related Property that is part of the
Collateral.
(d) Delivery of Collections. The Borrower agrees to cause the delivery
to the Servicer promptly (but in no event later than two (2) Business Days after
receipt) all Collections (including any Deemed Collections) received by Borrower
in respect of the Loans that are part of the Collateral.
(e) Activities of Borrower. The Borrower shall not engage in any
business or activity of any kind, or enter into any transaction or indenture,
mortgage, instrument, agreement, contract, Loan or other undertaking, which is
not incidental to the transactions contemplated and authorized by this Agreement
or the Purchase Agreement.
(f) Indebtedness. The Borrower shall not create, incur, assume or
suffer to exist any Indebtedness or other liability whatsoever, except (i)
obligations incurred under this Agreement, under any Hedging Agreement required
by Section 5.3(a), or the Purchase Agreement, or (ii) liabilities incident to
the maintenance of its existence in good standing.
50
<PAGE>
(g) Guarantees. The Borrower shall not become or remain liable,
directly or indirectly, in connection with any Indebtedness or other liability
of any other Person, whether by guarantee, endorsement (other than endorsements
of negotiable instruments for deposit or collection in the ordinary course of
business), agreement to purchase or repurchase, agreement to supply or advance
funds, or otherwise.
(h) Investments. The Borrower shall not make or suffer to exist any
loans or advances to, or extend any credit to, or make any investments (by way
of transfer of property, contributions to capital, purchase of stock or
securities or evidences of indebtedness, acquisition of the business or assets,
or otherwise) in, any Person except for purchases of Loans and Supplemental
Interests pursuant to the Purchase Agreement, or for investments in Permitted
Investments in accordance with the terms of this Agreement.
(i) Merger; Sales. The Borrower shall not enter into any transaction of
merger or consolidation, or liquidate or dissolve itself (or suffer any
liquidation or dissolution), or acquire or be acquired by any Person, or convey,
sell, Loan or otherwise dispose of all or substantially all of its property or
business, except as provided for in this Agreement.
(j) Distributions. The Borrower may not declare or pay or make,
directly or indirectly, any distribution (whether in cash or other property)
with respect to the assets of the Borrower or any Person's interest therein
(collectively, a "Distribution"); provided, however, if no Termination Event has
occurred or will occur as a result thereof, the Borrower may make Distributions.
(k) Agreements. The Borrower shall not become a party to, or permit any
of its properties to be bound by, any indenture, mortgage, instrument, contract,
agreement, Loan or other undertaking, except this Agreement, the Purchase
Agreement and any Hedging Agreement or amend or modify the provisions of its
trust agreement, without the consent of the Deal Agent, or issue any power of
attorney except to the Deal Agent or the Servicer.
(l) Separate Existence. The Borrower shall:
(i) Maintain its own deposit account or accounts, separate
from those of any Affiliate, with commercial banking institutions. The
funds of the Borrower will not be diverted to any other Person or for
other than corporate uses of the Borrower.
(ii) Ensure that, to the extent that it shares the same
persons as trustees or other employees as any of its Affiliates, the
salaries of and the expenses related to providing benefits to such
trustees or employees shall be fairly allocated among such entities,
and each such entity shall bear its fair share of the salary and
benefit costs associated with all such common officers and employees.
(iii) Ensure that, to the extent that it jointly contracts
with any of its Affiliates to do business with vendors or service
providers or to share overhead expenses, the costs
51
<PAGE>
incurred in so doing shall be allocated fairly among such entities, and
each such entity shall bear its fair share of such costs. To the extent
that the Borrower contracts or does business with vendors or service
providers when the goods and services provided are partially for the
benefit of any other Person, the costs incurred in so doing shall be
fairly allocated to or among such entities for whose benefit the goods
and services are provided, and each such entity shall bear its fair
share of such costs. All material transactions between Borrower and any
of its Affiliates shall be only on an arm's length basis.
(iv) Maintain a principal executive and administrative office
through which its business is conducted separate from those of its
Affiliates. To the extent that Borrower and any of its Affiliates have
offices in the same location, there shall be a fair and appropriate
allocation of overhead costs among them, and each such entity shall
bear its fair share of such expenses.
(v) Conduct its affairs strictly in accordance with its trust
agreement and observe all necessary, appropriate and customary legal
formalities, including, but not limited to, holding all regular and
special trustee meetings appropriate to authorize all trust action,
keeping separate and accurate records of such meetings, passing all
resolutions or consents necessary to authorize actions taken or to be
taken, and maintaining accurate and separate books, records and
accounts, including, but not limited to, payroll and transaction
accounts.
(vi) Take or refrain from taking, as applicable, each of the
activities specified in the "non-substantive consolidation" opinion of
Arnold & Porter delivered on the Closing Date, upon which the
conclusions expressed therein are based.
(m) Change of Name or Location of Borrower: Records. The Borrower (x)
shall not change its name or move the location of its principal executive
office, without 30 days' prior written notice to the Deal Agent and (y) shall
not move, or consent to the Servicer or Collateral Custodian moving the Loan
Documents without 30 days' prior written notice to the Deal Agent and (z) will
promptly take all actions required of each relevant jurisdiction in order to
continue the first priority perfected security interest of the Deal Agent as
agent for the Secured Parties (except for Permitted Liens) in all Collateral
including delivery of an Opinion of Counsel.
(n) ERISA Matters. The Borrower will not (a) engage or permit any ERISA
Affiliate to engage in any prohibited transaction for which an exemption is not
available or has not previously been obtained from the United States Department
of Labor; (b) permit to exist any accumulated funding deficiency, as defined in
Section 302(a) of ERISA and Section 412(a) of the Code, or funding deficiency
with respect to any Benefit Plan other than a Multiemployer Plan; (c) fail to
make any payments to a Multiemployer Plan that the Borrower or any ERISA
Affiliate may be required to make under the agreement relating to such
Multiemployer Plan or any law pertaining thereto; (d) terminate any Benefit Plan
so as to result in any liability; or (e) permit to exist any occurrence of any
reportable event described in Title IV of ERISA.
52
<PAGE>
(o) Originator Collateral. With respect to each item of Collateral
acquired by the Borrower, the Borrower will (i) acquire such Collateral pursuant
to and in accordance with the terms of the Purchase Agreement, (ii) take all
action necessary to perfect, protect and more fully evidence the Borrower's
ownership of such Collateral, including, without limitation, (A) filing and
maintaining, effective financing statements (Form UCC-1) naming the Originator
as seller/debtor and the Borrower as purchaser/creditor in all necessary or
appropriate filing offices, and filing continuation statements, amendments or
assignments with respect thereto in such filing offices and (B) executing or
causing to be executed such other instruments or notices as may be necessary or
appropriate, including, without limitation, Assignments of Mortgage, and (iii)
take all additional action that the Deal Agent may reasonably request to
perfect, protect and more fully evidence the respective interests of the parties
to this Agreement in the Collateral.
(p) Transactions with Affiliates. The Borrower will not enter into, or
be a party to, any transaction with any of its Affiliates, except (i) the
transactions permitted or contemplated by this Agreement, the Purchase Agreement
and any Hedging Agreements and (ii) other transactions (including, without
limitation, transactions related to the use of office space or computer
equipment or software by the Borrower to or from an Affiliate) (A) in the
ordinary course of business, (B) pursuant to the reasonable requirements of the
Borrower's business, (C) upon fair and reasonable terms that are no less
favorable to the Borrower than could be obtained in a comparable arm's-length
transaction with a Person not an Affiliate of the Borrower, and (D) not
inconsistent with the factual assumptions set forth in the "non-consolidation"
legal opinion letter issued by the Arnold & Porter and delivered to the Deal
Agent as a condition to the initial Advance, as such assumptions may be modified
in any subsequent opinion letters delivered to the Deal Agent pursuant to
Section 3.2 or otherwise. It is understood that any compensation arrangement for
any trustee shall be permitted under clause (ii)(A) through (C) above if such
arrangement has been expressly approved by the trustees of the Borrower in
accordance with the Borrower's trust agreement.
(q) Change in the Transaction Documents. The Borrower will not amend,
modify, waive or terminate any terms or conditions of any of the Transaction
Documents to which it is a party, without the prior written consent of Deal
Agent.
(r) Credit and Collection Policy. The Borrower will (a) comply in all
material respects with the Credit and Collection Policy in regard to each Loan
and the Related Property included in the Collateral, and (b) furnish to the Deal
Agent, prior to its effective date, prompt notice of any changes in the Credit
and Collection Policy. The Borrower will not agree to or otherwise permit any
changes in the Credit and Collection Policy, which change would impair the
collectibility of any Loan included in the Collateral or otherwise adversely
affect the interests or remedies of the Deal Agent or the Secured Parties under
this Agreement or any other Transaction Document.
(s) Termination Events. The Borrower will furnish to the Deal Agent, as
soon as possible and in any event within three (3) Business Days after the
occurrence of each
53
<PAGE>
Termination Event and each Unmatured Termination Event, a written statement
setting forth the details of such event and the action that the Borrower
proposes to take with respect thereto.
(t) Extension or Amendment of Loans. The Borrower will not, except as
otherwise permitted in Section 6.4(a), extend, amend or otherwise modify, or
permit the Servicer on its behalf to extend, amend or otherwise modify, the
terms of any Loan.
(u) Other. The Borrower will furnish to the Deal Agent such other
information, documents, records or reports respecting the Loans or the condition
or operations, financial or otherwise, of the Borrower or Originator as the Deal
Agent may from time to time reasonably request in order to protect the interests
of the Deal Agent or the Secured Parties under or as contemplated by this
Agreement.
(v) Year 2000 Compatibility. The Borrower shall take all action
necessary to assure that, prior to January 1, 2000, the Borrower's computer
based systems are able to operate and effectively process data including dates
on and after January 1, 2000. At the request of the Deal Agent, the Borrower
shall provide assurance acceptable to the Deal Agent of the Borrower's Year 2000
compatibility.
(w) Notices Under the Purchase Agreement. The Borrower will promptly,
but in no event later than two (2) Business Days after its receipt, furnish to
the Deal Agent copies of any and all notices, certificates, documents, or
reports delivered to it by the Originator under the Purchase Agreement.
Section 5.2 Release of Lien on Supplemental Interests.
If (i) the Overcollateralization Percentage is equal to or exceeds the
Minimum Overcollateralization Percentage, and (ii) no Termination Event or
Unmatured Termination Event has occurred and is continuing, at the same time as
any Loan that is part of the Collateral expires by its terms and all amounts in
respect thereof have been paid by the related Obligor and deposited in the
Collection Account, the Deal Agent as agent for the Secured Parties will, to the
extent requested by the Borrower or the Servicer on behalf of the Borrower,
release its interest in such Loan and any Supplemental Interests related
thereto. In connection with any such release on or after the occurrence of the
above, the Deal Agent, as agent for the Secured Parties, will execute and
deliver to the Borrower or the Servicer on behalf of the Borrower any
assignments, bills of sale, termination statements and any other releases and
instruments as the Borrower or the Servicer on behalf of the Borrower may
reasonably request in order to effect the release and transfer of such Loan and
Supplemental Interest; provided, that, the Deal Agent as agent for the Lenders
will make no representation or warranty, express or implied, with respect to any
such Supplemental Interest in connection with such sale or transfer and
assignment.
54
<PAGE>
Section 5.3 Hedging Agreement.
(a) On or prior to each Funding Date, the Borrower shall enter into one
or more Hedge Transactions for the Loans to be funded by the Advance made on
such Funding Date, provided that each such Hedge Transaction shall:
(i) be entered into with a Hedge Counterparty and governed by
a Hedging Agreement;
(ii) have a schedule of monthly payment periods the first of
which commences on the Funding Date and the last of which ends on the
last Scheduled Payment due to occur under the Loans to which that
Advance relates;
(iii) have an amortizing notional amount such that the Hedge
Notional Amount with respect to such Advance in effect on each day
during the term of such Hedge Transactions shall be equal to Required
Notional Amount with respect to such Advance on such day; and
(iv) provide for two series of monthly payments to be netted
against each other, one such series being payments to be made by the
Borrower to a Hedge Counterparty (solely on a net basis) at a floating
rate equal to "USD-Prime-H.15" (as defined in the ISDA Definitions) and
the other such series being payments to be made by the Hedge
Counterparty to the Deal Agent (solely on a net basis) at a floating
rate based upon "USD-LIBOR-BBA" (as defined in the ISDA Definitions),
the net amount of which shall be paid into the Collection Account (if
payable by the Hedge Counterparty) or from the Collection Account to
the extent funds are available under Section 2.8 of this Agreement (if
payable by the Borrower).
(b) As additional security hereunder, Borrower hereby assigns to the
Deal Agent, as agent for the Secured Parties, all right, title and interest of
Borrower in each Hedging Agreement, each Hedge Transaction, and all present and
future amounts payable by a Hedge Counterparty to Borrower under or in
connection with the respective Hedging Agreement and Hedge Transaction(s) with
that Hedge Counterparty ("Hedge Collateral"), and grants a security interest to
the Deal Agent, as agent for the Secured Parties, in the Hedge Collateral.
Borrower acknowledges that, as a result of that assignment, Borrower may not,
without the prior written consent of the Deal Agent, exercise any rights under
any Hedging Agreement or Hedge Transaction, except for Borrower's right under
any Hedging Agreement to enter into Hedge Transactions in order to meet the
Borrower's obligations under Section 5.3(a) hereof. Nothing herein shall have
the effect of releasing the Borrower from any of its obligations under any
Hedging Agreement or any Hedge Transaction, nor be construed as requiring the
consent of the Deal Agent or any Secured Party for the performance by Borrower
of any such obligations.
55
<PAGE>
Section 5.4 Exemptive Order.
(a) The Borrower covenants to the parties hereto that within fifteen
(15) days after the date hereof, it will cause the Originator to file with the
SEC an Application for An Order under Section 6(c) of the 1940 Act for An
Exemption from Sections 12(d)(i), 18(a), 61(a) and 19(b) of the 1940 Act and
cause to be delivered a true and complete copy of such Application to the Deal
Agent within five (5) Business Days of the Closing Date.
(b) The Borrower agrees to cause the Originator to use its best efforts
to obtain an order from the SEC relating to the Application granting the
exemptions requested in the Application (such order being hereinafter referred
to as the "Order"), and to promptly notify and advise the Deal Agent of: (i)
communications the Originator or its counsel may from time to time have with the
SEC relating to the Application or the Order including, without limitation,
prompt delivery to the Deal Agent of copies of any written communications by and
between the Originator or its counsel and the SEC; and (ii) the publication by
the SEC of notice regarding the Application. Immediately upon receiving a copy
of the Order, the Borrower shall deliver or cause the Originator to deliver
written notice thereof, together with a copy thereof, to the Deal Agent (such
notice being the "Order Notice").
(c) Upon receipt by the Deal Agent of the Order Notice and the Order,
the Deal Agent, on behalf of the Secured Parties and the Investors, shall review
such Order and, if such Order is satisfactory to the Deal Agent, in its sole
discretion (subject to any objection by VFCC or any Investor), the Deal Agent
shall notify the Borrower that such Order has been approved (such approval being
the "Order Approval" and the date of such approval by the Deal Agent being the
"Approval Date").
(d) The Borrower agrees to at all times comply and cause the Originator
to comply with each and every condition and/or requirement set forth in the
Application and the Order to the extent any such condition and/or requirement
pertains to such Person.
ARTICLE VI
ADMINISTRATION AND SERVICING OF LOANS
Section 6.1 Appointment of the Servicer.
The Borrower hereby appoints the Servicer to service the Transferred
Loans and enforce its respective rights and interests in and under each
Transferred Loan in accordance with the terms and conditions of this Article VI
and to serve in such capacity until the termination of its responsibilities
pursuant to Section 6.25. The Servicer hereby agrees to perform the duties and
obligations with respect thereto set forth herein. The Servicer and the Borrower
hereby acknowledge that the Deal Agent and the Secured Parties are third party
beneficiaries of the obligations undertaken by the Servicer hereunder.
56
<PAGE>
Section 6.2 Duties and Responsibilities of the Servicer.
(a) The Servicer shall conduct the servicing, administration and
collection of the Transferred Loans and shall take, or cause to be taken, all
such actions as may be necessary or advisable to service, administer and collect
Transferred Loans from time to time on behalf of the Borrower and as the
Borrower's agent.
(b) The duties of the Servicer, as the Borrower's agent, shall include,
without limitation:
(i) preparing and submitting of claims to, and post-billing
liaison with, Obligors on Transferred Loans;
(ii) maintaining all necessary Servicing Records with respect
to the Transferred Loans and providing such reports to the Borrower and
the Liquidity Agent and the Deal Agent in respect of the servicing of
the Transferred Loans (including information relating to its
performance under this Agreement) as may be required hereunder or as
the Borrower, the Liquidity Agent or the Deal Agent may reasonably
request;
(iii) maintaining and implementing administrative and
operating procedures (including, without limitation, an ability to
recreate Servicing Records evidencing the Transferred Loans in the
event of the destruction of the originals thereof) and keeping and
maintaining all documents, books, records and other information
reasonably necessary or advisable for the collection of the Transferred
Loans (including, without limitation, records adequate to permit the
identification of each new Transferred Loan and all Collections of and
adjustments to each existing Transferred Loan); provided, however, that
any Successor Servicer shall only be required to recreate the Servicing
Records of each prior Servicer to the extent such records have been
delivered to it in a format reasonably acceptable to such Successor
Servicer.
(iv) promptly delivering to the Borrower, and the Deal Agent
or the Collateral Custodian, from time to time, such information and
Servicing Records (including information relating to its performance
under this Agreement) as the Borrower, the Deal Agent or the Collateral
Custodian may from time to time reasonably request;
(v) identifying each Transferred Loan clearly and
unambiguously in its Servicing Records to reflect that such Transferred
Loan is owned by the Borrower and pledged to the Deal Agent;
(vi) complying in all material respects with the Credit and
Collection Policy in regard to each Transferred Loan;
57
<PAGE>
(vii) complying in all material respects with all Applicable
Laws with respect to it, its business and properties and all
Transferred Loans and Collections with respect thereto;
(viii) preserving and maintaining its existence, rights,
licenses, franchises and privileges as a corporation in the
jurisdiction of its organization, and qualifying and remaining
qualified in good standing as a foreign corporation and qualifying to
and remaining authorized and licensed to perform obligations as
Servicer (including enforcement of collection of Transferred Loans on
behalf of the Borrower, Lenders, each Hedge Counterparty and the
Collateral Custodian) in each jurisdiction where the failure to
preserve and maintain such existence, rights, franchises, privileges
and qualification would materially adversely affect (A) the rights or
interests of the Borrower, Lenders, each Hedge Counterparty and the
Collateral Custodian in the Transferred Loans, (B) the collectibility
of any Transferred Loan, or (C) the ability of the Servicer to perform
its obligations hereunder;
(ix) notifying the Borrower, the Liquidity Agent and the Deal
Agent of any material action, suit, proceeding, dispute, offset
deduction, defense or counterclaim that is or is threatened to be (1)
asserted by an Obligor with respect to any Transferred Loan; or (2)
reasonably expected to have a Material Adverse Effect; and
(c) The Borrower and Servicer hereby acknowledge that the Secured
Parties, the Deal Agent and the Collateral Custodian shall not have any
obligation or liability with respect to any Transferred Loans, nor shall any of
them be obligated to perform any of the obligations of the Servicer hereunder.
Section 6.3 Authorization of the Servicer.
(a) Each of the Borrower and the Deal Agent on behalf of the Lenders
and each Hedge Counterparty hereby authorizes the Servicer (including any
successor thereto) to take any and all reasonable steps in its name and on its
behalf necessary or desirable and not inconsistent with the pledge of the
Transferred Loans to the Lender, each Hedge Counterparty, and the Collateral
Custodian, in the determination of the Servicer, to collect all amounts due
under any and all Transferred Loans, including, without limitation, endorsing
any of their names on checks and other instruments representing Collections,
executing and delivering any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge, and all other
comparable instruments, with respect to the Transferred Loans and, after the
delinquency of any Transferred Loan and to the extent permitted under and in
compliance with Applicable Law, to commence proceedings with respect to
enforcing payment thereof, to the same extent as the Originator could have done
if it had continued to own such Loan. The Borrower shall furnish the Servicer
(and any successors thereto) with any powers of attorney and other documents
necessary or appropriate to enable the Servicer to carry out its servicing and
administrative duties hereunder, and shall cooperate with the Servicer to the
fullest extent in order to ensure the collectibility of the Transferred Loans.
In no event shall the Servicer be entitled to make the Borrower or any
58
<PAGE>
Lender, any Hedge Counterparty, the Collateral Custodian or the Deal Agent a
party to any litigation without such party's express prior written consent, or
to make the Borrower a party to any litigation (other than any routine
foreclosure or similar collection procedure) without the Deal Agent's consent.
(b) After a Termination Event has occurred and is continuing, at the
Deal Agent's direction, the Servicer shall take such action as the Deal Agent
may deem necessary or advisable to enforce collection of the Transferred Loans;
provided, however, that the Deal Agent may, at any time that a Termination Event
has occurred and is continuing, notify any Obligor with respect to any
Transferred Loans of the assignment of such Transferred Loans to the Deal Agent
and direct that payments of all amounts due or to become due to the Borrower
thereunder be made directly to the Deal Agent or any servicer, collection agent
or lock-box or other account designated by the Deal Agent and, upon such
notification and at the expense of the Borrower, the Deal Agent may enforce
collection of any such Transferred Loans and adjust, settle or compromise the
amount or payment thereof. The Deal Agent shall give written notice to any
Successor Servicer of the Deal Agent's actions or directions pursuant to this
Section 6.3(b), and no Successor Servicer shall take any actions pursuant to
this Section 6.3(b) that are outside of its Credit and Collection Policy.
Section 6.4 Collection of Payments.
(a) Collection Efforts, Modification of Loans. The Servicer will make
reasonable efforts to collect all payments called for under the terms and
provisions of the Loans as and when the same become due, and will follow those
collection procedures which it follows with respect to all comparable Loans that
it services for itself or others. The Servicer may not waive, modify or
otherwise vary any provision of a Loan, except as may be in accordance with the
provisions of the Credit and Collection Policy, including the waiver of any late
payment charge or any other fees that may be collected in the ordinary course of
servicing any Loan included in the Collateral.
(b) Acceleration. The Servicer shall accelerate the maturity of all or
any Scheduled Payments under any Loan under which a default under the terms
thereof has occurred and is continuing (after the lapse of any applicable grace
period) promptly after such Loan becomes a Defaulted Loan or such earlier or
later time as is consistent with the Credit and Collection Policy.
(c) Taxes and other Amounts. To the extent provided for in any Loan,
the Servicer will use its best efforts to collect all payments with respect to
amounts due for taxes, assessments and insurance premiums relating to such Loans
or the Related Property and remit such amounts to the appropriate Governmental
Authority or insurer on or prior to the date such payments are due.
(d) Payments to Lock-Box Account: On or before the Closing Date, the
Servicer shall have instructed all Obligors to make all payments in respect of
Loans included in the Collateral to a Lock-Box or directly to a Lock-Box
Account.
59
<PAGE>
(e) Establishment of the Collection Account. The Borrower or the
Servicer on its behalf shall cause to be established, on or before the Closing
Date, and maintained in the name of the Borrower and assigned to the Deal Agent
as agent for the Secured Parties, with an office or branch of a depository
institution or trust company organized under the laws of the United States or
any one of the States thereof or the District of Columbia (or any domestic
branch of a foreign bank) a segregated corporate trust account (the "Collection
Account") for the purpose of receiving Collections from the Collateral;
provided, however, that at all times such depository institution or trust
company shall be a depository institution organized under the laws of the United
States or any one of the States thereof or the District of Columbia (or any
domestic branch of a foreign bank), (i) (A) that has either (1) a long-term
unsecured debt rating of A- or better by S&P and A-3 or better by Moody's or (2)
a short-term unsecured debt rating or certificate of deposit rating of A-1 or
better by S&P or P-1 or better by Moody's, (B) the parent corporation of which
has either (1) a long-term unsecured debt rating of A- or better by S&P and A-3
or better by Moody's or (2) a short-term unsecured debt rating or certificate of
deposit rating of A-1 or better by S&P and P-1 or better by Moody's or (C) is
otherwise acceptable to the Deal Agent and (ii) whose deposits are insured by
the Federal Deposit Insurance Corporation (any such depository institution or
trust company, a "Qualified Institution").
(f) Establishment of the Excess Spread Account. The Borrower or the
Servicer on its behalf shall establish, on or before the Closing Date, and
maintained in the name of the Borrower and assigned to the Deal Agent, with a
Qualified Institution an account (the "Excess Spread Account") into which
Collections shall be deposited pursuant to Section 2.8(a)(xiii) in a maximum
amount such that the Overcollateralization Percentage on any day equals or
exceeds the Minimum Overcollateralization Percentage on such day. To the extent
that, on any Payment Date, there are funds on deposit in the Excess Spread
Account in excess of those required to maintain the Minimum
Overcollateralization Percentage, an amount equal to such excess shall be
deposited, on such Payment Date, to the Collection Account for application in
accordance with Section 2.8.
(g) Adjustments. If (i) the Servicer makes a deposit into the
Collection Account in respect of a Collection of a Loan in the Collateral and
such Collection was received by the Servicer in the form of a check that is not
honored for any reason or (ii) the Servicer makes a mistake with respect to the
amount of any Collection and deposits an amount that is less than or more than
the actual amount of such Collection, the Servicer shall appropriately adjust
the amount subsequently deposited into the Collection Account to reflect such
dishonored check or mistake. Any Scheduled Payment in respect of which a
dishonored check is received shall be deemed not to have been paid.
Section 6.5 Servicer Advances.
For each Collection Period, if the Servicer determines that any
Scheduled Payment (or portion thereof) that was due and payable pursuant to a
Loan included in the Collateral during such Collection Period was not received
prior to the end of such Collection Period, the Servicer may, but shall not be
obligated to, make an advance in an amount up to the amount of such
60
<PAGE>
delinquent Scheduled Payment (or portion thereof); in addition, if on any day
there are not sufficient funds on deposit in the Interest Collection Account to
pay accrued Interest on any Advance the Collection Period of which ends on such
day, the Servicer may make an advance in the amount necessary to pay such
Interest (in either case, any such advance, a "Servicer Advance").
Notwithstanding the preceding sentence, any successor Servicer will not be
obligated to make any Servicer Advances. The Servicer will deposit any Servicer
Advances into the Collection Account on or prior to 11:00 a.m. (Charlotte, North
Carolina time) on the related Payment Date, in immediately available funds.
Section 6.6 Realization Upon Defaulted Loans or Charged-Off Loans.
The Servicer will use reasonable efforts to repossess or otherwise
comparably convert the ownership of any Related Property with respect to a
Defaulted Loan or Charged-Off Loan and will act as sales and processing agent
for Related Property that it repossesses. The Servicer will follow the practices
and procedures set forth in the Credit and Collection Policy in order to realize
upon such Related Property. Without limiting the foregoing, the Servicer may
sell any such Related Property with respect any Defaulted Loan or Charged-Off
Loan to the Servicer or its Affiliates for a purchase price equal to the then
fair market value thereof; any such sale to be evidenced by a certificate of a
Responsible Officer of the Servicer delivered to the Deal Agent identifying the
Defaulted Loan or Charged-Off Loan and the Related Property, setting forth the
sale price of the Related Property and certifying that such sale price is the
fair market value of such Related Property. In any case in which any such
Related Property has suffered damage, the Servicer will not expend funds in
connection with any repair or toward the repossession of such Related Property
unless it reasonably determines that such repair and/or repossession will
increase the Recoveries by an amount greater than the amount of such expenses.
The Servicer will remit to the Collection Account the Recoveries received in
connection with the sale or disposition of Related Property with respect to a
Defaulted Loan or Charged-Off Loan.
Section 6.7 Maintenance of Insurance Policies.
The Servicer will require that each Obligor with respect to a Loan
maintain an Insurance Policy with respect to each Loan and the Related Property
in accordance with the Credit and Collection Policy. In connection with its
activities as Servicer, the Servicer agrees to present, on behalf of the
Borrower and the Deal Agent as agent for the Secured Parties, with respect to
the respective interests, claims to the insurer under each Insurance Policy and
any such liability policy, and to settle, adjust and compromise such claims, in
each case, consistent with the terms of each related Loan.
Section 6.8 Representations and Warranties of the Servicer.
The initial Servicer, and any Successor Servicer (mutatis mutandis),
hereby represents and warrants as follows:
61
<PAGE>
(a) Organization and Good Standing. The Servicer is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with all requisite corporate power and
authority to own its properties and to conduct its business as presently
conducted and to enter into and perform its obligations pursuant to this
Agreement.
(b) Due Qualification. The Servicer is qualified to do business as a
corporation, is in good standing, and has obtained all licenses and approvals as
required under the laws of all jurisdictions in which the ownership or lease of
its property and or the conduct of its business (other than the performance of
its obligations hereunder) requires such qualification, standing, license or
approval, except to the extent that the failure to so qualify, maintain such
standing or be so licensed or approved would not have an adverse effect on the
interests of the Borrower or of the Lenders. The Servicer is qualified to do
business as a corporation, is in good standing, and has obtained all licenses
and approvals as required under the laws of all states in which the performance
of its obligations pursuant to this Agreement requires such qualification,
standing, license or approval and where the failure to qualify or obtain such
license or approval would have material adverse effect on its ability to perform
hereunder.
(c) Power of Authority. The Servicer has the corporate power and
authority to execute and deliver this Agreement and to carry out its terms. The
Servicer has duly authorized the execution, delivery and performance of this
Agreement by all requisite corporate action.
(d) No Violation. The consummation of the transactions contemplated by,
and the fulfillment of the terms of, this Agreement by the Servicer (with or
without notice or lapse of time) will not (i) conflict with, result in any
breach of any of the terms or provisions of, or constitute a default under, the
articles of incorporation or by-laws of the Servicer, or any Contractual
Obligation to which the Servicer is a party or by which it or any of its
property is bound, (ii) result in the creation or imposition of any Lien upon
any of its properties pursuant to the terms of any such Contractual Obligation
(other than this Agreement), or (iii) violate any Applicable Law.
(e) No Consent. No consent, approval, authorization, order,
registration, filing, qualification, license or permit of or with any
Governmental Authority having jurisdiction over the Servicer or any of its
properties is required to be obtained by or with respect to the Servicer in
order for the Servicer to enter into this Agreement or perform its obligations
hereunder.
(f) Binding Obligation. This Agreement constitutes a legal, valid and
binding obligation of the Servicer, enforceable against the Servicer in
accordance with its terms, except as such enforceability may be limited by (i)
applicable Insolvency Laws and (ii) general principles of equity (whether
considered in a suit at law or in equity).
(g) No Proceeding. There are no proceedings or investigations pending
or threatened against the Servicer, before any Governmental Authority (i)
asserting the invalidity of this Agreement, (ii) seeking to prevent the
consummation of any of the transactions contemplated by
62
<PAGE>
this Agreement or (iii) seeking any determination or ruling that might (in the
reasonable judgment of the Servicer) have a Material Adverse Effect.
(h) Reports Accurate. All Servicer Certificates, information, exhibits,
financial statements, documents, books, Servicer Records or reports furnished or
to be furnished by the Servicer to the Deal Agent or a Lender in connection with
this Agreement are and will be accurate, true and correct.
Section 6.9 Covenants of the Servicer.
The Servicer hereby covenants that:
(a) Compliance with Law. The Servicer will comply in all material
respects with all Applicable Laws, including those with respect to the Loans and
Related Property and Loan Documents or any part thereof.
(b) Preservation of Corporate Existence. The Servicer will preserve and
maintain its corporate existence, rights, franchises and privileges in the
jurisdiction of its formation, and qualify and remain qualified in good standing
as a foreign corporation in each jurisdiction where the failure to maintain such
existence, rights, franchises, privileges and qualification has had, or could
reasonably be expected to have, a Material Adverse Effect.
(c) Obligations with Respect to Loans. The Servicer will duly fulfill
and comply with all obligations on the part of the Borrower to be fulfilled or
complied with under or in connection with each Loan and will do nothing to
impair the rights of the Borrower or the Deal Agent as agent for the Secured
Parties or of the Secured Parties in, to and under the Collateral.
(d) Preservation of Security Interest. The Borrower or the Servicer on
behalf of the Borrower will execute and file (or cause the execution and filing
of) such financing and continuation statements and any other documents that may
be required by any law or regulation of any Governmental Authority to preserve
and protect fully the interest of the Deal Agent as agent for the Secured
Parties in, to and under the Collateral.
(e) No Bankruptcy Petition. With respect to VFCC, prior to the date
that is one year and one day after the payment in full of all amounts owing in
respect of all outstanding commercial paper issued by VFCC and, with respect to
the Borrower, prior to the date that is one year and one day after the
Collection Date, the Servicer will not institute against the Borrower or VFCC,
or join any other Person in instituting against the Borrower or VFCC, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings
or other similar proceedings under the laws of the United States or any state of
the United States. This Section 6.9(e) will survive the termination of this
Agreement.
(f) Change of Name or Location; Records. The Servicer (X) shall not
change its name or move the location of its principal executive office, without
30 days' prior written notice
63
<PAGE>
to the Borrower and the Deal Agent, and (Y) shall not move, or consent to the
Collateral Custodian moving the Loan Documents without 30 days' prior written
notice to the Borrower and the Deal Agent and (Z) will promptly take all actions
required of each relevant jurisdiction in order to continue the first priority
perfected security interest of the Deal Agent as agent for the Secured Parties
on all collateral including delivery of an Opinion of Counsel.
(g) Credit and Collection Policy. The Servicer will (a) comply in all
material respects with the Credit and Collection Policy in regard to each Loan
and (b) furnish to the Deal Agent, prior to its effective date, prompt notice of
any change in the Credit and Collection Policy. The Servicer will not agree or
otherwise permit to occur any change in the Credit and Collection Policy, which
change would impair the collectibility of any Loan or otherwise adversely affect
the interests or remedies of the Deal Agent or the Secured Parties under this
Agreement or any other Transaction Document, without the prior written consent
of the Deal Agent (in its sole discretion).
(h) Termination Events. The Servicer will furnish to the Deal Agent, as
soon as possible and in any event within three (3) Business Days after the
occurrence of each Termination Event or Unmatured Termination Event, a written
statement setting forth the details of such event and the action that the
Servicer proposes to take with respect thereto.
(i) Extension or Amendment of Loans. The Servicer will not, except as
otherwise permitted in Section 6.4(a), extend, amend or otherwise modify the
terms of any Loan.
(j) Other. The Servicer will furnish to the Borrower and the Deal Agent
such other information, documents records or reports respecting the Loans or the
condition or operations, financial or otherwise of the Servicer as the Borrower
or the Deal Agent may from time to time reasonably request in order to protect
the respective interests of the Borrower or the Deal Agent or the Secured
Parties under or as contemplated by this Agreement.
(k) Year 2000 Compatibility. The Servicer shall take all action
necessary to assure that, prior to January 1, 2000, the Servicer's computer
system is able to operate and effectively process data including dates on and
after January 1, 2000. At the request of the Borrower or the Deal Agent, the
Servicer shall provide assurance acceptable to the Borrower and the Deal Agent
and the Backup Servicer of the Servicer's Year 2000 compatibility.
Section 6.10 The Collateral Custodian.
(a) Appointment; Custodial Duties. The Borrower and the Deal Agent each
hereby appoints Norwest to act as Collateral Custodian hereunder, for the
benefit of the Borrower and Deal Agent, as agent for the Secured Parties, as
provided herein. Norwest hereby accepts such appointment.
The Collateral Custodian shall take and retain custody of the Loan
Files delivered by the Borrower or on its behalf pursuant to Section 3.2 hereof
in accordance with the terms and
64
<PAGE>
conditions of this Agreement, all for the benefit of the Secured Parties and
subject to the Lien thereon in favor of the Deal Agent as agent for the Secured
Parties. Immediately upon receipt of any such Loan File, the Collateral
Custodian shall deliver to the Deal Agent a custodial receipt in form of Exhibit
J hereto. Within five Business Days of its receipt of any Loan File, the
Collateral Custodian shall review the related Loan Documents to verify that each
Loan Document listed on the related Loan List has been received, and executed
and has no missing or mutilated pages and to confirm (in reliance on the related
Loan number and Obligor name) that such Loan is referenced on the related Loan
List and shall, at the expiration of such period, deliver to the Deal Agent a
certification in the form of Exhibit K hereto. In order to facilitate the
foregoing review by the Collateral Custodian, in connection with each delivery
of Loan Files hereunder to the Collateral Custodian, the Servicer shall provide
to the Collateral Custodian an electronic file in a mutually acceptable
electronic format that contains the related Loan List or that otherwise contains
the Loan number and the name of the Obligor with respect to each related Loan.
If, at the conclusion of such review, the Collateral Custodian shall determine
that any such Loan Document is not executed or in proper form on its face, or
that it is not referenced on such Loan List, the Collateral Custodian shall
promptly notify the Borrower and the Deal Agent of such determination by
providing an exception report to such Persons setting forth, with particularity,
the lack of execution of such Loan Document(s), that such Loan Document(s) has
missing or mutilated pages, or the fact that such Loan Document(s) was not
referenced on the related Loan List. In addition, unless instructed otherwise in
writing by the Borrower or the Deal Agent within 10 days of the Collateral
Custodian's delivery of such report, the Collateral Custodian shall return any
Loan File not referenced on such Loan List to the Borrower. Other than the
foregoing, the Collateral Custodian shall not have any responsibility for
reviewing any Loan File.
