U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to .
----------------- --------------
Commission file Number: 0-27156
WESTERN FIDELITY FUNDING, INC.
(Name of small business issuer in its charter)
Colorado 84-1148454
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4704 Harlan Street, Suite 260, Denver, Colorado 80212
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 303-477-8404
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: Common Stock, par
value $0.001 per
share
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The Issuer's revenues for its most recent fiscal year were $6,362,791.
The aggregate market value of the Issuer's voting stock held as of June 9, 1997,
by nonaffiliates of the Issuer was $721,095.37.
As of June 9, 1997, the Issuer had 2,637,500 shares of its $0.001 par value
common stock issued and outstanding.
Documents incorporated by reference: None.
Transitional small business disclosure format: YES [ ] NO [X]
<PAGE>
WESTERN FIDELITY FUNDING, INC.
1996 ANNUAL REPORT ON FORM 10-KSB
TABLE OF CONTENTS
PART I Page No.
- ------ --------
Item 1. Description of Business......................................... 1
Item 2. Description of Property......................................... 13
Item 3. Legal Proceedings............................................... 13
Item 4. Submission of Matters to Vote of Security Holders............... 15
PART II
Item 5. Market for Common Equity and Related Stockholder Matters........ 16
Item 6. Management's Discussion and Analysis or Plan of Operation....... 17
Item 7. Financial Statements............................................ 21
Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure............................. 21
Part III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act...... 21
Item 10. Executive Compensation.......................................... 24
Item 11. Security Ownership of Certain Beneficial Owners and Management.. 26
Item 12. Certain Relationships and Related Transactions.................. 28
Item 13. Exhibits and Reports on Form 8-K ............................... 30
Signatures...................................................... 37
<PAGE>
PART I
Item 1. Description of Business.
General
From 1990 until April 1997, Western Fidelity Funding, Inc. (the "Company")
was a specialized consumer finance company engaged in the acquisition of dealer
originated retail installment loan contracts ("Contracts"). From May 1994 until
March 1997, the Company also operated a used car retail sales facility through
which the Company sold used cars and light trucks.
At the end of January 1997, the financial institution from which the
Company had previously obtained a $20 million secured credit facility presented
the Company with a proposal to increase the secured credit facility to $50
million. In mid February 1997, the financial institution withdrew the $50
million proposal because of financial difficulties publicly reported by other
companies engaged in the same business as the Company. In April 1997, the
financial institution advised the Company that the financial institution would
provide no additional funding under the $20 million secured credit facility
because the Company was in default thereof as a result of the violation by the
Company of certain financial covenants contained in the credit facility
agreement provided by the financial institution to the Company. As a result, the
Company discontinued acquiring Contracts and reduced its staff from
approximately 184 employees on March 31, 1997, to 55 employees on June 9, 1997.
The Company has also received notice from the financial institution that
provided the Company with an unsubordinated loan of approximately $10 million on
August 2, 1996, that the Company is in default of the provisions of such loan.
The Company has also defaulted on required payments on insurance company loans.
Further, the Company is in default on the payment on the loans from the G.E.O.
Income Trusts III, IV and V. For the year ended December 31, 1996, the Company
suffered a significant loss from operations of $10,154,677 and as of December
31, 1996, the Company had an accumulated deficit of $11,328,311. The independent
auditors' report on the consolidated financial statements of the Company for the
year ended December 31, 1996, contains a paragraph raising a substantial doubt
about the Company's ability to continue as a going concern. The Company did not
pay dividends on the Company's outstanding preferred stock for the quarter ended
March 31, 1997.
In May, 1997, the Company engaged Key Capital Markets, Inc., a wholly-owned
subsidiary of KeyCorp, to explore strategic business options and alternatives
for the Company's business. If the Company is unable to enter into satisfactory
arrangements with its creditors, obtain additional financing or enter into a
business combination, it is likely that the Company will have to file for
protection from its creditors under the United States Bankruptcy Code.
1
<PAGE>
The information hereinafter contained in Item 1 of this Annual Report on
Form 10- KSB is presented for historical purposes only due to the fact that the
Company's business operations have been curtailed as described above.
Contracts acquired by the Company were either retained and serviced by the
Company or sold by the Company. The Company also acquired Contracts through the
sale and financing of automobiles from the Company owned retail used car
facility. The Company, which was incorporated in June 1990 and commenced
operations in August 1990, primarily purchased Contracts in the central and
eastern regions of the United States. Such Contracts were entered into by
automobile dealers with borrowers who did not have access to credit from
traditional sources. The Company decreased its total Contract portfolio (finance
receivables after allowance for credit losses) by 29.9% to $14,941,703 at
December 31, 1996, from $21,319,223 at December 31, 1995. For the fiscal years
ended December 31, 1994, 1995, and 1996, the Company generated revenues of
$2,065,115, $5,155,724, and $6,362,791, respectively, and net a income (loss) of
$(505,484), $579,160, and $(10,154,677), respectively.
The automobile dealer business is highly fragmented and includes businesses
selling principally new automobiles, which also operate a used automobile
business, that are franchised by automobile manufacturers ("franchised dealers")
and businesses that are not affiliated with an automobile manufacturer
("independent dealers") selling exclusively used automobiles. As of December 31,
1996, approximately 15% of the Contracts purchased by the Company were
originated by franchised dealers and the remaining 85% were originated by
independent dealers. Of the approximately 600 dealers who had signed agreements
with the Company, during the same period, the Company was actively purchasing
Contracts from 310 dealers located in 20 states: Colorado, Delaware, Georgia,
Kansas, Kentucky, Illinois, Indiana, Iowa, Missouri, Nebraska, New Mexico, New
Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee,
Texas and West Virginia. None of the nonaffiliated dealers with whom the Company
conducted business accounted for greater than 10% of the Company's total number
of Contracts purchased during the fiscal year ended December 31, 1996. During
the year ended December 31, 1996, approximately 52% and 19% of all Contracts
purchased were from the states of Texas and Colorado, respectively.