In taking and retaining custody of the Loan Files, the Collateral
Custodian shall be acting as the agent of the Deal Agent as agent for the
Secured Parties; provided, however, that the Collateral Custodian makes no
representations as to the existence, perfection or priority of any Lien on the
Loan Files or the instruments therein; and, provided, further, that the
Collateral Custodian's duties as agent shall be limited to those expressly
contemplated herein. All Loan Files shall be kept in fireproof vaults or
cabinets at the locations specified on Schedule V attached hereto, or at such
other office as shall be specified to the Deal Agent and the Borrower by the
Collateral Custodian in a written notice delivered at least 45 days prior to
such change. All Loan Files shall be segregated with an appropriate identifying
label and maintained in such a manner so as to permit retrieval and access. All
Loan Files shall be clearly segregated from any other documents or instruments
maintained by the Collateral Custodian. The Collateral Custodian shall clearly
indicate that such Loan Files are the sole property of Borrower, subject to the
security interest of the Deal Agent on behalf of the Secured Parties. In
performing its duties, the Collateral Custodian shall use the same degree of
care and attention as it employs with respect to similar Loan Files which it
holds as Collateral Custodian.
65
<PAGE>
(b) Concerning the Collateral Custodian.
(i) The Collateral Custodian may conclusively rely on and
shall be fully protected in acting upon any certificate, instrument,
opinion, notice, letter, telegram or other document delivered to it and
that in good faith it reasonably believes to be genuine and that has
been signed by the proper party or parties. The Collateral Custodian
may rely conclusively on and shall be fully protected in acting upon
the written instructions of any designated officer of the Deal Agent.
(ii) The Collateral Custodian may consult counsel satisfactory
to it and the advice or opinion of such counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in accordance
with the advice or opinion of such counsel.
(iii) The Collateral Custodian shall not be liable for any
error of judgment, or for any act done or step taken or omitted by it,
in good faith, or for any mistakes of fact or law, or for anything that
it may do or refrain from doing in connection herewith except in the
case of its willful misconduct or grossly negligent performance or
omission.
(iv) The Collateral Custodian makes no warranty or
representation and shall have no responsibility (except as expressly
set forth in this Agreement) as to the content, enforceability,
completeness, validity, sufficiency, value, genuineness, ownership or
transferability of the Loans or the Loan Documents, and will not be
required to and will not make any representations as to the validity or
value of any of the Loans. The Collateral Custodian shall not be
obligated to take any legal action hereunder that might in its judgment
involve any expense or liability unless it has been furnished with an
indemnity reasonably satisfactory to it.
(v) The Collateral Custodian shall have no duties or
responsibilities except such duties and responsibilities as are
specifically set forth in this Agreement and no covenants or
obligations shall be implied in this Agreement against the Collateral
Custodian.
(vi) The Collateral Custodian shall not be required to expend
or risk its own funds in the performance of its duties hereunder.
(vii) It is expressly agreed and acknowledged that the
Collateral Custodian is not guaranteeing performance of or assuming any
liability for the obligations of the other parties hereto or any
parties to the Loans.
(c) Release for Servicing. From time to time and as appropriate for the
enforcement or servicing of any of the Loans, the Collateral Custodian is hereby
authorized, upon written receipt from the Servicer on behalf of the Borrower of
a request for release of documents and receipt in the form annexed hereto as
Exhibit L, to release to the Servicer the related Loan File or
66
<PAGE>
the documents set forth in such request and receipt to the Servicer; provided,
however, notwithstanding the foregoing or any other provision of this Agreement,
upon its receipt of written instructions from the Deal Agent, the Collateral
Custodian shall cease releasing documents to the Servicer. All documents so
released to the Servicer on behalf of the Borrower shall be held by the Servicer
in trust for the benefit of the Borrower and the Deal Agent, with respect to
their respective interests, in accordance with the terms of this Agreement. The
Servicer on behalf of the Borrower shall return to the Collateral Custodian the
Loan File or other such documents when the Servicer's need therefor in
connection with such foreclosure or servicing no longer exists, unless the Loan
shall be liquidated, in which case, upon receipt of an additional request for
release of documents and receipt certifying such liquidation from the Servicer
to the Collateral Custodian in the form annexed hereto as Exhibit L, the
Servicer's request and receipt submitted pursuant to the first sentence of this
subsection shall be released by the Collateral Custodian to the Servicer.
(d) Release for Payment. Upon receipt by the Collateral Custodian of
the Servicer's request for release of documents and receipt in the form annexed
hereto as Exhibit L (which certification shall include a statement to the effect
that all amounts received in connection with such payment or repurchase have
been credited to the Collection Account as provided in this Agreement), the
Collateral Custodian shall promptly release the related Loan File to the
Servicer on behalf of the Borrower.
(e) Collateral Custodian Compensation. As compensation for its
activities hereunder, the Collateral Custodian shall be entitled to a Collateral
Custodian Fee from the Servicer. To the extent that such Collateral Custodian
Fee is not paid by the Servicer, the Collateral Custodian shall be entitled to
receive the unpaid balance of such Collateral Custodian Fee to the extent of
funds available therefor pursuant to the provision of Section 2.8(a)(v). The
Collateral Custodian's entitlement to receive the Collateral Custodian Fee
(other than due and unpaid Collateral Custodian Fees owed through such date)
shall cease on the earlier to occur of: (i) its removal as Collateral Custodian
or (ii) the termination of this Agreement.
(f) Replacement of the Collateral Custodian. The Collateral Custodian
may be replaced by the Borrower with the prior consent of the Deal Agent or by
Deal Agent; provided, however, no such replacement shall be effective until a
replacement Collateral Custodian has been appointed, has agreed to act as
Collateral Custodian hereunder and has received all Loan Files held by the
previous Collateral Custodian.
Section 6.11 Representations and Warranties of the Collateral
Custodian.
The Collateral Custodian represents and warrants as follows:
(a) Organization and Good Standing. It is a national banking
association duly organized, validly existing and in good standing under the
federal laws of the United States with all requisite power and authority to own
its properties and to conduct its business as presently conducted and to enter
into and perform its obligations pursuant to this Agreement.
67
<PAGE>
(b) Due Qualification. It is duly qualified to do business as a
national banking association and is in good standing, and has obtained all
necessary licenses and approvals in all jurisdictions in which the ownership or
lease of its property or the conduct of its business requires such
qualification, licenses or approval except where the failure to so qualify or
have such licenses or approvals has not had, and would not be reasonably
expected to have, a Material Adverse Effect.
(c) Power and Authority. It has the power and authority to execute and
deliver this Agreement and to carry out its terms. It has duly authorized the
execution, delivery and performance of this Agreement by all requisite action.
(d) No Violation. The consummation of the transactions contemplated by,
and the fulfillment of the terms of, this Agreement by it will not (i) conflict
with, result in any breach of any of the terms or provisions of, or constitute a
default under, its articles of association, or any Contractual Obligation to
which it is a party or by which it or any of its property is bound, (ii) result
in the creation or imposition of any Lien upon any of its properties pursuant to
the terms of any Contractual Obligation, or (iii) violate any Applicable Law.
(e) No Consent. No consent, approval, authorization, order,
registration, filing, qualification, license or permit (collectively, the
"Consents") of or with any Governmental Authority having jurisdiction over it or
any of its respective properties is required to be obtained in order for it to
enter into this Agreement or perform its obligations hereunder.
(f) Binding Obligation. This Agreement constitutes its legal, valid and
binding obligation, enforceable in accordance with its terms, except as such
enforceability may be limited by (i) applicable Insolvency Laws and (ii) general
principles of equity (whether considered in a suit at law or in equity).
(g) No Proceeding. There are no proceedings or investigations pending
or, to the best of its knowledge, threatened, against it before any Governmental
Authority (i) asserting the invalidity of this Agreement, (ii) seeking to
prevent the consummation of any of the transactions contemplated by this
Agreement or (iii) seeking any determination or ruling that might (in its
reasonable judgment) have a Material Adverse Effect.
Section 6.12 Covenants of the Collateral Custodian.
The Collateral Custodian hereby covenants that:
(a) Compliance with Law. The Collateral Custodian will comply in all
material respects with all Applicable Laws.
68
<PAGE>
(b) Preservation of Existence. The Collateral Custodian will preserve
and maintain its existence, rights, franchises and privileges as a national
banking association in good standing under the federal laws of the United
States.
(c) No Bankruptcy Petition. With respect to VFCC, prior to the date
that is one year and one day after the payment in full of all amounts owing in
respect of all outstanding commercial paper issued by VFCC and, with respect to
the Borrower, prior to the date that is one year and one day after the
Collection Date, it will not institute against the Borrower or VFCC, or join any
other Person in instituting against the Borrower or VFCC, any Insolvency
Proceedings or other similar proceedings under the laws of the United States or
any state of the United States. This Section 6.12(c) will survive the
termination of this Agreement.
(d) Loan Files. The Collateral Custodian will not dispose of any
documents constituting the Loan Files in any manner that is inconsistent with
the performance of its obligations as the Collateral Custodian pursuant to this
Agreement and will not dispose of any Loan except as contemplated by this
Agreement.
(e) Location of Loan Files. The Loan Files shall remain at all times in
the possession of the Collateral Custodian at the address set forth herein
unless notice of a different address is given in accordance with the terms
hereof.
(f) No Changes in Collateral Custodian Fee. The Collateral Custodian
will not make any changes to the Collateral Custodian Fee set forth in the
Backup Servicer and Collateral Custodian Fee Letter without the prior written
approval of the Deal Agent.
Section 6.13 The Backup Servicer.
(a) Appointment. The Borrower and the Deal Agent, as agent for the
Secured Parties, hereby appoint Norwest to act as Backup Servicer for the
benefit of the Borrower and the Deal Agent and the Secured Parties in accordance
with the terms of this Agreement. Norwest hereby accepts such appointment and
agrees to perform the duties and responsibilities with respect thereto set forth
herein.
(b) Duties. On or before the initial Funding Date, and until the
receipt by the Servicer of a Termination Notice, the Backup Servicer shall
perform, on behalf of the Borrower and the Deal Agent and the Secured Parties,
the following duties and obligations:
(i) On or before the Closing Date, the Backup Servicer shall
accept from the Servicer delivery of the information required to be set
forth in the Monthly Reports in hard copy and in an agreed upon
electronic format.
(ii) Not later than 12:00 noon New York time two (2) Business
Days prior to each Reporting Date, the Servicer shall provide to the
Backup Servicer and the Backup Servicer shall accept delivery of tape
in an agreed upon electronic format (the "Tape")
69
<PAGE>
from the Servicer, which shall include but not be limited to the
following information: (x) for each Loan, the name and number of the
related Obligor, the collection status, the Loan status, the date of
each Scheduled Payment and the outstanding principal balance and (y)
the Purchased Loan Balance, and (z) the Outstanding Loan Balance.
(iii) Prior to the related Payment Date, the Backup Servicer
shall review the Monthly Report to ensure that it is complete on its
face and that the following items in such Monthly Report have been
accurately calculated, if applicable, and reported: (A) the Aggregate
Purchased Loan Balance, (B) the Aggregate Outstanding Loan Balance, (C)
the Backup Servicing Fee, (D) the Loans that are 30 or more days
Delinquent (other than Defaulted Loans and Charged-Off Loans), (E) the
Defaulted Loans (other than Charged-Off Loans), (F) the Charged-Off
Loans, (G) the Portfolio Yield, (H) the Default Ratio for the current
Collection Period and the two immediately preceding Collection Periods,
(H) the Charged-Off Ratio for the current Collection Period and the two
immediately preceding Collection Periods, (I) the Rolling Three-Month
Default Ratio and (J) the Rolling Three-Month Charged-Off Ratio. The
Backup Servicer shall notify the Deal Agent, the Borrower and the
Servicer of any disagreements with the Monthly Report based on such
review not later than the Business Day preceding such Payment Date to
such Persons.
(iv) If the Borrower or the Servicer disagrees with the report
provided under paragraph (iii) above by the Backup Servicer or if the
Borrower or the Servicer or any subservicer has not reconciled such
discrepancy, the Backup Servicer agrees to confer with the Borrower or
the Servicer to resolve such disagreement on or prior to the next
succeeding Determination Date and shall settle such discrepancy with
the Borrower or the Servicer if possible, and notify the Deal Agent of
the resolution thereof. The Borrower or the Servicer hereby agree to
cooperate at their own expense, with the Backup Servicer in reconciling
any discrepancies herein. If within 20 days after the delivery of the
report provided under paragraph (iii) above by the Backup Servicer,
such discrepancy is not resolved, the Backup Servicer shall promptly
notify the Borrower and the Deal Agent of the continued existence of
such discrepancy. Following receipt of such notice by the Deal Agent,
the Servicer shall deliver to the Borrower and the Deal Agent, the
Secured Parties, and the Backup Servicer no later than the related
Payment Date a certificate describing the nature and amount of such
discrepancies and the actions the Servicer proposes to take with
respect thereto.
With respect to the foregoing, the Backup Servicer, in the performance
of its duties and obligations hereunder, is entitled to rely conclusively, and
shall be fully protected in so relying, on the contents of each Tape, including,
but not limited to, the completeness and accuracy thereof, provided by the
Servicer.
(c) Transition to Servicer Role. After the receipt of an effective
Termination Notice by the Servicer and the Backup Servicer in accordance with
this Agreement, all authority, power, rights and responsibilities of the
Servicer, under this Agreement, whether with respect to the
70
<PAGE>
Loans or otherwise shall pass to and be vested in the Backup Servicer, subject
to and in accordance with the provisions of Section 6.26, as long as the Backup
Servicer is not prohibited by an applicable provision of law from fulfilling the
same, as evidenced by an Opinion of Counsel.
(d) Merger or Consolidation. Any Person (i) into which the Backup
Servicer may be merged or consolidated, (ii) that may result from any merger or
consolidation to which the Backup Servicer shall be a party, or (iii) that may
succeed to the properties and assets of the Backup Servicer substantially as a
whole, which Person in any of the foregoing cases executes an agreement of
assumption to perform every obligation of the Backup Servicer hereunder, shall
be the successor to the Backup Servicer under this Agreement without further act
on the part of any of the parties to this Agreement.
(e) Backup Servicing Compensation. As compensation for its backup
servicing activities hereunder, the Backup Servicer shall be entitled to receive
the Backup Servicing Fee from the Servicer. To the extent such Backup Servicing
Fee is not paid by the Servicer, the Backup Servicer shall be entitled to
receive the unpaid balance of its Backup Servicing Fee to the extent of funds
available therefor pursuant to the provision of Section 2.8(a)(iv). The Backup
Servicer's entitlement to receive the Backup Servicing Fee (other than due and
unpaid Backup Servicer Fees owed through such date) shall cease on the earliest
to occur of: (i) it becoming the Successor Servicer, (ii) its removal as Backup
Servicer, or (iii) the Termination of this Agreement.
(f) Backup Servicer Removal. The Backup Servicer may be removed with or
without cause by the Borrower with the approval of the Deal Agent or by the Deal
Agent by notice given in writing to the Backup Servicer. In the event of any
such removal, a replacement Backup Servicer may be appointed by (i) the
Borrower, acting with the consent of the Deal Agent or (ii) if no such
replacement is appointed within 30 days following such removal, by the Deal
Agent.
(g) Scope of Backup Servicing Duties. The Backup Servicer undertakes to
perform only such duties and obligations as are specifically set forth in this
Agreement, it being expressly understood by all parties hereto that there are no
implied duties or obligations of the Backup Servicer hereunder. Without limiting
the generality of the foregoing, the Backup Servicer, except as expressly set
forth herein, shall have no obligation to supervise, verify, monitor or
administer the performance of the Servicer. The Backup Servicer may act through
its agents, attorneys and custodians in performing any of its duties and
obligations under this Agreement, it being understood by the parties hereto that
the Backup Servicer will be responsible for any misconduct or negligence on the
part of such agents, attorneys or custodians acting on the routine and ordinary
day-to-day operations for and on behalf of the Backup Servicer. Neither the
Backup Servicer nor any of its officers, directors, employees or agents shall be
liable, directly or indirectly, for any damages or expenses arising out of the
services performed under this Agreement other than damages or expenses that
result from the gross negligence or willful misconduct of it or them or the
failure to perform materially in accordance with this Agreement.
71
<PAGE>
(h) Limitation on Liability. The Backup Servicer shall not be liable
for any obligation of the Servicer contained in this Agreement or for any errors
of the Servicer contained in any computer tape, certificate or other data or
document delivered to the Backup Servicer hereunder or on which the Backup
Servicer must rely in order to perform its obligations hereunder, and the
Borrower, the Secured Parties, the Deal Agent, the Liquidity Agent, the
Collateral Custodian and the Backup Servicer each agree to look only to the
Servicer to perform such obligations. The Backup Servicer shall have no
responsibility and shall not be in default hereunder or incur any liability for
any failure, error, malfunction or any delay in carrying out any of their
respective duties under this Agreement if such failure or delay results from the
Backup Servicer acting in accordance with information prepared or supplied by a
Person other than the Backup Servicer or the failure of any such other Person to
prepare or provide such information. The Backup Servicer shall have no
responsibility, shall not be in default and shall incur no liability for (i) any
act or failure to act of any third party, including the Servicer (ii) any
inaccuracy or omission in a notice or communication received by the Backup
Servicer from any third party, (iii) the invalidity or unenforceability of any
Loan or Loan Document under Applicable Law, (iv) the breach or inaccuracy of any
representation or warranty made with respect to any Loan, or (v) the acts or
omissions of any successor Backup Servicer.
Section 6.14 Representations and Warranties of the Backup Servicer.
The Backup Servicer hereby represents and warrants as follows:
(a) Organization and Good Standing. It is a national banking
association duly organized, validly existing and in good standing under the
federal laws of the United States with all requisite power and authority to own
its properties and to conduct its business as presently conducted and to enter
into and perform its obligations pursuant to this Agreement.
(b) Due Qualification. The Backup Servicer is duly qualified to do
business as a national banking association and is in good standing, and have
obtained all necessary licenses and approvals in all jurisdictions in which the
ownership or lease of its property and the conduct of its business requires such
qualification, licenses or approvals except where the failure to so qualify or
have such licenses or approvals has not had, and would not be reasonably
expected to have, a Material Adverse Effect.
(c) Power and Authority. It has the power and authority to execute and
deliver this Agreement and to carry out its terms. It has duly authorized the
execution, delivery and performance of this Agreement by all requisite action.
(d) No Violation. The consummation of the transactions contemplated by,
and the fulfillment of the terms of, this Agreement by it will not (i) conflict
with, result in any breach of any of the terms or provisions of, or constitute a
default under, its articles of association or any Contractual Obligation by
which it or any of its property is bound, (ii) result in the creation or
72
<PAGE>
imposition of any Lien upon any of its properties pursuant to the terms of any
Contractual Obligation (other than the Agreement), or (iii) violate any
Applicable Law.
(e) No Consent. No consent, approval, authorization, order,
registration, filing, qualification, license or permit (collectively, the
"Consents") of or with any Governmental Authority having jurisdiction over it or
any of its respective properties is required to be obtained in order for it to
enter into this Agreement or perform its obligations hereunder.
(f) Binding Obligation. This Agreement constitutes its legal, valid and
binding obligation, enforceable in accordance with its terms, except as such
enforceability may be limited by (i) applicable Insolvency Laws and (ii) general
principles of equity (whether considered in a suit at law or in equity).
(g) No Proceeding. There are no proceedings or investigations pending
or, to the best of its knowledge, threatened, against it before any Governmental
Authority (i) asserting the invalidity of this Agreement, (ii) seeking to
prevent the consummation of any of the transactions contemplated by this
Agreement or (iii) seeking any determination or ruling that might (in its
reasonable judgment) have a Material Adverse Effect.
Section 6.15 Covenants of the Backup Servicer.
The Backup Servicer hereby covenants that:
(a) Compliance with Law. The Backup Servicer will comply in all
material respects with all Applicable Laws.
(b) Preservation of Existence. The Backup Servicer will preserve and
maintain its existence, rights, franchises and privileges as a national banking
association in good standing under the federal laws of the United States.
(c) No Bankruptcy Petition. With respect to VFCC, prior to the date
that is one year and one day after the payment in full of all amounts owing in
respect of all outstanding commercial paper issued by VFCC and with respect to
the Borrower, prior to the date that is one year and one day after the
Collection Date, the Backup Servicer will not institute against the Borrower or
VFCC, or join any other Person in instituting against the Borrower or VFCC, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings
or other similar proceedings under the laws of the United States or any state of
the United States. This Section 6.15(c) will survive the termination of this
Agreement.
(d) No Changes in Backup Servicer Fee. The Backup Servicer will not
make any changes to Backup Servicer Fee set forth in the Backup Servicer and
Collateral Custodian Fee Letter without the prior written approval of the Deal
Agent.
73
<PAGE>
Section 6.16 Payment of Certain Expenses by Servicer.
The Servicer will be required to pay all expenses incurred by it in
connection with its activities under this Agreement, including fees and
disbursements of legal counsel and independent accountants, Taxes imposed on the
Servicer, expenses incurred in connection with payments and reports pursuant to
this Agreement, and all other fees and expenses not expressly stated under this
Agreement for the account of the Borrower. In consideration for the payment by
the Borrower of the Servicing Fee, the Servicer will be required to pay all
reasonable fees and expenses owing to any bank or trust company in connection
with the maintenance of the Collection Accounts and Excess Spread Account and
the Backup Servicer Fee and Collateral Custodian Fee pursuant to the Backup
Servicer and Collateral Custodian Fee Letter. The Servicer shall be required to
pay such expenses for its own account and shall not be entitled to any payment
therefor other than the Servicing Fee.
Section 6.17 Reports.
(a) Monthly Report. With respect to each Determination Date and the
related Collection Period, the Servicer will provide to the Borrower, the Backup
Servicer and the Deal Agent, on the related Reporting Date, a monthly statement
(a "Monthly Report"), signed by a Responsible Officer of the Servicer and
substantially in the form of Exhibit E. Except as otherwise set forth herein,
the Backup Servicer shall have no obligation to review any information in the
Monthly Report.
(b) Servicer's Certificate. Together with each Monthly Report, the
Servicer shall submit to the Borrower, the Deal Agent and the Backup Servicer a
certificate (a "Servicer's Certificate"), signed by a Responsible Officer of the
Servicer and substantially in the form of Exhibit F. Except as otherwise set
forth herein, the Backup Servicer shall have no duty to review any information
set forth in the Servicer's Certificate.
(c) Financial Statements. The Servicer will submit to the Borrower, the
Deal Agent and the Backup Servicer, within 45 days following the end of each of
the Servicer's fiscal quarters (other than the final fiscal quarter), commencing
for the fiscal quarter ending on March 31, 1999, unaudited financial statements
of the Servicer (including an analysis of delinquencies and losses for each
fiscal quarter) as of the end of each such fiscal quarter. The Servicer shall
submit to the Borrower, the Deal Agent, within 90 days following the end of the
Servicer's fiscal year, commencing with the fiscal year ending on December 31,
1998, annual audited financial statements as of the end of such fiscal year.
Except as otherwise set forth herein, the Backup Servicer shall have no duty to
review any of the financial information set forth in such financial statements.
Section 6.18 Annual Statement as to Compliance.
The Servicer will provide to the Borrower, the Deal Agent, and the
Backup Servicer, within 90 days following the end of each fiscal
74
<PAGE>
year of the Servicer, commencing with the fiscal year ending on December 31,
1999, an annual report signed by a Responsible Officer of the Servicer
certifying that (a) a review of the activities of the Servicer, and the
Servicer's performance pursuant to this Agreement, for the period ending on the
last day of such fiscal year has been made under such Person's supervision and
(b) the Servicer has performed or has caused to be performed in all material
respects all of its obligations under this Agreement throughout such year and no
Servicer Termination Event has occurred and is continuing (or if a Servicer
Termination Event has so occurred and is continuing, specifying each such event,
the nature and status thereof and the steps necessary to remedy such event, and,
if a Servicer Termination Event occurred during such year and no notice thereof
has been given to the Deal Agent, specifying such Servicer Termination Event and
the steps taken to remedy such event).
Section 6.19 Annual Independent Public Accountant's Servicing Reports.
The Servicer will cause a firm of nationally recognized independent
public accountants (who may also render other services to the Servicer) to
furnish to the Borrower and the Deal Agent (with a copy to the Backup Servicer),
within 90 days following the end of each fiscal year of the Servicer, commencing
with the fiscal year ending on December 31, 1999, (i) a report relating to such
fiscal year to the effect that (A) such firm has reviewed certain documents and
records relating to the servicing of the Loans, and (B) based on such
examination, such firm is of the opinion that the Monthly Reports for such year
were prepared in compliance with this Agreement, except for such exceptions as
it believes to be immaterial and such other exceptions as will be set forth in
such firm's report and (ii) a report covering such fiscal year to the effect
that such accountants have applied certain agreed-upon procedures (which
procedures shall have been approved by the Borrower and Deal Agent) to certain
documents and records relating to the servicing of Loans under this Agreement,
compared the information contained in the Monthly Reports and the Servicer's
Certificates delivered during the period covered by such report with such
documents and records and that no matters came to the attention of such
accountants that caused them to believe that such servicing was not conducted in
compliance with this Article VI of this Agreement, except for such exceptions as
such accountants shall believe to be immaterial and such other exceptions as
shall be set forth in such statement.
Section 6.20 Limitation on Liability of the Servicer and Others.
Except as provided herein, neither the Servicer nor any of the
directors or officers or employees or agents of the Servicer shall be under any
liability to the Borrower, the Deal Agent, the Lenders or any other Person for
any action taken or for refraining from the taking of any action expressly
provided for in this Agreement; provided, however, that this provision shall not
protect the Servicer or any such Person against any liability that would
otherwise be imposed by reason of its willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of its willful misconduct
hereunder.
The Servicer shall not be under any obligation to appear in, prosecute
or defend any legal action that is not incidental to its duties to service the
Loans in accordance with this Agreement that in its reasonable opinion may
involve it in any expense or liability. The Servicer may, in its
75
<PAGE>
sole discretion, undertake any legal action relating to the servicing,
collection or administration of Loans and the Related Property that it may
reasonably deem necessary or appropriate for the benefit of the Borrower and the
Secured Parties with respect to this Agreement and the rights and duties of the
parties hereto and the respective interests of the Borrower and the Secured
Parties hereunder.
Section 6.21 The Servicer, the Backup Servicer and the Collateral
Custodian Not to Resign.
Neither the Servicer, the Backup Servicer nor the Collateral Custodian
shall resign from the obligations and duties hereby imposed on such Person
except upon such Person's determination that (i) the performance of its duties
hereunder is or becomes impermissible under Applicable Law and (ii) there is no
reasonable action that such Person could take to make the performance of its
duties hereunder permissible under Applicable Law. Any such determination
permitting the resignation of the Servicer, the Backup Servicer or the
Collateral Custodian shall be evidenced as to clause (i) above by an Opinion of
Counsel to such effect delivered to the Borrower and the Deal Agent. No such
resignation shall become effective until a successor shall have assumed the
responsibilities and obligations of such Person in according with the terms of
this Agreement.
Section 6.22 Access to Certain Documentation and Information Regarding
the Loans.
The Borrower or the Servicer, or the Collateral Custodian, as
applicable, shall provide to the Deal Agent access to the Loan Documents and all
other documentation regarding the Loans included as part of the Collateral and
the Related Property in such cases where the Deal Agent is required in
connection with the enforcement of the rights or interests of the Lenders, or by
applicable statutes or regulations, to review such documentation, such access
being afforded without charge but only (i) upon two business days' prior written
request, (ii) during normal business hours and (iii) subject to the Servicer's
normal security and confidentiality procedures. From and after the Closing Date
and periodically thereafter at the discretion of the Deal Agent, the Deal Agent
may review the Borrower's and the Servicer's collection and administration of
the Loans in order to assess compliance by the Servicer with the Servicer's
written policies and procedures, as well as with this Agreement and may conduct
an audit of the Loans, Loan Documents and Records in conjunction with such a
review. Such review shall be reasonable in scope and shall be completed in a
reasonable period of time. The Borrower shall bear the cost of such audits.
Section 6.23 Merger or Consolidation of the Servicer.
The Servicer shall not consolidate with or merge into any other Person
or convey or transfer its properties and assets substantially as an entirety to
any Person and unless:
76
<PAGE>
(i) the Person formed by such consolidation or into which the
Servicer is merged or the Person that acquires by conveyance or
transfer the properties and assets of the Servicer substantially as an
entirety shall be, if the Servicer is not the surviving entity,
organized and existing under the laws of the United States or any State
or the District of Columbia and shall expressly assume, by an agreement
supplemental hereto, executed and delivered to the Borrower and the
Deal Agent in form satisfactory to the Borrower and the Deal Agent, the
performance of every covenant and obligation of the Servicer hereunder
(to the extent that any right, covenant or obligation of the Servicer,
as applicable hereunder, is inapplicable to the successor entity, such
successor entity shall be subject to such covenant or obligation, or
benefit from such right, as would apply, to the extent practicable, to
such successor entity);
(ii) the Servicer shall have delivered to the Borrower and the
Deal Agent an Officer's Certificate that such consolidation, merger,
conveyance or transfer and such supplemental agreement comply with this
Section 6.23 and that all conditions precedent herein provided for
relating to such transaction have been complied with and an Opinion of
Counsel that such supplemental agreement is legal, valid and binding
with respect to the successor entity and that the entity surviving such
consolidation, conveyance or transfer is organized and existing under
the laws of the United States or any State or the District of Columbia.
The Borrower and the Deal Agent shall receive prompt written notice of
such merger or consolidation of the Servicer; and
(iii) after giving effect thereto, no Termination Event,
Unmatured Termination Event or Servicer Termination Event shall have
occurred.
Section 6.24 Identification of Records.
The Servicer shall clearly and unambiguously identify each Loan that is
part of the Collateral and the Related Property in its computer or other records
to reflect that the interest in such Loans and Related Property have been
transferred to and are owned by the Borrower and that the Deal Agent has the
interest therein granted by Borrower pursuant to this Agreement.
Section 6.25 Servicer Termination Events.
(a) If any one of the following events (a "Servicer Termination Event")
shall occur and be continuing on any day:
(i) any failure by the Servicer to make any payment, transfer
or deposit or to give instructions or notice to the Borrower and/or the
Deal Agent as required by this Agreement, or to deliver any Required
Reports hereunder on or before the date occurring two Business Days
after the date such payment, transfer, deposit, instruction of notice
or report is required to be made or given, as the case may be, under
the terms of this Agreement;
77
<PAGE>
(ii) any failure on the part of the Servicer duly to observe
or perform in any material respect any other covenants or agreements of
the Servicer set forth in this Agreement or any other Transaction
Document to which it is a party as Servicer that continues unremedied
for a period of 30 days after the first to occur of (i) the date on
which written notice of such failure requiring the same to be remedied
shall have been given to the Servicer by the Deal Agent and the
Borrower and (ii) the date on which the Servicer becomes aware thereof;
(iii) any representation, warranty or certification made by
the Servicer in this Agreement or in any certificate delivered pursuant
to this Agreement shall prove to have been incorrect when made, and
that continues to be unremedied for a period of 30 days after the first
to occur of (i) the date on which written notice of such incorrectness
requiring the same to be remedied shall have been given to the Servicer
by the Deal Agent and the Borrower and (ii) the date on which the
Servicer becomes aware thereof;
(iv) the Servicer shall fail in any material respect to
service the Loans in accordance with the Credit and Collection Policy;
(v) an Insolvency Event shall occur with respect to the
Servicer;
(vi) the Servicer agrees to materially alter the Credit and
Collection Policy without the prior written consent of the Deal Agent;
(vii) any financial or asset information reasonably requested
by the Deal Agent or the Lender as provided herein is not provided as
requested within five (5) Business Days of the receipt by the Servicer
of such request;
(viii) the rendering against the Servicer of a final judgment,
decree or order for the payment of money in excess of U.S. $1,000,000
(individually or in the aggregate) and the continuance of such
judgment, decree or order unsatisfied and in effect for any period of
61 consecutive days without a stay of execution;
(ix) the failure of the Servicer to make any payment due with
respect to aggregate recourse debt or other obligations with an
aggregate principal amount exceeding U.S. $1,000,000 or the occurrence
of any event or condition that would permit acceleration of such
recourse debt or other obligations if such event or condition has not
been waived;
(x) the Servicer fails to maintain a minimum Net Worth of at
least $100,000,000 plus seventy-five (75%) percent of any new equity
and Subordinated Debt issued after the date of this Agreement;
(xi) any Change-in-Control of the Servicer is made without the
prior written consent of the Borrower and the Deal Agent; or
78
<PAGE>
(xii) on or before September 30, 1999, a formal Credit and
Collection Policy and revised loan grading system are not delivered to
the Deal Agent by the Borrower and the Servicer in a form acceptable to
it.
Notwithstanding anything herein to the contrary, so long as any such Servicer
Termination Events shall not have been remedied at the expiration of any
applicable cure period, the Deal Agent or the Lenders, by written notice to the
Servicer and the Backup Servicer (a "Termination Notice"), may, subject to the
provisions of Section 6.26, terminate all of the rights and obligations of the
Servicer as Servicer under this Agreement. The Borrower shall pay all reasonable
set-up and conversion costs associated with the transfer of servicing rights to
the Successor Servicer.
Section 6.26 Appointment of Successor Servicer.
(a) On and after the receipt by the Servicer of a Termination Notice
pursuant to Section 6.25, the Servicer shall continue to perform all servicing
functions under this Agreement until the date specified in the Termination
Notice or otherwise specified by the Deal Agent, to the Servicer and the Backup
Servicer in writing. The Deal Agent may at the time described in the immediately
preceding sentence in its sole discretion, appoint the Backup Servicer as the
Servicer hereunder, and the Backup Servicer shall on such date assume all
obligations of the Servicer hereunder, and all authority and power of the
Servicer under this Agreement shall pass to and be vested in the Backup
Servicer; provided, however, that any successor Servicer shall not (i) be
responsible or liable for any past actions or omissions of the outgoing Servicer
or (ii) be obligated to make Servicer Advances. In the event that the Deal Agent
does not so appoint the Backup Servicer, there is no Backup Servicer or the
Backup Servicer is unwilling or unable to assume such obligations on such date,
the Deal Agent shall as promptly as possible appoint a successor servicer (the
"Successor Servicer"), and such Successor Servicer shall accept its appointment
by a written assumption in a form acceptable to the Deal Agent. In the event
that a Successor Servicer has not been appointed and has not accepted its
appointment at the time when the Servicer ceases to act as Servicer, the Deal
Agent shall petition a court of competent jurisdiction to appoint any
established financial institution having a net worth of not less than U.S.
$100,000,000 and whose regular business includes the servicing of Loans as the
Successor Servicer hereunder.
(b) Upon its appointment as successor to the Servicer, the Backup
Servicer (subject to Section 6.26(a)) or the Successor Servicer, as applicable,
shall be the successor in all respects to the Servicer with respect to servicing
functions under this Agreement, shall assume all Servicing Duties hereunder and
shall be subject to all the responsibilities, duties and liabilities relating
thereto placed on the Servicer by the terms and provisions hereof, and all
references in this Agreement to the Servicer shall be deemed to refer to the
Backup Servicer or the Successor Servicer, as applicable. Any Successor Servicer
shall be entitled, with the prior consent of the Deal Agent, to appoint agents
to provide some or all of its duties hereunder, provided that no such
appointment shall relieve such Successor Servicer of the duties and obligations
of the
79
<PAGE>
Successor Servicer pursuant to the terms hereof and that any such subcontract
may be terminated upon the occurrence of a Servicer Termination Event.
(c) All authority and power granted to the Servicer under this
Agreement shall automatically cease and terminate upon termination of the
Servicer under this Agreement and shall pass to and be vested in the successor
Servicer, and, without limitation, the successor Servicer is hereby authorized
and empowered to execute and deliver, on behalf of the Servicer, as
attorney-in-fact or otherwise, all documents and other instruments, and to do
and accomplish all other acts or things necessary or appropriate to effect the
purposes of such transfer of servicing rights. The Servicer agrees to cooperate
with the successor Servicer in effecting the termination of the responsibilities
and rights of the Servicer to conduct servicing on the Collateral.
(d) Upon the Backup Servicer receiving notice that it is required to
serve as the Servicer hereunder pursuant to the foregoing provisions of this
Section 6.26, the Backup Servicer will promptly begin the transition to its role
as Servicer.
(e) The Backup Servicer shall be entitled to receive its reasonable
costs incurred in transitioning to Servicer.
Section 6.27 Market Servicing Fee.
Notwithstanding anything to the contrary herein, in the event that a
successor Servicer is appointed Servicer, the Servicing Fee shall equal the
market rate for comparable servicing duties to be fixed upon the date of such
appointment by such successor Servicer with the consent of the Deal Agent; in
the event that the Backup Servicer becomes the successor Servicer, the Backup
Servicer shall solicit three bids, with a copy to the Borrower and the Deal
Agent, from not less than three entities experienced in the servicing of loans
similar to the Loans and that are not Affiliates of the Backup Servicer, the
Servicer or the Borrower, and the Servicing Fee shall be equal to the average of
the fees proposed as determined by the Backup Servicer with the consent of the
Deal Agent (the "Market Servicing Fee").
ARTICLE VII
TERMINATION EVENTS
Section 7.1 Termination Events.
If any of the following events (each, a "Termination Event") shall
occur and be continuing:
(a) the Borrower shall default in the payment of any amount required to
be made under the terms of this Agreement and such failure continues unremedied
for a period of three (3) Business Days after the due date set forth herein for
such payment, or if no due date is specified,
80
<PAGE>
such failure continues for a period of 30 days after written request for such
payment has been made; or
(b) an Overcollateralization Shortfall exists and continues unremedied
for a period of three (3) Business Days; or
(c) the amount of Advances Outstanding shall exceed the Borrowing Base
for more than three (3) Business Days; or
(d) the Minimum Purchased Loan Balance is less than $105,000,000 for a
period of three (3) Business Days; or
(e) a Required Equity Shortfall exists and continues unremedied for a
period of three (3) Business Days; or
(f) (i) the Borrower shall fail to perform or observe in any material
respect any other covenant or other agreement of the Borrower set forth in this
Agreement and any other Transaction Document to which it is a party, or (ii) the
Originator shall fail to perform or observe in any material respect any term,
covenant or agreement of such Originator set forth in any other Transaction
Document to which it is a party, in each case when such failure continues
unremedied for more than thirty (30) days after written notice thereof shall
have been given by the Deal Agent or the Collateral Custodian to such Person; or
(g) any representation or warranty made or deemed made hereunder shall
prove to be incorrect in any material respect as of the time when the same shall
have been made, and such incorrect representation or warranty shall not have
been eliminated or otherwise cured within a period of thirty (30) days after
written notice thereof shall have been given by the Deal Agent or the Collateral
Custodian to the Borrower; or
(h) an Insolvency Event shall occur with respect to the Borrower; or
(i) a Servicer Termination Event occurs; or
(j) any Change-in-Control of the Borrower or Originator occurs; or
(k) the Borrower or the Originator defaults in making any payment
required to be made under any material agreement for borrowed money to which
either is a party and such default is not cured within the relevant cure period;
or
(l) the Deal Agent, as agent for the Lenders, shall fail for any reason
to have a valid and perfected first priority security interest in any of the
Collateral; or
(m) (i) a final judgment for the payment of money in excess of
$1,000,000 shall have been rendered against the Originator or $100,000 against
the Borrower by a court of competent
81
<PAGE>
jurisdiction and, if such judgment relates to the Originator, the Originator
shall have either: (1) discharged or provided for the discharge of such judgment
in accordance with its terms, or (2) perfected a timely appeal of such judgment
and caused the execution thereof to be stayed (by supersedes or otherwise during
the pendency of such appeal or (ii) the Originator or the Borrower, as the case
may be, shall have made payments of amounts in excess of $250,000 or $100,000,
respectively, in settlement of any litigation; or
(n) the Borrower or the Servicer agrees or consents to, or otherwise
permits to occur, any amendment, modification, change, supplement or recession
of or to the Credit and Collection Policy in whole or in part that could have a
material adverse effect upon the Loans or interest of any Lender, without the
prior written consent of the Deal Agent or the other Lenders; or
(o) on any day, either (i) the Hedge Notional Amount is less than the
Required Notional Amount, or (ii) any Hedge Transaction fails to meet the
requirements set forth in Section 5.3(a); or
(p) on any Determination Date, the Portfolio Yield does not equal or
exceed Minimum Portfolio Yield and such failure continues for a period of
fifteen (15) consecutive days; or
(q) the Rolling Three-Month Default Ratio shall exceed 5.0%; or
(r) the Rolling Three-Month Charged-Off Ratio shall exceed 2.5%; or
(s) any two of (i) Malon Wilkus, (ii) Adam Blumenthal, and (iii) John
Erickson shall cease to be employed by the Borrower or Originator in the
capacity as executive officers thereof; or
(t) the Borrower shall become an "investment company" subject to
registration under the 1940 Act prior to receiving the Order Approval; or
(u) the Borrower shall become an "investment company" subject to
registration under the 1940 Act after receiving the Order Approval and fails to
comply with the provisions of the 1940 Act or any rules, regulations or orders
issued by the SEC thereunder; or
(v) the business and other activities of the Borrower or the
Originator, including but not limited to, the acceptance of the Advances by the
Borrower made by the Lenders, the application and use of the proceeds thereof by
the Borrower and the consummation and conduct of the transactions contemplated
by the Transaction Documents to which the Borrower or the Originator is a party
result in a violation by the Originator, the Borrower, or any other person or
entity of the 1940 Act or the rules and regulations promulgated thereunder;
then, and in any such event, the Deal Agent shall, at the request, or may with
the consent, of the Required Investors, by notice to the Borrower declare the
Termination Date to have occurred,
82
<PAGE>
without demand, protest or future notice of any kind, all of which are hereby
expressly waived by the Borrower, and all Advances Outstanding and all other
amounts owing by the Borrower under this Agreement shall be accelerated and
become immediately due and payable, provided, that in the event that the
Termination Event described in subsection (h) herein has occurred, the
Termination Date shall automatically occur, without demand, protest or any
notice of any kind, all of which are hereby expressly waived by the Borrower.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnities by the Borrower.
(a) Without limiting any other rights that any such Person may have
hereunder or under Applicable Law, the Borrower hereby agrees to indemnify the
Deal Agent, the Backup Servicer, the Collateral Custodian, the Liquidity Agent,
any Secured Party or its assignee and each of their respective Affiliates and
officers, directors, employees and agents thereof (collectively, the
"Indemnified Parties"), forthwith on demand, from and against any and all
damages, losses, claims, liabilities and related costs and expenses, including
reasonable attorneys' fees and disbursements (all of the foregoing being
collectively referred to as "Indemnified Amounts") awarded against or incurred
by, any such Indemnified Party or other non-monetary damages of any such
Indemnified Party any of them arising out of or as a result of this Agreement,
excluding, however, Indemnified Amounts to the extent resulting from gross
negligence or willful misconduct on the part of any Indemnified Party. Without
limiting the foregoing, the Borrower shall indemnify the Indemnified Parties for
Indemnified Amounts relating to or resulting from:
(i) any Loan treated as or represented by the Borrower to be
an Eligible Loan that is not at the applicable time an Eligible Loan;
(ii) reliance on any representation or warranty made or deemed
made by the Borrower, the Servicer (or one of its Affiliates) or any of
their respective officers under or in connection with this Agreement,
which shall have been false or incorrect in any material respect when
made or deemed made or delivered;
(iii) the failure by the Borrower or the Servicer (or one of
its Affiliates) to comply with any term, provision or covenant contained
in this Agreement or any agreement executed in connection with this
Agreement, or with any Applicable Law with respect to any Loan
comprising a portion of the Collateral, or the nonconformity of any
Loan, the Related Property with any such Applicable Law or any failure
by the Originator, the Borrower or any Affiliate thereof to perform its
respective duties under the Loans included as a part of the Collateral;
83
<PAGE>
(iv) the failure to vest and maintain vested in the Deal Agent
a first priority perfected security interest in the Collateral;
(v) the failure to file, or any delay in filing, financing
statements or other similar instruments or documents under the UCC of
any applicable jurisdiction or other Applicable Laws with respect to any
Collateral whether at the time of any Advance or at any subsequent time
and as required by the Transaction Documents;
(vi) any dispute, claim, offset or defense (other than the
discharge in bankruptcy of the Obligor) of the Obligor to the payment of
any Loan included as part of the Collateral that is, or is purported to
be, an Eligible Loan (including, without limitation, a defense based on
the Loan not being a legal, valid and binding obligation of such Obligor
enforceable against it in accordance with its terms);
(vii) any failure of the Borrower or the Servicer (if the
Originator or one of its Affiliates) to perform its duties or
obligations in accordance with the provisions of this Agreement or any
failure by the Originator, the Borrower or any Affiliate thereof to
perform its respective duties under the Loans;
(viii) any products liability claim or personal injury or
property damage suit or other similar or related claim or action of
whatever sort arising out of or in connection with merchandise or
services that are the subject of any Loan included as part of the
Collateral or the Related Property included as part of the Collateral;
(ix) the failure by Borrower to pay when due any Taxes for
which the Borrower is liable, including without limitation, sales,
excise or personal property taxes payable in connection with the
Collateral;
(x) any repayment by the Deal Agent, the Liquidity Agent or a
Secured Party of any amount previously distributed in reduction of
Advances Outstanding or payment of Interest or any other amount due
hereunder or under any Hedging Agreement, in each case which amount the
Deal Agent, the Liquidity Agent or a Secured Party believes in good
faith is required to be repaid;
(xi) any investigation, litigation or proceeding related to
this Agreement or the use of proceeds of Advances or in respect of any
Loan included as part of the Collateral or the Related Property included
as part of the Collateral;
(xii) any failure by the Borrower to give reasonably
equivalent value to the Originator in consideration for the transfer by
the Originator to the Borrower of any Loan or the Related Property or
any attempt by any Person to void or otherwise avoid any such transfer
under any statutory provision or common law or equitable action,
including, without limitation, any provision of the Bankruptcy Code; or
84
<PAGE>
(xiii) the failure of the Borrower, the Originator or any of
their respective agents or representatives to remit to the Servicer or
the Deal Agent, Collections on the Collateral remitted to the Borrower
or any such agent or representative in accordance with the terms hereof
or the commingling by the Borrower or any Affiliate of any collections.
(b) Any amounts subject to the indemnification provisions of this
Section 8.1 shall be paid by the Borrower to the applicable Indemnified Party
within two (2) Business Days following the Deal Agent's demand therefor.
(c) If for any reason the indemnification provided above in this
Section 8.1 is unavailable to the Indemnified Party or is insufficient to hold
an Indemnified Party harmless, then the Borrower, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect not only the
relative benefits received by such Indemnified Party on the one hand and the
Borrower, on the other hand but also the relative fault of such Indemnified
Party as well as any other relevant equitable considerations.
(d) The obligations of the Borrower under this Section 8.1 shall
survive the removal of the Deal Agent, the Liquidity Agent, the Backup Servicer
or the Collateral Custodian and the termination of this Agreement.
(e) The parties hereto agree that the provisions of Section 8.1 shall
not be interpreted to provide recourse to the Borrower against loss by reason of
the bankruptcy or insolvency (or other credit condition) of, or default by, an
Obligor on, any Loan.
Section 8.2 Indemnities by the Servicer.
(a) Without limiting any other rights that any such Person may have
hereunder or under Applicable Law, the Servicer hereby agrees to indemnify each
Indemnified Party, forthwith on demand, from and against any and all Indemnified
Amounts awarded against or incurred by any such Indemnified Party by reason of
any acts, omissions or alleged acts or omissions of the Servicer, including, but
not limited to (i) any representation or warranty made by the Servicer under or
in connection with any Transaction Documents to which it is a party, any Monthly
Report, Servicer's Certificate or any other information or report delivered by
or on behalf of the Servicer pursuant hereto, which shall have been false,
incorrect or misleading in any material respect when made or deemed made, (ii)
the failure by the Servicer to comply with any Applicable Law, (iii) the failure
of the Servicer to comply with its duties or obligations in accordance with the
Agreement, or (iv) any litigation, proceedings or investigation against the
Servicer, excluding, however, (a) Indemnified Amounts to the extent resulting
from gross negligence or willful misconduct on the part of such Indemnified
Party, and (b) under any Federal, state or local income or franchise taxes or
any other Tax imposed on or measured by income (or any interest or penalties
with respect thereto or arising from a failure to comply therewith) required to
be paid by such Indemnified Party in connection herewith to any taxing
authority. The provisions of this indemnity shall run directly to and be
enforceable by an injured
85
<PAGE>
party subject to the limitations hereof. If the Servicer has made any indemnity
payment pursuant to this Section 8.2 and such payment fully indemnified the
recipient thereof and the recipient thereafter collects any payments from others
in respect of such Indemnified Amounts, the recipient shall repay to the
Servicer an amount equal to the amount it has collected from others in respect
of such indemnified amounts.
(b) If for any reason the indemnification provided above in this
Section 8.2 is unavailable to the Indemnified Party or is insufficient to hold
an Indemnified Party harmless, then Servicer shall contribute to the amount paid
or payable to such Indemnified Party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by such Indemnified Party on the one hand and Servicer on the
other hand but also the relative fault of such Indemnified Party as well as any
other relevant equitable considerations.
(c) The obligations of the Servicer under this Section 8.2 shall
survive the resignation or removal of the Deal Agent, the Liquidity Agent, the
Backup Servicer or the Collateral Custodian and the termination of this
Agreement.
(d) The parties hereto agree that the provisions of this Section 8.2
shall not be interpreted to provide recourse to the Servicer against loss by
reason of the bankruptcy or insolvency (or other credit condition) of, or
default by, related Obligor on, any Loan.
(e) Any indemnification pursuant to this Section 8.2 shall not be
payable from the Collateral.
ARTICLE IX
THE DEAL AGENT AND THE LIQUIDITY AGENT
Section 9.1 Authorization and Action.
(a) Each Secured Party hereby designates and appoints FCM as Deal Agent
hereunder, and authorizes FCM to take such actions as agent on its behalf and to
exercise such powers as are delegated to the Deal Agent by the terms of this
Agreement together with such powers as are reasonably incidental thereto. The
Deal Agent shall not have any duties or responsibilities, except those expressly
set forth herein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities on
the part of the Deal Agent shall be read into this Agreement or otherwise exist
for the Deal Agent. In performing its functions and duties hereunder, the Deal
Agent shall act solely as agent for the Secured Parties and does not assume nor
shall be deemed to have assumed any obligation or relationship of trust or
agency with or for the Borrower or any of its successors or assigns. The Deal
Agent shall not be required to take any action that exposes the Deal Agent to
personal liability or that is contrary to this Agreement or Applicable Law. The
appointment and authority
86
<PAGE>
of the Deal Agent hereunder shall terminate at the indefeasible payment in full
of the Obligations.
(b) Each Investor hereby designates and appoints First Union as
Liquidity Agent hereunder, and authorizes First Union to take such actions as
agent on its behalf and to exercise such powers as are delegated to the
Liquidity Agent by the terms of this Agreement together with such powers as are
reasonably incidental thereto. The Liquidity Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Investor, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities on the part of the
Liquidity Agent shall be read into this Agreement or otherwise exist for the
Liquidity Agent. In performing its functions and duties hereunder, the Liquidity
Agent shall act solely as agent for the Investors and does not assume nor shall
be deemed to have assumed any obligation or relationship of trust or agency with
or for the Borrower or any of its successors or assigns. The Liquidity Agent
shall not be required to take any action that exposes the Liquidity Agent to
personal liability or that is contrary to this Agreement or Applicable Law. The
appointment and authority of the Liquidity Agent hereunder shall terminate at
the indefeasible payment in full of the Obligations.
Section 9.2 Delegation of Duties.
(a) The Deal Agent may execute any of its duties under this Agreement
by or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Deal Agent shall
not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
(b) The Liquidity Agent may execute any of its duties under this
Agreement by or through agents or attorneys-in-fact and shall be entitled to
advice of counsel concerning all matters pertaining to such duties. The
Liquidity Agent shall not be responsible for the negligence or misconduct of any
agents or attorneys-in-fact selected by it with reasonable care.
Section 9.3 Exculpatory Provisions.
(a) Neither the Deal Agent nor any of its directors, officers, agents
or employees shall be (i) liable for any action lawfully taken or omitted to be
taken by it or them under or in connection with this Agreement (except for its,
their or such Person's own gross negligence or willful misconduct or, in the
case of the Deal Agent, the breach of its obligations expressly set forth in
this Agreement), or (ii) responsible in any manner to any of the Secured Parties
for any recitals, statements, representations or warranties made by the Borrower
contained in this Agreement or in any certificate, report, statement or other
document referred to or provided for in, or received under or in connection
with, this Agreement for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other document furnished
in connection herewith, or for any failure of the Borrower to perform its
obligations hereunder, or for the satisfaction of any condition specified in
Article III. The Deal Agent shall not be under any obligation to any Secured
Party to ascertain or to inquire as to the observance or performance
87
<PAGE>
of any of the agreements or covenants contained in, or conditions of, this
Agreement, or to inspect the properties, books or records of the Borrower. The
Deal Agent shall not be deemed to have knowledge of any Termination Event unless
the Deal Agent has received notice from the Borrower or a Secured Party.
(b) Neither the Liquidity Agent nor any of its directors, officers,
agents or employees shall be (i) liable for any action lawfully taken or omitted
to be taken by it or them under or in connection with this Agreement (except for
its, their or such Person's own gross negligence or willful misconduct or, in
the case of the Liquidity Agent, the breach of its obligations expressly set
forth in this Agreement), or (ii) responsible in any manner to the Deal Agent or
any of the Secured Parties for any recitals, statements, representations or
warranties made by the Borrower contained in this Agreement or in any
certificate, report, statement or other document referred to or provided for in,
or received under or in connection with, this Agreement or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other document furnished in connection herewith, or for any
failure of the Borrower to perform its obligations hereunder, or for the
satisfaction of any condition specified in Article III. The Liquidity Agent
shall not be under any obligation to the Deal Agent or any Secured Party to
ascertain or to inquire as to the observance or performance of any of the
agreements or covenants contained in, or conditions of, this Agreement, or to
inspect the properties, books or records of the Borrower. The Liquidity Agent
shall not be deemed to have knowledge of any Termination Event unless the
Liquidity Agent has received notice from the Borrower, the Deal Agent or a
Secured Party.
Section 9.4 Reliance.
(a) The Deal Agent shall in all cases be entitled to rely, and shall be
fully protected in relying, upon any document or conversation believed by it to
be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrower), independent accountants and other
experts selected by the Deal Agent. The Deal Agent shall in all cases be fully
justified in failing or refusing to take any action under this Agreement or any
other document furnished in connection herewith unless it shall first receive
such advice or concurrence of VFCC or the Required Investors or all of the
Secured Parties, as applicable, as it deems appropriate or it shall first be
indemnified to its satisfaction by the Lenders; provided, that, unless and until
the Deal Agent shall have received such advice, the Deal Agent may take or
refrain from taking any action, as the Deal Agent shall deem advisable and in
the best interests of the Secured Parties. The Deal Agent shall in all cases be
fully protected in acting, or in refraining from acting, in accordance with a
request of VFCC or the Required Investors or all of the Lenders, as applicable,
and such request and any action taken or failure to act pursuant thereto shall
be binding upon all the Secured Parties.
(b) The Liquidity Agent shall in all cases be entitled to rely, and
shall be fully protected in relying, upon any document or conversation believed
by it to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons and upon advice and
88
<PAGE>
statements of legal counsel (including, without limitation, counsel to the
Borrower), independent accountants and other experts selected by the Liquidity
Agent. The Liquidity Agent shall in all cases be fully justified in failing or
refusing to take any action under this Agreement or any other document furnished
in connection herewith unless it shall first receive such advice or concurrence
of Required Investors as it deems appropriate or it shall first be indemnified
to its satisfaction by the Investors, provided that unless and until the
Liquidity Agent shall have received such advice, the Liquidity Agent may take or
refrain from taking any action, as the Liquidity Agent shall deem advisable and
in the best interests of the Investors. The Liquidity Agent shall in all cases
be fully protected in acting, or in refraining from acting, in accordance with a
request of the Required Investors and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Investors.
Section 9.5 Non-Reliance on Deal Agent, Liquidity Agent and Other
Lenders.
Each Secured Party expressly acknowledges that neither the Deal Agent,
the Liquidity Agent nor any of their respective officers, directors, employees,
agents, attorneys-in-fact or affiliates has made any representations or
warranties to it and that no act by the Deal Agent or the Liquidity Agent
hereafter taken, including, without limitation, any review of the affairs of the
Borrower, shall be deemed to constitute any representation or warranty by the
Deal Agent or the Liquidity Agent. Each Secured Party represents and warrants to
the Deal Agent and to the Liquidity Agent that it has and will, independently
and without reliance upon the Deal Agent, the Liquidity Agent or any other
Secured Party and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, prospects, financial and other conditions and
creditworthiness of the Borrower and made its own decision to enter into this
Agreement.
Section 9.6 Reimbursement and Indemnification.
The Investors agree to reimburse and indemnify VFCC, the Deal Agent,
the Liquidity Agent and each of their respective officers, directors, employees,
representatives and agents ratably according to their pro rata shares, to the
extent not paid or reimbursed by the Borrower (i) for any amounts for which
VFCC, the Liquidity Agent, acting in its capacity as Liquidity Agent, or the
Deal Agent, acting in its capacity as Deal Agent, is entitled to reimbursement
by the Borrower hereunder and (ii) for any other expenses incurred by VFCC, the
Liquidity Agent, acting in its capacity as Liquidity Agent, or the Deal Agent,
in its capacity as Deal Agent and acting on behalf of the Secured Parties, in
connection with the administration and enforcement of this Agreement.
Section 9.7 Deal Agent and Liquidity Agent in their Individual
Capacities.
The Deal Agent, the Liquidity Agent and each of their respective
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Borrower or any Affiliate of the Borrower as though
the Deal Agent or the Liquidity Agent, as the case may be, were not the Deal
Agent or the Liquidity Agent, as the case may be, hereunder. With respect
89
<PAGE>
to the acquisition of Advances pursuant to this Agreement, the Deal Agent, the
Liquidity Agent and each of their respective Affiliates shall have the same
rights and powers under this Agreement as any Lender and may exercise the same
as though it were not the Deal Agent or the Liquidity Agent, as the case may be,
and the terms "Investor," "Lender," "Investors" and "Lenders" shall include the
Deal Agent or the Liquidity Agent, as the case may be, in its individual
capacity.
Section 9.8 Successor Deal Agent or Liquidity Agent.
(a) The Deal Agent may, upon 5 days' notice to the Borrower and the
Secured Parties, and the Deal Agent will, upon the direction of all of the
Lenders (other than the Deal Agent, in its individual capacity) resign as Deal
Agent. If the Deal Agent shall resign, then the Required Investors during such
5-day period shall appoint from among the Secured Parties a successor agent. If
for any reason no successor Deal Agent is appointed by the Required Investors
during such 5-day period, then effective upon the expiration of such 5-day
period, the Secured Parties shall perform all of the duties of the Deal Agent
hereunder and the Borrower shall make all payments in respect of the Obligations
or under any fee letter delivered by the Originator to the Deal Agent and the
Secured Parties directly to the applicable Lender and for all purposes shall
deal directly with the Secured Parties. After any retiring Deal Agent's
resignation hereunder as Deal Agent, the provisions of Article VIII and Article
IX shall inure to its benefit as to any actions taken or omitted to be taken by
it while it was Deal Agent under this Agreement.
(b) The Liquidity Agent may, upon 5 days' notice to the Borrower, the
Deal Agent and the Investors, and the Liquidity Agent will, upon the direction
of all of the Investors (other than the Liquidity Agent, in its individual
capacity) resign as Liquidity Agent. If the Liquidity Agent shall resign, then
the Required Investors during such 5-day period shall appoint from among the
Investors a successor Liquidity Agent. If for any reason no successor Liquidity
Agent is appointed by the Required Investors during such 5-day period, then
effective upon the expiration of such 5-day period, the Investors shall perform
all of the duties of the Liquidity Agent hereunder and all payments in respect
of the Advances Outstanding. After any retiring Liquidity Agent's resignation
hereunder as Liquidity Agent, the provisions of Article VIII and Article IX
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Liquidity Agent under this Agreement.
ARTICLE X
ASSIGNMENTS; PARTICIPATIONS
Section 10.1 Assignments and Participations.
(a) Each Investor may upon at least 30 days' notice to VFCC, the Deal
Agent and the Liquidity Agent, and with the consent of the Borrower (which
consent shall not be unreasonably withheld) assign to one or more banks or other
entities all or a portion of its rights and obligations under this Agreement;
provided, however, that (i) each such assignment shall be of a constant, and not
a varying percentage of all of the assigning Investor's rights and
90
<PAGE>
obligations under this Agreement, (ii) the amount of the Commitment of the
assigning Investor being assigned pursuant to each such assignment (determined
as of the date of the Assignment and Acceptance with respect to such assignment)
shall in no event be less than the lesser of (A) $15,000,000 or an integral
multiple of $1,000,000 in excess of that amount and (B) the full amount of the
assigning Investor's Commitment, (iii) each such assignment shall be to an
Eligible Assignee, (iv) the parties to each such assignment shall execute and
deliver to the Deal Agent, for its acceptance and recording in the Register, an
Assignment and Acceptance, together with a processing and recordation fee of
$3,500 or such lesser amount as shall be approved by the Deal Agent, (v) the
parties to each such assignment shall have agreed to reimburse the Deal Agent,
the Liquidity Agent and VFCC for all reasonable fees, costs and expenses
(including, without limitation, the reasonable fees and out-of-pocket expenses
of counsel for each of the Deal Agent, the Liquidity Agent and VFCC) incurred by
the Deal Agent, the Liquidity Agent and VFCC, respectively, in connection with
such assignment and (vi) there shall be no increased costs, expenses or taxes
incurred by the Deal Agent, the Liquidity Agent, or VFCC upon such assignment or
participation; and provided, further, that upon the effective date of such
assignment the provisions of Section 3.03(f) of the Administration Agreement
shall be satisfied. Upon such execution, delivery and acceptance by the Deal
Agent and the Liquidity Agent and the recording by the Deal Agent, from and
after the effective date specified in each Assignment and Acceptance, which
effective date shall be the date of acceptance thereof by the Deal Agent and the
Liquidity Agent, unless a later date is specified therein, (i) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of an Investor hereunder and (ii)
the Investor assignor thereunder shall, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its obligations under
this Agreement (and, in the case of an Assignment and Acceptance covering all or
the remaining portion of an assigning Investor's rights and obligations under
this Agreement, such Investor shall cease to be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the
Investor assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Investor makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant hereto; (ii) such assigning Investor makes no representation
or warranty and assumes no responsibility with respect to the financial
condition of VFCC or the performance or observance by VFCC of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of such financial statements and other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (iv) such
assignee will, independently and without reliance upon the Deal Agent or the
Liquidity Agent,
91
<PAGE>
such assigning Investor or any other Investor and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (v) such
assigning Investor and such assignee confirm that such assignee is an Eligible
Assignee; (vi) such assignee appoints and authorizes each of the Deal Agent and
the Liquidity Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to such agent by the terms
hereof, together with such powers as are reasonably incidental thereto; and
(vii) such assignee agrees that it will perform in accordance with their terms
all of the obligations which by the terms of this Agreement are required to be
performed by it as an Investor.
(c) The Deal Agent shall maintain at its address referred to herein a
copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Investors and the
Commitment of, and principal amount of, each Advance owned by each investor from
time to time (the "Register"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and VFCC, the Borrower and
the Investors may treat each Person whose name is recorded in the Register as an
Investor hereunder for all purposes of this Agreement. The Register shall be
available for inspection by VFCC, the Liquidity Agent, the Borrower, or any
Investor at any reasonable time and from time to time upon reasonable prior
notice.
(d) Subject to the provisions of Section 10.1(a), upon their receipt of
an Assignment and Acceptance executed by an assigning Investor and an assignee,
the Deal Agent and the Liquidity Agent shall each, if such Assignment and
Acceptance has been completed and is in substantially the form of Exhibit D
hereto, accept such Assignment and Acceptance, and the Deal Agent shall then (i)
record the information contained therein in the Register and (ii) give prompt
notice thereof to VFCC.
(e) Each Investor may sell participations to one or more banks or other
entities in or to all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment and
each Advance owned by it); provided, however, that (i) such Investor's
obligations under this Agreement (including, without limitation, its Commitment
hereunder) shall remain unchanged, (ii) such Investor shall remain solely
responsible to the other parties hereto for the performance of such obligations
and (iii) the Deal Agent and the other Investors shall continue to deal solely
and directly with such Investor in connection with such Investor's rights and
obligations under this Agreement; and provided, further, that the Deal Agent
shall have confirmed that upon the effective date of such participation the
provisions of Section 3.03(f) of the Administration Agreement shall be
satisfied. Notwithstanding anything herein to the contrary, each participant
shall have the rights of an Investor (including any right to receive payment)
under Sections 2.14 and 2.15; provided, however, that no participant shall be
entitled to receive payment under either such Section in excess of the amount
that would have been payable under such Section by the Borrower to the Investor
granting its participation had such participation not been granted, and no
Investor granting a participation shall be entitled to receive payment under
either such Section in an amount that exceeds the sum of (i) the amount to which
such Investor is entitled under such
92
<PAGE>
Section with respect to any portion of any Advance owned by such Investor which
is not subject to any participation plus (ii) the aggregate amount to which its
participants are entitled under such Sections with respect to the amounts of
their respective participations. With respect to any participation described in
this Section 10.1, the participant's rights as set forth in the agreement
between such participant and the applicable Investor to agree to or to restrict
such Investor's ability to agree to any modification, waiver or release of any
of the terms of this Agreement or to exercise or refrain from exercising any
powers or rights that such Investor may have under or in respect of this
Agreement shall be limited to the right to consent to any of the matters set
forth in Section 11.1 of this Agreement.
(f) Each Investor may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
10.1, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrower or VFCC furnished to such
Investor by or on behalf of the Borrower or VFCC.
(g) In the event (i) an Investor ceases to qualify as an Eligible
Assignee, or (ii) an Investor makes demand for compensation pursuant to Section
2.14 or Section 2.15, VFCC may, and, upon the direction of the Borrower and
prior to the occurrence of a Termination Event, shall, in any such case,
notwithstanding any provision to the contrary herein, replace such Investor with
an Eligible Assignee by giving three Business Days' prior written notice to such
Investor. In the event of the replacement of an Investor, such Investor agrees
(i) to assign all of its rights and obligations hereunder to an Eligible
Assignee selected by VFCC upon payment to such Investor of the amount of such
Investor's Advances together with any accrued and unpaid Yield thereon, all
accrued and unpaid commitment fees owing to such Investor and all other amounts
owing to such Investor hereunder and (ii) to execute and deliver an Assignment
and Acceptance and such other documents evidencing such assignment as shall be
necessary or reasonably requested by VFCC or the Deal Agent. In the event that
any Investor ceases to qualify as an Eligible Assignee, such affected Investor
agrees (1) to give the Deal Agent, the Borrower and VFCC prompt written notice
thereof and (2) subject to the following proviso, to reimburse the Deal Agent,
the Liquidity Agent, the Borrower, VFCC and the relevant assignee for all fees,
costs and expenses (including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for each of the Deal Agent, the Liquidity
Agent, the Borrower and VFCC and such assignee) incurred by the Deal Agent, the
Liquidity Agent, the Borrower, VFCC and such assignee, respectively, in
connection with any assignment made pursuant to this Section 10.1(g) by such
affected Investor; provided, however, that such affected Investor's liability
for such costs, fees and expenses shall be limited to the amount of any up-front
fees paid to such affected Investor at the time that it became a party to this
Agreement.
(h) Nothing herein shall prohibit any Investor from pledging or
assigning as collateral any of its rights under this Agreement to any Federal
Reserve Bank in accordance with Applicable Law and any such pledge or collateral
assignment may be made without compliance with Section 10.1(a) or Section
10.1(b).
93
<PAGE>
(i) In the event any Investor causes increased costs, expenses or taxes
to be incurred by the Deal Agent, Liquidity Agreement or VFCC in connection with
the assignment or participation of such Investor's rights and obligations under
this Agreement to an Eligible Assignee then such Investor agrees that it will
make reasonable efforts to assign such increased costs, expenses or taxes to
such Eligible Assignee in accordance with the provisions of this Agreement.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Amendments and Waivers.
Except as provided in this Section 11.1, no amendment, waiver or other
modification of any provision of this Agreement shall be effective without the
written agreement of the Borrower, the Deal Agent, VFCC and the Required
Investors; provided, however, that any amendment of this Agreement that is
solely for the purpose of adding a Lender or increasing the Commitment of all
Lenders may be effected with the written consent of the Deal Agent. Any waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
No amendment, waiver or other modification (i) affecting the rights or
obligations of any Hedge Counterparty or (ii) having a material affect on the
rights or obligations of the Collateral Custodian or the Backup Servicer
(including any duties of the Servicer that the Backup Servicer would have to
assume as Successor Servicer) shall be effective against such Person without the
written agreement of such Person. The Borrower or the Servicer on its behalf
will deliver a copy of all waivers and amendments to the Collateral Custodian
and the Backup Servicer.
Section 11.2 Notices, Etc.
All notices and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing (including telex communication and
communication by facsimile copy) and mailed, telexed, transmitted or hand
delivered, as to each party hereto, at its address set forth under its name on
the signature pages hereof or specified in such party's Assignment and
Acceptance or at such other address as shall be designated by such party in a
written notice to the other parties hereto. All such notices and communications
shall be effective, upon receipt, or in the case of (a) notice by mail, five
days after being deposited in the United States mail, first class postage
prepaid, (b) notice by telex, when telexed against receipt of answer back, or
(c) notice by facsimile copy, when verbal communication of receipt is obtained,
except that notices and communications pursuant to Article XI shall not be
effective until received with respect to any notice sent by mail or telex.
94
<PAGE>
Section 11.3 [Reserved].
Section 11.4 No Waiver, Rights and Remedies.
No failure on the part of the Deal Agent, the Liquidity Agent or any
Secured Party or any assignee of any Secured Party to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right or remedy hereunder preclude
any other or further exercise thereof or the exercise of any other right. The
rights and remedies herein provided are cumulative and not exclusive of any
rights and remedies provided by law.
Section 11.5 Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Deal Agent, the Liquidity Agent, the Secured Parties and their
respective successors and permitted assigns and, in addition, the provisions of
Section 2.8(a)(i) shall inure to the benefit of each Hedge Counterparty, whether
or not that Hedge Counterparty is a Secured Party.
Section 11.6 Term of this Agreement.
This Agreement, including, without limitation, the Borrower's
obligation to observe its covenants set forth in Article V, and the Servicer's
obligation to observe its covenants set forth in Article VI, shall remain in
full force and effect until the Collection Date; provided, however, that the
rights and remedies with respect to any breach of any representation and
warranty made or deemed made by the Borrower pursuant to Articles III and IV and
the indemnification and payment provisions of Article VIII and Article IX and
the provisions of Section 11.10 and Section 11.11 shall be continuing and shall
survive any termination of this Agreement.
Section 11.7 GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF
OBJECTION TO VENUE.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK. EACH OF THE SECURED PARTIES, THE BORROWER,
THE LIQUIDITY AGENT, THE DEAL AGENT, THE BACKUP SERVICER, AND THE COLLATERAL
CUSTODIAN HEREBY AGREES TO THE NON-EXCLUSIVE JURISDICTION OF ANY FEDERAL COURT
LOCATED WITHIN THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO AND EACH
SECURED PARTY HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY
OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER IN ANY OF THE
AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.
95
<PAGE>
Section 11.8 WAIVER OF JURY TRIAL.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE SECURED PARTIES,
THE BORROWER, THE DEAL AGENT, THE BACKUP SERVICER, AND THE COLLATERAL CUSTODIAN
WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE PARTIES HERETO ARISING OUT
OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN ANY OF
THEM IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
INSTEAD, ANY SUCH DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL
WITHOUT A JURY.
Section 11.9 Costs, Expenses and Taxes.
(a) In addition to the rights of indemnification granted to the Deal
Agent, the Liquidity Agent, the Secured Parties, the Backup Servicer and the
Collateral Custodian and its or their Affiliates and officers, directors,
employees and agents thereof under Article VIII hereof, the Borrower agrees to
pay on demand all reasonable costs and expenses of the Deal Agent, the Liquidity
Agent, and the Secured Parties incurred in connection with the preparation,
execution, delivery, administration (including periodic auditing), amendment or
modification of, or any waiver or consent issued in connection with, this
Agreement and the other documents to be delivered hereunder or in connection
herewith, including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for the Deal Agent, the Liquidity Agent, and the Secured
Parties with respect thereto and with respect to advising the Deal Agent, the
Liquidity Agent, and the Secured Parties as to their respective rights and
remedies under this Agreement and the other documents to be delivered hereunder
or in connection herewith in an amount not to exceed $100,000 (excluding any
Hedge Agreement) provided that the transaction contemplated herein closes on or
before February 28, 1999, and the structure described in the Term Sheet, dated
January 26, 1999, does not materially change, and all costs and expenses, if any
(including reasonable counsel fees and expenses), incurred by the Deal Agent,
the Liquidity Agent, or the Secured Parties in connection with the enforcement
of this Agreement and the other documents to be delivered hereunder or in
connection herewith (including any Hedge Agreement).
(b) The Borrower shall pay on demand any and all stamp, sales, excise
and other taxes and fees payable or determined to be payable in connection with
the execution, delivery, filing and recording of this Agreement, the other
documents to be delivered hereunder or any agreement or other document providing
liquidity support, credit enhancement or other similar support to the Lender in
connection with this Agreement or the funding or maintenance of Advances
hereunder.
(c) The Borrower shall pay on demand all other costs, expenses and
taxes (excluding income taxes) ("Other Costs"), including, without limitation,
all reasonable costs and expenses incurred by the Deal Agent in connection with
periodic audits of the Borrower's or the Servicer's
96
<PAGE>
books and records and the cost of rating VFCC's commercial paper by independent
financial rating agencies, which are incurred as a result of the execution of
this Agreement.
Section 11.10 No Proceedings.
Each of the parties hereto (other than VFCC) hereby agrees that it will
not institute against, or join any other Person in instituting against VFCC any
Insolvency Proceeding so long as any commercial paper issued by VFCC shall be
outstanding and there shall not have elapsed one year and one day since the last
day on which any such commercial paper shall have been outstanding.
Each of the parties hereto (other than the Deal Agent and the Secured
Parties) hereby agrees that it will not institute against, or join any other
Person in instituting against the Borrower any Insolvency Proceeding so long as
there shall not have elapsed one year and one day since the Collection Date.
Section 11.11 Recourse Against Certain Parties.
(a) No recourse under or with respect to any obligation, covenant or
agreement (including, without limitation, the payment of any fees or any other
obligations) of the Deal Agent, the Liquidity Agent or any Secured Party as
contained in this Agreement or any other agreement, instrument or document
entered into by it pursuant hereto or in connection herewith shall be had
against any Person or any manager or administrator of such Person or any
incorporator, affiliate, stockholder, officer, employee or director of such
Person or of the Borrower or of any such manager or administrator, as such, by
the enforcement of any assessment or by any legal or equitable proceeding, by
virtue of any statute or otherwise.
(b) Notwithstanding anything in this Agreement or any other Transaction
Document to the contrary, VFCC shall have no obligation to pay any amount
required to be paid by it hereunder or thereunder in excess of any amount
available to VFCC after paying or making provision for the payment of its
Commercial Paper Notes. All payment obligations of VFCC hereunder are contingent
upon the availability of funds in excess of the amounts necessary to pay
Commercial Paper Notes; and each of the Borrower, the Servicer, the Backup
Servicer, the Collateral Custodian, the Deal Agent, the Liquidity Agent and the
Secured Parties agrees that they shall not have a claim under Section 101(5) of
the Bankruptcy Code if and to the extent that any such payment obligation
exceeds the amount available to VFCC to pay such amounts after paying or making
provision for the payment of its Commercial Paper Notes.
(c) The provisions of this Section 11.11 shall survive the termination
of this Agreement.
97
<PAGE>
Section 11.12 Protection of Security Interest; Appointment of Deal
Agent as Attorney-in-Fact.