The Contracts purchased by the Company were primarily with nonprime
borrowers who did not have access to traditional sources of consumer credit
because they did not meet the credit standards imposed by other types of
lenders. Nonprime borrowers are generally relatively higher credit risks due to
various factors, including their past credit experience and the absence or
limited extent of their credit history. Typical nonprime borrowers include young
borrowers (18 to 25 years old) who are trying to establish an initial credit
rating, previously bankrupt borrowers who have reestablished their credit
rating, slow payers of credit cards and department store accounts and borrowers
who desire payment terms slighter longer than the maximum term permitted by
traditional sources of consumer credit. The Company charged an average annual
percentage rate ("APR") of approximately 20% in fiscal 1996 to such nonprime
borrowers, while, in contrast, commercial banks, financing arms of automobile
manufacturers and other traditional sources of consumer credit typically impose
more stringent credit requirements and generally charge lower interest rates.
2
<PAGE>
On October 19, 1994, the Company incorporated O&S Finance, Inc. under the
laws of Colorado as a wholly owned subsidiary. This subsidiary does not have
independent operations and was formed for the sole purpose of acting on the
Company's behalf in connection with one agreement involving the sale of
Contracts to an institutional purchaser.
On December 30, 1996, the Company incorporated Western Fidelity Finance,
Inc., which was formed as a wholly owned, special purpose subsidiary of the
Company under the laws of Delaware.
The Industry
The nonprime automobile retail installment loan finance industry is highly
fragmented and historically has been serviced by a variety of financial
entities, including captive finance subsidiaries of major automobile
manufacturers, banks, savings and loan institutions, independent finance
companies and small loan companies. Of late, the industry has suffered problems
due to increasing competition, the deterioration in the credit quality of
nonprime auto loans and unexpected loan losses. Certain other companies engaged
in the same business as the Company publicly reported profits for 1996 while
certain others reported losses and financial difficulties. Reported losses for
1996 of which the Company is aware have ranged from approximately $7 million to
as high as approximately $41 million. Consequently, many nonprime automobile
retail installment loan companies are tightening underwriting guidelines and
significantly increasing loss reserves due to the rise in delinquency and
repossession rates and the deterioration of credit quality.
Business Methods
Marketing to Dealers. The Company purchased Contracts from dealers instead
of making direct loans to nonprime borrowers. By focusing directly on the
dealer, the Company was able to obtain large volumes of Contracts in a cost
effective manner, while simultaneously increasing the dealer's efficiency and
effectiveness in selling automobiles. The Company believes that its guidelines
and procedures allowed it to respond quickly to dealers. The Company typically
responded to credit applications on the date received, in many cases within two
hours, and generally paid the dealer within 24 hours after the Company received
all required complete and accurate documentation from the dealer. Based on
discussions with dealers, the Company believed that because of its prompt
response and ability to assist a dealer in structuring a loan to maximize dealer
profit, dealers conducted business with the Company instead of with competitors
that charged lower discounts than the Company. This discount was intended to
protect the Company from losses resulting from the failure of a borrower to
repay the amount due under a Contract and was not refundable to the dealer.
3
<PAGE>
Credit Guidelines and Procedures. The Company has developed uniform
guidelines and procedures for evaluating credit applications in connection with
the purchase of Contracts from dealers. The Company's guidelines and procedures
relate to such matters as the borrower's stability of residence, employment
history, credit history, capacity to pay, income, discretionary income and debt
ratio, as well as the value of the collateral. The Company used a scoring system
as part of its standardized credit criteria. Within these guidelines and
procedures, each underwriter was authorized to approve or reject credit
applications. All underwriters were employees of the Company. However, all such
applications were reviewed for final approval by a member of management.
Active Collection Management. With respect to all Contracts serviced by the
Company, it pursues a policy of active collection management with respect to
both current and delinquent accounts, including activities related to
collections, borrower inquiries and, if necessary, delinquencies and
repossessions. The Company sends the borrower a letter which describes the
procedures and schedules for repaying the Contract. With the exception of
repossession activities and the distribution of monthly customer billing
statements, for which the Company engages outside agencies, the Company services
all aspects of its Contracts, including collections, account receivable tracking
and delinquency resolution. Any Contract which is 10 or more days overdue is
treated as a past due account for collection purposes. The Company generally
will commence repossession procedures after an account reaches 60 days past due.
Management believes that active collection management is critical in maintaining
a low level of delinquencies and charge offs.
Contract Profile
During 1996 the Company purchased 3,275 Contracts with an aggregate initial
principal balance of $32,430,763. Of the $32,430,763 in Contracts, $5,950,045
were purchased from the Company's used car facility. The Contracts purchased had
an average initial principal balance of $10,915, and an average initial contract
term of 53 months. The annual percentage rate paid by borrowers in 1996 was 20%.
Contract Acquisition Process
The following is a summary of the process that the Company typically
followed in connection with its acquisition of a Contract.
Dealer Solicitation. The Company solicited business from automobile dealers
through its business development efforts and with independent marketing
representatives. The Company evaluated each dealer with which it established a
financing relationship to ensure that the Company purchased Contracts from
reputable automobile dealers carrying an inventory of quality used automobiles.
Generally, the Company evaluated the prospective dealers to determine the
viability of each dealer and assessed the length of service and reputation of
prospective dealers. The Company periodically inspected the dealer's physical
premises to determine whether such dealer appeared to be operating its business
satisfactorily.