(a) The Borrower shall, or shall cause the Servicer to, cause this
Agreement, all amendments hereto and/or all financing statements and
continuation statements and any other necessary documents covering the right,
title and interest of the Deal Agent as agent for the Secured Parties and of the
Secured Parties to the Collateral to be promptly recorded, registered and filed,
and at all time to be kept recorded, registered and filed, all in such manner
and in such places as may be required by law fully to preserve and protect the
right, title and interest of the Deal Agent as agent for the Secured Parties
hereunder to all property comprising the Collateral. The Borrower shall deliver
or, shall cause the Servicer to deliver, to the Deal Agent file-stamped copies
of, or filing receipts for, any document recorded, registered or filed as
provided above, as soon as available following such recording, registration or
filing. The Borrower and the Servicer shall cooperate fully in connection with
the obligations set forth above and will execute any and all documents
reasonably required to fulfill the intent of this Section 11.12.
(b) The Borrower agrees that from time to time, at its expense, it will
promptly execute and deliver all instruments and documents, and take all
actions, that may reasonably be necessary or desirable, or that the Deal Agent
may reasonably request, to perfect, protect or more fully evidence the security
interest granted to the Deal Agent, as agent for the Secured Parties, in the
Collateral, or to enable the Deal Agent or the Secured Parties to exercise and
enforce their rights and remedies hereunder.
(c) If the Borrower or the Servicer fails to perform any of its
obligations hereunder after five Business Days' notice from the Deal Agent, the
Deal Agent or any Lender may (but shall not be required to) perform, or cause
performance of, such obligation; and the Deal Agent's or such Lender's
reasonable costs and expenses incurred in connection therewith shall be payable
by the Borrower (if the Servicer that fails to so perform is the Borrower or an
Affiliate thereof) as provided in Article VIII, as applicable. The Borrower
irrevocably authorizes the Deal Agent and appoints the Deal Agent as its
attorney-in-fact to act on behalf of the Borrower, (i) to execute on behalf of
the Borrower as debtor and to file financing statements necessary or desirable
in the Deal Agent's sole discretion to perfect and to maintain the perfection
and priority of the interest of the Secured Parties in the Collateral and (ii)
to file a carbon, photographic or other reproduction of this Agreement or any
financing statement with respect to the Collateral as a financing statement in
such offices as the Deal Agent in its sole discretion deems necessary or
desirable to perfect and to maintain the perfection and priority of the
interests of the Lenders in the Collateral. This appointment is coupled with an
interest and is irrevocable.
(d) Without limiting the generality of the foregoing, Borrower will,
not earlier than six (6) months and not later than three (3) months prior to the
fifth anniversary of the date of filing of the financing statement referred to
in Section 3.1 or any other financing statement filed pursuant to this Agreement
or in connection with any Advance hereunder, unless the Collection Date shall
have occurred:
98
<PAGE>
(i) execute and deliver and file or cause to be filed an
appropriate continuation statement with respect to such financing
statement; and
(ii) deliver or cause to be delivered to the Deal Agent an
opinion of the counsel for Borrower, in form and substance reasonably
satisfactory to the Deal Agent, confirming and updating the opinion
delivered pursuant to Section 3.1 with respect to perfection and
otherwise to the effect that the Collateral hereunder continues to be
subject to a perfected security interest in favor of the Deal Agent, as
agent for the Secured Parties, subject to no other Liens of record
except as provided herein or otherwise permitted hereunder, which
opinion may contain usual and customary assumptions, limitations and
exceptions.
Section 11.13 Confidentiality
(a) Each of the Deal Agent, the Secured Parties, the Liquidity Agent
and the Borrower shall maintain and shall cause each of its employees and
officers to maintain the confidentiality of the Agreement and the other
confidential proprietary information with respect to the other parties hereto
and their respective businesses obtained by it or them in connection with the
structuring, negotiating and execution of the transactions contemplated herein,
except that each such party and its officers and employees may (i) disclose such
information to its external accountants and attorneys and as required by an
Applicable Law, as required to be publicly filed with SEC, or as required by an
order of any judicial or administrative proceeding, (ii) disclose the existence
of this Agreement, but not the financial terms thereof and (iii) disclose the
Agreement and such information in any suit, action, proceeding or investigation
(whether in law or in equity or pursuant to arbitration) involving and of the
Loan Documents or any Hedging Agreement for the purpose of defending itself,
reducing itself, reducing its liability, or protecting or exercising any of its
claims, rights, remedies, or interests under or in connection with any of the
Loan Documents or any Hedging Agreement.
(b) Anything herein to the contrary notwithstanding, the Borrower
hereby consents to the disclosure of any nonpublic information with respect to
it for use in connection with the transactions contemplated herein and in the
Transaction Documents (i) to the Deal Agent, the Liquidity Agent, or the Lenders
by each other, (ii) by the Liquidity Agent, the Deal Agent or the Secured
Parties to any prospective or actual Eligible Assignee or participant of any of
them or (iii) by the Deal Agent, the Liquidity Agent or the Secured Parties to
any Rating Agency, commercial paper dealer or provider of a surety, guaranty or
credit or liquidity enhancement to a Secured Party and to any officers,
directors, employees, outside accountants and attorneys of any of the foregoing,
provided each such Person is informed of the confidential nature of such
information and agree to be bound hereby. In addition, the Secured Parties, the
Liquidity Agent and the Deal Agent may disclose any such nonpublic information
pursuant to any law, rule, regulation, direction, request or order of any
judicial, administrative or regulatory authority or proceedings.
99
<PAGE>
(c) The Borrower and the Servicer each agrees that it shall not (and
shall not permit any of its Affiliates to) issue any news release or make any
public announcement pertaining to the transactions contemplated by this
Agreement and the Transaction Documents without the prior written consent of the
Deal Agent (which consent shall not be unreasonably withheld) unless such news
release or public announcement is required by law, in which case the Borrower or
the Servicer shall consult with the Deal Agent prior to the issuance of such
news release or public announcement. The Borrower and the Servicer each may,
however, disclose the general terms of the transactions contemplated by this
Agreement and the Transaction Documents to trade creditors, suppliers and other
similarly-situated Persons so long as such disclosure is not in the form of a
news release or public announcement.
Section 11.14 Execution in Counterparts; Severability; Integration.
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same agreement. In case any provision in or
obligation under this Agreement shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby. This
Agreement contains the final and complete integration of all prior expressions
by the parties hereto with respect to the subject matter hereof and shall
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof, superseding all prior oral or written understandings
other than any fee letter delivered to the Deal Agent and the Lenders.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
100
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
THE BORROWER: ACS FUNDING TRUST I
By
--------------------------------
Title:
ACS Funding, Inc.
c/o American Capital Strategies, Ltd.
3 Bethesda Metro Center, Suite 860
Bethesda, Maryland 20814
Attention: President
Facsimile No.: (301) 654-6714
Confirmation No.: (301 951-6122
THE SERVICER: AMERICAN CAPITAL STRATEGIES, LTD.
By
--------------------------------
Title:
American Capital Strategies, Ltd.
3 Bethesda Metro Center, Suite 860
Bethesda, Maryland 20814
Attention: President
Facsimile No.: (301) 654-6714
Confirmation No.: (301 951-6122
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
S-1
<PAGE>
THE INVESTORS: FIRST UNION NATIONAL BANK
By
--------------------------
Title:
Commitment: $100,000,000
First Union National Bank
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention: Capital Markets Credit
Administration
Facsimile No.: (704) 374-3254
Confirmation No: (704) 374-4001
LENDER: VARIABLE FUNDING CAPITAL
CORPORATION
By First Union Capital Markets Corp., as
attorney-in-fact
By
-----------------------------
Title:
Variable Funding Capital Corporation
c/o First Union Capital Markets Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention: Conduit Administration
Facsimile No.: (704) 383-6036
Confirmation No.: (704) 383-9343
With a copy to:
Lord Securities Corp.
2 Wall Street, 19th Floor
Attention: Vice President
Facsimile No.: (212) 346-9012
Confirmation No.: (212) 346-9008
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
S-2
<PAGE>
THE BACKUP SERVICER: NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By
------------------------------------
Title:
Norwest Bank Minnesota, National
Association
Sixth Street and Marquette Avenue
Minneapolis, MN 55479-0070
Attention: Corporate Trust Services
Asset-Backed Administration
Facsimile No.: (612) 667-3539
Confirmation No.: (612) 667-8058
THE COLLATERAL CUSTODIAN: NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By
------------------------------------
Title:
Norwest Bank Minnesota, National
Association
Sixth Street and Marquette Avenue
Minneapolis, MN 55479-0070
Attention: Corporate Trust Services
Asset-Backed Administration
Facsimile No.: (612) 667-3539
Confirmation No.: (612) 667-8058
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
S-3
<PAGE>
THE DEAL AGENT: FIRST UNION CAPITAL MARKETS CORP.
By
--------------------------------
Title:
First Union Capital Markets Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention: Conduit Administration
Facsimile No.: (704) 383-6036
Telephone No.: (704) 383-9343
LENDER AND LIQUIDITY AGENT FIRST UNION NATIONAL BANK
By
------------------------------
Title:
First Union National Bank
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention: Capital Markets Credit
Administration
Facsimile No.: (704) 374-3254
Telephone No.: (704) 374-4001
Lender Commitment: $10,000,000.00
<PAGE>
EXHIBIT A
FORM OF BORROWER NOTICE
(including Borrowing Base Certificate)
[-------------, -----]
ACS FUNDING TRUST I
First Union Capital Markets Corp., as Deal Agent
One First Union Center, TW-9
Charlotte, North Carolina 28288
Re: Loan Funding and Servicing Agreement
dated as of March 31, 1999
Ladies and Gentlemen:
This Borrower Notice is delivered to you under Section 2.2 of that certain Loan
Funding and Servicing Agreement dated as of March 31, 1999 (as amended,
modified, supplemented or restated from time to time, the "Agreement"), by and
among ACS Funding Trust I, as the borrower (the "Borrower"), American Capital
Strategies, Ltd., as the servicer, Variable Funding Capital Corporation, as a
lender, the Investors named therein, Norwest Bank Minnesota, National
Association, as the backup servicer and as the collateral custodian, First Union
Capital Markets Corp., as the deal agent, and First Union National Bank, as a
lender and as liquidity agent. All capitalized undefined terms used herein have
the meaning assigned thereto in the Agreement.
Each of the undersigned, each being a duly elected officer of the Borrower and
the Servicer, respectively, holding the office set forth below such officer's
name, hereby certifies as follows:
1. The Borrower hereby requests an Advance in the principal amount of
$_____________.
2. The Borrower hereby requests that such Advance be made on the following date:
_____________.
3. Attached to this Borrower Notice is a true, correct and complete
calculation of the Borrowing Base and all components thereof.
4. Attached to this Borrower Notice is a true, correct and complete Loan
List, reflecting all Loans which will become part of the Collateral on
the date hereof, each Loan reflected thereon being an Eligible Loan.
<PAGE>
5. All of the conditions applicable to the Advance requested herein as set
forth in the Agreement have been satisfied as of the date hereof and
will remain satisfied to the date of such Advance, including
(i) The representations and warranties of such Person
set forth in the Agreement, as the case may be, are true and
correct on and as of such date (except to the extent any such
representation and warranty relates solely to an earlier
date), before and after giving effect to such borrowing or
reinvestment and to the application of the proceeds therefrom,
as though made on and as of such date;
(ii) No event has occurred, or would result from such
Advance or reinvestment or from the application of the
proceeds therefrom, which constitutes a Termination Event;
(iii) Such Person is in material compliance with each
of its covenants set forth herein; and
(iv) No event has occurred that constitutes a
Servicer Termination Event.
[The Remainder Of This Page Is Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed the Borrower Notice
this ______ day of __________, ____.
ACS FUNDING TRUST I
as Borrower
By:
--------------------------
Name:
Title:
AMERICAN CAPITAL STRATEGIES, LTD.,
as Servicer
By:
--------------------------
Name:
Title:
[attach Borrowing Base Certificate]
<PAGE>
EXHIBIT B
FORM OF NOTE
$________________ March 31, 1999
FOR VALUE RECEIVED, ACS FUNDING TRUST I, a Delaware business trust (the
"Borrower"), promises to pay to FIRST UNION CAPITAL MARKETS CORP., as the agent
for the Lenders (the "Deal Agent") the principal sum of _____________________
MILLION DOLLARS ($_________) or, if less, the unpaid principal amount of the
aggregate loans ("Advances") made by the Lenders (as defined below) to the
Borrower pursuant to the Loan Funding and Servicing Agreement (as defined
below), as set forth on the attached Schedule, on the dates specified in Section
2.6 of the Loan Funding and Servicing Agreement, and to pay interest on the
unpaid principal amount of each Advance on each day that such unpaid principal
amount is outstanding at the Interest Rate related to such Advance as provided
in the Loan Funding and Servicing Agreement on each Payment Date and each other
dates specified in the Loan Funding and Servicing Agreement.
This Note is issued pursuant to the Loan Funding and Servicing
Agreement, dated as of March 31, 1999 (as amended, modified, supplemented or
restated from time to time, the "Loan Funding and Servicing Agreement"), by and
among the Borrower, American Capital Strategies, Ltd., as servicer, Variable
Funding Capital Corporation, as a lender, the Investors named therein, Norwest
Bank Minnesota, National Association, as backup servicer and as collateral
custodian, First Union Capital Markets Corp., as deal agent, and First Union
National Bank, as a lender and as liquidity agent. Capitalized terms used but
not defined in this Note are used with the meanings ascribed to them in the Loan
Funding and Servicing Agreement.
Notwithstanding any other provisions contained in this Note, if at any
time the rate of interest payable by the Borrower under this Note, when combined
with any and all other charges provided for in this Note, in the Loan Funding
and Servicing Agreement or in any other document (to the extent such other
charges would constitute interest for the purpose of any applicable law limiting
interest that may be charged on this Note), exceeds the highest rate of interest
permissible under applicable law (the "Maximum Lawful Rate"), then so long as
the Maximum Lawful Rate would be exceeded the rate of interest under this Note
shall be equal to the Maximum Lawful Rate. If at any time thereafter the rate of
interest payable under this Note is less than the Maximum Lawful Rate, the
Borrower shall continue to pay interest under this Note at the Maximum Lawful
Rate until such time as the total interest paid by the Borrower is equal to the
total interest that would have been paid had applicable law not limited the
interest rate payable under this Note. In no event shall the total interest
received by the Lenders under this Note exceed the amount which the Lenders
could lawfully have received had the interest due under this Note been
calculated since the date of this Note at the Maximum Lawful Rate.
<PAGE>
Payments of the principal of, and interest on, Advances represented by
this Note shall be made by the Borrower to the holder hereof by wire transfer of
immediately available funds in the manner and at the address specified for such
purpose as provided in Article 2 of the Loan Funding and Servicing Agreement, or
in such manner or at such other address as the holder of this Note shall have
specified in writing to the Borrower for such purpose, without the presentation
or surrender of this Note or the making of any notation on this Note.
If any payment under this Note falls due on a day that is not a
Business Day, then such due date shall be extended to the next succeeding
Business Day and interest shall be payable on any principal so extended at the
applicable Interest Rate.
If all or a portion of (i) the principal amount hereof or (ii) any
interest payable thereon or (iii) any other amounts payable hereunder shall not
be paid when due (whether at maturity, by acceleration or otherwise), such
overdue amount shall bear interest at a rate per annum that is equal to the Base
Rate plus 1.0%, in each case from the date of such non-payment to (but
excluding) the date such amount is paid in full.
Portions or all of the principal amount of the Note shall become due
and payable at the time or times set forth in the Loan Funding and Servicing
Agreement. Any portion or all of the principal amount of this Note may be
prepaid, together with interest thereon (and as set forth in the Loan Funding
and Servicing Agreement, certain costs and expenses of the Lenders) at the time
and in the manner set forth in, but subject to the provisions of, the Loan
Funding and Servicing Agreement.
Except as provided in the Loan Funding and Servicing Agreement, the
Borrower expressly waives presentment, demand, diligence, protest and all
notices of any kind whatsoever with respect to this Note.
All amounts evidenced by this Note, the Lender or Lenders making such
Advance and all payments and prepayments of the principal hereof and the
respective dates and maturity dates thereof shall be endorsed by the Deal Agent
on the schedule attached hereto and made a part hereof or on a continuation
thereof which shall be attached hereto and made a part hereof, or otherwise
recorded by such Deal Agent in its internal records; provided, however, that the
failure of the Deal Agent to make such a notation shall not in any way limit or
otherwise affect the obligations of the Borrower under this Note as provided in
the Loan Funding and Servicing Agreement.
The holder hereof may sell, assign, transfer, negotiate, grant
participations in or otherwise dispose of all or any portion of any Advances
made by such Lender and represented by this Note and the indebtedness evidenced
by this Note.
This Note is secured by the security interests granted pursuant to
Section 2.9 of the Loan Funding and Servicing Agreement. The holder of this
Note, as agent for the Lenders, is entitled to the benefits of the Loan Funding
and Servicing Agreement and may enforce the agreements of the Borrower contained
in the Loan Funding and Servicing Agreement and exercise the remedies
<PAGE>
provided for by, or otherwise available in respect of, the Loan Funding and
Servicing Agreement, all in accordance with, and subject to the restrictions
contained in, the terms of the Loan Funding and Servicing Agreement. If a
Termination Event shall occur and be continuing, the unpaid balance of the
principal of all Advances, together with accrued interest thereon, shall be
declared, and become due and payable in the manner and with the effect provided
in the Loan Funding and Servicing Agreement.
This Note is the Note referred to in the Loan Funding and Servicing
Agreement. This Note shall be construed in accordance with and governed by the
laws of the State of New York.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note as on the
date first written above.
ACS FUNDING TRUST I
By:
-------------------------
Name:
Title:
<PAGE>
Schedule to Note
----------------
Name Date of Principal Principal Outstanding
of Advance or Amount of Amount of Principal
Lender Repayment Advance Repayment Amount
------ --------- ------- --------- ------
<PAGE>
EXHIBIT C
"LIMITED PURPOSE" PROVISIONS
Article [THIRD]
Purpose
The nature of the business or purposes to be conducted or promoted by
the Trust is to engage solely in the following activities:
(a) to acquire, own, hold, sell, service, transfer or pledge, or
otherwise dispose of, interests in and servicing responsibilities with respect
to, notes, accounts, chattel paper, general intangibles, instruments, warrants,
options, equity securities and other financial assets ("Financial Assets"), and
any related contracts, collateral or agreements ("Related Property");
(b) to purchase or otherwise acquire obligations issued or guaranteed
by the United States or any agency or instrumentality thereof, certificates of
deposit issued by commercial banks, commercial paper and similar instruments and
obligations;
(c) to enter into agreements and arrangements with persons or entities,
or undertaking such activities, as may be necessary or convenient to acquire,
own, hold, sell, service, transfer or pledge, or otherwise dispose of Financial
Assets and Related Property; and
(d) to engage in any lawful act or activity and to exercise any powers
permitted to corporations organized under the Business Trust Act of the State of
Delaware that are incidental to and necessary or convenient for the
accomplishment of the foregoing purposes.
Article [SEVENTH]
Independent Director
The number of trustees comprising the board of trustees of the Trust
(the "Board of Trustees") shall be determined, from time to time, in accordance
with the terms of the [name of operating document] of the Trust; provided,
however, the Trust shall at all times have at least two trustees (each, an
"Independent Trustee"), who is not and, for the immediately preceding two year
period, was not (i) a trustee (other than an Independent Trustee), officer of
employee of the Trust; (ii) a director, officer or employee of American Capital
Strategies, Ltd. (the "Parent") or any of its affiliates; (iii) a supplier,
independent contractor or any other person who derives more than 15% of its
gross revenues from its activities with the Trust, the Parent and/or any
affiliate of the foregoing; (iv) a holder (directly or indirectly) of more than
5% of any voting securities of
<PAGE>
the Trust, the Parent or any affiliate of the foregoing; (v) a person
controlling any such director, officer, employee, supplier, independent
contractor, holder or any other person meeting the criteria set forth in clauses
(i), (ii), (iii) or (iv) of this [Seventh] Article or (vi) a member of the
immediate family of any person meeting the criteria set fourth in clauses (i),
(ii), (iii), (iv) or (v) of this [Seventh] Article.
Article [TENTH]
Unanimous Consent of Trustees
Notwithstanding any other provision of this Certificate of Trust,
without the affirmative vote of all of the members of the Board of Trustees
(which must include the affirmative votes of all of the Independent Trustees),
the Trust shall not (i) dissolve or liquidate, in whole or in part, or institute
proceedings to be adjudicated bankrupt or insolvent, (ii) consent to the
institution of bankruptcy or insolvency proceedings against it, (iii) file a
petition seeking or consent to reorganization or relief under any applicable
federal or state law relating to bankruptcy, (iv) consent to the appointment of
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Trust or a substantial part of its property, (v) make a general
assignment for the benefit of creditors, (vi) admit in writing ins inability to
pay its debts generally as they become due, (vii) take any corporate action in
furtherance of the actions set forth in clauses (i) through (vi) of this
paragraph, provided, however, that no trustee may be required by any owner of
the Trust to consent to the institution of bankruptcy or insolvency proceedings
against the Trust so long as it is solvent.
In connection with any vote by the Board of Trustees with respect to
any of the actions described in the immediately preceding paragraph, the Board
of Trustees shall owe a duty to the secured creditors of the Trust, as well as
to the owners of the Trust.
Article [ELEVENTH]
Requirements
The Trust shall:
(i) pay, out of its own funds, fees for its directors and
salaries of its officers and employees, and shall promptly reimburse
any affiliate of the Trust for any service provided to the Trust by
such affiliate. Liabilities of the Trust shall be separately managed
from those of any affiliate of the Trust, and the Trust shall pay its
own liabilities, including all administrative expenses, from its own
separate assets.
(ii) at all times hold itself out to the public (including any
creditors of any of its affiliates) under the Trust's own name and as a
separate and distinct corporate entity. All customary formalities
regarding the corporate existence of the Trust, including holding
regular meetings of its board of directors and its stockholders and
maintenance of current minute books, shall be observed;
<PAGE>
(iii) maintain its financial statements, accounting records
and other corporate documents separate from those of, and shall not
commingle its assets with those of, any affiliate of the Trust or any
other entity. The Trust shall prepare unaudited quarterly and annual
financial statements, and the Trust's financial statements shall comply
with generally accepted accounting principles, consistently applied.
The Trust shall retain as its auditors independent certified
accountants, provided that such accountants may also serve as auditors
of any of its affiliates; and
(iv) act solely in its own corporate name and through its own
authorized officers and agents. Investments shall be made directly by
the Trust or by brokers engaged and paid by the Trust or its agents.
Assets of the Trust shall be separately identified and segregated. All
of the Trust's assets shall at all times be held by or on behalf of the
Trust and, if held on behalf of the Trust by another entity, shall at
all times be kept identifiable (in accordance with customary usages) as
assets owned by the Trust. In no event shall any of the Trust's assets
be held on its behalf by any affiliate of the Trust.
All business transactions entered into by the Trust with any of its
affiliates shall be on terms and conditions that are not more or less favorable
to the Trust than terms and conditions available at the time to the Trust for
comparable transactions with non-affiliated persons and must be approved by the
Board of Trustees. The Trust shall not make any loans to, or guarantee or assume
any liabilities or obligations of, any of its affiliates.
<PAGE>
EXHIBIT D
FORM OF ASSIGNMENT AND ACCEPTANCE
Dated: ____________, ____
Reference is made to the Loan Funding and Servicing Agreement dated as
of March 31, 1999 (as amended, modified, supplemented or restated from time to
time, the "Agreement") among ACS Funding Trust I, as the borrower, American
Capital Strategies, Ltd., as servicer, Variable Funding Capital Corporation, as
the lender the Investors (as defined in the Agreement), First Union Capital
Markets Corp., as Deal Agent, First Union National Bank, as a lender and as
Liquidity Agent, Norwest Bank Minnesota, National Association, as collateral
custodian and as backup servicer. Terms defined in the Agreement are used herein
with the same meaning.
__________________ (the "Assignor") and ___________________
(the "Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and
the Assignee hereby purchases and assumes from the Assignor, that interest in
and to all of the Assignor's rights and obligations under the Agreement as of
the date hereof which represents the percentage interest specified in Section 1
of Schedule 1 of all outstanding rights and obligations of the Assignor under
the Agreement, including, without limitation, such interest in the Assignor's
Commitment and the Advances made by the Assignor. After giving effect to such
sale and assignment, the Assignee's Commitment and the amount of Advances made
by the Assignee will be as set forth in Section ___ of Schedule ___.
2. The Assignor (i) represents and warrants that it is the
legal and beneficial owner of the interest being assigned by it hereunder and
that such interest is free and clear of any adverse claim; (ii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Agreement or any other instrument or document
furnished pursuant thereto; (iii) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of VFCC or the
performance or observance by VFCC of any of its obligations under the Agreement
or any other instrument or document furnished pursuant thereto; and (iv)
confirms that the Assignee is an Eligible Assignee.
3. The Assignee (i) confirms that it has received a copy of
the Agreement, together with copies of such financial statements and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (ii) agrees
that it will, independently and without reliance upon the
<PAGE>
Deal Agent, the Liquidity Agent, the Assignor or any other Investor and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and
authorizes the Deal Agent and the Liquidity Agent each to take such action as
agent on its behalf and to exercise such powers under the Agreement as are
delegated to the Deal Agent and the Liquidity Agent, respectively, by the terms
thereof, together with such powers as are reasonably incidental thereto; and (v)
agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Agreement are required to be performed by
it as an Investor.
4. Following the execution of this Assignment and Acceptance
by the Assignor and the Assignee, it will be delivered to each of the Deal Agent
and the Liquidity Agent for acceptance and recording by the Deal Agent. The
effective date of this Assignment and Acceptance (the "Transfer Date") shall be
the date of acceptance thereof by the Deal Agent and the Liquidity Agent, unless
a later date is specified in Section ___ of Schedule ___.
5. Upon such acceptance by the Deal Agent and the Liquidity
Agent and upon such recording by the Deal Agent, as of the Transfer Date, (i)
the Assignee shall be a party to the Agreement and, to the extent provided in
this Assignment and Acceptance, have the rights and obligations of an Investor
thereunder and (ii) the Assignor shall, to the extent provided in this
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Agreement.
6. Upon such acceptance by the Documentation Agent and the
Liquidity Agent and upon such recording by the Deal Agent, from and after the
Transfer Date, the Deal Agent and the Liquidity Agent shall make, or cause to be
made, all payments under the Agreement in respect of the interest assigned
hereby (including, without limitation, all payments of principal, interest and
Facility Fee with respect thereto) to the Assignee. The Assignor and Assignee
shall make all appropriate adjustments in payments under the Agreement for
periods prior to the Transfer Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of North Carolina.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment and Acceptance to be executed by their respective officers thereunto
duly authorized, as of the date first above written, such execution being made
on Schedule 1 hereto.
[ASSIGNOR]
By:_________________________
Name:
Title:
Address for notices
[Address]
[ASSIGNEE]
By:________________________
Name:
Title:
Address for notices
[Address]
Acknowledged and accepted
this ___ day of ___________, ____
FIRST UNION NATIONAL BANK
as Liquidity Agent
By:___________________________
Name:
Title:
Acknowledged and accepted
this ___ day of ___________, ____
FIRST UNION CAPITAL MARKETS CORP.,
as Deal Agent
By:___________________________
Name:
Title:
<PAGE>
Schedule 1
to
Assignment and Acceptance
Dated _________, 19__
Section 1.
Percentage Interest: ________%
Section 2.
Assignee's Commitment: $____________
Aggregate Outstanding
Advances Owing to
the Assignee: $_____________
Section 3.
Transfer Date: ___________________, 19__
<PAGE>
EXHIBIT E
FORM OF MONTHLY REPORT
FINANCIAL COVENANTS/TERMINATION EVENTS
AMERICAN CAPITAL STRATEGIES, LTD. as Servicer
For the month of _____________
<PAGE>
EXHIBIT F
FORM OF SERVICER'S CERTIFICATE
This Servicer's Certificate is delivered pursuant to the provisions of Section
6.17(b) of the Loan Funding and Servicing Agreement dated as of March 31, 1999,
by and among ACS Funding Trust I, as Borrower, American Capital Strategies,
Ltd., as servicer, Variable Funding Capital Corporation, as a lender, the
Investors named therein, Norwest Bank Minnesota, National Association, as backup
servicer and as collateral custodian, First Union Capital Markets Corp., as deal
agent, and First Union National Bank, as a lender and liquidity agent
(hereinafter as such agreement may have been, or may from time to time be
amended, supplemented or otherwise modified, the "Agreement"). This Servicer's
Certificate relates to applicable Collection Period and relating to applicable
Payment Date, and the Monthly Report for such Monthly Period, which Monthly
Report is set forth on attached Schedule A.
A. Capitalized terms used and not otherwise defined herein have
the meanings assigned them in the Agreement. References herein
to certain subsections are referenced to the respective
subsections of the Agreement.
B. The Servicer is the Servicer under the Agreement.
C. The undersigned hereby certifies to the Deal Agent and the
Secured Parties that all of the foregoing information and all
of the information set forth on attached Schedule A is true
and accurate in all material respects of the date hereof.
IN WITNESS WHEREOF, the undersigned has caused this Servicer's Certificate to be
duly executed this ____ day of ___________________.
AMERICAN CAPITAL STRATEGIES, LTD.,
as Servicer
By:
---------------------------
<PAGE>
EXHIBIT G
CREDIT AND COLLECTION POLICY
[to be provided by Originator]
<PAGE>
EXHIBIT H
FORM OF HEDGING AGREEMENT
[to be provided]
<PAGE>
EXHIBIT I
FORM OF CERTIFICATE OF BORROWER
[____________ ___, 1999]
Norwest Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0070
FIRST UNION CAPITAL MARKETS CORP.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Re: Loans in the aggregate principal amount of $____, from
American Capital Strategies, Ltd. (the "Originator") to ACS
Funding Trust (the "Borrower") in connection with [Obligor]
(the "Obligor")(collectively, the "Loan")
To whom it may concern:
In connection with the Loan, the undersigned (i) acknowledges that the
Originator has granted a security interest to First Union Capital Markets Corp.,
as agent for the Secured Parties (the "Deal Agent") in each of the items
indicated on the closing checklist attached hereto (the "Checklist"), and (ii)
certifies to you that as of the day of funding the Loan:
A. It has received, reviewed and approved the Checklist items, in
the form and subject to those exceptions or matters indicated
on the Checklist;
B. A copy of the executed promissory note has been faxed to the
Collateral Custodian. The original promissory note(s) is/are
in our possession and will be forwarded to Norwest Bank
Minnesota, National Association, as Collateral Custodian (the
"Collateral Custodian") or as otherwise directed in writing to
Arnold & Porter (hereinafter referred to as "Borrower's
Counsel") by the Deal Agent, for receipt within two (2)
business days after the funding date of the transaction;
<PAGE>
C. Within ten (10) business days after the closing, all remaining
Security Documents which are in our possession and indicated
on Schedule 1 attached hereto, will be forwarded to the
Collateral Custodian; and
D. Notwithstanding any contrary instruction from the Originator,
in the event the Loan is funded, it will follow the written
direction of the Deal Agent with regard to the original
promissory note(s) in its possession, provided that in the
event it reasonably believes that a dispute exists as to
custody of any Security Documents, it may deposit them with a
court of competent jurisdiction and be relieved of its
obligations hereunder with respect to any and all documents so
deposited.
Collateral Custodian, Deal Agent, [Originator] and Borrower's Counsel
acknowledge and agree that:
1. The security interest and the rights in the Security Documents
granted to the Deal Agent, as agent for the Secured Parties,
are paramount and superior to the rights of the Originator.
2. Borrower's Counsel shall not be required to perform any duties
other than the duties expressly set forth in this letter. No
implied obligations or duties shall be inferred by any other
agreement, written or verbal, or any representation made by
any party.
3. Borrower's Counsel is authorized to comply with and obey laws,
orders, judgments, decrees and regulations of any governmental
authority, court, tribunal, or arbitrator. If Borrower's
Counsel complies with any such law, order, judgment, decree,
or regulation Borrower's Counsel shall not be liable to
Collateral Custodian, Deal Agent or the Originator or to any
other person even is such law, order, judgment, decree or
regulation is subsequently reversed, modified, annulled, set
aside, vacated, found to have been entered without
jurisdiction, or found to be in violation or beyond the scope
of the law.
4. Borrower's Counsel shall be responsible hereunder solely to
hold the original promissory note(s) for the Deal Agent's
account and other documents for Collateral Custodian's and
Originator's account and to deliver the same in accordance
with the terms of this letter.
5. Borrower's Counsel may act relative hereto upon the advice of
counsel in reference to any matter in connection herewith and
shall not be liable for any mistakes of fact or errors of
judgment, or for any acts or omissions of any kind unless
caused by its own willful misconduct or gross negligence.
6. Borrower's Counsel shall be entitled to rely or act upon any
notice, direction, instrument or document believed by
Borrower's Counsel to be genuine and to be executed and
delivered by the proper person and shall have no obligation to
verify
<PAGE>
any statements contained in any notice, instrument or
document or the accuracy or due authorization of the execution
of any notice, instrument or document.
7. Borrower's Counsel shall not be responsible or liable in any
manner whatsoever for (a) the sufficiency, correctness,
genuineness or validity of any document, agreement or
instrument delivered to it, (b) the form of execution of any
such document, agreement or instrument, (c) the identity,
authority or rights of any person executing or delivering any
such document, agreement or instrument, or (d) the terms and
conditions of any instrument pursuant to which the parties may
act.
8. Borrower's Counsel may serve and shall continue to serve as
counsel to the Originator in connection with the transactions
contemplated by the Loan and other matters, and
notwithstanding anything herein to the contrary, may represent
the Originator (or any affiliate) as its counsel in any
action, suit or other proceeding in which Collateral
Custodian, Deal Agent or Originator (or any affiliate) may be
involved.
9. Borrower's Counsel shall be deemed to have satisfied any
delivery requirement set forth herein if it shall have
deposited the relevant documents for uninsured overnight
delivery (properly addressed) with Federal Express, UPS or
other overnight courier of national standing.
Very truly yours,
ARNOLD & PORTER
By:
-------------------------
Name:
Title:
(Acceptance on following page)
<PAGE>
ACCEPTED AND AGREED:
AMERICAN CAPITAL STRATEGIES, LTD.,
as loan originator
By:
-----------------------------
Name:
Title:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Collateral Custodian
By:
-----------------------------
Name:
Title:
FIRST UNION CAPITAL MARKETS CORP.,
as Deal Agent
By:
-----------------------------
Name:
Title:
<PAGE>
SCHEDULE 1
SECURITY DOCUMENTS
Security Documents are defined as the following documents:
(i) all Loans:
(a) original of promissory note executed in favor of
Originator or Borrower and any reformation thereof or endorsed or
assigned to Originator or Borrower (if purchased by such Person) and
endorsed by Borrower without recourse in blank (along with any
reformation thereof);
(ii) in the case of Loans secured by real property:
(a) original mortgages or deeds of trust or other
security instrument (including a leasehold mortgage, if applicable)
securing the above note; provided, that, in lieu of a recorded
document, the Collateral Custodian may accept a copy certified by the
records office or escrow or title company or Originator or Borrower, if
applicable;
(b) original assignment in blank of the mortgage or
deed of trust or other security instrument (including a leasehold
mortgage, if applicable) by Borrower to the Collateral Custodian in
recordable form and the original or a copy, certified by the records
office or escrow or title company or Originator or Borrower (in the
case of a copy), of a properly recorded assignment or assignments of
the related mortgage or deed of trust or other instrument from the
original holder, through any subsequent transferees, to Borrower or
Originator;
(c) if any of the above items were executed pursuant
to a power of attorney, a copy of such; and
(iii) in the case of Loans secured in part by personal property, the
following, as and to the extent applicable in accordance with the terms
of the Loan:
(aa) copy of any guaranties, if any, and as
identified on the closing checklist and certification;
(bb) copy of executed security agreements relating to
furnishings, fixtures and equipment securing each Loan;
(cc) copies of all UCC filings with respect to
furnishings, fixtures and equipment securing each Loan; and
(dd) if any of the above items were executed pursuant
to a power of attorney, a copy of such.
<PAGE>
EXHIBIT J
FORM OF TRUST RECEIPT
[Delivery Date]
BY FACSIMILE: (704) 383-6036
FIRST UNION CAPITAL MARKETS CORP.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attn: Conduit Administration
Re: Loan Funding and Servicing Agreement dated as of March 31,
1999 (as amended, modified, supplemented or restated from time
to time, the "Agreement"), by and among ACS Funding Trust I,
as borrower, American Capital Strategies, Ltd., Variable
Funding Capital Corporation, as a lender, the Investors named
therein, Norwest Bank Minnesota, National Association, as
backup servicer and as collateral custodian, First Union
Capital Markets Corp., as deal agent, and First Union National
Bank, as a lender and liquidity agent.
Ladies and Gentlemen:
In accordance with the provisions of Section 6.10 of the above-referenced
Agreement, the undersigned, as the Collateral Custodian, hereby certifies that
it has received each Loan identified on the Loan List attached hereto as Exhibit
I. The Collateral Custodian makes no representations as to (i) the validity,
legality, enforceability, sufficiency, due authorization or genuineness of any
of the documents contained in each Loan File or of any of the Loans or (ii) the
collectability, insurability, effectiveness or suitability of any such Loan.
The Collateral Custodian hereby confirms that it is holding each such Loan
Document as agent and bailee of, and custodian for the exclusive use and
benefit, and subject to the sole direction, of the Deal Agent pursuant to the
terms and conditions of the Agreement.
The Collateral Custodian will accept and act on instructions with respect to the
Loans subject hereto upon surrender of this Trust Receipt and Initial
Certification at its office at Sixth Street and Marquette Avenue, Minneapolis,
Minnesota 55479-0070.
Capitalized terms used herein shall have the meaning ascribed to them in the
Agreement.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Collateral Custodian
<PAGE>
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT K
FORM OF TRUST RECEIPT AND FINAL CERTIFICATION
Trust Receipt #__________
[Delivery Date]
BY FACSIMILE: (704) 383-6036
FIRST UNION CAPITAL MARKETS CORP.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attn: Conduit Administration
Re: Loan Funding and Servicing Agreement dated as of March 31,
1999 (as amended, modified, supplemented or restated from time
to time, the "Agreement"), by and among ACS Funding Trust I,
as borrower, American Capital Strategies, Ltd., as servicer,
Variable Funding Capital Corporation, as a lender, the
Investors named therein, Norwest Bank Minnesota, National
Association, as backup servicer and as collateral custodian,
First Union Capital Markets Corp., as deal agent, and First
Union National Bank, as a lender and as liquidity agent.
Ladies and Gentlemen:
In accordance with the provisions of Section 6.10 of the above-referenced
Agreement, the undersigned, as the Collateral Custodian, hereby certifies that
as to each Loan listed on the Loan List it has reviewed the Loan Files and has
determined (other than any Loan paid in full or any Loan listed on the
attachment hereto) that (i) all Loan Documents listed on the related Loan List
are in its possession; (ii) such documents have been reviewed by it and appear
regular on their face and related to such Loan; (iii) as to each Loan that is
secured by an interest in real property, all assignments of mortgage (or deed of
trust or other security instrument) or intervening assignments of mortgage (or
deed of trust or other security instrument), as applicable, have been submitted
for recording in the jurisdictions in which recording is necessary; and (iv) as
to each Loan that is secured by an interest in real property, each mortgage note
has been endorsed in blank. The Collateral Custodian makes no representations as
to (i) the validity, legality, enforceability, sufficiency, due authorization or
genuineness of any of the documents contained in each Loan File or of any of the
Loans or (ii) the collectability, insurability, effectiveness or suitability of
any such Loan.
The Collateral Custodian hereby confirms that it is holding each such Loan File
as agent and bailee of, and custodian for the exclusive use and benefit, and
subject to the sole direction, of the Deal Agent pursuant to the terms and
conditions of the Agreement.
<PAGE>
The Collateral Custodian will accept and act on instructions with respect to the
Loans subject hereto upon surrender of this Trust Receipt and Final
Certification at its office at Sixth Street and Marquette Avenue, Minneapolis,
Minnesota 55479-0070.
Capitalized terms used herein shall have the meaning ascribed to them in the
Agreement.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
as Collateral Custodian
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT L
FORM OF REQUEST FOR RELEASE OF DOCUMENTS AND RECEIPT
[Delivery Date]
BY FACSIMILE: (704) 383-6036
FIRST UNION CAPITAL MARKETS CORP.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attn: Conduit Administration
Re: Loan Funding and Servicing Agreement dated as of March 31,
1999 (as amended, modified, supplemented or restated from time
to time, the "Agreement"), by and among ACS Funding Trust I,
as borrower, American Capital Strategies, Ltd., as servicer,
Variable Funding Capital Corporation, as a lender, the
Investors named therein, Norwest Bank Minnesota, National
Association, as backup servicer and as collateral custodian,
First Union Capital Markets Corp., as deal agent, and First
Union National Bank, as a lender and as liquidity agent.
Ladies and Gentlemen:
In connection with the administration of the Loans held by you as the Collateral
Custodian on behalf of the Deal Agent under the Agreement, we request the
release, and acknowledge receipt, of the Loan File for the Loan described below,
for the reason indicated.
Obligor's Name Address & Zip Code:
Loan Number:
Reason for Requesting Documents (check one)
____ 1. Loan Paid in Full. (The Servicer hereby certifies that all
amounts received in connection therewith have been credited to the account of
the Deal Agent.)
____ 2. Loan Liquidated By ______________________ (The Servicer hereby
certifies that all proceeds of foreclosure, insurance, condemnation or other
liquidation have been finally received and credited to the account of the Deal
Agent.)
<PAGE>
____ 3. Loan in Foreclosure.
____ 4. Other (explain) .
------------------------------
If box 1 or 2 above is checked, and if all or part of the Loan File was
previously released to us, please release to us our previous request and receipt
on file with you, as well as any additional documents in your possession
relating to the specified Loan.
If box 3 or 4 above is checked, upon our return of all of the above documents to
you as the Collateral Custodian, please acknowledge your receipt by signing in
the space indicated below, and returning this form.
AMERICAN CAPITAL STRATEGIES, LTD., as Servicer
By:__________________________
Name:
Title:
Date:
---------------------
Acknowledgment of Documents returned to the Collateral Custodian:
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Collateral Custodian
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT M-1
ASSIGNMENT AND ACCEPTANCE OF INTEREST AND DOCUMENTS
THIS ASSIGNMENT AND ACCEPTANCE OF INTERESTS AND DOCUMENTS (the
"Assignment") is made this ____ day of __________, _____ by and between AMERICAN
CAPITAL STRATEGIES, LTD., a Delaware corporation (the "Assignor") and
_____________, a(n) ___________________________ (the "Assignee") with respect to
the following matters.
W I T N E S S E T H:
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Assignor hereby assigns, sells, transfers,
conveys, sets over and delivers unto Assignee, its successors and assigns, all
of Assignor's estate, right, title and interest in, to and under, and Assignee
hereby accepts such assignment with respect to the transaction documents listed
on Exhibit "A" (the "Transaction Documents") attached hereto and made a part
hereof.
Assignee hereby assumes the performance of all of the terms, covenants
and conditions imposed upon Assignor under the Transaction Documents, accruing
or arising on or after the date of this Agreement.
This Assignment shall constitute any required notice under each
relevant Transaction Document relating to assignment thereunder.
This Assignment may be executed simultaneously in counterparts, each of
which shall be deemed an original, but all of which, together, shall constitute
one and the same instrument.
This Assignment shall be binding upon and inure to the benefit of the
successors, assignees, personal representatives, heirs and legatees of all the
respective parties hereto.
This Assignment shall be governed by, interpreted under, and construed
and enforceable in accordance with, the internal laws of the State of Illinois
applicable to contracts made and to be performed entirely within such State.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, this Assignment is entered into as of the date
first set forth above.
"Assignor"
AMERICAN CAPITAL STRATEGIES, LTD.,
a Delaware corporation
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
3 Bethesda Metro Center, Suite 860
Bethesda, Maryland 20814
Attention: Mr. John Erickson
Fax: (301) 654-6714
"Assignee"
----------------------------------
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
Attention:
----------------------------
Fax:
----------------------------
<PAGE>
EXHIBIT "A"
Transaction Documents
See Attached.
<PAGE>
EXHIBIT M-2
(For Recorder's Use Only)
ASSIGNMENT OF SECOND MORTGAGE AND
SECURITY AGREEMENT
For value received, AMERICAN CAPITAL STRATEGIES, LTD., a Delaware
corporation having an office at 3 Bethesda Metro Center, Suite 860, Bethesda,
Maryland 20814, as Assignor, has this day transferred, sold, assigned, conveyed
and set over to ______________________________________, a(n)
________________________________ with an address at
______________________________________, as Assignee, its successors,
representatives and assigns, all its right, title and interest in and to that
certain Second Mortgage and Security Agreement dated _______________ executed by
_____________________, a ____________ corporation, which Second Mortgage and
Security Agreement was recorded in the Office of the Recorder of Deeds of
_________________ County, New York on _______________________ as Document No.
_______________________, with respect to the property legally described on
Exhibit A attached hereto. The Assignor herein, specifically transfers, sells,
conveys and assigns to the above Assignee, its successors, representatives and
assigns, the aforesaid Second Mortgage and Security Agreement, the liens and
security interests described therein, and the indebtedness secured thereby,
together with all of the rights, remedies, powers, options privileges and
immunities therein contained.
<PAGE>
IN WITNESS WHEREOF, the Assignor has hereunto set its hand and
corporate seal effective as of the ____ day of ______________.
AMERICAN CAPITAL STRATEGIES, LTD.
a Delaware corporation
By:___________________________________
Title:________________________________
[CORPORATE SEAL]
Attest:__________________________
Title:___________________________
STATE OF ________________ )
)ss
COUNTY OF _______________ )
I, the undersigned, a Notary Public within and for said State and
County aforesaid, hereby certify that on this _____ day of ___________, _______,
personally appeared before me ___________________ and __________________ to me
known to be the individuals described in and who executed the foregoing
instrument, and acknowledged that they signed and sealed the same as their free
and voluntary act and deed, for the uses and purposes therein mentioned.
Given under my hand and official seal the day and year first above
written.
Notary Public
(SEAL)
My commission expires:_________________
<PAGE>
EXHIBIT A
Legal Description
Please see attached.
<PAGE>
EXHIBIT N
FORM OF REINVESTMENT CERTIFICATION
ACS FUNDING TRUST I
First Union Capital Markets Corp., as Deal Agent
One First Union Center, TW-9
Charlotte, North Carolina 28288
Ladies and Gentlemen:
This certification is delivered to you under Section 3.2 of that certain Loan
Funding and Servicing Agreement dated as of March 31, 1999 (as amended,
modified, supplemented or restated from time to time, the "Agreement"), by and
among ACS Funding Trust I, as the borrower (the "Borrower"), American Capital
Strategies, Ltd., as servicer, Variable Funding Capital Corporation, as a
lender, the Investors named therein, Norwest Bank Minnesota, National
Association, as backup servicer and as collateral custodian, First Union Capital
Markets Corp., as deal agent, and First Union National Bank, as a lender and as
liquidity agent. All capitalized undefined terms used herein have the meaning
assigned thereto in the Agreement.
Each of the undersigned, each being a duly elected officer of the Borrower and
the Servicer, respectively, holding the office set forth below such officer's
name, hereby certifies as follows:
1. The Borrower hereby notifies you that on the date first written above
it will use Principal Collections in amount of $_____________ to
acquire additional Loans.
2. Attached to this certification is a true, correct and complete
calculation of the Borrowing Base and all components thereof.
3. Attached to this Borrower Notice is a true, correct and complete Loan
List, reflecting all Loans which will become part of the Collateral on
the date hereof, each Loan reflected thereon being an Eligible Loan.
4. All of the conditions applicable to the Advance requested herein as set
forth in the Agreement have been satisfied as of the date hereof and
will remain satisfied to the date of such Advance, including
(i) The representations and warranties of such Person
set forth in the Agreement, as the case may be, are true and
correct on and as of such date (except to the extent any such
representation and warranty relates solely to an earlier
date), before and after giving effect to such borrowing or
reinvestment and to the application of the proceeds therefrom,
as though made on and as of such date;
<PAGE>
(ii) No event has occurred, or would result from such
Advance or reinvestment or from the application of the
proceeds therefrom, which constitutes a Termination Event;
(iii) Such Person is in material compliance with each
of its covenants set forth herein; and
(iv) No event has occurred that constitutes a
Servicer Termination Event.
IN WITNESS WHEREOF, the undersigned has executed the Reinvestment Certification
this ______ day of ____________, _____.
ACS FUNDING TRUST I,
as Borrower
By:_______________________________
Name:
Title:
AMERICAN CAPITAL STRATEGIES, LTD.,
as Servicer
By:_______________________________
Name:
Title:
<PAGE>
EXHIBIT O-1
OFFICER'S CERTIFICATE AS TO SOLVENCY
AMERICAN CAPITAL STRATEGIES, LTD.
The undersigned, a duly elected Vice President of American
Capital Strategies, Ltd. (the "Corporation"), hereby certifies in connection
with (i) that certain Purchase and Sale Agreement (the "Sale Agreement") dated
as of March 31, 1999, by and between the Corporation and ACS Funding Trust I,
and (ii) that certain Loan Funding and Servicing Agreement (the "Agreement")
dated as of March 31, 1999, by and among ACS Funding Trust I, as borrower, the
Corporation, as servicer, Variable Funding Capital Corporation, as a lender, the
Investors named therein, Norwest Bank Minnesota, National Association, as backup
servicer and as collateral custodian, First Union Capital Markets Corp., as deal
agent, and First Union National Bank, as a lender and as liquidity agent, for
the benefit of the Seller, the Deal Agent and the Secured Parties and their
respective successors and assigns, as follows:
1. Capitalized terms used and not otherwise defined herein
shall have the respective meanings ascribed to them in the Sale Agreement and
Agreement.
2. Both before and after giving effect to (a) the transactions
contemplated by the Sale Agreement and the other Transaction Documents and (b)
the payment and accrual of all transaction costs in connection with the
foregoing, the Corporation is and will be Solvent.
IN WITNESS WHEREOF, I have signed and delivered this Officer's
Certificate this ______ day of March, 1999.
By:____________________________
Name:
Title:
<PAGE>
EXHIBIT O-2
OFFICER'S CERTIFICATE AS TO SOLVENCY
ACS FUNDING TRUST I
The undersigned, a duly elected [Vice President] of ACS
Funding Trust I (the "Trust"), hereby certifies in connection with (i) that
certain Purchase and Sale Agreement (the "Sale Agreement") dated as of March 31,
1999, by and between the Trust and American Capital Strategies, Ltd., and (ii)
that certain Loan Funding and Servicing Agreement (the "Agreement") dated as of
March 31, 1999, by and among ACS Funding Trust I, as seller, the Trust, as
servicer, Variable Funding Capital Corporation, as a lender, the Investors named
therein, Norwest Bank Minnesota, National Association, as backup servicer and as
collateral custodian, First Union Capital Markets Corp., as deal agent, and
First Union National Bank, as a lender and as liquidity agent, for the benefit
of the Seller, the Deal Agent and the Secured Parties and their respective
successors and assigns, as follows:
1. Capitalized terms used and not otherwise defined herein
shall have the respective meanings ascribed to them in the Sale Agreement and
Agreement.
2. Both before and after giving effect to (a) the transactions
contemplated by the Sale Agreement and the other Transaction Documents and (b)
the payment and accrual of all transaction costs in connection with the
foregoing, the Trust is and will be Solvent.
IN WITNESS WHEREOF, I have signed and delivered this Officer's
Certificate this ____ day of March, 1999.
By:__________________________
Name:
Title:
<PAGE>
EXHIBIT P-1
OFFICER'S CLOSING CERTIFICATE
AMERICAN CAPITAL STRATEGIES, LTD.
The undersigned, a duly elected Vice President of American
Capital Strategies, Ltd. (the "Corporation"), hereby certifies in connection
with (i) that certain Purchase and Sale Agreement dated as of March 31, 1999
(the "Sale Agreement"), by and between the Corporation, as seller and ACS
Funding Trust I, as buyer (the "Buyer"), (ii) that certain Loan Funding and
Servicing Agreement dated as of March 31, 1999 (the "Agreement"), by and among
the Buyer, as borrower, the Corporation, as servicer, Variable Funding Capital
Corporation, as a purchaser, the Investors named therein, Norwest Bank
Minnesota, National Association, as backup servicer and as collateral custodian,
First Union Capital Markets Corp., as deal agent, and First Union National Bank,
as a lender and as liquidity agent, and (iii) the other Transaction Documents,
for the benefit of the Deal Agent and the Secured Parties, as follows:
1. Capitalized terms herein and not otherwise defined shall
have the respective meanings ascribed to them in the Sale Agreement and the
Agreement.
2. Each of the representations and warranties of the
Corporation contained in any of the Transaction Documents are true and correct
on and as of the Closing Date as though made on and as of such date (except to
the extent any such representation and warranty relates solely to an earlier
date), and no event has occurred and is continuing, or would result from the
transactions effected pursuant thereto as of the Closing Date, that constitutes
or would constitute a Termination Event or default by the Servicer.
3. The Corporation is in material compliance with all federal,
state, and local laws and regulations, including those relating to labor and
environmental matters and ERISA.
4. Except as otherwise indicated on a schedule to a
Transaction Document, or as otherwise consented to by the Deal Agent, the
Corporation has delivered to the Deal Agent true and correct copies of all
documents required to be delivered by it to the Deal Agent pursuant to the
Transaction Documents, all such documents are complete and correct in all
material respects on and as of the Closing Date, and each and every other
contingency to the closing of the transactions contemplated by the Transaction
Documents has been performed.
<PAGE>
5. The Corporation has conveyed the Purchased Assets to the
Buyer free and clear of all Liens.
IN WITNESS WHEREOF, I have signed and delivered this Officer's
Certificate this _____ day of March, 1999.
Very truly yours,
____________________________________________
Name:
Title:
<PAGE>
EXHIBIT P-2
OFFICER'S CLOSING CERTIFICATE
ACS FUNDING TRUST I.
The undersigned, a duly appointed trustee of ACS Funding Trust
I (the "Trust"), hereby certifies in connection with that certain Loan Funding
and Servicing Agreement dated as of March 31, 1999 (the "Agreement"), by and
among the Trust, as borrower, American Capital Strategies, Ltd., as servicer,
Variable Funding Capital Corporation, as a purchaser, the Investors named
therein, Norwest Bank Minnesota, National Association, as backup servicer and as
collateral custodian, First Union Capital Markets Corp., as deal agent, and
First Union National Bank, as a lender and as liquidity agent, and the other
Transaction Documents, for the benefit of the Deal Agent and the Secured
Parties, as follows:
1. Capitalized terms herein and not otherwise defined shall
have the respective meanings ascribed to them in the Agreement.
2. Each of the representations and warranties of the Trust
contained in any of the Transaction Documents are true and correct on and as of
the Closing Date as though made on and as of such date (except to the extent any
such representation and warranty relates solely to an earlier date), and no
event has occurred and is continuing, or would result from the transactions
effected pursuant thereto as of the Closing Date, that constitutes or would
constitute a Termination Event.
3. The Trust is in material compliance with all federal,
state, and local laws and regulations, including those relating to labor and
environmental matters and ERISA.
4. Except as otherwise indicated on a schedule to a
Transaction Document or as otherwise consented to by the Deal Agent, the Trust
has delivered to the Deal Agent true and correct copies of all documents
required to be delivered to the Deal Agent pursuant to the Transaction
Documents, all such documents are complete and correct in all material respects
on and as of the Closing Date, and each and every other contingency to the
closing of the transactions contemplated by the Transaction Documents has been
performed.
<PAGE>
5. No Liens have arisen or been granted with respect to the
Collateral other than Permitted Liens.
IN WITNESS WHEREOF, I have signed and delivered this Officer's
Certificate this ______ day of March, 1999.
Very truly yours,
________________________________________
Name:
Title:
<PAGE>
EXHIBIT Q-1
POWER OF ATTORNEY
This Power of Attorney is executed and delivered by American
Capital Strategies, Ltd., as the Servicer (the "Servicer") under the Agreement
(each as defined below), to First Union Capital Markets Corp., as Deal Agent
under the Agreement (hereinafter referred to as "Attorney"), pursuant to that
certain Loan Funding and Servicing Agreement dated as of March 31, 1999 (the
"Agreement"), by and among ACS Funding Trust I, as borrower, Servicer, as
servicer, Variable Funding Capital Corporation, as a purchaser, the Investors
named therein, Norwest Bank Minnesota, National Association, as backup servicer
and as collateral custodian, Deal Agent, as deal agent, and First Union National
Bank, as a lender and as liquidity agent, and the other Transaction Documents.
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Agreement. No person to whom this Power of Attorney is
presented, as authority for Attorney to take any action or actions contemplated
hereby, shall inquire into or seek confirmation from Servicer as to the
authority of Attorney to take any action described below, or as to the existence
of or fulfillment of any condition to this Power of Attorney, which is intended
to grant to Attorney unconditionally the authority to take and perform the
actions contemplated herein, and Servicer irrevocably waives any right to
commence any suit or action, in law or equity, against any person or entity that
acts in reliance upon or acknowledges the authority granted under this Power of
Attorney. The power of attorney granted hereby is coupled with an interest and
may not be revoked or canceled by Servicer until all Obligations of the Servicer
under the Transaction Documents have been indefeasibly paid in full and Attorney
has provided its written consent thereto.
Servicer hereby irrevocably constitutes and appoints Attorney
(and all officers, employees or agents designated by Attorney), with full power
of substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in its place and stead and in its name or in Attorney's own
name, from time to time in Attorney's discretion, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments that may be necessary or desirable to accomplish the purposes of
this Agreement, and, without limiting the generality of the foregoing, hereby
grants to Attorney the power and right, on its behalf, without notice to or
assent by it, upon the occurrence and during the continuance of any Termination
Event, to do the following: (a) open mail for Servicer, and ask, demand,
collect, give acquittances and receipts for, take possession of, or endorse and
receive payment of, any checks, drafts, notes, acceptances, or other instruments
for the payment of moneys due, and sign and endorse any invoices, freight or
express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, and notices in connection with any of
Servicer's property; (b) effect any repairs to any of Servicer's assets, or
continue or obtain any insurance and pay all or any part of the premiums
therefor and costs thereof, and make, settle and adjust all claims under such
policies of insurance, and make all determinations and decisions with respect to
such policies; (c) pay or discharge any taxes, Liens, or other encumbrances
levied or placed on or threatened against Servicer or Servicer's property; (d)
defend any suit, action or proceeding brought against Servicer if Servicer does
not defend such suit, action or proceeding or if Attorney
<PAGE>
believes that it is not pursuing such defense in a manner that will maximize the
recovery to Attorney, and settle, compromise or adjust any suit, action, or
proceeding described above and, in connection therewith, give such discharges or
releases as Attorney may deem appropriate; (e) file or prosecute any claim,
litigation, suit or proceeding in any court of competent jurisdiction or before
any arbitrator, or take any other action otherwise deemed appropriate by
Attorney for the purpose of collecting any and all such moneys due to Servicer
whenever payable and to enforce any other right in respect of Servicer's
property; (f) sell, transfer, pledge, make any agreement with respect to, or
otherwise deal with, any of Servicer's property, and execute, in connection with
such sale or action, any endorsements, assignments or other instruments of
conveyance or transfer in connection therewith; and (g) cause the certified
public accountants then engaged by Servicer to prepare and deliver to Attorney
at any time and from time to time, promptly upon Attorney's request, any reports
required to be prepared by or on behalf of Servicer under the Agreement or any
other Transaction Document, all as though Attorney were the absolute owner of
its property for all purposes, and to do, at Attorney's option and Servicer's
expense, at any time or from time to time, all acts and other things that
Attorney reasonably deems necessary to perfect, preserve, or realize upon its
property or assets and the Liens of the Deal Agent as agent for the Secured
Parties thereon, all as fully and effectively as it might do. Servicer hereby
ratifies, to the extent permitted by law, all that said attorneys shall lawfully
do or cause to be done by virtue hereof.
[Remainder of Page Left Intentionally Blank]
<PAGE>
IN WITNESS WHEREOF, this Power of Attorney is executed by
Servicer, and Servicer has caused its seal to be affixed pursuant to the
authority of its board of directors as of this ____ day of ___________, 1999.
Very truly yours,
AMERICAN CAPITAL STRATEGIES, LTD.
(CORPORATE SEAL)
By:______________________________
Name:
Title:
Sworn to and subscribed before
me this _____ day of ______________, 1999:
__________________________________________
Notary Public
<PAGE>
Exhibits and schedules (American Capital)
EXHIBIT Q-2
POWER OF ATTORNEY
This Power of Attorney is executed and delivered by ACS
Funding Trust I, as the Borrower (the "Borrower") under the Agreement (each as
defined below), to First Union Capital Markets Corp., as Deal Agent under the
Agreement (hereinafter referred to as "Attorney"), pursuant to that certain Loan
Funding and Servicing Agreement dated as of March 31, 1999 (the "Agreement"), by
and among Seller, as borrower, American Capital Strategies, Ltd., as servicer,
Variable Funding Capital Corporation, as a purchaser, the Investors named
therein, Norwest Bank Minnesota, National Association, as backup servicer and as
collateral custodian, Deal Agent, as deal agent, and First Union National Bank,
as a lender and as liquidity agent, and the other Transaction Documents.
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Agreement. No person to whom this Power of Attorney is
presented, as authority for Attorney to take any action or actions contemplated
hereby, shall inquire into or seek confirmation from Borrower as to the
authority of Attorney to take any action described below, or as to the existence
of or fulfillment of any condition to this Power of Attorney, which is intended
to grant to Attorney unconditionally the authority to take and perform the
actions contemplated herein, and Borrower irrevocably waives any right to
commence any suit or action, in law or equity, against any person or entity that
acts in reliance upon or acknowledges the authority granted under this Power of
Attorney. The power of attorney granted hereby is coupled with an interest and
may not be revoked or canceled by Borrower until all Obligations of the Borrower
under the Transaction Documents have been indefeasibly paid in full and Attorney
has provided its written consent thereto.
Borrower hereby irrevocably constitutes and appoints Attorney
(and all officers, employees or agents designated by Attorney), with full power
of substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in its place and stead and in its name or in Attorney's own
name, from time to time in Attorney's discretion, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments that may be necessary or desirable to accomplish the purposes of
this Agreement, and, without limiting the generality of the foregoing, hereby
grants to Attorney the power and right, on its behalf, without notice to or
assent by it, upon the occurrence and during the continuance of any Termination
Event, to do the following: (a) open mail for Borrower, and ask, demand,
collect, give acquittances and receipts for, take possession of, or endorse and
receive payment of, any checks, drafts, notes, acceptances, or other instruments
for the payment of moneys due, and sign and endorse any invoices, freight or
express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, and notices in connection with any of
Borrower's property; (b) effect any repairs to any of Borrower's assets, or
continue or obtain any insurance and pay all or any part of the premiums
therefor and costs thereof, and make, settle and adjust all claims under such
policies of insurance, and make all determinations and decisions with respect to
such policies; (c) pay or discharge any taxes, Liens, or other encumbrances
levied or placed on or threatened against Borrower or Borrower's property; (d)
defend any suit, action or proceeding
<PAGE>
brought against Borrower if Borrower does not defend such suit, action or
proceeding or if Attorney believes that it is not pursuing such defense in a
manner that will maximize the recovery to Attorney, and settle, compromise or
adjust any suit, action, or proceeding described above and, in connection
therewith, give such discharges or releases as Attorney may deem appropriate;
(e) file or prosecute any claim, litigation, suit or proceeding in any court of
competent jurisdiction or before any arbitrator, or take any other action
otherwise deemed appropriate by Attorney for the purpose of collecting any and
all such moneys due to Borrower whenever payable and to enforce any other right
in respect of Borrower's property; (f) sell, transfer, pledge, make any
agreement with respect to, or otherwise deal with, any of Borrower's property,
and execute, in connection with such sale or action, any endorsements,
assignments or other instruments of conveyance or transfer in connection
therewith; and (g) cause the certified public accountants then engaged by
Borrower to prepare and deliver to Attorney at any time and from time to time,
promptly upon Attorney's request, any reports required to be prepared by or on
behalf of Borrower under the Agreement or any other Transaction Document, all as
though Attorney were the absolute owner of its property for all purposes, and to
do, at Attorney's option and Borrower's expense, at any time or from time to
time, all acts and other things that Attorney reasonably deems necessary to
perfect, preserve, or realize upon its property or assets and the Liens of the
Deal Agent as agent for the Secured Parties thereon, all as fully and
effectively as it might do. Borrower hereby ratifies, to the extent permitted by
law, all that said attorneys shall lawfully do or cause to be done by virtue
hereof.
[Remainder of Page Left Intentionally Blank]
<PAGE>
IN WITNESS WHEREOF, this Power of Attorney is executed by
Borrower, and Borrower has caused its seal to be affixed pursuant to the
authority of its board of directors as of this ____ day of ________, 1999.
Very truly yours,
ACS FUNDING TRUST I
(CORPORATE SEAL)
By:_____________________________
Name:
Title:
Sworn to and subscribed before
me this _____ day of ______________, 1999:
__________________________________________
Notary Public
<PAGE>
EXHIBIT R
FORM OF LOCK-BOX AGREEMENT
March 31, 1999
[Name and Address of Lock-Box Bank]
Re: [Borrower]
Lock-Box No. ____________
Lock-Box Account No. _________
Ladies and Gentlemen:
[Seller] (the "Assignor") hereby notifies you that in
connection with certain transactions involving the Assignor's accounts
receivables, the Assignor will transfer exclusive ownership and control of its
lock-box number ________ (the "Lock-Box") and the corresponding lock-box account
no. ____________ maintained with you (the "Lock-Box Account") to First Union
Capital Markets Corp., as deal agent (the "Agent"). These transfers will become
effective upon your receipt of a notice of effectiveness, substantially in the
form attached hereto as Attachment 1 (the "Notice of Effectiveness"), which
shall be delivered via facsimile transmission to your attention.
In connection with the foregoing, the Assignor and the Agent
hereby instruct you, beginning on the date of receipt of the Notice of
Effectiveness: (i) to collect the monies, checks, instruments and other items of
payment mailed to the Lock-Box, (ii) to deposit into the Lock-Box Account all
such monies, checks, instruments and other items of payment (unless otherwise
instructed by the Agent) and (iii) to transfer all funds deposited and collected
in the Lock-Box Account pursuant to instructions given to you by the Agent from
time to time.
You are hereby further instructed: (i) that unless and until
the Agent notifies you to the contrary, you shall make such transfers from the
Lock-Box Account at such times and in such manner as the Assignor, in its
capacity as servicer for the Agent, shall from time to time instruct to the
extent such instructions are not inconsistent with the instructions set forth
herein, and (ii) to permit the Assignor (in its capacity as servicer for the
Agent) and the Agent to obtain upon request any information relating to the
Lock-Box Account, including, without limitation, any information regarding the
balance or activity of the Lock-Box Account.
The Assignor also hereby notifies you that, beginning on the
date of receipt by facsimile of the Notice of Effectiveness from the Agent,
notwithstanding anything herein or elsewhere to the contrary, the Agent shall be
irrevocably entitled to exercise any and all rights in respect of or in
connection with the Lock-Box and the Lock-Box Account, including, without
limitation, the right to specify when payments are to be made out of or in
connection with the Lock-Box and the Lock-Box Account. The Agent acts as agent
for persons having a continuing
<PAGE>
interest in all of the checks and their proceeds and all monies and earnings, if
any, thereon in the Lock-Box Account, and you shall be the Agent's agent for the
purpose of holding and collecting such property. The monies, checks, instruments
and other items of payment mailed to the Lock-Box and the funds deposited into
the Lock-Box Account will not be subject to deduction, set-off, banker's lien,
or any other right in favor of any person other than the Agent (except that you
may set off (i) all amounts due to you in respect of your customary fees and
expenses for the routine maintenance and operation of the Lock-Box Account, and
(ii) the face amount of any checks returned unpaid because of uncollected or
insufficient funds).
This Agreement may not be terminated at any time by the
Assignor or you, without the prior written consent of the Agent. Neither this
Agreement nor any provision hereof may be changed, amended, modified or waived
orally but only by an instrument in writing signed by the Agent and the
Assignor.
You shall not assign or transfer your rights or obligations
hereunder (other than to the Agent) without the prior written consent of the
Agent and the Assignor. Subject to the preceding sentence, this Agreement shall
be binding upon each of the parties hereto and their respective successors and
assigns, and shall inure to the benefit of, and be enforceable by, the Agent,
each of the parties hereto and their respective successors and assigns.
You hereby represent that the person signing this Agreement on
your behalf is duly authorized by you to so sign.
You agree to give the Agent and the Assignor prompt notice if
the Lock-Box or the Lock-Box Account becomes subject to any writ, judgment,
warrant of attachment, execution or similar process.
Any notice, demand or other communication required or
permitted to be given hereunder shall be in writing and may be (a) personally
served, (b) sent by courier service, (c) telecopied or (d) sent by United States
mail and shall be deemed to have been given when (a) delivered in person, (b)
delivered by courier service, (c) upon receipt of the telecopy or (d) three
Business Days after deposit in the United States mail (registered or certified,
with postage prepaid and properly addressed), provided, however, that notices to
the Agent hereunder shall not be effective until actually received by the Agent.
For the purposes hereof, (i) the addresses of the parties hereto shall be as set
forth below each party's name below, or, as to each party, at such other address
as may be designated by such party in a written notice to the other party and
the Agent, and (ii) the address of the Agent shall be One First Union Center,
TW-9, Charlotte, North Carolina 28288, Attn.: _________or at such other address
as may be designated by the Agent in a written notice to each of the parties
hereto.
<PAGE>
Please agree to the terms of, and acknowledge receipt of, this
Agreement by signing in the space provided below.
Very truly yours,
__________________________________
By:_______________________________
Name:
Title:
[Address]
[Attention:]
Telecopy #:
ACKNOWLEDGED AND AGREED:
[Name of Lock-Box Bank]
By:____________________________
Name:
Title:
Date:__________________________
[Address]
[Attention:]
<PAGE>
ATTACHMENT 1
LOCK-BOX AGREEMENT
VIA FACSIMILE TRANSMISSION
- --------------------------
TO: [Name of Lock-Box Bank]
DATED: [Date]
ATTENTION:
Re: Lock-Box No._____________
Lock-Box Account No._________
Gentlemen:
Pursuant to the Lock-Box Agreement between
_________________________ and you, dated as of March 31, 1999 (the "Agreement"),
we hereby give you notice that the transfers of the above-referenced Lock-Box
and the Lock-Box Account, as described in the Agreement, are effective as of the
date hereof. You are hereby instructed to comply immediately with the
instructions set forth in the Agreement and, until we notify you to the
contrary, to transfer all funds deposited and collected in the Lock-Box Account
to account number ________ at ______________________________.
FIRST UNION CAPITAL MARKETS CORP.,
as Agent
By:________________________________
Name:
Title:
ACKNOWLEDGED AND AGREED:
[Name of Lock-Box Bank]
By:____________________________
Name:
Title:
Date:__________________________
[Address]
[Attention:]
Telecopy #:
<PAGE>
EXHIBIT S
TRANSACTION SUMMARY
ACS FUNDING TRUST I
General Information
- -------------------
Company Name ___________________________________________
Location ___________________________________________
Nature of Business ___________________________________________
SIC Code ___________________________________________
Years in Business ___________________________________________
Investment Type ___________________________________________
Principal Amount ___________________________________________
Amortizing (Y/N) ___________________________________________
Coupon ___________________________________________
ACAS Ownership ___________________________________________
Unique Transaction Terms ___________________________________________
Company Profile
- ---------------
Revenues ___________________________________________
Cash Flow ___________________________________________
Debt to Cash Flow ___________________________________________
Interest Coverage ___________________________________________
Debt Service Coverage ___________________________________________
Loan Grade ___________________________________________
* Please attach complete Credit Report (current ACAS format for Credit Committee
review)
<PAGE>
SCHEDULE I
Schedule of Documents
In addition to, and not in limitation of, the conditions
specified in Section 3.1 of the Agreement described below, the following
documents must be received by the Deal Agent in form and substance satisfactory
to the Deal Agent on or prior to the Closing Date:
<TABLE>
<S> <C> <C>
Borrower - ACS Funding Trust I
Originator - American Capital Strategies, Ltd.
VFCC - Variable Funding Capital Corporation
FCMC - First Union Capital Markets Corp.
FUNB - First Union National Bank
MVA - Moore & Van Allen, counsel to VFCC and First Union
AP - Arnold & Porter, Counsel to the Originator and Borrower
Backup Servicer and - Norwest Bank Minnesota, National Association
Collateral Custodian
[TBD] - Backup Servicer Counsel
[TBD] - Collateral Custodian Counsel
</TABLE>
I. CLOSING DATE DELIVERIES
- ---------------------------
TRANSACTION DOCUMENTS
- ---------------------
Loan Funding and Servicing Agreement
(a) Exhibit A (Form of Borrower Notice)
(b) Exhibit B Form of Note
(c) Exhibit C ("Limited Purpose" Provisions)
(d) Exhibit D (Form of Assignment and Acceptance)
(e) Exhibit E (Form of Monthly Report)
(f) Exhibit F (Form of Servicer's Certificate)
(g) Exhibit G (Credit and Collection Policy)
(h) Exhibit H (Form of Hedging Agreement)
(i) Exhibit I (Form of Certificate of Borrower's Counsel)
(j) Exhibit J (Form of Trust Receipt and Initial Certification of Custodian)
(k) Exhibit K (Form of Trust Receipt and Final Certification of Custodian)
(l) Exhibit L (Form of Release of Loan Release File)
(m) Exhibit M (Form Assignment of Mortgage)
(n) Exhibit N (Form of Reinvestment Certification)
(o) Exhibit O-1 (Officer's Certificate as to Solvency from Originator)
(p) Exhibit O-2 (Officer's Certificate as to Solvency from Borrower)
<PAGE>
(q) Exhibit P-1 (Officer's Closing Certificate from Originator)
(r) Exhibit P-2 (Officer's Closing Certificate from Borrower)
(s) Exhibit Q-1 (Power of Attorney from Originator)
(t) Exhibit Q-2 (Power of Attorney from Borrower)
(u) Exhibit R (Form of Lock-Box Agreement
(v) Exhibit S (Form of Transaction Summary)
(w) Schedule I (Schedule of Documents)
(x) Schedule II (List of Lock-Box Banks and Lock-Box Accounts)
(y) Schedule III (Tradenames, Fictitious Names and "Doing
Business As" Names)
(z) Schedule IV (Loan List)
(aa) Schedule V (Location of Loan Files)
(bb) Schedule VI (Form of Loans)
Purchase and Sale Agreement
Originator to Borrower
(a) Exhibit A (Form of Assignment)
(b) Exhibit B (Notice of Sale)
(c) Schedule I (Loan List)
(d) Schedule II (Tradenames, Fictitious Names, and
"Doing Business As" Names)
Liquidity Purchase Agreement
Between VFCC, FUNB, FCMC and Investors
(a) Exhibit A (Form of Assignment and Acceptance)
(b) Exhibit B (Form of Purchase Confirmation)
(c) Schedule 1 (Pro-Rata Shares of each Investor)
(d) Schedule 4.1 (Conditions Precedent)
Hedge Agreement
(a) Schedule to Master Agreement
(i) Exhibit A (SWAP Transaction Confirmation)
(ii) Exhibit B (Legal Opinion of counsel to Borrower)
Pledge and Security Agreement
Between Originator and FCMC
<PAGE>
CORPORATE DOCUMENTS
- -------------------
Authority documents relating to Borrower
(a) Certified Copy of Certificate of Formation
(b) Trust Agreement
(c) Good Standing Certificates
Secretary's Certificate of Trustee of Borrower
(Certificate of Formation, Trust Agreement, and Incumbency)
Authority documents relating to Originator
(a) Certified Copy of Organizational Documents
(b) Bylaws
(c) Good Standing Certificates
Secretary's Certificate of Originator
(Certificate of Incorporation, Bylaws, Resolutions, and Incumbency)
Officer's Certificate of Borrower
(Bringdown of Representations and Warranties in Purchase and Sale
Agreement and Loan Funding and Servicing Agreement)
Officer's Certificate of Originator
(Bringdown of Representations and Warranties in Purchase and Sale
Agreement and Loan Funding and Servicing Agreement)
Officer's Certificate of Borrower
(Solvency)
Officer's Certificate of Originator
(Solvency)
Power of Attorney of Borrower to FCMC
Power of Attorney of Originator to FCMC
UCC FINANCING STATEMENTS
- ------------------------
Originator to Borrower
(a)
(b)
(c)
(d)
<PAGE>
Borrower to FCMC, as Deal Agent
(a)
(b)
(c)
(d)
Pre-Closing UCC, tax lien and judgment search reports
(a) as to Borrower
(i) [states]
(ii) [local]
(b) as to Originator
(i) [states]
(ii) [local]
Post-Closing UCC, tax lien and judgment search reports
(a) as to Borrower
(i) [states]
(ii) [local]
(b) as to Originator
(i) [states]
(ii) [local]
LEGAL OPINIONS
- --------------
Opinion of AP, (Incorporation, Authorization, Execution,
and Enforceability as to Borrower)
Opinion of AP, (Incorporation, Authorization, Execution,
and Enforceability as to Originator)
Opinion of AP, as Counsel to Borrower and Originator (perfection and priority)
Opinion of AP, as Counsel to Borrower and Originator (true sale and
non-consolidation)
Opinion of AP, as Borrower Counsel (Hedge Agreement)
Opinion of Backup Servicer Counsel, (Incorporation, Authorization, Execution,
and Enforceability)
Opinion of Custodian Counsel, (Incorporation, Authorization, Execution,
and Enforceability)
<PAGE>
MISCELLANEOUS
- -------------
Lock-Box Agreement[s]
Fee Letter Agreement
Backup Servicer and Collateral Custodian Fee Letter
Payment of Structuring Fee
Payment of Legal Fees
Such other consents, opinions, documents or instruments as the Deal Agent may
request.