4
<PAGE>
The Company provided the dealer a training and orientation program to
promote a mutually profitable and efficient relationship. The goals of the
training and orientation program were to introduce dealers to and familiarize
dealers with the Company's procedures and to enable dealers to prescreen
borrowers and thereby expedite the credit underwriting process.
Contracts were purchased at a discount by the Company and generally without
recourse to the dealer. Each dealer with which the Company established a
financing relationship entered into a nonexclusive written standardized purchase
agreement with the Company governing the Company's Contract purchases from the
dealer. In all cases, the dealer made certain warranties as to the validity of
the Contract, certificates of title and compliance with certain laws, and
indemnified the Company for any claims, losses, and damages that may be assessed
against the Company.
Credit Evaluation Procedures. If a nonprime borrower elected to finance the
purchase of an automobile through a dealer, the dealer would submit the
borrower's credit application to the Company for review of the borrower's credit
worthiness and proposed 2transaction terms. The Company used a uniform credit
underwriting policy for evaluating a2pplications. An underwriter conducted such
review in accordance with the Company's guidelines and procedures, which
generally took into account, among other things, the individual's stability of
residence, employment history, credit history, ability to pay, income,
discretionary income and debt ratio, as well as the value of the collateral. In
addition, a credit bureau report was evaluated in order to determine if (i) the
individual's credit quality was deteriorating, (ii) the individual's credit
history suggested a high probability of default or (iii) the88 individual's
credit experience was too limited for the Company to assess the probability of
performance. The Company also used a scoring system as part of its credit
criteria to ev8aluate applications. Within these guidelines and procedures, each
underwriter was authorized to approve or reject credit applications. However,
all such applications were reviewed for final approval by a member of
management.
Approval Process. After reviewing the credit application the Company
notified the dealer by facsimile whether or not the Company would be willing to
purchase the Contract upon sale of the automobile to the applicant. If the
customer was approved, the notification specified the terms of the approval,
including the monthly payment. The Company typically responded to submitted
dealer applications within 2 hours, in some cases within 30 minutes. The
Company's credit strategy was to determine and approve a monthly payment amount
based on the borrower's ability and desire to pay. After such an amount was
determined, the dealer could identify an automobile that met such payment
parameters. In fiscal 1996, the Company approved approximately 32% of all
submitted credit applications and purchased approximately 10% of such approved
Contract applications. The difference between the number of applications
approved and the number of Contracts purchased is due primarily to industry
practice whereby the dealer submits credit applications for the same purchaser
to more than one finance company and then selects the finance company that is
willing to provide the most favorable terms.
5
<PAGE>
Since inception, the nonrefundable discount charged by the Company has
averaged approximately 15% of the financed portion of the Contracts. Generally,
the Company did not advance to the dealer more than 115% of the retail value of
the automobile based upon industry publications and required that a borrower
make a down payment of at least 10% of the purchase price.
Contract Purchase. Upon final confirmation of the terms by the borrower,
the dealer consummated the sale of the automobile to the borrower. After the
dealer delivered all required complete and accurate documentation to the
Company, the Company performed an interview and collateral verification with the
customer. This verification detected misrepresen tations to the borrower by the
dealer or any misstatement of the description of the collateral. It is only
after this verification that the Company remitted funds to the dealer, generally
within 24 hours. Upon purchase of the Contract, the Company acquired a perfected
security interest in the financed automobile. The Company's security interest
was perfected by a first priority lien on certificates of title. The Company's
practice was to cause such lien to be noted on the certificate of title or have
physical possession of the certificate of title, as appropriate under the laws
of the state in which the automobile was registered. Each Contract required that
the automobile be properly insured and that the Company be named as a loss
payee. Compliance with insurance requirements was again verified prior to the
remittance of funds to the dealer.
Contract Servicing and Collection. Borrowers obligated under the Company's
Contracts are expected to remit their monthly payments using the monthly billing
statement provided to them by the Company. In the event that a borrower's
payment is not received on its due date, historically, the Company mailed a past
due notice on the 10th day after such due date to the borrower. If the payment
was not received typically on the 16th day past due, the Company contracted the
borrower by telephone as a follow up to the written notice. In March 1996, the
Company implemented new collection procedures in which the borrower was
contacted by telephone three to five days after the payment due date. As of
December 1996, the Company began contacting the borrower five to ten days prior
to the first payment due date to remind the borrower of the payment date. If the
payment has not been received on its due date, the borrower is contacted that
day with the past due notice mailed on the 5th day. In the event of a
delinquency beyond such dates, the Company's trained collection specialists
attempt to stay in regular contact with the borrower until the delinquency is
cured. If the borrower does not cure the delinquency and misses a subsequent
payment, the Company typically repossesses the automobile promptly.
Prior to March 1997, when the Company closed its used car retail sales
facility, if economically feasible, repossessed automobiles were usually
transported back to the Company's used car retail sales facility for disposal
after the lapse of the applicable redemption period, if any. If repossessed
automobiles were not returned to the used car retail sales facility, they were
either placed on consignment with dealers for disposal at retail value or sold
6
<PAGE>
at public auction. Contracts are generally charged off prior to becoming 90 days
delinquency or, if earlier, upon repossession of the automobile. Once an
automobile is repossessed, the automobile is carried on the Company's books as
inventory on hand at a value equal to wholesale value.
Delinquency Control and Collection
The Company generally reviews Contracts that are past due to assess
collection efforts to date and to refine the collection strategy, if
appropriate. The collection personnel, together with management, generally
design a collection strategy that includes a specific deadline within which each
delinquent obligation should be collected. Contracts that have not been
collected during such period are again reviewed and, unless there are specific
circumstances which warranty further collection efforts, vehicles under such
Contracts are assigned to an outside agency for repossession. The Contracts
provide that, upon repossession, the principal balance is accelerated and due
from the borrower. In certain jurisdictions, a discount for prepayment must be
applied to the amount accelerated. Since March 1997, when the Company closed its
used car rental sales facility, repossessed vehicles have been returned to the
Company and offered for sale at public auction. The elapsed time between
repossession and resale is generally 30 days, including passage of the period
during which the law of the applicable jurisdiction permits the borrower to
redeem the automobile. Typically, after repossession, the borrower will be
pursued for any deficiency, subject to applicable legal limitations.
Automobile Sales
The Company operated its used car retail sales facility, located in
Lakewood, Colorado, from May 1994 until March 1997. The Company sold used cars
and light trucks and typically financed borrowers' purchases from its used car
retail sales facility. The Company's used car retail sales facility typically
carried inventories from 45 to 100 retail and repossessed automobiles and
offered a variety of makes and models from approximately two to six years old.
For 1995 and 1996, vehicle sales have ranged from 11 to 91 units per month. The
Company financed almost all of the vehicles sold at the Company's used car
retail sales facility. Contracts purchased at the used car facility were
discounted at rates approximately 10% to 15%. Of the $32,430,763 in Contracts
purchased by the Company for fiscal 1996, $5,950,045 were purchased from its
used car facility.
Competition
The automobile finance business is very fragmented and highly competitive.
The Company believes that there are numerous competitors providing, or capable
of providing, financing through dealers to purchasers of automobiles. Because
the Company purchased Contracts from dealers that provided financing to
borrowers who did not qualify for traditional financing, the Company does not
believe that it competed with commercial banks, savings and loan institutions,
7
<PAGE>
credit unions, financing arms of automobile manufacturers and other consumer
lenders that apply more traditional lending criteria to the credit approval
process. Historically, these traditional sources of used automobile financing
(some of which are larger, have significantly greater financial resources and
have relationships with captive dealer networks) have not consistently served
the Company's market segment. If such a competitor had entered the Company's
market segment, the Company would have been materially adversely affected. In
addition, if the Company had experienced increased competition from other
traditional or nontraditional sources of credit, such increased competition may
have resulted in a reduction in the amount of discount which the Company was
able to charge to dealers. The Company believes that it competed principally on
the basis of service to participating dealers.
Financing
Integral to the Company's business and growth strategy was the maintenance
of sufficient capital resources to support its operations. The Company's
external capital resources consisted of the following:
Trust Loans. From inception through March of 1995, the Company primarily
financed the acquisition of Contracts through the organization of five trusts
("Trusts"). G.E.O. Income Trust 1991-I ("GEO I"), G.E.O. Income Trust II ("GEO
II"), G.E.O. Income Trust III ("GEO III"), G.E.O. Income Trust IV ("GEO IV") and
G.E.O. Income Trust V ("GEO V"). The Trusts, with the exception of GEO I,
offered to investors two year and four year recourse promissory notes ("Trust
Notes") bearing a rate of interest of 8% and 11% per annum, respectively. GEO I
offered two year and four year Trust Notes bearing interest at 8% and 12% per
annum, respectively. The Trusts provided financing to the Company through loans
under master promissory notes ("Master Notes"). The Master Notes are secured by
the pledge of the Company's security interests in Contracts, the restricted cash
in the reserve account, and the insurance on Contracts pledged as security to
the Trusts. In August of 1995, the Company exchanged 321,540 shares of Series A
Preferred Stock for $1,607,700 principal amount of Trust Notes. The unpaid
principal balance owed by the Company to the Trusts under the Master Notes as of
December 31, 1996 was $4,021,389. At December 31, 1996, the Company's financial
statements reflect a liability for Master Notes of $2,608,689 which represents
the unpaid principal balance of $4,021,389 less an offset for the principal
balance of Trust Notes owned by the Company in the amount of $1,412,700. GEO I
and GEO II have been paid in full. The Company has defaulted on required
payments due to GEO III, GEO IV and GEO V. Each of the Trusts has an independent
trustee who is not affiliated with the Company. As of June 4, 1997, the
principal amount of the Contracts securing the Master Notes was $1,224,111 less
than the principal amount of the Master Notes not owned by the Company. This
occurred because some of the payments made on certain Contracts pledged to the
Trusts and proceeds from the sale of vehicles underlying certain of the
Contracts were used as operating capital by the Company. There are no provisions
in the agreements between the Company and the Trusts which specifically require
that the principal amount of Contracts securing the Master Notes equal or exceed
the principal amount of the Master Notes.
8
<PAGE>
Insurance Company Loans. Between December, 1994 and February, 1997, the
Company has obtained loans from several insurance companies in the aggregate
amount of approximately $13,500,000. The terms of these loans range from 36 to
51 months, and these loans bear interest at fixed rates ranging from 9.85% to
10.5%. The Company has defaulted on the required payments on these loans. Each
of these loans was supposed to have been collateralized with Company Contracts
which were required to have principal balances and interest provisions which
equal or exceed the principal balance and interest provisions payable by the
Company to the insurance companies. In the event of a default under a Contract
collateralizing any of these loans, the Company is required to substitute a new
Contract as Collateral. Each of these loans requires that the Company obtain
insurance against loss in the event of defaults under the Contracts
collateralizing the loans. As of June 4, 1997, the principal amount of the
Contracts collateralizing these loans was approximately $2,502,000 less than the
aggregate principal balances of these loans. This occurred because some of the
payments made on certain Contracts pledged to the insurance companies and
proceeds from the sale of vehicles underlying certain of the Contracts were used
as operating capital by the Company. The insurance companies have filed suit
against the Company regarding the loans. See "Item 3. Legal Proceedings."