II. INITIAL FUNDING DATE DELIVERIES
- ------------------------------------
Notice of Sale
Assignment from _________ to Borrower
Loan List
Borrower Notice for Initial Advance
Trust Receipt and Initial Certification
Officer's Certificate of Borrower
(Bringdown of Representations and Warranties in Purchase and Sale
Agreement and Loan Funding and Servicing Agreement)
Officer's Certificate of Originator
(Bringdown of Representations and Warranties in Purchase and Sale
Agreement and Loan Funding and Servicing Agreement)
Officer's Certificate of Borrower
(Solvency)
Officer's Certificate of Originator
(Solvency)
Servicer's Certificate
Such other consents, opinions, documents or instruments as the Deal Agent may
request.
<PAGE>
SCHEDULE II
List of Lock-Box Banks and Lock-Box Accounts
[to be provided by the Originator]
<PAGE>
SCHEDULE III
Tradenames, Fictitious Names and "Doing Business As" Names
[to be provided by the Originator]
<PAGE>
SCHEDULE IV
List of Loans
[to be provided by the Originator]
<PAGE>
SCHEDULE V
Locations of Loan Files
[to be provided by the Collateral Custodian]
<PAGE>
SCHEDULE VI
Form of Loans
[see Attached]
Exhibit 10.3
$100,000,000 March 31, 1999
FOR VALUE RECEIVED, ACS FUNDING TRUST I, a Delaware business trust (the
"Borrower"), promises to pay to FIRST UNION NATIONAL BANK the principal sum of
ONE HUNDRED MILLION DOLLARS ($100,000,000) or, if less, the unpaid principal
amount of the aggregate loans ("Advances") made by the Lenders (as defined
below) to the Borrower pursuant to the Loan Funding and Servicing Agreement (as
defined below), as set forth on the attached Schedule, on the dates specified in
Section 2.6 of the Loan Funding and Servicing Agreement, and to pay interest on
the unpaid principal amount of each Advance on each day that such unpaid
principal amount is outstanding at the Interest Rate related to such Advance as
provided in the Loan Funding and Servicing Agreement on each Payment Date and
each other dates specified in the Loan Funding and Servicing Agreement.
This Note is issued pursuant to the Loan Funding and Servicing
Agreement, dated as of March 31, 1999 (the "Loan Funding and Servicing
Agreement"), by and among the Borrower, American Capital Strategies, Ltd., as
servicer, Variable Funding Capital Corporation, as a lender, the Investors named
therein, Norwest Bank Minnesota, National Association, as backup servicer and as
collateral custodian, First Union Capital Markets Corp., as deal agent, and
First Union National Bank, as liquidity agent. Capitalized terms used but not
defined in this Note are used with the meanings ascribed to them in the Loan
Funding and Servicing Agreement.
Notwithstanding any other provisions contained in this Note, if at any
time the rate of interest payable by the Borrower under this Note, when combined
with any and all other charges provided for in this Note, in the Loan Funding
and Servicing Agreement or in any other document (to the extent such other
charges would constitute interest for the purpose of any applicable law limiting
interest that may be charged on this Note), exceeds the highest rate of interest
permissible under applicable law (the "Maximum Lawful Rate"), then so long as
the Maximum Lawful Rate would be exceeded the rate of interest under this Note
shall be equal to the Maximum Lawful Rate. If at any time thereafter the rate of
interest payable under this Note is less than the Maximum Lawful Rate, the
Borrower shall continue to pay interest under this Note at the Maximum Lawful
Rate until such time as the total interest paid by the Borrower is equal to the
total interest that would have been paid had applicable law not limited the
interest rate payable under this Note. In no event shall the total interest
received by the Lenders under this Note exceed the amount which the Lenders
could lawfully have received had the interest due under this Note been
calculated since the date of this Note at the Maximum Lawful Rate.
Payments of the principal of, and interest on, Advances represented by
this Note shall be made by the Borrower to the holder hereof by wire transfer of
immediately available funds in the manner and at the address specified for such
purpose as provided in Article 2 of the Loan
<PAGE>
Funding and Servicing Agreement, or in such manner or at such other address as
the holder of this Note shall have specified in writing to the Borrower for such
purpose, without the presentation or surrender of this Note or the making of any
notation on this Note.
If any payment under this Note falls due on a day that is not a
Business Day, then such due date shall be extended to the next succeeding
Business Day and interest shall be payable on any principal so extended at the
applicable Interest Rate.
If all or a portion of (i) the principal amount hereof or (ii) any
interest payable thereon or (iii) any other amounts payable hereunder shall not
be paid when due (whether at maturity, by acceleration or otherwise), such
overdue amount shall bear interest at a rate per annum that is equal to the Base
Rate plus 1.0%, in each case from the date of such non-payment to (but
excluding) the date such amount is paid in full.
Portions or all of the principal amount of the Note shall become due
and payable at the time or times set forth in the Loan Funding and Servicing
Agreement. Any portion or all of the principal amount of this Note may be
prepaid, together with interest thereon (and as set forth in the Loan Funding
and Servicing Agreement, certain costs and expenses of the Lenders) at the time
and in the manner set forth in, but subject to the provisions of, the Loan
Funding and Servicing Agreement.
Except as provided in the Loan Funding and Servicing Agreement, the
Borrower expressly waives presentment, demand, diligence, protest and all
notices of any kind whatsoever with respect to this Note.
All amounts evidenced by this Note, the Lender or Lenders making such
Advance and all payments and prepayments of the principal hereof and the
respective dates and maturity dates thereof shall be endorsed by First Union
National Bank on the schedule attached hereto and made a part hereof or on a
continuation thereof which shall be attached hereto and made a part hereof, or
otherwise recorded by such First Union National Bank in its internal records;
provided, however, that the failure of First Union National Bank to make such a
notation shall not in any way limit or otherwise affect the obligations of the
Borrower under this Note as provided in the Loan Funding and Servicing
Agreement.
The holder hereof may sell, assign, transfer, negotiate, grant
participations in or otherwise dispose of all or any portion of any Advances
made by such Lender and represented by this Note and the indebtedness evidenced
by this Note.
This Note is secured by the security interests granted pursuant to
Section 2.9 of the Loan Funding and Servicing Agreement. The holder of this
Note, as agent for the Lenders, is entitled to the benefits of the Loan Funding
and Servicing Agreement and may enforce the agreements of the Borrower contained
in the Loan Funding and Servicing Agreement and exercise the remedies provided
for by, or otherwise available in respect of, the Loan Funding and Servicing
Agreement, all in accordance with, and subject to the restrictions contained in,
the terms of the Loan Funding and Servicing Agreement. If a Termination Event
shall occur and be continuing,
2
<PAGE>
the unpaid balance of the principal of all Advances, together with accrued
interest thereon, shall be declared, and become due and payable in the manner
and with the effect provided in the Loan Funding and Servicing Agreement.
This Note is the Note referred to in the Loan Funding and Servicing
Agreement. This Note shall be construed in accordance with and governed by the
laws of the State of New York.
[Remainder of Page Intentionally Left Blank]
3
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note as on the
date first written above.
ACS FUNDING TRUST I
By:____________________________
Name:
Title:
4
<PAGE>
Schedule to Note
----------------
Name Date of Principal Principal Outstanding
of Advance or Amount of Amount of Principal
Lender Repayment Advance Repayment Amount
------ --------- ------- --------- ------
5
Exhibit 10.4
$100,000,000 March 31, 1999
FOR VALUE RECEIVED, ACS FUNDING TRUST I, a Delaware business trust (the
"Borrower"), promises to pay to FIRST UNION CAPITAL MARKETS CORP., as the agent
for the Lenders (the "Deal Agent") the principal sum of ONE HUNDRED MILLION
DOLLARS ($100,000,000) or, if less, the unpaid principal amount of the aggregate
loans ("Advances") made by the Lenders (as defined below) to the Borrower
pursuant to the Loan Funding and Servicing Agreement (as defined below), as set
forth on the attached Schedule, on the dates specified in Section 2.6 of the
Loan Funding and Servicing Agreement, and to pay interest on the unpaid
principal amount of each Advance on each day that such unpaid principal amount
is outstanding at the Interest Rate related to such Advance as provided in the
Loan Funding and Servicing Agreement on each Payment Date and each other dates
specified in the Loan Funding and Servicing Agreement.
This Note is issued pursuant to the Loan Funding and Servicing
Agreement, dated as of March 31, 1999 (the "Loan Funding and Servicing
Agreement"), by and among the Borrower, American Capital Strategies, Ltd., as
servicer, Variable Funding Capital Corporation, as a lender, the Investors named
therein, Norwest Bank Minnesota, National Association, as backup servicer and as
collateral custodian, First Union Capital Markets Corp., as deal agent, and
First Union National Bank, as liquidity agent. Capitalized terms used but not
defined in this Note are used with the meanings ascribed to them in the Loan
Funding and Servicing Agreement.
Notwithstanding any other provisions contained in this Note, if at any
time the rate of interest payable by the Borrower under this Note, when combined
with any and all other charges provided for in this Note, in the Loan Funding
and Servicing Agreement or in any other document (to the extent such other
charges would constitute interest for the purpose of any applicable law limiting
interest that may be charged on this Note), exceeds the highest rate of interest
permissible under applicable law (the "Maximum Lawful Rate"), then so long as
the Maximum Lawful Rate would be exceeded the rate of interest under this Note
shall be equal to the Maximum Lawful Rate. If at any time thereafter the rate of
interest payable under this Note is less than the Maximum Lawful Rate, the
Borrower shall continue to pay interest under this Note at the Maximum Lawful
Rate until such time as the total interest paid by the Borrower is equal to the
total interest that would have been paid had applicable law not limited the
interest rate payable under this Note. In no event shall the total interest
received by the Lenders under this Note exceed the amount which the Lenders
could lawfully have received had the interest due under this Note been
calculated since the date of this Note at the Maximum Lawful Rate.
Payments of the principal of, and interest on, Advances represented by
this Note shall be made by the Borrower to the holder hereof by wire transfer of
immediately available funds in the
<PAGE>
manner and at the address specified for such purpose as provided in Article 2 of
the Loan Funding and Servicing Agreement, or in such manner or at such other
address as the holder of this Note shall have specified in writing to the
Borrower for such purpose, without the presentation or surrender of this Note or
the making of any notation on this Note.
If any payment under this Note falls due on a day that is not a
Business Day, then such due date shall be extended to the next succeeding
Business Day and interest shall be payable on any principal so extended at the
applicable Interest Rate.
If all or a portion of (i) the principal amount hereof or (ii) any
interest payable thereon or (iii) any other amounts payable hereunder shall not
be paid when due (whether at maturity, by acceleration or otherwise), such
overdue amount shall bear interest at a rate per annum that is equal to the Base
Rate plus 1.0%, in each case from the date of such non-payment to (but
excluding) the date such amount is paid in full.
Portions or all of the principal amount of the Note shall become due
and payable at the time or times set forth in the Loan Funding and Servicing
Agreement. Any portion or all of the principal amount of this Note may be
prepaid, together with interest thereon (and as set forth in the Loan Funding
and Servicing Agreement, certain costs and expenses of the Lenders) at the time
and in the manner set forth in, but subject to the provisions of, the Loan
Funding and Servicing Agreement.
Except as provided in the Loan Funding and Servicing Agreement, the
Borrower expressly waives presentment, demand, diligence, protest and all
notices of any kind whatsoever with respect to this Note.
All amounts evidenced by this Note, the Lender or Lenders making such
Advance and all payments and prepayments of the principal hereof and the
respective dates and maturity dates thereof shall be endorsed by the Deal Agent
on the schedule attached hereto and made a part hereof or on a continuation
thereof which shall be attached hereto and made a part hereof, or otherwise
recorded by such Deal Agent in its internal records; provided, however, that the
failure of the Deal Agent to make such a notation shall not in any way limit or
otherwise affect the obligations of the Borrower under this Note as provided in
the Loan Funding and Servicing Agreement.
The holder hereof may sell, assign, transfer, negotiate, grant
participations in or otherwise dispose of all or any portion of any Advances
made by such Lender and represented by this Note and the indebtedness evidenced
by this Note.
This Note is secured by the security interests granted pursuant to
Section 2.9 of the Loan Funding and Servicing Agreement. The holder of this
Note, as agent for the Lenders, is entitled to the benefits of the Loan Funding
and Servicing Agreement and may enforce the agreements of the Borrower contained
in the Loan Funding and Servicing Agreement and exercise the remedies provided
for by, or otherwise available in respect of, the Loan Funding and Servicing
Agreement, all in accordance with, and subject to the restrictions contained in,
the terms of the
2
<PAGE>
Loan Funding and Servicing Agreement. If a Termination Event shall occur and be
continuing, the unpaid balance of the principal of all Advances, together with
accrued interest thereon, shall be declared, and become due and payable in the
manner and with the effect provided in the Loan Funding and Servicing Agreement.
This Note is the Note referred to in the Loan Funding and Servicing
Agreement. This Note shall be construed in accordance with and governed by the
laws of the State of New York.
[Remainder of Page Intentionally Left Blank]
3
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note as on the
date first written above.
ACS FUNDING TRUST I
By:____________________________
Name:
Title:
4
<PAGE>
Schedule to Note
----------------
<TABLE>
<CAPTION>
Name Date of Principal Principal Outstanding
of Advance or Amount of Amount of Principal
Lender Repayment Advance Repayment Amount
- ------ --------- ------- --------- ------
<S> <C> <C> <C> <C>
</TABLE>
5
Exhibit 10.5
$10,000,000 March 31, 1999
FOR VALUE RECEIVED, ACS FUNDING TRUST I, a Delaware business trust (the
"Borrower"), promises to pay to FIRST UNION NATIONAL BANK the principal sum of
TEN MILLION DOLLARS ($10,000,000) or, if less, the unpaid principal amount of
the aggregate loans ("Advances") made by the Lenders (as defined below) to the
Borrower pursuant to the Loan Funding and Servicing Agreement (as defined
below), as set forth on the attached Schedule, on the dates specified in Section
2.6 of the Loan Funding and Servicing Agreement, and to pay interest on the
unpaid principal amount of each Advance on each day that such unpaid principal
amount is outstanding at the Interest Rate related to such Advance as provided
in the Loan Funding and Servicing Agreement on each Payment Date and each other
dates specified in the Loan Funding and Servicing Agreement.
This Note is issued pursuant to the Loan Funding and Servicing
Agreement, dated as of March 31, 1999 (the "Loan Funding and Servicing
Agreement"), by and among the Borrower, American Capital Strategies, Ltd., as
servicer, Variable Funding Capital Corporation, as a lender, the Investors named
therein, Norwest Bank Minnesota, National Association, as backup servicer and as
collateral custodian, First Union Capital Markets Corp., as deal agent, and
First Union National Bank, as liquidity agent. Capitalized terms used but not
defined in this Note are used with the meanings ascribed to them in the Loan
Funding and Servicing Agreement.
Notwithstanding any other provisions contained in this Note, if at any
time the rate of interest payable by the Borrower under this Note, when combined
with any and all other charges provided for in this Note, in the Loan Funding
and Servicing Agreement or in any other document (to the extent such other
charges would constitute interest for the purpose of any applicable law limiting
interest that may be charged on this Note), exceeds the highest rate of interest
permissible under applicable law (the "Maximum Lawful Rate"), then so long as
the Maximum Lawful Rate would be exceeded the rate of interest under this Note
shall be equal to the Maximum Lawful Rate. If at any time thereafter the rate of
interest payable under this Note is less than the Maximum Lawful Rate, the
Borrower shall continue to pay interest under this Note at the Maximum Lawful
Rate until such time as the total interest paid by the Borrower is equal to the
total interest that would have been paid had applicable law not limited the
interest rate payable under this Note. In no event shall the total interest
received by the Lenders under this Note exceed the amount which the Lenders
could lawfully have received had the interest due under this Note been
calculated since the date of this Note at the Maximum Lawful Rate.
Payments of the principal of, and interest on, Advances represented by
this Note shall be made by the Borrower to the holder hereof by wire transfer of
immediately available funds in the manner and at the address specified for such
purpose as provided in Article 2 of the Loan Funding and Servicing Agreement, or
in such manner or at such other address as the holder of
<PAGE>
this Note shall have specified in writing to the Borrower for such purpose,
without the presentation or surrender of this Note or the making of any notation
on this Note.
If any payment under this Note falls due on a day that is not a
Business Day, then such due date shall be extended to the next succeeding
Business Day and interest shall be payable on any principal so extended at the
applicable Interest Rate.
If all or a portion of (i) the principal amount hereof or (ii) any
interest payable thereon or (iii) any other amounts payable hereunder shall not
be paid when due (whether at maturity, by acceleration or otherwise), such
overdue amount shall bear interest at a rate per annum that is equal to the Base
Rate plus 1.0%, in each case from the date of such non-payment to (but
excluding) the date such amount is paid in full.
Portions or all of the principal amount of the Note shall become due
and payable at the time or times set forth in the Loan Funding and Servicing
Agreement. Any portion or all of the principal amount of this Note may be
prepaid, together with interest thereon (and as set forth in the Loan Funding
and Servicing Agreement, certain costs and expenses of the Lenders) at the time
and in the manner set forth in, but subject to the provisions of, the Loan
Funding and Servicing Agreement.
Except as provided in the Loan Funding and Servicing Agreement, the
Borrower expressly waives presentment, demand, diligence, protest and all
notices of any kind whatsoever with respect to this Note.
All amounts evidenced by this Note, the Lender or Lenders making such
Advance and all payments and prepayments of the principal hereof and the
respective dates and maturity dates thereof shall be endorsed by First Union
National Bank on the schedule attached hereto and made a part hereof or on a
continuation thereof which shall be attached hereto and made a part hereof, or
otherwise recorded by such First Union National Bank in its internal records;
provided, however, that the failure of First Union National Bank to make such a
notation shall not in any way limit or otherwise affect the obligations of the
Borrower under this Note as provided in the Loan Funding and Servicing
Agreement.
The holder hereof may sell, assign, transfer, negotiate, grant
participations in or otherwise dispose of all or any portion of any Advances
made by such Lender and represented by this Note and the indebtedness evidenced
by this Note.
This Note is secured by the security interests granted pursuant to
Section 2.9 of the Loan Funding and Servicing Agreement. The holder of this
Note, as agent for the Lenders, is entitled to the benefits of the Loan Funding
and Servicing Agreement and may enforce the agreements of the Borrower contained
in the Loan Funding and Servicing Agreement and exercise the remedies provided
for by, or otherwise available in respect of, the Loan Funding and Servicing
Agreement, all in accordance with, and subject to the restrictions contained in,
the terms of the Loan Funding and Servicing Agreement. If a Termination Event
shall occur and be continuing, the unpaid balance of the principal of all
Advances, together with accrued interest thereon, shall
2
<PAGE>
be declared, and become due and payable in the manner and with the effect
provided in the Loan Funding and Servicing Agreement.
This Note is the Note referred to in the Loan Funding and Servicing
Agreement. This Note shall be construed in accordance with and governed by the
laws of the State of New York.
[Remainder of Page Intentionally Left Blank]
3
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note as on the
date first written above.
ACS FUNDING TRUST I
By:_________________________________
Name:
Title:
4
<PAGE>
Schedule to Note
----------------
<TABLE>
<CAPTION>
Name Date of Principal Principal Outstanding
of Advance or Amount of Amount of Principal
Lender Repayment Advance Repayment Amount
- ------ --------- ------- --------- ------
<S> <C> <C> <C> <C>
</TABLE>
5
Exhibit 10.6
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (the "Agreement"), dated as of March
31, 1999 by and among AMERICAN CAPITAL STRATEGIES, LTD. (the "Seller"), a
Delaware corporation, ACS FUNDING TRUST I (the "Buyer"), and NORWEST BANK,
NATIONAL ASSOCIATION ("Norwest"), as Escrow Agent (the "Escrow Agent").
Capitalized terms used but not defined herein shall have the meanings given to
such terms in the Purchase Agreement (as defined below) and the principles of
interpretation set forth therein.
W I T N E S S E T H
WHEREAS, concurrently with the execution of this Agreement, the Seller
is entering into the Purchase and Sale Agreement, dated as of March 31, 1999 by
and between the Buyer and the Seller (the "Purchase Agreement"), pursuant to
which the Seller has agreed to sell, transfer, assign and set over and otherwise
convey to the Buyer, from time to time, certain Loans and the Related Property,
Loan Documents, Supplemental Interests, Collections, interest and Proceeds
related thereto;
WHEREAS, prior to the Approval Date, the Pledged Supplemental Interests
(as defined below) are not being transferred, assigned, set-over or otherwise
conveyed by the Seller to the Buyer so as to permit the Seller and the Buyer to
operate in accordance with the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, Section 2.1(b) of the Purchase Agreement provides that on and
after the Approval Date, the Seller will contribute to the Buyer without
recourse, as a capital contribution, all right, title and interest of the Seller
in, to and under the Pledged Supplemental Interests (as defined below);
WHEREAS, prior to the Approval Date, the Seller has agreed to grant to
the Buyer a first priority perfected security interest in such Pledged
Supplemental Interests to secure the Seller's obligation to make such capital
contribution;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound hereby, the Seller hereby
covenants and agrees as follows:
Section 1. Grant of Security. The Seller hereby pledges and assigns to
the Buyer, as security for the Secured Obligations (as defined below), all of
the Seller's right, title and interest in and to, whether now existing and/or
hereafter arising and/or acquired, in any Supplemental Interests related to any
Purchased Assets sold to the Buyer under the Purchase Agreement on a Purchase
Date prior to the Approval Date (collectively, the "Pledged Supplemental
Interests").
<PAGE>
Section 2. Continuing Security Interest; Pledge Termination Date. This
Agreement hereby creates a continuing security interest in the Pledged
Supplemental Interests and shall (i) remain in full force and effect until the
earlier to occur of (a) the Collection Date under (and as defined in) the Loan
Funding and Servicing Agreement and (b) the date, after the Approval Date, that
such Pledged Supplemental Interests are contributed to the Buyer pursuant to the
Purchase Agreement (collectively, the "Pledge Termination Date"), (ii) be
binding upon the Seller, its successors and assigns, and (iii) inure to the
benefit of the Buyer and its successors, transferees and assigns. Upon the
occurrence of the Pledge Termination Date, the security interest granted hereby
shall terminate.
Section 3. Secured Obligations. This Agreement is made and the security
interest created hereby is granted to the Buyer to secure the full and punctual
performance of all of the Seller's Secured Obligations. "Secured Obligations"
shall mean the agreement and undertaking on the part of the Seller under the
Purchase Agreement to contribute to the Buyer, as a capital contribution, on or
after the Approval Date all of the Seller's right, title and interest to all
Pledged Supplemental Interests hereunder.
Section 4. Delivery of Pledged Supplemental Interests. All certificates
or instruments evidencing the Pledged Supplemental Interests shall be delivered
by LaSalle National Bank ("LaSalle") to the Escrow Agent, pursuant to the Bailee
Letter (the "Bailee Letter"), dated as of March 31, 1999, between LaSalle and
the Seller. Prior to the Pledge Termination Date, such certificates or
instruments shall be held by the Escrow Agent pursuant hereto and shall be in
suitable form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Escrow Agent and the Buyer. In connection with the
certificates and instruments evidencing the Pledged Supplemental Interests
delivered to the Escrow Agent: (i) the Escrow Agent shall act as a "securities
intermediary" (as defined in Article 8 of the UCC) for the Buyer, (ii) the
Pledged Supplemental Interests and the certificates and/or instruments
evidencing the same shall be treated as "financial assets" (as defined in and
governed by Article 8 of the UCC), (iii) the Escrow Agent, as such securities
intermediary, shall establish and maintain on its records an account in the name
of the Buyer which shall be a "securities account" (as defined in Article 8 of
the UCC) to which the Escrow Agent by book entry shall credit the Pledged
Supplemental Interests delivered to the Escrow Agent as described above, (iv)
the Escrow Agent shall maintain and exercise "control" (as defined in Article 8
of the UCC) over such Pledged Supplemental Interests for the exclusive benefit
of the Buyer, and (v) the Escrow Agent waives and agrees not to assert or claim
any interest, lien or other rights in or to the Pledged Supplemental Interests.
Section 5. Representation and Warranties.
The Seller hereby represents and warrants as follows:
2
<PAGE>
(a) Organization and Good Standing. The Seller is a corporation duly
organized and validly existing in good standing under the laws of the
jurisdiction of its formation and has full corporate power, authority and legal
right to own its properties and conduct its business as such properties are
presently owned and as such business is presently conducted and to execute,
deliver and perform its obligations under this Agreement and each other document
or instrument to be delivered by the Seller hereunder.
(b) Due Qualification. The Seller is duly qualified to do business and
is in good standing as a foreign corporation (or is exempt from such
requirements), and has obtained all necessary licenses and approvals, in each
jurisdiction in which failure to so qualify or to obtain such licenses and
approvals would have a Material Adverse Effect on its ability to perform its
obligations hereunder.
(c) Due Authorization. The execution and delivery of this Agreement,
and the consummation of the transactions provided for herein and therein have
been duly authorized by the Seller by all necessary corporate action on the part
of the Seller.
(d) No Conflict. The execution and delivery of this Agreement, the
performance of the transactions contemplated hereby and the fulfillment of the
terms hereof, will not conflict with, result in any breach of any of the
material terms and provisions of, or constitute (with or without notice or lapse
of time or both) a material default under, any material indenture, contract,
agreement, mortgage, deed of trust, or other instrument to which the Seller is a
party or by which it or any of its property is bound.
(e) No Violation. The execution and delivery of this Agreement, the
performance of the transactions contemplated hereby and the fulfillment of the
terms hereof will not conflict with or violate, in any material respect, any
Applicable Law.
(f) No Proceedings. There are no proceedings or investigations pending
or, to the best knowledge of the Seller, threatened against the Seller before
any Governmental Authority (i) asserting the invalidity of this Agreement, (ii)
seeking to prevent the consummation of any of the transactions contemplated by
this Agreement, or (iii) seeking any determination or ruling that could
reasonably be expected to have a material adverse effect on the business,
condition (financial or otherwise), operations, performance or prospects of the
Seller.
(g) All Consents Required. All approvals, authorizations, consents,
orders or other actions of any Person or of any Governmental Authority required
in connection with the execution and delivery of this Agreement, the performance
of the transactions contemplated by this Agreement and the fulfillment of or
terms hereof, have been obtained.
(h) Not an Investment Company. The Seller is an "investment company"
within the meaning of the Investment Company Act of 1940, as amended (the "1940
Act"), that has elected to be regulated as a business development company under
the 1940 Act.
3
<PAGE>
(i) Other Names. The legal name of the Seller is as set forth in this
Agreement and within the preceding five years the Seller has not used, and the
Seller currently does not use, any tradenames, fictitious names, assumed names
or "doing business as" names.
(j) Taxes. The Seller has filed or caused to be filed all tax returns
which, to its knowledge, are required to be filed and has paid all taxes shown
to be due and payable on such returns or on any assessments made against it or
any of its property and all other taxes, fees or other charges imposed on it or
any of its property by any Governmental Authority (other than any amount of tax
due the validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which reserves in accordance with
generally accepted accounting principles have been provided on the books of the
Seller); no tax lien has been filed and, to the Seller's knowledge, no claim is
being asserted, with respect to any such tax, fee or other charge.
(k) Place of Business. The principal executive offices of the Seller
are at 3 Bethesda Metro Center, Suite 860, Bethesda, Maryland 20814.
(l) No Liens. The Seller, is, and at the time of delivery of any
Pledged Supplemental Interests pursuant to this Agreement will be, the legal and
beneficial owner of such Pledged Supplemental Interests free and clear of any
lien, security interest or encumbrance whatsoever except for the lien and
security interest created by this Agreement. No effective financing statement or
other instrument similar in effect covering any of the Pledged Supplemental
Interests shall at any time be on file in any recording office, except such as
may be filed in favor of the Buyer, pursuant to this Agreement.
(m) Security Interest. Pursuant to Section 1 hereof, the Seller has
granted a security interest (as defined in the UCC) to the Buyer in the Pledged
Supplemental Interests, which is enforceable in accordance with the UCC upon
execution and delivery of this Agreement. Upon delivery of the Pledged
Supplemental Interests to the Escrow Agent, the Seller shall have validly
granted to the Buyer a first priority perfected security interest in the Pledged
Supplemental Interests. All filings (including, without limitation, such UCC
filings) and other actions as are necessary in any jurisdiction to perfect the
interest of the Buyer, in the Pledged Supplemental Interests have been (or prior
to the execution of this Agreement will be) made.
(n) Margin Stock. The Pledged Supplemental Interests are not "margin
stock" (as defined in Regulation U of the Federal Reserve Board), and the pledge
of the Pledged Supplemental Interests pursuant to this Agreement does not
violate Regulation T, U or X of the Federal Reserve Board or Section 7 of the
Securities Exchange Act of 1934, as amended.
(o) Accuracy of Representations and Warranties. Each representation or
warranty by the Seller contained herein or in any certificate or other document
furnished by the Seller pursuant hereto or in connection herewith is true and
correct in all material respects.
4
<PAGE>
The representations and warranties set forth in this Section 4 shall
survive the grant of security interest in the Pledged Supplemental Interests to
the Buyer. Upon discovery by the Buyer or the Seller of a breach of any of the
foregoing representations and warranties, the party discovering such breach
shall give prompt written notice thereof to the other immediately upon obtaining
knowledge of such breach.
Section 6. Covenants of the Seller.
(a) Transfers and other Liens. The Seller shall not (i) sell, assign or
otherwise dispose of any of the Pledged Supplemental Interests, except to or in
favor of the Buyer and except as otherwise provided herein, or (ii) create or
suffer to exist any lien upon or with respect to any of the Pledged Supplemental
Interests except for the security interest granted pursuant to this Agreement.
(b) Further Assurances. The Seller agrees that at any time and from
time to time, at the expense of the Seller, it will promptly execute and deliver
all further instruments and documents, and take all further action, that may be
necessary or that the Escrow Agent or the Buyer, may reasonably request, in
order to perfect and protect any security interest granted or purported to be
granted hereby or to enable the Escrow Agent or the Buyer, to exercise and
enforce its rights and remedies hereunder with respect to the Pledged
Supplemental Interests.
(c) Additional Pledged Supplemental Interests. The Seller further
agrees that it will promptly (and in any event within five (5) Business Days
following any Purchase Date prior to the Approval Date) deliver to the Escrow
Agent all Supplemental Interests, if any, related to the Purchased Assets sold
to the Buyer under the Purchase Agreement on such Purchase Date, and take all
other actions as may be reasonably necessary or requested by the Escrow Agent or
the Buyer in order to protect and perfect the security interest granted hereby
in such Supplemental Interests to the Buyer. The Seller hereby agrees that all
Supplemental Interests so delivered to the Escrow Agent after the date of this
Agreement shall for all purposes hereunder be considered Pledged Supplemental
Interests.
Section 7. Remedies. If the Buyer shall fail to perform any Secured
Obligation, the Buyer may exercise from time to time any and all rights and
remedies available to it as a secured party on default (under the UCC in the
relevant jurisdiction(s)) with respect to the Pledged Supplemental Interests.
Section 8. Security Interest Absolute. All rights of the Escrow Agent
and the Buyer, and the security interest granted hereunder, and all of the
obligations of the Seller hereunder, shall be absolute and unconditional,
irrespective of:
(a) any lack of validity or enforceability of the Purchase Agreement or
other agreement or instrument relating thereto;
5
<PAGE>
(b) any change in any term of all or any of the obligations of the
Seller under the Purchase Agreement, or any other amendment or waiver of or any
consent to any departure from any provision of the Purchase Agreement; or
(c) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Seller or any third party.
Section 9. Escrow Agent. The Escrow Agent shall be obligated, and shall
have the right hereunder to make demands, to give notices, to exercise or
refrain from existing any rights, and to take or refrain from taking action
solely in accordance with this Agreement. The Escrow Agent may not resign, or be
removed, except in accordance with the Escrow Agreement dated as of March 31,
1999, between the Seller and the Escrow Agent. Upon the acceptance of any
appointment as a Escrow Agent by a successor Escrow Agent by execution of an
instrument accepting the same and all obligations of a Escrow Agent hereunder,
that successor Escrow Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the predecessor Escrow Agent
under this Agreement, and the predecessor Escrow Agent shall thereupon be
discharged from its duties and obligations under this Agreement. After any
predecessor Escrow Agent's resignation or removal, the provisions of this
Agreement shall inure to its benefit as to any actions taken or omitted to be
taken by it under this Agreement while it was Escrow Agent. Upon its
resignation, any Escrow Agent shall be entitled to payment by the Seller of all
reasonable expenses incurred by it in acting as Escrow Agent hereunder. The
Seller agrees to execute and deliver to any successor Escrow Agent appointed
hereunder all such documents as may be necessary to preserve and protect the
rights of the Buyer. Any corporation into which the Escrow Agent may be merged
or with which it may be consolidated or converted, or to which substantially all
of its corporate trust business may be transferred, shall automatically succeed
to all of the rights and obligations of its predecessor and shall become the
Escrow Agent hereunder without further action on the part of any of the parties
hereto.
Section 10. Indemnification. The Seller hereby agrees to indemnify
Escrow Agent, and the Buyer (collectively, the "Indemnified Parties") for any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever that may be imposed on, incurred by or asserted against the
Indemnified Parties arising out of this Agreement or the pledge of the Pledged
Supplemental Interests pursuant to the Purchase Agreement; provided, however,
that the Seller shall not be liable for any of the foregoing to the extent they
arise from the gross negligence or willful misconduct of such Indemnified Party.
Section 11. Directions to Escrow Agent. The Escrow Agent shall take any
action specified in Section 7 hereof only when so requested in writing by the
Buyer. In the absence of such direction, the Escrow Agent will administer the
Pledged Supplemental Interests and take such action with respect thereto as it
deems to be in the best interest of the Buyer.
Section 12. Amendments. This Agreement and the rights and obligations
of the parties hereunder may not be amended, waived or changed orally, but only
with written consent of the Buyer.
6
<PAGE>
Section 13. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. EACH OF THE
PARTIES HERETO HEREBY AGREES TO THE JURISDICTION OF ANY FEDERAL COURT LOCATED
WITHIN THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO HEREBY WAIVES, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION BASED ON FORUM NON CONVENIENS,
AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER IN ANY OF THE
AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.
Section 14. Notices. All demands, notices and communications hereunder
shall be in writing and addressed or delivered to each party at its address set
forth under its name on the signature pages hereof.
Section 15. Expenses. The Seller will pay upon demand to the Escrow
Agent the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that the Escrow
Agent may incur in connection with (a) the administration of this Agreement, (b)
the custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Pledged Supplemental Interests, (c) the exercise or
enforcement of any of the rights of the Escrow Agent or the Buyer, or (d) the
failure of the Seller to perform or observe any of the provisions hereof.
Section 16. No Waiver; Cumulative Remedies. No failure to exercise and
no delay in exercising, on the part of the Escrow Agent or the Buyer, any right,
remedy, power or privilege hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not exhaustive of any rights,
remedies, powers and privilege provided by law.
Section 17. Counterparts. This Agreement may be executed in two or more
counterparts including telefax transmission thereof (and by different parties on
separate counterparts), each of which shall be an original, but all of which
together shall constitute one and the same instrument.
Section 18. Binding Effect; Assignment; Third-Party Beneficiaries. This
Agreement shall inure to the benefit of and the obligations thereunder shall be
binding upon the parties hereto and their respective successors and permitted
assigns. This Agreement is not assignable by the Seller without the prior
written consent of the Escrow Agent and the Buyer. Simultaneously with the
execution and delivery of this Agreement, the Buyer shall assign all of its
right, title and interest herein to the Deal Agent as agent for the Secured
Parties under the Loan Funding Agreement as provided in the Loan Funding
Agreement, to which assignment the Seller hereby expressly consents. On the
Approval Date, the Seller shall be deemed to have
7
<PAGE>
contributed the Pledged Supplemental Interests to the Buyer, without recourse
and without further action on the part of the Seller, and the Escrow Agent shall
release the Pledged Supplemental Interests to the Collateral Custodian for the
benefit of the Deal Agent. Each of the Buyer and the Seller hereby expressly
consents to such release. The Seller agrees that the Deal Agent, as agent for
the Secured Parties under the Loan Funding Agreement, shall be a third-party
beneficiary hereof. The Deal Agent as agent for the Secured Parties under the
Loan Funding Agreement may enforce the provisions of this Agreement, exercise
the rights of the Buyer and enforce the obligations of the Seller hereunder as
provided in the Loan Funding Agreement.