Arrangement Involving Contract Portfolio Sales and Loans. During 1990, the
Company entered into an agreement to sell Contracts, on an ongoing basis, to a
financial institution. The Company sold $4,114,286 in principal amount of
Contracts to this institution under this agreement. During May, 1994, this
agreement was changed to a loan agreement under which this institution has the
right to loan a minimum of $300,000 each month to the Company with such loans
being secured with an equal principal amount of Contracts purchased by the
Company. The terms of the loans correspond to the average term of the Contracts
securing the loans, the Company is required to replace Contracts collateralizing
the loans which go into default, the Company obtains insurance against loss in
the event of defaults under the Contracts collateralizing the loans, the Company
pays interest on these loans equal to the greater of 15% or the prime rate plus
5%, and the Company pays this lender 10% of the spread between interest received
by the Company on the Contracts collateralizing the loans and interest paid to
the lender on such loans. This institution is not affiliated with the Company
and the reason the Company pays these high rates to this lender is because the
original agreement was entered into during 1990 when the Company was beginning
its business. As of April 10, 1996, the Company had paid off the loans with this
institution. This agreement was changed in May, 1994, from a Contract sale
agreement to a loan agreement because this financial institution was not
properly servicing the Contracts purchased from the Company on a timely basis
which resulted in delays in taking action with respect to past due loans. The
Company has filed a lawsuit against this institution regarding this transaction.
See "Item 3. Legal Proceedings."
9
<PAGE>
Contract Portfolio Sales. The Company has sold pools of Contracts in five
separate transactions.
1. On February 9, 1994, the Company entered into an agreement to sell
Contracts to a financial institution. During 1994, the Company sold $3,621,212
in principal amount of Contracts under this agreement at a purchase price of 97%
of such principal amount. The holdback percentage amount will not be received by
the Company until the borrowers pay the final amounts due on the Contracts sold.
2. In November, 1994, the Company entered into an agreement to sell, on an
ongoing basis, Contracts with a principal balance of up to $12,000,000 to a
financial institution. Contracts are sold under this agreement for a cash
payment on the date of sale equal to 96% of the principal amount of the
Contracts sold and future monthly payments over the life of the Contracts sold
based upon a formula contained in the agreement. Under this formula, the
Company's monthly payment will equal any amount remaining after deduction of the
following amounts from the monthly payments of principal and interest on the
Contracts sold: custodial and servicing fees, 95% of principal payments received
during the month, 88% (10.58% per annum) of 96% of the outstanding principal
balance on the Contracts, and any required deposits into the reserve account.
Under this agreement, the Company is required to maintain in a reserve account
an amount equal to 5% of the outstanding principal balance of the Contracts
until the final 5% of payments are made on the Contracts. The Company will
receive any amounts remaining in the reserve account when all payments have been
made by the borrowers on the Contracts. The reserve account protects the
purchaser in the event of defaults by the borrowers under the Contracts.
3. In January and February of 1996, the Company entered into multiple
agreements to sell Contracts with a principal balance of approximately
$2,000,000 to a financial institution. Under these agreements, Contracts were
sold without recourse at 88% of principal balance at the date of purchase.
4. In February and April, 1996, the Company sold Contracts with a principal
balance of approximately $5,100,000 and $4,200,000 to a financial institution,
respectfully. Under this agreement, Contracts were sold without recourse at 90%
of the principal balance on the date of sale. In addition, the financial
institution has the first right of refusal to purchase any Contracts offered for
sale by the Company up to a total of $50,000,000.
5. In March, 1997, the Company sold Contracts to a financial institution
with a principal balance of approximately $4,400,000. Under this agreement,
Contracts were sold at 90% of the principal balance on the date of sale less an
additional holdback percentage equal to 5% of the principal balance of the
Contracts purchased. The 5% is refundable to the Company after all Contracts
sold to the financial institution have met a three payment requirement and the
Company has delivered all title documentation to the institution.
10
<PAGE>
Unsecured Subordinated Loan. On August 2, 1996, the Company obtained the
net proceeds of a $10,000,000 unsecured subordinated loan from a financial
institution. The approximately $9,600,000 net proceeds from the loan have been
used by the Company to purchase automobile retail installment contracts and
vehicle inventories and as working capital.
Under the terms of the loan, interest only is paid quarterly during the
first two years at a rate of 12% per annum and, thereafter, the principal and
interest are payable quarterly until July 31, 2001, when the balance is due. The
Company has received notice of default under the terms of the loan. The Company
also issued five year warrants to purchase 263,750 shares of common stock at
$3.93 per share to the placement agent in connection with the loan.
Securitization. On December 30, 1996, Western Fidelity Finance, Inc.
("Finance"), a Delaware corporation that was formed as a wholly owned, special
purpose subsidiary of the Company, transferred to the Western Fidelity
Receivables Trust 1996-A ("Trust") receivables with an aggregate receivable
balance of approximately $17,200,000 and the Trust issued Pass- Through
Certificates in a private Rule 144A offering in four classes consisting of
$19,640,000 of 7.5% Class A Certificates, $2,455,000 of 8.50% Class B
Certificates, $1,227,500 of 12% Class C Certificates, and $1,227,500 of 15%
Class D Certificates. The Class A Certificates are rated "A", the Class B
Certificates are rated "BBB" and the Class C and D Certificates are rated "BB"
and "B", respectively, by Duff & Phelps. Each of the certificates is represents
fractional undivided interests in the Trust. The assets of the Trust include,
among other things, (i) a pool of motor vehicle receivables, evidenced by retail
installment contracts and security agreements ("Receivables"), all of which were
transferred to Finance by the Company, and all monies received on the
Receivables allocable to the principal of such Receivables and all monies
allocable to interest thereon, (ii) the interest of Finance in the security
interests in vehicles financed thereby (iii) amounts held in a prefunding
account of approximately $7,300,000 which will be used to acquire additional
Receivables which were sold on February 4, 1997, (iv) the interest of Finance in
any recourse relating to dealer agreements concerning the Receivables, (v) all
right, title and interest of Finance in and to the transfer and assignment
agreement between Finance and the Company and (vi) the proceeds of any and all
of the foregoing.
The Receivables were originally acquired by the Company directly from
automobile dealers and the Company will continue to service the Receivables. The
average life of the Receivables pool is approximately 48 months. A reserve fund
was established including a 5% initial deposit. The excess spread is used to
increase the reserve fund until over collateraliza tion reaches 7% of the
outstanding pool balances. The 7% will be increased to 10% if the pool does not
achieve certain performance standards. If a permanent increase in the reserve
fund is required, then the Company's residual interest in the securitization
will be impaired by approximately $400,000. Approximately 45% of the pool is
concentrated in Texas.
11
<PAGE>
The issuance of the Class A Certificates, Class B Certificates, Class C
Certificates and Class D Certificates was the Company's first securitization
transaction. The Company purchased all of the Class D Certificates.
Insurance Coverage and Restricted Cash Account. The Company has obtained
vehicle single interest insurance coverage on certain Contracts owned by the
Company. This insurance, which is obtained by most lenders, requires a premium
of .003% of the monthly principal balance of the Contract portfolio and protects
the Company against loss resulting from uninsured damage to or theft of the
vehicle purchased and the inability of the Company to locate and repossess the
financed vehicle. In addition, the Company has obtained an indemnity insurance
policy under which certain Contracts owned by the Company are insured against
loss as a result of default by the borrower. The premium for this insurance is
3% of the principal balance of the insured Contract, and the insurer requires
that the Company deposit cash equal to 7% of the principal balance of insured
Contracts into a restricted reserve account. Losses on insured Contracts under
the indemnity policy are first reimbursed from the reserve account. To date, the
insurer has not made any payments under the indemnity policy. The Company has
insured most Contracts collateralizing the Trust Notes, the insurance company
loans and Contracts pledged to a financial institution.
Secured Credit. The Company obtained a $20,000,000 secured credit facility
with a financial institution. The credit facility was used by the Company to
purchase Contracts and as working capital. Under the terms of the facility,
interest is paid at a floating rate equivalent to LIBOR plus 3.25% or a
specified bank alternative base rate plus 1%. The facility is secured by
Contracts and will mature on June 23, 1998. As of June 4, 1997, the principal
amount of the Contracts collateralizing the secured credit facility was
approximately $1,300,000 less than the aggregate principal balance of the
secured credit facility. This occurred because certain Contracts pledged to the
financial institution became ineligible under the borrowing base because the
Contracts remained due and unpaid for more than 60 days. Borrowings under the
facility were initiated in July 1996 and terminated by the financial institution
in April 1997 because of default by the Company. See "Item 1. Business--
General."
In August 1996, the Company entered into an agreement with another
financial institution for a $5,000,000 secured credit facility. This facility
bears interest at the prime rate plus 3.75%. The facility is secured by
automobile retail installment contracts and will mature on August 12, 1997. The
Company has filed suit against this financial institution regarding this
transaction. See "Item 3. Legal Proceedings."
Regulation
The business the Company was conducting until April 1997 is subject to
regulation and licensing under various federal, state and local statutes and
regulations. The Company's business operations were conducted with dealers
located in many states, and, accordingly, the laws and regulations of such
12
<PAGE>
states governed the Company's operations. Most states where the Company operated
(i) limit the interest rate, fees and other charges that may be imposed by, or
prescribe certain other terms of, the Contracts that the Company purchased, (ii)
governed the sale and type of insurance products offered by the dealers and the
insurers for which the dealer acted as agent and (iii) defined the Company's
rights to repossess and sell collateral. In addition, the Company was required
to be licensed or registered to conduct its finance operations in certain states
in which the Company purchased Contracts. Numerous federal and state consumer
protection laws and related regulations impose substantive disclosure
requirements upon lenders and services involved in automobile financing. Some of
the federal laws and regulations to which the Company is subject include the
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade
Commission Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's
Regulations B and Z, and the Soldiers and Sailors Civil Relief Act.
In addition, the Federal Trade Commission ("FTC") has adopted a
holder-in-due-course rule which has the effect of subjecting persons who finance
consumer credit transactions (and certain related lenders and their assigns) to
all claims and defenses which the purchaser could assert against the seller of
the goods and services. With respect to used automobiles specifically, the FTC's
rule on sale of used vehicles requires that all sellers of used automobiles
prepare, complete and display a buyer's guide which explains the warranty
coverage for such automobiles. The credit practices rules of the FTC impose
additional restrictions on sales contract provisions and credit practices.
Employees
As of June 9, 1997, the Company employed 55 persons on a full time basis
and no persons on a part time basis, none of whom is covered by a collective
bargaining agreement. The Company provides basic medical insurance and other
benefits for eligible employees.
Item 2. Description of Property.
The principal executive office of the Company is located in Denver,
Colorado in office facilities containing approximately 13,300 square feet which
are leased from an unaffiliated person pursuant to leases expiring in 1997 and
1999. The Company leases a used car storage lot on a month to month basis. The
Company currently pays aggregate rent for these facilities of approximately
$11,800 per month.
Item 3. Legal Proceedings.
In February, 1997, the Company filed a breach of contract action against
Princeton Capital Credit Corporation ("Princeton") in the District Court of
Jefferson County, State of Colorado. In this action, the Company has alleged
that Princeton breached its obligations under an agreement in which Princeton
agreed to finance the repurchase, by the Company, of approximately $8,000,000 of
automobile loans from a third party. The Company is seeking damages in the
amount of $2,265,539 plus costs, fees and interest.