Section 19. Attorney-in-Fact. The Seller hereby irrevocably appoints
the Escrow Agent, as the Seller's attorney-in-fact, with full authority in the
place and stead of the Seller and in the name of the Seller or otherwise, from
time to time in Escrow Agent's discretion, to take any action and to execute any
instrument that the Escrow Agent may deem necessary or advisable to accomplish
the purposes of this Agreement, including, without limitation, to file any
claims or take any action or institute any proceedings that the Escrow Agent may
deem necessary or desirable for the collection of any of the Pledged
Supplemental Interests. It is understood and agreed that the appointment of the
Escrow Agent as attorney-in-fact of the Seller for the purposes set forth above
is coupled with an interest and is irrevocable. With respect to any action taken
pursuant this Section, the Escrow Agent shall not be liable for any acts of
omission or commission nor for any misconduct other than its gross negligence or
willful misconduct.
8
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
AMERICAN CAPITAL STRATEGIES, LTD.
By__________________________________
Title:
American Capital Strategies, Ltd.
3 Bethesda Metro Center
Suite 860
Bethesda, Maryland 20814
Attention: Chief Financial Officer
Facsimile No.: (301) 654-6714
Confirmation No.: (301) 951-6122
ACS Funding Trust I
By__________________________________
Title:
ACS Funding Trust I
6302 Maiden Lane
Bethesda, Maryland 20817
Attention: Malon Wilkus, Beneficiary Trustee
Facsimile No.: (301) 654-6714
Confirmation No.: (301) 951-6122
S-1
<PAGE>
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By__________________________________
Title:
Norwest Bank Minnesota, National Association
Sixth and Marquette Avenue
Minneapolis, MN 55479-0070
Attention: Corporate Trust Services
Asset-Backed Administration
Facsimile No.: (612) 667-3539
Telephone No.: (612) 667-8058
S-2
Exhibit 10.7
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") is made as of the 31st day of
March, 1999 by and among American Capital Strategies, Ltd. ( the "Company"), and
Norwest Bank Minnesota, National Association ("Norwest"), as escrow agent (the
"Escrow Agent).
Recitals
WHEREAS, the Company has agreed to grant to ACS Funding Trust I ("ACS
Funding") a first priority security interest in certain assets of the Company
pursuant to a Pledge and Security Agreement, dated as of the date hereof, by and
among the Company, ACS Funding and the Escrow Agent (as the same may be amended
from time to time, the "Pledge and Security Agreement");
WHEREAS, the Company has agreed to appoint a escrow agent to hold the
assets so pledged on behalf of ACS Funding in order to perfect the security
interest so granted in such assets; and
WHEREAS, Norwest is willing to act as Escrow Agent hereunder and under
the Pledge and Security Agreement.
Agreement
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereto agree as follows:
Section 1. Definitions. All capitalized terms used but not defined
herein shall have the meanings given to them, or incorporated by reference
therein, in the Pledge and Security Agreement.
Section 2. Appointment of the Escrow Agent; Receipt of Escrowed
Interests. The Company hereby constitutes and appoint the Escrow Agent as, and
the Escrow Agent hereby agrees to assume and perform the duties of, the escrow
agent under and pursuant to this Agreement. The Escrow Agent acknowledges
receipt of the Supplemental Interests (the "Escrowed Interests").
Section 3. The Escrowed Interests.
(a) The Escrowed Interests shall be held by the Escrow Agent in trust
for the benefit of ACS Funding and shall be released and delivered only
in accordance with the terms of this Agreement.
(b) The Escrowed Interests shall be not be subject to lien or
attachment by any creditor of any party hereto, except the first
priority perfected security interest in favor of ACS Funding pursuant
to the Pledge and Security Agreement. The Escrowed Interests
<PAGE>
shall not be available to or used by the Escrow Agent to set-off any
obligations of the Company owing to the Escrow Agent in any capacity.
Section 4. Release of the Escrowed Interests.
(a) Upon its receipt of written notice from the Company of the
occurrence of the Approval Date, the Escrow Agent shall release the
Escrowed Interests in accordance with Section 17 hereof.
(b) Upon release and delivery of all of the Escrowed Interests to the
Collateral Agent as provided herein, this Agreement (other than
Sections 6, 7 and 8) shall automatically terminate.
Section 5. Duties and Obligations of the Escrow Agent. The duties and
obligations of the Escrow Agent shall be limited to and determined solely by the
provisions of this Agreement and the Pledge and Security Agreement, and the
Escrow Agent is not charged with knowledge of, or any duties or responsibilities
in respect of, any other agreement or document. In furtherance and not in
limitation of the foregoing:
(a) the Escrow Agent shall be fully protected in relying in good faith
upon any written certification, notice, direction, request, waiver,
consent, receipt or other document that the Escrow Agent reasonably
believes to be genuine and duly authorized, executed and delivered; and
(b) the Escrow Agent shall not be liable for any error of judgment, or
for any act done or omitted by it, or for any mistake in fact or law,
or for anything that it may do or refrain from doing in connection
herewith; provided, however, that notwithstanding any other provision
in this Agreement, the Escrow Agent shall be liable for its willful
misconduct or gross negligence.
Section 6. Cooperation. The Company shall provide to the Escrow Agent
all instruments and documents within their respective powers to provide that are
necessary for the Escrow Agent to perform its duties and responsibilities
hereunder.
Section 7. Indemnity.
(a) The Company hereby agrees to indemnify the Escrow Agent for, and to
hold it harmless against, any loss, liability or expense arising out of
or in connection with this Agreement and carrying out its duties
hereunder, including the costs and expenses of defending itself against
any claim of liability, except in those cases where the Escrow Agent
has been guilty of gross negligence or willful misconduct. Anything in
this agreement to the contrary notwithstanding, in no event shall the
Escrow Agent be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost
profits), even if the Escrow Agent has been advised of the likelihood
of such loss or damage and regardless of the form of action.
(b) In the event that the Escrow Agent shall be uncertain as to its
duties or rights hereunder or shall receive instructions, claims or
demands from any party hereto which,
2
<PAGE>
in its opinion, conflict with any of the provisions of this Agreement,
it shall be entitled to refrain from taking any action and its sole
obligations shall be to keep safely all property held in escrow until
it shall be directed otherwise in writing by all of the other parties
hereto or by a final order or judgment of a court of competent
jurisdiction.
Section 8. Resignation and Removal of the Escrow Agent.
(a) The Escrow Agent may not resign. The Escrow Agent may be removed
and replaced on a date designated in a written instrument signed by ACS
Funding and the Deal Agent and delivered to the Escrow Agent.
Notwithstanding the foregoing, no such removal shall be effective until
a successor escrow agent has been appointed. In either event, upon the
effective date of such removal, the Escrow Agent shall deliver the
property comprising the Escrowed Interests to such successor escrow
agent, together with such records maintained by the Escrow Agent in
connection with its duties hereunder and other information with respect
to the Escrowed Interests as such successor may reasonably request.
(b) Upon written acknowledgment by a successor escrow agent appointed
in accordance with the foregoing provisions of this Section 8 of its
agreement to serve as escrow agent hereunder and the receipt of the
property then comprising the Escrowed Interests, the Escrow Agent shall
be fully released and relieved of all duties, responsibilities and
obligations under this Agreement, and such successor escrow agent shall
for all purposes hereof be the Escrow Agent.
Section 9. Notices. All notices, requests, instructions, documents and
other communications provided for herein or given hereunder shall be in writing
and shall be deemed to have been duly given if sent to the parties at the
following addresses in the manner set forth below:
If to the Company, to:
American Capital Strategies, Ltd.
3 Bethesda Metro Center, Suite 860
Bethesda, Maryland 20814
Attention: President
If to the Escrow Agent, to:
Norwest Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, MN 55479-0070
Attention: Corporate Trust Services
Asset Backed Administration
All such notices, requests, instruction, documents and other communications
shall be sent either by registered or certified mail, postage prepaid, or by a
nationally recognized overnight courier service providing receipt of delivery
and, in the case of notices to the Company, shall be deemed
3
<PAGE>
to have been given three (3) days after being deposited in the mails or one (1)
day after being delivered to such a courier and, in the case of notices to the
Escrow Agent, shall be effective only when actually received. Any party from
time to time may change its address or other information for the purpose of
notices to that party by giving notice specifying such change to the other
parties hereto.
Section 10. Amendments, etc. This Agreement may be amended or modified,
and any of the terms hereof may be waived, only by a written instrument duly
executed by or on behalf of the Company and the Escrow Agent. No waiver by any
party of any term or condition contained in this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or any
other term or condition of this Agreement on any future occasion.
Section 11. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to a
contract executed and performed in such state, without giving effect to the
conflicts of laws principles thereof.
Section 12. Severability of Provisions. In any one or more of the
covenants, agreements, provisions or terms of this Agreement shall for any
reason whatsoever be held invalid, then such covenants, agreements, provisions,
or terms shall be deemed severable from the remaining covenants, agreements,
provisions, or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement.
Section 13. Assignment.
(a) Notwithstanding anything to the contrary contained herein, this
Agreement may not be assigned by the Escrow Agent or the Company except in
connection with a merger or consolidation of the Company with or into, or
disposition of the Company's properties and assets to, another Person, provided,
however, that any such merger, consolidation or disposition shall satisfy the
requirements of Section 9.13 of the Purchase Agreement (which requirements are
incorporated herein by reference).
(b) In connection with any permitted assignment of this Agreement by
the Company, the Company shall deliver to ACS Funding and the Deal Agent an
Officer's Certificate that such assignment complies with this Section 13, and
shall cause such assignee to execute an agreement supplemental hereto, in form
and substance satisfactory to the Company, pursuant to which such assignee shall
expressly assume and agree to the performance of every covenant and obligation
of the Company hereunder, to provide delivery of an Opinion of Counsel that such
supplemental agreement is legal, valid and binding with respect to such
assignee, and to take such other actions and execute such other instruments as
may reasonably be required to effectuate such assignment.
Section 14. Further Assurances. The Escrow Agent and the Company agree
to do and perform, from time to time, any and all acts and to execute any and
all further instruments required or reasonably requested by the other party more
fully to effect the purposes of this Agreement.
Section 15. No Waiver; Cumulative Remedies. No failure to exercise and
no delay in exercising, on the part of the Escrow Agent or the Company, any
right, remedy, power or
4
<PAGE>
privilege hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges herein provided
are cumulative and not exhaustive of any rights, remedies, powers and privilege
provided by law.
Section 16. Counterparts. This Agreement may be executed in two or more
counterparts including telefax transmission thereof (and by different parties on
separate counterparts), each of which shall be an original, but all of which
together shall constitute one and the same instrument.
Section 17. Binding Effect; Third-Party Beneficiaries. This Agreement
shall inure to the benefit of and the obligations thereunder shall be binding
upon the parties hereto and their respective successors and permitted assigns.
Any permitted assigns of the Company and ACS Funding shall be third-party
beneficiaries of this Agreement. Pursuant to the Pledge and Security Agreement,
the Company has granted a first priority perfected security interest in all of
its right, title and interest in the Escrowed Interests to ACS Funding. The
Company acknowledges that ACS Funding is granting a first priority perfected
security interest in all of its right, title and interest in the Escrowed
Interests to the Deal Agent as agent for the Secured Parties under the Loan
Funding Agreement and that, upon its receipt of the Escrowed Interests on or
after the Approval Date, ACS Funding will deliver the Escrowed Interests to the
Collateral Custodian to further perfect the security interest of the Deal Agent,
and the Company hereby expressly (i) consents to the grant of such security
interest to the Deal Agent and (ii) authorizes the delivery of the Escrowed
Interests to the Collateral Custodian. The Company and ACS Funding agree that
the Deal Agent, as agent for the Secured Parties under the Loan Funding
Agreement shall be a third party beneficiary hereof.
Section 18. Merger and Integration. Except as specifically stated
otherwise herein, this Agreement, together with the Pledge and Security
Agreement, sets forth the entire understanding of the parties relating to the
subject matter hereof, there are no other agreements between the parties for
transactions relating to or similar to the transactions contemplated by this
Agreement, and all prior understandings, written or oral, are superseded by this
Agreement. This Agreement may not be modified, amended, waived or supplemented
except as provided herein.
[Remainder of page intentionally left blank.]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
AMERICAN CAPITAL STRATEGIES, LTD.
By:_________________________
Name:_______________________
Title:______________________
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION
By:_________________________
Name:_______________________
Title:______________________
6
Exhibit 10.8
LOCK-BOX AGREEMENT
March 31, 1999
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60674
Re: ACS Funding Trust I
Lock-Box No.: 4522
Lock-Box Account No. 8601046967
Ladies and Gentlemen:
ACS Funding Trust I (the "Assignor") hereby notifies you that
in connection with certain transactions involving the Assignor's accounts
receivables, the Assignor will transfer exclusive ownership and control of its
lock-box number 4522 (the "Lock-Box") and the corresponding lock-box account no.
8601046967 maintained with you (the "Lock-Box Account") to First Union Capital
Markets Corp., as deal agent (the "Agent"). These transfers will become
effective upon your receipt of a notice of effectiveness, substantially in the
form attached hereto as Attachment 1 (the "Notice of Effectiveness"), which
shall be delivered via facsimile transmission to your attention. Except as
specifically stated herein, the Wholesale Lockbox Mail Service Agreement between
you and the Assignor ("Lockbox Mail Service Agreement") shall remain in full
force and effect and is hereby acknowledged. The execution, delivery and
effectiveness of this Agreement shall not operate as a waiver of any right,
power or remedy you have under the Lockbox Mail Service Agreement, nor
constitute a waiver or any provision of the Lockbox Mail Service Agreement,
except as specifically set forth herein. You may rely upon the contents of any
Notice of Effectiveness or any other instructions you reasonably believe in good
faith are those of the Agent. You have no obligation or responsibility to
determine or verify any statements contained in any Notice of Effectiveness or
any other instructions.
In connection with the foregoing, the Assignor and the Agent
hereby instruct you, beginning on the date of receipt of the Notice of
Effectiveness: (i) to collect the monies, checks, instruments and other items of
payment mailed to the Lock-Box, (ii) to deposit into the Lock-Box Account all
such monies, checks, instruments and other items of payment (unless otherwise
instructed by the Agent) and (iii) to transfer all funds deposited and collected
in the Lock-Box Account pursuant to instructions given to you by the Agent from
time to time.
You are hereby further instructed: (i) that unless and until
the Agent notifies you to the contrary, you shall make such transfers from the
Lock-Box Account at such times and in such manner as the Assignor shall from
time to time instruct to the extent such instructions are not inconsistent with
the instructions set forth herein, and (ii) to permit the Assignor and the
<PAGE>
Agent to obtain upon request any information relating to the Lock-Box Account,
including, without limitation, any information regarding the balance or activity
of the Lock-Box Account.
The Assignor also hereby notifies you that, beginning on the
date of receipt by facsimile of the Notice of Effectiveness from the Agent,
notwithstanding anything herein or elsewhere to the contrary, the Agent shall be
irrevocably entitled to exercise any and all rights in respect of or in
connection with the Lock-Box and the Lock-Box Account, including, without
limitation, the right to specify when payments are to be made out of or in
connection with the Lock-Box and the Lock-Box Account. The Agent acts as agent
for persons having a continuing interest in all of the checks and their proceeds
and all monies and earnings, if any, thereon in the Lock-Box Account, and you
shall be the Agent's agent for the purpose of holding and collecting such
property. The monies, checks, instruments and other items of payment mailed to
the Lock-Box and the funds deposited into the Lock-Box Account will not be
subject to deduction, set-off, banker's lien, or any other right in favor of any
person other than the Agent (except that you may set off (i) all amounts due to
you in respect of your customary fees and expenses for the routine maintenance
and operation of the Lock-Box Account, and (ii) the face amount of any checks
returned unpaid because of uncollected or insufficient funds).
This Agreement may be terminated at any time by the Assignor
or you, upon thirty days' notice to the other party and the Agent. Neither this
Agreement nor any provision hereof may be changed, amended, modified or waived
orally but only by an instrument in writing signed by you, the Agent and the
Assignor. Any claim or cause of action of any party against any other relating
to this Agreement which existed at the time of termination shall survive the
termination. All mail received after the date specified in such notice of
termination shall be returned by you to the Agent by first class mail or such
other means mutually agreeable to you and the Agent.
No party shall assign or transfer its rights or obligations
hereunder (other than to the Agent) without the prior written consent of you,
the Agent and the Assignor. Subject to the preceding sentence, this Agreement
shall be binding upon each of the parties hereto and their respective successors
and assigns, and shall inure to the benefit of, and be enforceable by, the
Agent, each of the parties hereto and their respective successors and assigns.
You hereby represent that the person signing this Agreement on
your behalf is duly authorized by you to so sign.
You agree to give the Agent and the Assignor prompt notice if
the Lock-Box or the Lock-Box Account becomes subject to any writ, judgment,
warrant of attachment, execution or similar process of which you have knowledge.
Assignor will pay your charges and fees applicable to the
services provided pursuant to this Agreement. You will send Assignor a monthly
statement of service charges and fees which are due and payable. Such charges
and fees may be charged directly against the Lock-Box Account.
<PAGE>
You will be liable only for direct damages in the event you
fail to exercise ordinary care. You shall be deemed to have exercised ordinary
care if your actions or failure to act is in conformity with general banking
usages or is otherwise a commercially reasonable practice of the banking
industry. You shall not be liable for any special, indirect or consequential
damages, even if you have been advised of the possibility of these damages.
Assignor and Agent agree to indemnify you for, and hold you
harmless from all claims, demands, losses, liabilities and reasonable
out-of-pocket expenses, including legal fees and expenses, resulting from or
with respect to this Agreement and the administration and maintenance of the
Lock-Box Account and the services provided hereunder, including, without
limitation any action taken, or not taken, by you in regard thereto in
accordance with the terms of this Agreement. This indemnity shall survive the
termination of this Agreement.
No party will be liable for any failure to perform its
obligations when the failure arises out of causes beyond its control, including,
without limitation, an act of God, accident, equipment failure, labor disputes
or system failure, provided its has exercised such diligence as the
circumstances require.
This Agreement shall be construed in accordance with the
internal laws (and not the law of conflicts) of Illinois and applicable federal
laws.
Nothing in this Agreement or any course of dealing among the
parties commits or obligates you to extend any overdraft or other credit to
Assignor or the Agent.
This Agreement may be executed in several separate
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
Any notice, demand or other communication required or
permitted to be given hereunder shall be in writing and may be (a) personally
served, (b) sent by courier service, (c) telecopied or (d) sent by United States
mail and shall be deemed to have been given when (a) delivered in person, (b)
delivered by courier service, (c) upon receipt of the telecopy or (d) three
business days after deposit in the United States mail (registered or certified,
with postage prepaid and properly addressed), provided, however, that notices to
the Agent hereunder shall not be effective until actually received by the Agent.
For the purposes hereof, (i) the addresses of the parties hereto shall be as set
forth below each party's name below, or, as to each party, at such other address
as may be designated by such party in a written notice to the other party and
the Agent, and (ii) the address of the Agent shall be One First Union Center,
TW-9, Charlotte, North Carolina 28288, Attn.: Doug Wilson or at such other
address as may be designated by the Agent in a written notice to each of the
parties hereto.
<PAGE>
Please agree to the terms of, and acknowledge receipt of, this
Agreement by signing in the space provided below.
Very truly yours,
ACS FUNDING TRUST I
By:
-------------------------------------
Name: Malon Wilkus
Title: Beneficiary Trustee
ACS Funding Trust I
6302 Maiden Lane
Bethesda, Maryland 20817
Attention: Malon Wilkus, Beneficiary
Trustee
Telecopy #: (301) 654-6714
ACKNOWLEDGED AND AGREED:
LASALLE NATIONAL BANK
By:
--------------------------------
Name:
Title:
Date:
-------------------------------
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
[Attention:]
<PAGE>
ATTACHMENT 1
LOCK-BOX AGREEMENT
VIA FACSIMILE TRANSMISSION
TO: LaSalle National Bank
DATED: [Date]
ATTENTION:
Re: Lock-Box No.: 4522
Lock-Box Account No._________
Gentlemen:
Pursuant to the Lock-Box Agreement between ACS Funding Trust I
and you, dated as of March 31, 1999 (the "Agreement"), we hereby give you notice
that the transfers of the above-referenced Lock-Box and the Lock-Box Account, as
described in the Agreement, are effective as of the date hereof. You are hereby
instructed to comply immediately with the instructions set forth in the
Agreement and, until we notify you to the contrary, to transfer on each Business
Day all immediately available funds deposited in the Lock-Box Account by wire
transfer, ACM or other method of transfer mutually agreeable to you and the
Agent, to transfer all funds deposited and collected in the Lock-Box Account to
account number in the name of the Agent ________ at __________________________.
FIRST UNION CAPITAL MARKETS CORP.,
as Agent
By:
-------------------------------
Name:
Title:
ACKNOWLEDGED AND AGREED:
LASALLE NATIONAL BANK
By:
---------------------------------
Name:
Title:
Date:
-------------------------------
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
[Attention:]
Telecopy #:
Exhibit 10.9
CERTIFICATE OF TRUST
OF
ACS FUNDING TRUST I
THIS Certificate of Trust of ACS Funding Trust I (the "Trust"), dated
March 26, 1999, is being duly executed and filed by the undersigned trustees to
form a business trust under the Delaware Business Trust Act (12 Del. C. ss.
3801, et seq.).
1. Name. The name of the business trust formed hereby is ACS Funding
Trust I.
2. Registered Agent. The business address of the registered office of
the Trust in the State of Delaware is One Rodney Square, 10th Floor, Tenth and
King Streets in the City of Wilmington, County of New Castle, 19801. The name of
the Trust's registered agent at such address is RL&F Service Corp.
3. Effective Date. This Certificate of Trust shall be effective upon
filing.
4. Investment Company. Notice is hereby given that pursuant to Section
3807(b) of the Delaware Business Trust Act, the Trust will become prior to or
within 180 days following the first issuance of beneficial interests, a
registered investment company under the Investment Company Act of 1940, as
amended (15 U.S.C. ss.ss. 80a-1 et seq.).
<PAGE>
IN WITNESS WHEREOF, the undersigned, being all of the Trustees of the
Trust, have executed this Certificate of Trust as of the day and year first
above written.
MALON WILKUS,
as Beneficiary Trustee
------------------------------------
Name: Malon Wilkus
EVELYNE STEWARD,
as Independent Trustee
------------------------------------
Name: Evelyne Steward
WILLIAM HOLLORAN
as Independent Trustee
------------------------------------
Name: William Holloran
2
Exhibit 10.10
TRUST AGREEMENT
dated as of March 26, 1999
AMONG
AMERICAN CAPITAL STRATEGIES, LTD.,
as Grantor and Owner,
MALON WILKUS,
as Beneficiary Trustee
and
EVELYNE STEWARD and WILLIAM HOLLORAN,
as Independent Trustees
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
------
<S> <C> <C> <C>
ARTICLE I
DEFINITIONS
1.01 Capitalized Terms..................................................................................1
ARTICLE II
ORGANIZATION
2.01 Name............................................................................................4
2.02 Initial Trust Property..........................................................................4
2.03 Office..........................................................................................4
2.04 Purposes and Powers; Intent.....................................................................4
2.05 Appointment of the Trustees.....................................................................5
2.06 Declaration of Trust............................................................................5
2.07 Other Expenses, Liabilities of Trust............................................................5
2.08 Situs of Trust..................................................................................5
2.09 Additional Capital Contributions................................................................6
ARTICLE III
TAX TREATMENT AND RETURNS
3.01 Tax Treatment and Returns.......................................................................6
ARTICLE IV
SEPARATE EXISTENCE OF TRUST
4.01 Maintenance of Separate Existence...............................................................6
4.02 Merger and Other Transactions..................................................................10
4.03 Transactions with Affiliates...................................................................10
4.04 Insolvency.....................................................................................10
4.05 Compliance with Corporate Formalities..........................................................11
ARTICLE V
INVESTMENT AND APPLICATION OF TRUST FUNDS
5.01 Investment of Trust Funds......................................................................11
5.02 Application of Funds...........................................................................11
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
ARTICLE VI
AUTHORITY AND DUTIES OF THE TRUSTEES
6.01 General Authority..............................................................................11
6.02 Specific Authority; Special Authority of Beneficiary Trustee...................................11
6.03 Accounting and Reports to the Grantor, any Owner, the Internal Revenue Service and
Others.........................................................................................12
6.04 Signature of Returns...........................................................................13
6.05 Right to Receive Instructions..................................................................13
6.06 No Duties Except as Specified in this Agreement or in Instructions.............................13
6.07 No Action Except Under Specified Documents or Instructions.....................................13
ARTICLE VII
CONCERNING THE TRUSTEES
7.01 Acceptance of Trusts and Duties................................................................14
7.02 Furnishing of Documents........................................................................14
7.03 Reliance; Advice of Counsel....................................................................15
7.04 Not Acting in Individual Capacity..............................................................15
ARTICLE VIII
COMPENSATION OF TRUSTEES
8.01 Independent Trustees' Fees and Expenses........................................................15
8.02 Beneficiary Trustee's Fees and Expenses........................................................16
ARTICLE IX
INDEMNIFICATION OF TRUSTEES
9.01 Scope of Indemnification.......................................................................16
ARTICLE X
TERMINATION OF TRUST
10.01 Dissolution of Trust...........................................................................16
10.02 No Termination by Grantor or Owner.............................................................16
10.03 Cancellation of Certificate of Trust...........................................................16
ARTICLE XI
SUCCESSOR TRUSTEES AND ADDITIONAL TRUSTEES
11.01 Resignation of Trustee; Appointment of Successor...............................................17
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
ARTICLE XII
MISCELLANEOUS
12.01 Supplements and Amendments.....................................................................18
12.02 No Legal Title to Trust Property in Grantor and Owner..........................................18
12.03 Limitations on Rights of Others................................................................18
12.04 Notices........................................................................................18
12.05 Severability...................................................................................19
12.06 Separate Counterparts..........................................................................19
12.07 Successors and Assigns.........................................................................19
12.08 Headings.......................................................................................19
12.09 Governing Law..................................................................................20
</TABLE>
EXHIBIT 1
CERTIFICATE OF TRUST
<PAGE>
TRUST AGREEMENT dated as of March 26, 1999 among AMERICAN CAPITAL
STRATEGIES, LTD., as Grantor and Owner (the "Grantor"), MALON WILKUS, as
Beneficiary Trustee (the "Beneficiary Trustee") and EVELYNE STEWARD and WILLIAM
HOLLORAN, as Independent Trustees (the "Independent Trustees").
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows.
ARTICLE I
DEFINITIONS
I.01 Capitalized Terms. For all purposes of this Agreement, the
following terms shall have the meanings set forth below:
"Agreement" means this Trust Agreement, as it may be amended from time
to time.
"Affiliate" shall mean, with reference to any specified Person, any
other Person controlling or controlled by or under common control with such
specified Person; provided, that, for purposes of this Agreement when used with
respect to the Grantor's or any Owner's direct or indirect subsidiaries, any
limited partners thereof shall also be deemed "Affiliates." For the purposes of
this definition, "control," when used with reference to any specified Person,
shall mean the power to direct the management and policies of such specified
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Affiliated Entity" means the Grantor, any Owner, any of their
respective direct or indirect subsidiaries or any Affiliate of any of the
foregoing other than the Trust.
"Bankruptcy Code" means Title 11 of the United States Code, 11
U.S.C.ss.ss.101, et seq., and any successor statute, as amended from time to
time.
"Beneficiary Trustee" means any Trustee other than the Independent
Trustees.
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code,
12 Del. C.ss.ss.3801, et seq., and any successor statute, as amended from time
to time.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning assigned to that term in the Loan Funding
and Servicing Agreement.
"Eligible Investments" shall mean purchases of Financial Assets and
Related Property.
<PAGE>
"Financial Assets" has the meaning ascribed to such term in Section
2.04 of this Agreement.
"Fiscal Year" means the calendar year from each January 1 to the
following December 31.
"GAAP" means generally accepted accounting principles in effect from
time to time.
"Grantor" means American Capital Strategies, LTD.
"Independent Trustee" means a Trustee meeting the qualifications
described in Section 2.05(b) of this Agreement.
"Liability" means any damage, judgment, amount paid in settlement,
fine, penalty, tax, punitive damages, or cost or expense of any nature
(including, without limitation, attorneys' fees and disbursements).
"Loan Funding and Servicing Agreement" means the Loan Funding and
Servicing Agreement, dated as March 31, 1999, among the Trust, as the Borrower,
American Capital Strategies, LTD., as the Servicer, the Investors named therein,
Variable Funding Capital Corporation, as a Lender, First Union Capital Markets
Corp., as the Deal Agent, First Union National Bank, as the Liquidity Agent,
Norwest Bank Minnesota, National Association, as the Backup Servicer and the
Collateral Custodian.
"Notes" has the meaning assigned to that term in the Loan Funding and
Servicing Agreement.
"Owner" means the Grantor and its successors and permitted assigns as a
beneficial owner (within the meaning of the Business Trust Act) of the Trust.
All references in this Agreement to "any Owner" means each of the Grantor's
successors and permitted assigns as a beneficial owner of the Trust, and not the
Grantor itself.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, governmental authority or any other entity of
similar nature.
"Proceeding" means any threatened, pending or completed action, suit,
appeal or other proceeding of any nature, whether civil, criminal,
administrative or investigative, whether formal or informal, and whether brought
by or in the right of the Trust, the Grantor, any Owner or otherwise.
"Related Property" has the meaning ascribed to such term in Section
2.04 of this Agreement.
"Significant Event" means:
5
<PAGE>
(a) with respect to the Trust, that (i) the Trust shall fail
to, or admit in writing its inability to, pay its debts generally as they become
due, or shall commence a voluntary case or other Proceeding under any applicable
bankruptcy, insolvency, reorganization, debt arrangement, dissolution or other
similar law now or hereafter in effect, or shall consent to the appointment of
or taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) for the Trust or for any substantial
part of its property, or shall make any general assignment for the benefit of
creditors, or shall take any trust action authorizing the taking of any of the
foregoing actions or (ii) a case or other Proceeding shall be commenced without
the application or consent of the Trust, in any court, seeking the liquidation,
reorganization, debt arrangement, dissolution, winding up, or compensation or
readjustment of debts of the Trust, the appointment of a trustee, receiver,
custodian, liquidator, assignee, sequestrator, or the like for the Trust or any
substantial part of its assets, or any similar action with respect to the Trust
under any law (foreign or domestic) relating to bankruptcy, insolvency,
reorganization, winding up or composition or adjustment of debts and such case
or Proceeding shall continue undismissed or unstayed and in effect for a period
of 90 days or any of the actions sought in such petition or Proceeding,
including the entering of an order for relief in respect of the Trust or the
appointment of any trustee, receiver, custodian, liquidator, assignee,
sequestrator or the like for the Trust or any substantial portion of the Trust's
property shall be granted or otherwise occur; or
(b) the Deal Agent shall have given notice to the Trust that a
Termination Date as set forth in the Loan Funding and Servicing Agreement has
occurred.
"Transfer" means the sale, transfer or other assignment of all of the
Grantor's right, title and interest in all or a portion of its beneficial
interest in the Trust.
"Treasury Regulations" means the regulations promulgated under the
Code.
"Trust" means the Delaware statutory business trust created under this
Agreement.
"Trustees" means the trustees of the Trust, which, as provided herein,
shall mean the Beneficiary Trustee and the Independent Trustees not in their
respective individual capacities but solely as trustees under this Agreement,
and any successor trustees hereunder whether designated as an Independent
Trustee or a Beneficiary Trustee.
"Trust Property" means all right, title and interest in and to any
property contributed to the Trust by the Grantor or any Owner or otherwise
acquired by the Trust, including, without limitation, all distributions or
payments thereon or proceeds thereof.
Each of the terms used herein and not otherwise defined herein shall
have the meaning given to such terms in the Loan Funding and Servicing
Agreement, even after the termination of such agreement.
6
<PAGE>
ARTICLE II
ORGANIZATION
II.01 Name. The Trust created hereby shall be known as "ACS Funding
Trust I," in which name the Trustees shall conduct the business of the Trust,
make and execute contracts, and sue and be sued.
II.02 Initial Trust Property. The Grantor hereby assigns, transfers,
conveys and sets over to the Trustees the sum of $1.00, which sum shall be
deposited in an account established in the name of the Trust by the Beneficiary
Trustee. The Trustees hereby acknowledge receipt of such amount in trust from
the Grantor, which amount shall constitute the initial Trust Property. It is the
intention of the parties hereto that the Trust created hereby constitute a
business trust under the Business Trust Act, and that this document constitutes
the governing instrument of the Trust. The Trustees are hereby authorized and
directed to execute and file a certificate of trust (the "Certificate of Trust")
with the Delaware Secretary of State in accordance with the provisions of the
Business Trust Act in substantially the form attached hereto as Exhibit 1.
II.03 Office. The initial office of the Trust shall be 6302 Maiden
Lane, Bethesda, Maryland 20817 or at such other address as the Trustees may
designate by notice to the Grantor, any Owner and the Lenders, provided that any
other office will comply with the provisions of Section 4.01(c) and (e) hereof
and such notice is given in accordance with Section 5.1(m) of the Loan Funding
and Servicing Agreement.
II.04 Purposes and Powers; Intent. (a) The purpose of the Trust and the
nature of the business to be conducted or promoted by the Trust is to solely
engage in, and the Trust shall have the power and authority to perform, the
following activities:
(i) to acquire, own, hold, sell, service, transfer or pledge, or
otherwise dispose of, interests in and servicing responsibilities with respect
to, notes, accounts, chattel paper, general intangibles, instruments, warrants,
options, equity securities and other financial assets (collectively, the
"Financial Assets"), and any related contracts, collateral or agreements (the
"Related Property");
(ii) to purchase or otherwise acquire obligations issued or
guaranteed by the United States or any agency or instrumentality thereof,
certificates of deposit issued by commercial banks, commercial paper and similar
instruments and obligations;
(iii) to enter into the Transaction Documents to which the Trust
is a party and other agreements and arrangements with persons or entities, or
undertaking such activities, as may be necessary or convenient to acquire, own,
hold, sell, service, transfer or pledge, or otherwise dispose of the Financial
Assets and the Related Property; and
(iv) to engage in any lawful act or activities and to exercise
any powers permitted to trusts organized under the Business Trust Act that are
incidental to and necessary or convenient for the accomplishment of the
foregoing purposes.
7
<PAGE>
(b) The Trust shall not have the power or authority to (i)
incur any debt other than the Notes and certain costs, expenses and trade
payables incurred in the ordinary course associated therewith as contemplated by
the Transaction Documents, or (ii) engage in any business or activity other than
the business and activities enumerated in this Section 2.04.
II.05 Appointment of the Trustees. (a) Subject to the provisions of
Section 2.05(b), the Trust shall have no fewer than two and no more than three
trustees appointed from time to time by the Grantor or, in the event of a
Transfer, by the Owner. The Grantor or, in the event of a Transfer, the Owner,
may at any time increase the number of Trustees, subject to the provisions of
Sections 2.05(b), 3.01, 4.01 and 4.03. The Grantor has appointed EVELYNE STEWARD
and WILLIAM HOLLORAN, as Independent Trustees, and MALON WILKUS, as Beneficiary
Trustee of the Trust, which Trustees shall have all the rights, powers and
duties set forth herein.
(b) The Trust shall at all times have at least two Independent
Trustees who are not and, for the immediately preceding two year period, was not
(i) a Trustee (other than an Independent Trustee), officer or employee of the
Trust; (ii) a director, officer or employee of the Grantor, or in the event of a
Transfer, any Owner, or any of their Affiliates; (iii) a supplier, independent
contractor or any other person who derives more than 15% of its gross revenues
from its activities with the Trust, the Grantor and/or any Affiliate of the
foregoing; (iv) a holder (directly or indirectly) of more than 5% of any voting
securities of the Grantor, or in the event of a transfer, any Owner, or a holder
of any legal or beneficial interest in the Trust or any Affiliate of the
foregoing; (v) a person controlling any such director, trustee, officer,
employee, supplier, independent contractor, holder or any other person meeting
the criteria set forth in clauses (i), (ii), (iii) or (iv) of this Section
2.05(b) or (vi) a member of the immediate family of any person meeting the
criteria set forth in clauses (i), (ii), (iii), (iv) or (v) of this Section
2.05(b).
II.06 Declaration of Trust. The Trustees hereby declare that they will
hold the Trust Property in trust upon and subject to the conditions set forth
herein for the use and benefit of the Grantor or, in the event of a Transfer,
any Owner, subject to the obligations of the Trustees under the Transaction
Documents.
II.07 Other Expenses, Liabilities of Trust. None of the Grantor, the
Trustees or any Owner shall be liable for any liabilities or obligations of the
Trust, including but not limited to, the indemnification obligations under
Article IX.
II.08 Situs of Trust. The Trust will be located and administered in the
State of Maryland. All bank accounts maintained by the Trustees on behalf of the
Trust shall be located in the State of Maryland except that those accounts
established under the Loan Funding and Servicing Agreement shall be maintained
with the Servicer in accordance with the Loan Funding and Servicing Agreement.
The Trust shall not have any employees in any state other than in the State of
Maryland. Except as set forth in the Transaction Documents, payments will be
received by the Trust only in the State of Maryland and payments will be made by
the Trust only from the State of Maryland.