13
<PAGE>
In September, 1996, the Company filed a lawsuit against Berjac of Colorado
("Berjac") for, inter alia, breach of contract in Denver District Court. In this
action, the Company has alleged that Berjac breached a financing agreement in
which Berjac agreed to finance retail installment contracts purchased by the
Company by failing to surrender the original notes and vehicle titles from
certain retail installment contracts purchased by the Company and by failing to
properly credit payments to reduce the outstanding balances due by the Company.
The Company is seeking the return of the original notes and vehicle titles, an
order from the Court declaring the credit payments properly paid and an
accounting of certain activities of Berjac. Berjac has filed a third party
complaint against Gene E. Osborn and a counterclaim against the Company for an
accounting of certain information, attorneys' fees and a return of certain
security.
In December, 1996, Nationwide Equipment Company Profit Sharing/Pension
Plan, Richard D. Ernst, Frieda J. Hopkins Trust and Frank S. Ungar filed a
lawsuit against the Company, Insight Sales and Marketing, Inc., Gene E. Osborn,
Leonard L. Skerjanc and John J. Scordo, II in the United States District Court
for the District of Colorado. In the complaint, the plaintiffs allege that they
invested an aggregate of approximately $97,500 in the Insight Income Trust
("Trust") which then loaned the funds plus funds from other investors in the
Trust to Insight Sales and Marketing, Inc. ("Insight"), that in 1995 Insight
defaulted on the loans from the Trust, that the Company also borrowed monies
from the GEO I, II, III, IV and V Trusts, that the Company subsequently
conducted a public offering of the Company's common stock, that Messrs. Osborn,
Skerjanc and Scordo were the principal officers of the Company and Insight, that
in connection with the sales of the Insight, Company, GEO I, II, III, IV and V
Trust securities, the defendants failed to disclose material facts as to the
uses of the proceeds therefrom, that the proceeds from the Insight loans were
used to further business of the Company and to personally benefit Messrs.
Osborn, Skerjanc and Scordo, that Messrs. Osborn, Skerjanc and Scordo breached
their duty of fidelity to Insight and that the conduct of the defendants was a
violation of the securities laws, the Racketeer, Influenced and Corrupt
Organizations Act and the Colorado Organized Crime Control Act. The complaint
claims an unspecified amount of actual damages, treble damages, interest and
attorneys' fees.
In April, 1997, Durrett Motor Company Incorporated filed a lawsuit against
the Company for breach of contract in the District Court of Harris County,
Texas. In this action, the Plaintiffs allege that the Company breached a
purchase agreement with Plaintiff relating to the sale of certain motor vehicle
installment contracts. The Plaintiffs are seeking damages in the amount of
$239,401.68 plus costs, fees and interest. A writ of garnishment on monthly
payments of thirteen Contracts purchased by the Company from Durrett Motor
Company Incorporated was issued by the court in this case in May, 1997.
14
<PAGE>
In May, 1997, Pekin Life Insurance Company, Farmers Automobile Insurance
Company, Western Fraternal Life Association and Grinnell Mutual Reinsurance
Company filed a lawsuit against the Company in the United States District Court
for the Northern District of Illinois, Eastern Division, for declaratory,
injunctive and other relief. In this action, the Plaintiffs allege that the
Company defaulted on 14 separate loan transactions pursuant to which Plaintiffs
cumulatively loaned the Company $12,500,000. The Plaintiffs are seeking a
declaratory judgment from the court finding that each Plaintiff is entitled to
immediate delivery of collateral pertaining to each loan, a preliminary and
permanent injunction ordering delivery of the collateral, an accounting from the
Company of all current funds received under the notes and an inspection and
examination of the books and records of the Company.
In May, 1997, Equity Participation, Inc. filed a lawsuit in the United
States District Court for the District of Colorado against the Company, Insight,
D&O, Inc., Gene E. Osborn, Leonard L. Skerjanc and John J. Scordo, II, alleging
mail fraud, securities fraud, violations of the Racketeer, Influenced and
Corrupt Organizations Act and the Colorado Organized Crime Control Act. The
lawsuit also contains claims against Messrs. Osborne, Skerjanc and Scordo for
violations of their duty of fidelity to Insight noteholders and commercial
bribery. In the complaint, Plaintiff alleges that Plaintiff agreed to raise
capital for Insight through the Trust in return for royalty payments from the
sales of an automobile security device ("Product"), that Insight and Messrs.
Osborne, Skerjanc and Scordo failed to maintain distribution of the Product due
to misappropriation of funds, that Insight and Messrs. Osborne, Skerjanc and
Scordo made misstatements about the quality of a replacement of the Product,
that in connection with various offerings Insight and Messrs Osborn, Skerjanc
and Scordo failed to disclose material facts as to the use of the proceeds
therefrom, that the monies were used for purposes other than represented and
that the proceeds were used to further the business of the Company and to
personally benefit Messrs. Osborn, Skerjanc and Scordo. The lawsuit further
claims that Messers. Osborn, Skerjanc and Scordo violated their fiduciary duty
to Plaintiff in the distribution of the assets of D&O, Inc., a Colorado
corporation to which Plaintiff claims certain assets of Insight were improperly
transferred. The Plaintiff requests the remedy of a constructive trust be
imposed on Mr. Osborn's interest in D&O, Inc. and on the business of D&O, Inc.
and an unspecified amount of actual, treble and exemplary damages, interest and
attorneys' fees.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Company's shareholders during the
quarter ended December 31, 1996.
15
<PAGE>
Part II
Item 5. Market for Common Equity and Related Stockholder Matters.