8
<PAGE>
II.09 Additional Capital Contributions. The assets of the Trust are
expected to generate a return sufficient to satisfy all obligations of the Trust
under this Agreement and the Transaction Documents and any other Obligations of
the Trust. It is expected that no capital contributions to the Trust will be
necessary after the purchase of the Collateral. No capital contribution by the
Grantor or any Owner, as the case may be, to the Trust will be made for the
purpose of mitigating losses on the Collateral. In the event additional capital
contributions are made, such contribution will be acknowledged by a written
receipt signed by any one of the Trustees. The Trustees acknowledge and agree
that, notwithstanding anything in this Agreement to the contrary, such
additional capital contribution may be managed by an investment manager selected
by the Beneficiary Trustee.
ARTICLE III
TAX TREATMENT AND RETURNS
3.01 Tax Treatment and Returns. The Beneficiary Trustee shall (i) file
such tax returns relating to the Trust in the name of the Trust, and make such
elections, including any election necessary for the Trust to maintain its status
as a separate legal entity, or as may from time to time be required under any
applicable state or federal statute or rule or regulation thereunder, (ii) cause
such tax returns to be signed on behalf of the Trust in the matter required by
law, (iii) collect or cause to be collected any withholding tax required to be
withheld by the Trust with respect to distributions and (iv) cause to be mailed
to each Owner copies of all such reports and tax returns of the Trust.
ARTICLE IV
SEPARATE EXISTENCE OF TRUST
IV.01 Maintenance of Separate Existence. The Trustees shall take all
steps necessary to continue the identity of the Trust as a separate legal entity
and to make it apparent to third Persons that the Trust is an entity with assets
and liabilities distinct from those of the Grantor, any Owner, the Trustees,
Affiliates of the Grantor or any Owner or any other Person, and that, it is not
a division of any of the Affiliated Entities or any other Person. In that
regard, and without limiting the foregoing in any manner, the Trust shall:
(a) be managed by the Trustees who shall make independent
decisions with respect to the daily operations and business affairs of the Trust
and, except as otherwise provided herein, neither the Trustees nor the Trust
shall be controlled in making such decisions by the Grantor, any Owner, any
Affiliated Entity or any other Person;
(b) maintain at least two Independent Trustees and one
Beneficiary Trustee (who may not be the same Person);
9
<PAGE>
(c) maintain office space separate and clearly delineated from
the office space of any Affiliated Entity, owned by the Trust or evidenced by a
written lease or sublease (even if located in an office owned or leased by, or
shared with, an Affiliated Entity);
(d) maintain the assets of the Trust in such a manner that
they are separately identified and segregated from the assets of any other
Person, and the assets of the Trust shall at all times be held by or on behalf
of the Trust and, if held on behalf of the Trust by another Person, shall at all
times be kept identifiable ( in accordance with customary usages) as assets
owned by the Trust; provided, however, that in no event shall any of the Trust's
assets be held on its behalf by any Affiliated Entity;
(e) maintain a separate telephone number which will be
answered only in its own name, and keep and use separate stationary, checks and
other business forms;
(f) conduct all intercompany transactions with Affiliated
Entities on an arm's-length basis and in accordance with Section 4.03;
(g) not guarantee or become obligated for the debts of any
Affiliated Entity or hold the credit of the Trust out as being available to
satisfy the obligations of any Affiliated Entity or other Person, nor have any
of the Trust's obligations guaranteed by any Affiliated Entity or hold the Trust
out as responsible for the debts of any Affiliated Entity or for the decisions
or actions with respect to the business and affairs of any Affiliated Entity,
nor seek or obtain credit or incur any obligation to any third-party based upon
the creditworthiness or assets of any Affiliated Entity or any other Person
(i.e., other than based on the assets of the Trust) nor allow any Affiliated
Entity to do such things based on the credit of the Trust;
(h) not permit the commingling or pooling of the Trust's funds
or other assets with the funds or other assets of any Affiliated Entity;
(i) maintain separate deposit and other bank accounts and
funds to which no Affiliated Entity has any access, which accounts shall be
maintained in the name and tax identification number of the Trust;
(j) maintain full books of accounts and records (financial or
other) and financial statements separate from those of the Affiliated Entities
or any other Person, and prepare unaudited quarterly and audited annual
financial statements in accordance with GAAP, (including, but not limited to,
all resolutions, records, agreements or instruments underlying or regarding the
transactions contemplated by the Transaction Documents or otherwise);
(k) (X) compensate (either directly or through reimbursement
of the Trust's allocable share of any shared expenses) all employees,
consultants and agents and Affiliated Entities, to the extent applicable, for
services provided to the Trust by such employees, consultants and agents or
Affiliated Entities, in each case, from the Trust's own assets and maintain a
sufficient number of employees in light of its contemplated operations and (Y)
manage its liabilities separately from those of any Affiliated Entity, and the
Trust shall pay its own liabilities, including administrative expenses, from its
own separate assets;
10
<PAGE>
(l) pay for its own account for accounting and payroll
services, rent, lease and other expenses (or the Trust's allocable share of any
such amounts provided by one or more other Affiliated Entity) and not have such
operating expenses (or the Trust's allocable share thereof) paid by any
Affiliated Entities, provided, that the Grantor shall be permitted to pay the
initial organization expenses of the Trust;
(m) maintain adequate capitalization in light of the Trust's
business and purpose;
(n) conduct all of the Trust's business (whether in writing or
orally) solely in the name of the Trust through its Trustees, employees and
agents and hold the Trust out as an entity separate from any Affiliated Entity
and investments of the Trust shall be made directly by the Trust or by brokers
engaged and paid by the Trust or its agents;
(o) not make or declare any distributions of cash or property
to the Grantor or any Owner except in accordance with appropriate trust
formalities and only consistent with sound business judgment to the extent that
it is permitted pursuant to the Transaction Documents and not violative of any
applicable law and only if no Significant Event or potential Significant Event
then exists or would result therefrom;
(p) otherwise practice and adhere to all trust procedures and
formalities, such as the holding of regularly scheduled meetings of the
Trustees, to the extent required by such formalities and by this Agreement, the
State of Delaware and all other appropriate constituent documents;
(q) not appoint an Affiliated Entity or any employee of an
Affiliated Entity as an agent of the Trust, except as otherwise permitted in the
Transaction Documents (although such Persons can qualify as Beneficiary
Trustees);
(r) not acquire obligations or securities of, or make loans or
advances to or pledge its assets for the benefit of, the Grantor, any Owner or
any Affiliate of such parties;
(s) not permit the Grantor, any Owner or any Affiliated Entity
to guarantee, pay or become liable for the debts of the Trust or permit any such
entity to hold out its creditworthiness as being available to pay the
liabilities and expenses of the Trust;
(t) maintain separate minutes of the actions of the Trustees,
including the transactions contemplated by the Transaction Documents;
(u) cause (i) all written and oral communications, including,
without limitation, letters, invoices, purchase orders, and contracts, of the
Trust to be made solely in the name of the Trust, (ii) the Trust to have its own
tax identification number, stationery, and business forms, separate from those
of any Affiliated Entity, (iii) all Affiliated Entities not to use the
stationery or business forms of the Trust, and for the Trust not to use the
stationery or business forms of any Affiliated Entity, and (iv) all Affiliated
Entities not to conduct business in the name of the Trust, and the Trust not to
conduct business in the name of any Affiliated Entity;
11
<PAGE>
(v) direct creditors of the Trust to send invoices and other
statements of account of the Trust directly to the Trust and not to any
Affiliated Entity and to cause the Affiliated Entities not to direct their
creditors to send invoices and other statements of accounts to the Trust;
(w) disclose in its financial statements the effects of all
transactions between the Grantor and the Trust in accordance with generally
accepted accounting principles, and in a manner which makes it clear that the
assets of the Trust (including the Collateral) are not assets of any Affiliated
Entity and are not available to pay creditors of any Affiliated Entity;
(x) treat the transfer of Collateral from the Grantor to the
Trust as a sale;
(y) describe itself, and hold itself out to the public
(including any creditors of any Affiliated Entity) as a separate legal entity
and promptly correct any known misunderstandings regarding its identity separate
from any Affiliated Entity or any Person and observe all customary formalities
regarding the legal existence of the Trust, including holding regular meetings
of the Trustees, as required by this Agreement or the Act, and maintaining
minutes of any such meetings;
(aa) treat the Notes as debt obligations of the Trust;
(bb) maintain its valid existence in good standing under the
laws of the State of Delaware and maintain its qualification to do business
under the laws of such other jurisdictions as its operations require; and
(cc) comply with all laws applicable to the transactions
contemplated by this Agreement.
The Grantor or, in the event of a Transfer, any Owner shall:
(a) maintain as official records all resolutions, agreements,
and other instruments underlying or regarding the transactions contemplated by
the Transaction Documents;
(b) disclose in its financial statements the effects of all
transactions between the Grantor and the Trust in accordance with GAAP, and in a
manner which makes it clear that the assets of the Trust (including the
Collateral) are not assets of any Affiliated Entity and are not available to pay
creditors of any Affiliated Entity;
(c) treat the transfer of Collateral from the Grantor to the
Trust as a sale;
(d) if in accordance with GAAP, the assets and liabilities of
the Trust are included in the consolidated financial statements of the Grantor,
including if the Trust is treated
12
<PAGE>
as a division of the Grantor, cause the Grantor to prominently and clearly
disclose, whether in a footnote or in the notes to such financial statements,
that (i) the Trust is a separate legal entity, (ii) the assets of the Trust are
not available to pay the debts nor satisfy the liabilities of the Grantor or the
debts and liabilities of any other Affiliated Entity and (iii) neither the
Grantor nor any other Affiliated Entity is liable or responsible for the debts
of the Trust;
(e) with respect to tax reporting and financial reporting,
describe and cause each Affiliated Entity to describe the Trust, and hold the
Trust out as a separate legal entity and not as a division or department of any
Affiliate Entity, and promptly correct any known misunderstandings regarding its
identity separate from any Affiliated Entity or any Person.
IV.02 Merger and Other Transactions. As long as the Notes are
outstanding, the Trust may not consolidate with, merge or convert into another
entity or sell all or substantially all of its assets to another entity and
dissolve, unless: (i) the entity formed by or surviving such consolidation,
merger or conversion or to whom substantially all of such assets are sold is
organized under the laws of the United States, any state thereof or the District
of Columbia, (ii) such entity expressly assumes the Trust's obligation to make
due and punctual payments upon the Notes and the performance or observance of
every agreement and covenant of the Trust under the Loan Funding and Servicing
Agreement, (iii) no Termination Event (as defined in the Loan Funding and
Servicing Agreement) will have occurred and be continuing immediately after such
consolidation, merger, conversion or sale of assets, (iv) the rating of the
Notes assigned by each Rating Agency remains unchanged as evidenced by a written
confirmation from each Rating Agency assigning a rating to the Notes on the
Closing Date, (v) the Trust has received an opinion of counsel to the effect
that such consolidation, merger, conversion or sale of assets would have no
material adverse tax consequence to the Trust or any holders of Notes and such
consolidation, merger, conversion or sale of assets complies with the Loan
Funding and Servicing Agreement and all conditions precedent therein provided
relating to such transaction, (vi) none of the Collateral or the Grantor's, the
Trust's, the Deal Agent's or any Noteholder's rights are substantially impaired
and (vii) any action that is necessary to maintain the lien and security
interest created by the Loan Funding and Servicing Agreement will have been
taken.
IV.03 Transactions with Affiliates. The Trust will not enter into, or be
a party to, any transaction with any of its Affiliates, except (i) the
transactions contemplated by the Transaction Documents and (ii) any other
transactions (including, without limitation, the lease of office space or
computer equipment or software by the Trust from an Affiliate of the Trust and
the sharing of employees and employee resources and benefits) (A) in the
ordinary course of business or as otherwise permitted hereunder, (B) pursuant to
the reasonable requirements and purposes of the Trust's business, (C) upon fair
and reasonable terms (and, to the extent material, pursuant to written
agreements) that are on terms and conditions available at the time to the Trust
for comparable transactions with unaffiliated Persons, (D) approved by the
Beneficiary Trustee and (E) not inconsistent with the terms of Section 4.01. Any
of the Trustees, acting singly or collectively, may take all actions necessary
to effectuate such transactions if such transactions are in the ordinary course
of business. If such transactions are not in the ordinary course of business,
the unanimous approval of the Trustees shall be needed to effectuate such
transactions; provided, however, that the Trust shall not make any loans to or
guarantee or assume any liabilities or obligations of any Affiliated Entity.
13
<PAGE>
IV.04 Insolvency. Notwithstanding any other provision of this
Agreement, without the affirmative vote of all of the Trustees (which must
include the affirmative votes of all of the Independent Trustees), the Trust
shall not (i) dissolve or liquidate, in whole or in part, or institute
proceedings to be adjudicated bankrupt or insolvent, (ii) consent to the
institution of bankruptcy or insolvency proceedings against it, (iii) file a
petition seeking or consenting to reorganization or relief under any applicable
federal or state law relating to bankruptcy, (iv) consent to the appointment of
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Trust or a substantial part of its property, (v) make a general
assignment for the benefit of creditors, (vi) admit in writing its inability to
pay its debts generally as they become due, (vii) take any action in furtherance
of the actions set forth in clauses (i) through (vi) of this paragraph,
provided, however, that no Trustee may be required by any beneficial owner of
the Trust to consent to the institution of bankruptcy or insolvency proceedings
against the Trust so long as it is solvent.
IV.05 Compliance with Corporate Formalities. Grantor hereby agrees to
observe in all material respects all corporate procedures and formalities
required by its constituent documents and the laws of its state of formation and
all other appropriate jurisdictions.
ARTICLE V
INVESTMENT AND APPLICATION OF TRUST FUNDS
V.01 Investment of Trust Funds. The provisions of this Article V apply
only to funds or Trust Property that have been released from the security
interest created by the Loan Funding and Servicing Agreement and are permitted
to be held or applied by the Trust. Unless otherwise directed in writing by the
Beneficiary Trustee, funds or Trust Property released by the Deal Agent to the
Trust or funds in the possession of the Trust shall be invested and reinvested
by the Beneficiary Trustee (or by an independent investment manager appointed in
writing by the Beneficiary Trustee) in Eligible Investments.
V.02 Application of Funds. Subject to the Trust's compliance with
Article IV herein at all times, any funds or Trust Property held by the Trustees
may be transferred as determined by the Beneficiary Trustee from time to time.
ARTICLE VI
AUTHORITY AND DUTIES OF THE TRUSTEES
VI.01 General Authority. The Trustees are authorized to take all
actions required or permitted to be taken by them pursuant to the terms of this
Agreement and the Transaction Documents.
VI.02 Specific Authority; Special Authority of Beneficiary Trustee. (a)
Notwithstanding any other provision in this Agreement to the contrary and
without the need for
14
<PAGE>
any additional consent of any Person, the Beneficiary Trustee is hereby
authorized and directed to take the following action on behalf of the Trust: (i)
execute, deliver and perform any agreements related to the issuance of the
Notes, including the Transaction Documents, as necessary, (ii) execute and
deliver all certificates and other documents required by any such agreements,
(iii) issue and deliver the Notes in accordance with the provisions of such
agreements and (iv) to designate, in writing, any Person as an authorized
signatory of the Trust for the sole purpose of executing and delivering any
documents authorized by the Beneficiary Trustee in such writing. The Beneficiary
Trustee is authorized to take all actions necessary or incidental to the
day-to-day operations of the Trust. Subject to Section 6.05, all non-day-to-day
matters shall be determined by a majority of the then current Trustees, provided
that, such majority must include the affirmative vote of all the Independent
Trustees for all actions specified in Sections 4.02, 4.03 and 4.04 and any
matter that would, if approved by the Trustees, cause the Trust to deviate from
the provisions of Sections 2.04(a), 2.04(b), 2.05(b), 4.01 and 6.06 of this
Agreement. For purposes of determining a majority under this Agreement, each
Person that is serving as a Trustee shall be counted as a single Trustee, even
if such Person holds multiple Trustee positions.
(b) The Trust hereby authorizes and directs the Beneficiary
Trustee, (i) to file and execute on behalf of the Trust such applications,
reports, surety bonds, irrevocable consents, appointments of attorney for
service of process and other papers and documents as shall be necessary or
desirable under the securities or "Blue Sky" laws of such jurisdictions as the
Trust may deem necessary or desirable and (ii) to do or cause to be done all
such other acts or things and to execute and deliver all such instruments and
documents that any such Beneficiary Trustee shall deem necessary or appropriate
to carry out the intent of the foregoing.
(c) The Trust hereby authorizes and directs the Beneficiary
Trustee within 180 days of the Closing Date (i) to complete, execute and file on
behalf of the Trust such application, documents, certifications or registrations
as is required under the Investment Company Act of 1940, as amended, 15 U.S.C.
ss.ss. 80a-1 et seq., to register the Trust as a registered investment company
pursuant thereto and to obtain such exemptions from the provisions thereof as
the Beneficiary Trustee shall deem necessary or appropriate and (ii) to do or
cause to be done all such other acts or things and to execute and deliver all
such instruments and documents that such Beneficiary Trustee shall deem
necessary or appropriate to register the Trust as a registered investment
company.
(d) Meetings of the Trustees for the purpose of establishing a
majority under this Article VI or otherwise may be called at any time by any one
Trustee upon two days written or oral notice, stating the time, place and
purpose of the meeting, to all Trustees prior to the time of the meeting. In
addition, any action required or permitted to be taken at a meeting of the
Trustees may be taken without a meeting upon the written consent of the Trustees
who would be necessary to authorize the action at a meeting at which all
Trustees were present and voting or upon the unanimous written consent of the
Trustees. The Beneficiary Trustee shall maintain the minutes of all meetings of
the Trustees. Any meeting may be held by means of conference telephone or
similar communications equipment by which all persons participating in the
meeting can hear one another. Attendance, whether by telephone or in person, at
any meeting of the Trustees shall constitute a waiver of notice of such meeting.
15
<PAGE>
VI.03 Accounting and Reports to the Grantor, any Owner, the Internal
Revenue Service and Others. The Beneficiary Trustee shall, on behalf of the
Trust, (i) maintain or cause to be maintained the books of the Trust on a
calendar year basis on the accrual method of accounting, (ii) deliver to the
Grantor and any Owner, within 90 days of the end of each Fiscal Year, or more
often, as may be required by the Code and the regulations thereunder, a copy of
the annual financial statement of the Trust for such Fiscal Year and a statement
in such form and containing such information as is necessary and appropriate to
enable the Grantor and any Owner to prepare its federal and state income tax
returns, (iii) file such tax returns relating to the Trust, cause the Trust to
pay all taxes incurred by it pursuant to Federal, state or local income tax law,
(iv) cause such tax returns to be signed by the Trust in the manner required by
law, and (v) cause to be mailed to the Grantor and any Owner copies of all such
reports and tax returns of the Trust.
VI.04 Signature of Returns. The Trustee designated in Section 6.03
shall sign on behalf of the Trust the tax returns of and all other tax filings
of, or on behalf of, the Trust, unless applicable law requires the Owner to sign
such documents, in which case, so long as the Grantor is the Owner and
applicable law allows the Grantor to sign any such document, the Grantor shall
sign such document. At any time that the Grantor is not the Owner, or is
otherwise not allowed by law to sign any such document, then the party required
by law to sign such document shall sign.
VI.05 Right to Receive Instructions. In the event that any Trustee is
unable to decide between alternative courses of action for whatever reason, or
is unsure as to the application of any provision of this Agreement or any
Transaction Document, or such provision is ambiguous as to its application, or
is, or appears to be, in conflict with any other applicable provision, or in the
event that this Agreement or any Transaction Document permits any determination
by the Trustees or is silent or is incomplete as to the course of action which
the Trustees are required to take with respect to a particular set of facts, any
one or more of the Trustees may give notice of such circumstances (in such form
as shall be appropriate under the circumstances) to the Grantor or, in the event
of a Transfer, to the Owner, and request instructions from independent,
appropriate legal or other counsel to the Trustees in accordance with Section
7.03 of this Agreement and no Trustee shall have liability to any person as a
result of its good faith actions or omissions in accordance therewith.
VI.06 No Duties Except as Specified in this Agreement or in
Instructions. The Trustees shall not have any duty or obligation to manage, make
any payment in respect of, register, record, sell, dispose of or otherwise deal
with the Trust Property, prepare or file any tax, securities law or uniform
commercial code filing or to otherwise take or refrain from taking any action
under, or in connection with, any document contemplated hereby to which the
Trust is a party, except as expressly provided by the terms of this Agreement
or, in the case of the Beneficiary Trustee, the Transaction Documents to which
the Trust is a party and no implied duties or obligations shall be read into
this Agreement or the Transaction Documents to which the Trust is a
16
<PAGE>
party against the Trustees. The Trustees nevertheless agree that, in the event
that claims are made against any of the Trustees in their individual capacities
which result in liens against the Trust Property that are not related to the
ownership or the administration of the Trust Property or the transactions
contemplated by the Transaction Documents to which the Trust is a party, the
Trustee against whom such claims were made shall, at its own cost and expense,
promptly take all action as may be necessary to discharge any liens on any part
of the Trust Property resulting from those claims.
VI.07 No Action Except Under Specified Documents or Instructions. The
Trustees shall not manage, control, use, sell, dispose of or otherwise deal with
any part of the Trust Property except in accordance with the powers granted to
and the authority conferred upon the Trustees pursuant to this Agreement.
ARTICLE VII
CONCERNING THE TRUSTEES
VII.01 Acceptance of Trusts and Duties. The Trustees accept the trusts
hereby created and agree to perform their respective duties hereunder with
respect to the same but only upon the terms of this Agreement. The Trustees
shall not be personally liable under any circumstances except (i) for their own
willful misconduct or gross negligence, (ii) for liabilities arising from the
failure by any of the Trustees to perform obligations expressly undertaken by
them in their individual capacity in the last sentence of Section 6.06, or (iii)
for taxes, fees or other charges on, based on or measured by any fees,
commissions or compensation received by the Trustees in connection with any of
the transactions contemplated by this Agreement or the Transaction Documents.
In particular, but not by way of limitation:
(a) The Trustees shall not be personally liable for any error
of judgment made in good faith by any of the Trustees or a responsible officer
thereof;
(b) The Trustees shall not be personally liable with respect
to any action taken or omitted to be taken by the Trustees in good faith in
accordance with the instructions delivered pursuant to Section 6.05;
(c) No provision of this Agreement shall require the Trustees
to expend or risk their personal funds or otherwise incur any financial
Liability in the performance of any of their rights or powers hereunder, if the
Trustees shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or Liability is not reasonably
assured or provided to them;
(d) Under no circumstance shall the Trustees be personally
liable for any indebtedness of the Trust under any Transaction Document; and
(e) The Trustees shall not be personally responsible for or in
respect of the validity or sufficiency of this Agreement or for the due
execution hereof by the Grantor, or for the form, character, genuineness,
sufficiency, value or validity of any Collateral, or for or in respect of the
validity or sufficiency of the Transaction Documents.
VII.02 Furnishing of Documents. The Trustees shall furnish to the
Grantor and any Owner, promptly upon receipt thereof, duplicates or copies of
all material reports,
17
<PAGE>
notices, requests, demands, certificates, financial statements and any other
instruments furnished to the Trustees by any party pursuant to the Transaction
Documents (other than documents originated by or otherwise furnished by the
Grantor or any Owner).
VII.03 Reliance; Advice of Counsel. (a) The Trustees shall incur no
Liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond or other
document or paper believed by them to be genuine and believed by them to be
signed by the proper party or parties. The Trustees may accept a certified copy
of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the manner of ascertainment of which is not specifically
prescribed herein, the Trustees may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by the treasurer
or any assistant treasurer or the secretary or any assistant secretary of the
relevant party, as to such fact or matter, and such certificate shall constitute
full protection to the Trustees for any action taken or omitted to be taken by
them in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder
and in the performance of their respective duties and obligations under any of
the Transaction Documents, the Trustees (i) may act directly or, at the expense
of the Trust in the case of the Independent Trustees, through agents or
attorneys pursuant to agreements entered into with any of them, and the Trustees
shall not be liable for the default or misconduct of such agents or attorneys if
such agents or attorneys shall have been selected by the Trustees with
reasonable care and (ii) may, at the expense of the Trust in the case of the
Independent Trustees, consult with counsel, accountants and other skilled
persons to be selected with reasonable care and employed by them, and the
Trustees shall not be liable for anything done, suffered or omitted in good
faith by them in accordance with the advice or opinion of any such counsel,
accountants or other skilled persons.
VII.04 Not Acting in Individual Capacity. Except as expressly provided
in this Article VII, in accepting the trusts hereby created the Trustees each
act solely as trustees hereunder and not in their respective individual
capacities, and all Persons having any claim against the Trustees by reason of
the transactions contemplated by this Agreement or the Transaction Documents
shall look only to the Trust Property for payment or satisfaction thereof.
ARTICLE VIII
COMPENSATION OF TRUSTEES
VIII.01 Independent Trustees' Fees and Expenses. The Independent
Trustees shall receive compensation for their services hereunder from the Trust
as are fair, reasonable and customary for the performance of such services and
from time to time hereafter as agreed to by the Beneficiary Trustee, acting
singly or collectively, on behalf of the Trust. The Trust shall reimburse the
Independent Trustees for their reasonable expenses hereunder, including, without
limitation, the reasonable compensation, expenses and disbursements of such
agents,
18
<PAGE>
representatives, experts and counsel as the Independent Trustees may employ in
connection with the exercise and performance of their rights and duties under
this Agreement and the Transaction Documents.
VIII.02 Beneficiary Trustee's Fees and Expenses. The Beneficiary
Trustee shall not be compensated by the Trust for services performed for or on
behalf of the Trust.
ARTICLE IX
INDEMNIFICATION OF TRUSTEES
IX.01 Scope of Indemnification. To the fullest extent permitted by law,
the Trust shall indemnify the Trustees against any Liability incurred in
connection with any Proceeding in which the Trustees may be involved as a party
or otherwise by reason of the fact that such Trustee is or was serving in its
capacity as a Trustee, unless such Liability is based on or arises in connection
with the Trustee's own wilful misconduct or gross negligence, the failure to
perform the obligations set forth in the last sentence of Section 6.06, or
taxes, fees or other charges on, based on or measured by any fees, commissions
or compensation received by the Trustees in connection with any of the
transactions contemplated by this Agreement or the Transaction Documents;
provided, however, that any and all obligations of the Trust to indemnify the
Trustees shall be fully subordinated to the Notes and, so long as the Notes are
outstanding, shall not constitute a claim against the Trust.
ARTICLE X
TERMINATION OF TRUST
X.01 Dissolution of Trust. (a) The Trust shall dissolve and, after
satisfaction of the obligations of the Trust to any creditors of the Trust as
required by applicable law, property held by the Trust will be distributed to
the Grantor or, in the event of a Transfer, to any Owner, at the expense of the
Trust, and upon written instruction and direction of the Beneficiary Trustee,
but in no event before payment in full of all the obligations and all fees and
expenses under, and in accordance with, the Transaction Documents. The
Beneficiary Trustee shall be the liquidator of the Trust and shall be
responsible, subject to Section 4.04, for the liquidation of the Trust in
accordance with the Business Trust Act.
(b) The bankruptcy of either the Grantor or any Owner or both
shall not operate to terminate this Agreement, to dissolve, terminate or annul
the Trust, to entitle the Grantor's or any Owner's legal representatives to
claim an accounting or to take any action or Proceeding in any court for a
partition or winding up of the Trust Property, nor otherwise affect the rights,
obligations and liabilities of the parties hereto.
19
<PAGE>
X.02 No Termination by Grantor or Owner. Except as provided in Section
10.01, neither the Grantor nor any Owner shall be entitled to dissolve or
terminate or revoke the Trust established hereunder.
X.03 Cancellation of Certificate of Trust. Upon completion of the
winding up of the affairs of the Trust, after dissolution of the Trust in
accordance with Section 10.01 or otherwise, the Certificate of Trust shall be
canceled by the Beneficiary Trustee's executing and filing a certificate of
cancellation with the Secretary of State of Delaware.
ARTICLE XI
SUCCESSOR TRUSTEES AND ADDITIONAL TRUSTEES
XI.01 Resignation of Trustee; Appointment of Successor. (a) A Trustee
may resign at any time without cause by giving at least 90 days' prior written
notice to the Grantor and any Owner, such resignation to be effective upon the
acceptance of appointment by a successor Trustee under Section 11.01(b). In
addition, the Grantor or, in the event of a Transfer, any Owner may at any time
remove any of the Trustees with or without cause by an instrument in writing
delivered to the Trustee, such removal to be effective upon the acceptance of
appointment by a successor Trustee under Section 11.01(b); except that, neither
the Grantor nor any Owner may remove an Independent Trustee (i) after a
Termination Event under the Loan Funding and Servicing Agreement or (ii) if the
removal of one or more Trustees would cause the breach of Section 2.05(b). In
case of the resignation or removal of a Trustee, the Grantor or, in the event of
a Transfer, any Owner, may appoint a successor Trustee by an instrument signed
by the Grantor or any Owner, as applicable, subject to Section 2.05(b). If the
last remaining Trustee of the Trust resigns or is removed or an Independent
Trustee resigns or is removed and a successor Trustee shall not have been
appointed within 30 days after the giving of written notice of such resignation
or the delivery of the written instrument with respect to such removal, such
Trustee, the Grantor or any Owner may apply to any court of competent
jurisdiction to appoint a successor Trustee in compliance with Section 2.05(b)
to act until such time, if any, as a successor Trustee shall have been appointed
as provided above. Any successor Trustee so appointed by such court shall
immediately and without further act be superseded by any successor Trustee
appointed as above provided.
(b) Any successor Trustee, however appointed, shall execute
and deliver to the predecessor Trustee and the Trust an instrument accepting
such appointment, and thereupon such successor Trustee, without further acts,
shall become vested with all the estates, properties, rights, powers, duties and
trusts of the predecessor Trustee in the trusts hereunder with like effect as if
originally named as a Trustee herein; but nevertheless, upon the written request
of such successor Trustee and payment of the predecessor Trustee's fees and
expenses, such predecessor Trustee shall execute and deliver an instrument
transferring to such successor Trustee, upon the trusts herein expressed, all
the estates, properties, rights, powers, duties and trusts of such predecessor
Trustee, and such predecessor Trustee shall duly assign, transfer, deliver and
pay over to such successor Trustee all moneys or other property then held or
subsequently received by such predecessor Trustee upon the trusts herein
expressed.
20
<PAGE>
(c) Any Person into which any Trustee may be merged or
converted or with which it may be consolidated, or any Person resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any Person to which substantially all the corporate trust business of the
Trustee may be transferred, shall, subject to the terms of this Agreement, be
the Trustee of the Trust under this Agreement without further act or consent of
any Person.
ARTICLE XII
MISCELLANEOUS
XII.01 Supplements and Amendments. This Agreement may be amended only
by a written instrument signed by the Grantor, any Owner and a majority of the
Trustees (which majority shall include all the Independent Trustees) at the time
of such amendment. No such amendment may be made unless the rating of the Notes
assigned by each Rating Agency remains unchanged as evidenced by a written
confirmation from each Rating Agency assigning a rating to the Notes on the
Closing Date. No amendment shall affect the rights, liabilities or protections
of any Trustee without the written consent of such Trustee. The Trustees shall
be entitled to an opinion of counsel stating that an amendment is authorized or
permitted hereunder and under the Transaction Documents.
XII.02 No Legal Title to Trust Property in Grantor and Owner. Neither
the Grantor nor any Owner shall have legal title to or ownership of any part of
the Trust Property. No transfer, by operation of law or otherwise, of any right,
title and interest of the Grantor or any Owner in and to their undivided
beneficial interest in the Trust Property hereunder shall operate to terminate
this Agreement or the trusts hereunder, to dissolve, terminate or annul the
Trust or to entitle any successor transferee to an accounting or to the transfer
to it of legal title to any part of the Trust Property.
XII.03 Limitations on Rights of Others. Nothing in this Agreement,
whether express or implied, shall be construed to give to any Person other than
the Trust, the Trustees, the Grantor and any Owner any legal or equitable right,
remedy or claim in the Trust Property or except for the Grantor and any Owner,
under or in respect of this Agreement or any covenants, conditions or provisions
contained herein.
XII.04 Notices. Unless otherwise expressly specified or permitted by
the terms hereof, all notices shall be in writing and delivered by hand or
mailed by certified mail, postage prepaid, if to the Trustees, addressed to:
Malon Wilkus
6302 Maiden Lane
Bethesda, Maryland 20817
Telephone: (301) 229-7868
21
<PAGE>
Evelyne Steward
1115 Halesworth Drive
Potomac, Maryland 20854
Telephone: (301) 294-8842
William Holloran
2636 SW Schaeffer Road
West Linn, Oregon 97068
Telephone: (503) 638-7413
or to such other addresses as the Trustees may have set forth in a written
notice to the Grantor and any Owner; and if to the Grantor, addressed to:
American Capital Strategies, Ltd.
3 Bethesda Metro Center
Suite 860
Bethesda, Maryland 20814
or to such other address as the Grantor may have set forth in a written notice
to the Trustees and the Deal Agent. All notices to any Owner shall be sent care
of the Grantor to the Grantor's address set forth above or to such other address
as such Owner may have set forth in a written notice to the Grantor, the
Trustees and the Deal Agent. Whenever any notice in writing is required to be
given by the Trustees hereunder, such notice shall be deemed given and such
requirement satisfied 72 hours after such notice is mailed by certified mail,
postage prepaid, addressed as provided above; any notice given by the Grantor or
any Owner to the Trustees shall be effective upon receipt.
XII.05 Severability. 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, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
XII.06 Separate Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
XII.07 Successors and Assigns. All covenants and agreements contained
herein shall be binding upon, and inure to the benefit of, the Trustees and
their respective successors and assigns and the Grantor, any Owner and their
respective successors and permitted assigns, all as herein provided. Any
request, notice, direction, consent, waiver or other instrument or action by the
Grantor and any Owner shall bind its successors and permitted assigns.
XII.08 Headings. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof. Any reference to any Article or Section
contained in this Agreement shall refer to such Article or
22
<PAGE>
Section as set forth in this Agreement, notwithstanding failure to use the term
"hereof," "hereto" or "herein" in connection with such reference.
XII.09 Governing Law. This Agreement shall in all respects be governed
by, and construed in accordance with, the laws of the State of Delaware (without
regard to conflict of laws principles), including all matters of construction,
validity and performance.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed or caused
this Agreement to be duly executed by their respective officers hereunto duly
authorized, as of the day and year first above written.
AMERICAN CAPITAL STRATEGIES, LTD.,
as Grantor and Owner
By:
------------------------------------
Name:
Title:
MALON WILKUS,
as Beneficiary Trustee
---------------------------------------
Name: Malon Wilkus
EVELYNE STEWARD,
as Independent Trustee
--------------------------------------
Name: Evelyne Steward
WILLIAM HOLLORAN,
as Independent Trustee
--------------------------------------
Name: William Holloran
<PAGE>
EXHIBIT 1
CERTIFICATE OF TRUST
OF
ACS FUNDING TRUST I
[see attached]
<PAGE>
CERTIFICATE OF TRUST
OF
ACS FUNDING TRUST I
THIS Certificate of Trust of ACS Funding Trust I (the
"Trust"), dated March 26, 1999, is being duly executed and filed by the
undersigned trustees to form a business trust under the Delaware Business Trust
Act (12 Del. C. ss. 3801, et seq.).
1. Name. The name of the business trust formed hereby is ACS
Funding Trust I.
2. Registered Agent. The business address of the registered
office of the Trust in the State of Delaware is One Rodney Square, 10th Floor,
Tenth and King Streets in the City of Wilmington, County of New Castle, 19801.
The name of the Trust's registered agent at such address is RL&F Service Corp.
3. Effective Date. This Certificate of Trust shall be
effective upon filing.
4. Investment Company. Notice is hereby given that pursuant to
Section 3807(b) of the Delaware Business Trust Act, the Trust will become prior
to or within 180 days following the first issuance of beneficial interests, a
registered investment company under the Investment Company Act of 1940, as
amended (15 U.S.C. ss.ss. 80a-1 et seq.).
<PAGE>
IN WITNESS WHEREOF, the undersigned, being all of the Trustees of the
Trust, have executed this Certificate of Trust as of the day and year first
above written.
MALON WILKUS,
as Beneficiary Trustee
---------------------------------
Name: Malon Wilkus
EVELYNE STEWARD,
as Independent Trustee
---------------------------------
Name: Evelyne Steward
WILLIAM HOLLORAN,
as Independent Trustee
----------------------------------
Name: William Holloran
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
</LEGEND>
<CIK> 0000817473
<NAME> American Capital Strategies, Ltd.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<EXCHANGE-RATE> 1.00
<INVESTMENTS-AT-COST> 247,641
<INVESTMENTS-AT-VALUE> 257,480
<RECEIVABLES> 3,848
<ASSETS-OTHER> 992
<OTHER-ITEMS-ASSETS> 1,231
<TOTAL-ASSETS> 263,551
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 107,091
<OTHER-ITEMS-LIABILITIES> 914
<TOTAL-LIABILITIES> 108,005
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 145,990
<SHARES-COMMON-STOCK> 11,122
<SHARES-COMMON-PRIOR> 11,081
<ACCUMULATED-NII-CURRENT> 372
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,764
<NET-ASSETS> 155,546
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,854
<OTHER-INCOME> 666
<EXPENSES-NET> 1,398
<NET-INVESTMENT-INCOME> 4,727
<REALIZED-GAINS-CURRENT> 316
<APPREC-INCREASE-CURRENT> 1,981
<NET-CHANGE-FROM-OPS> 7,024
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,555
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 30
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 11
<NET-CHANGE-IN-ASSETS> 2,823
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (116)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 794
<GROSS-EXPENSE> 1,398
<AVERAGE-NET-ASSETS> 154,135
<PER-SHARE-NAV-BEGIN> 13.80
<PER-SHARE-NII> 0.43
<PER-SHARE-GAIN-APPREC> 0.20
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.41
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.02
<EXPENSE-RATIO> 0.091
<AVG-DEBT-OUTSTANDING> 111,520
<AVG-DEBT-PER-SHARE> 10.05
</TABLE>