Since November 21, 1995, the Common Stock has been quoted on the Nasdaq
SmallCap Market under the symbol "WFFI." The Company currently is not in
compliance with the Nasdaq SmallCap Market maintenance requirements and the
Company's Common Stock ceased to be quoted on the Nasdaq SmallCap Market on June
13, 1997. As of June 9, 1997, there were 15 holders of record of the Company's
Common Stock. The declaration of dividends on the Common Stock is subject to the
discretion of the Company's board of directors and will depend upon a number of
factors, including the payment of dividends on the Series A Preferred Stock and
the future earnings, capital requirements and financial condition of the
Company. Additionally, the Company's loan agreement for the secured credit
facility prohibits the payment of dividends on the Company's Common Stock. The
Company has not declared dividends on its Common Stock in the past and
management currently anticipates that retained earnings, if any, in the future
will be applied to the payment of dividends on the Series A Preferred Stock and
for the Company's operations rather than the payment of dividends.
The following table sets forth the range of the high and low closing bid
prices of the Common Stock as reported for the quarters indicated. The prices
represent quotations between dealers without retail markup, markdown, or
commission and may not represent actual transactions. The quotations were
provided by NASDAQ. Prior to November 21, 1995, no established public trading
market existed for the Common Stock.
Quarter Ended Low Bid High Bid
------------- ------- --------
December 31, 1995 ..... $ 8.00 $ 11.50
March 31, 1996 ........ $ 3.75 $ 8.75
June 30, 1996 ......... $ 5.25 $ 7.00
September 30, 1996 .... $ 2.50 $ 5.375
December 31, 1996 ..... $ 2.125 $ 3.50
March 31, 1997 ........ $ 3.25 $ 4.875
Recent Sales of Unregistered Securities
On August 2, 1996, the Company issued five-year warrants to purchase
263,750 shares of the Company's $0.001 par value common stock at $3.93 per share
to a placement agent in connection with a loan the Company obtained from a
financial institution. The placement agent was Western International Securities,
Inc. The issuance of the warrants was made in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
The warrants issued to the placement agent were impressed with a restrictive
legend advising that the securities represented by the warrants may not be sold
16
<PAGE>
or transferred without having first been registered or the availability of an
exemption from registration established. The warrants may be exercised in whole
or in part at any time or from time to time until July 31, 2001.
On December 30, 1996, Western Fidelity Finance, Inc. ("Finance"), a
Delaware corporation that was formed as a wholly-owned, special purpose
subsidiary of the Company, transferred to the Western Fidelity Receivables Trust
1996-A ("Trust") receivables with an aggregate receivable balance of
approximately $17,200,000 and the Trust issued Pass-Through Certificates in four
classes consisting of 19,640,000 of 7.5% Class A Certificates, 2,455,000 of 8.5%
Class B Certificates, 1,227,500 of 12% Class C Certificates and 1,227,500 of 15%
Class D Certificates. Each of the certificates represents fractional undivided
interests in the Trust. Structured Capital Management, a division of First
Southwest Company, acted as placement agent and received a selling and
underwriting commission equal to $266,982 plus expenses. The issuance of the
Certificates was made in reliance upon the exemption from registration provided
by Section 4(2) of the Securities Act of 1933, as amended. The Certificates were
issued only to accredited investors and can only be transferred pursuant to Rule
144A of the Securities Act of 1933, as amended.
Item 6. Management's Discussion and Analysis or Plan of Operation.
From 1990 until April 1997, the Company was a specialized consumer finance
company engaged in the acquisition of Contracts. From May 1994, until March
1997, the Company also operated a used car retail sales facility through which
the Company sold used cars and light trucks.
In the fall of 1995, with increased access to capital, the Company
increased its purchase of Contracts by 275% from approximately $7.2 million in
1994 to approximately $29 million in 1995. Additionally, the Company completed a
public offering in November 1995. The Company originally anticipated closing a
$20 million credit facility with a financial institution by the end of 1995.
However, the Company was unable to finalize this credit facility or secure other
financing sources until June 1996. As a result of this delay, the Company was
forced to substantially decrease its Contract purchases in the first and second
quarters of 1996.
In late June 1996, the Company finally obtained the $20 million secured
credit facility from the financial institution and the Company's Contract
purchases increased from approximately $29 million in 1995 to approximately $33
million in 1996. The majority of the increased purchases in 1995 occurred from
September through December and in 1996 from July through December. The
significant growth in Contracts purchased in the relatively short time period
when coupled with other changes in the marketplace, caused the Company to
experience a number of related operational problems.
17
<PAGE>
At time same time as the Company was experiencing its growth in 1995 and
1996, several new companies began to engage in the same business as the Company
and certain existing competitors substantially increased their volume of
Contract purchases. This increased competition caused a decrease in the overall
quality of the Contracts being acquired by the Company and others in the
marketplace. Additionally, the Company was not able to sufficiently increase and
adequately train the Company's underwriting staff to handle the significant
increase in Contracts purchased resulting in certain of the Company's
underwriting criteria being interpreted incorrectly. Further, the Company was
not able to rapidly increase its infrastructure in the collections, servicing
and accounting areas. Since the overall quality of the Contracts was less than
what it had been in the past, a greater emphasis was essential in these areas.
Also, the collections department was significantly understaffed and at one point
in time in early 1996 had only one collector per 1,000 Contracts instead of
having the industry average of one collector for each 300 Contracts. Although
the Company was increasing the servicing department personnel, they were unable
to keep up with the volume of Contracts in a timely manner.
During this time period, the Company retained the services of a consulting
firm to subprime lenders to review the Company's infrastructure and policies and
procedures. The firm recommended strengthening of the servicing and collections
departments in both staffing and in computer hardware and software to achieve
maximum efficiency and competitiveness. The Company undertook the task of hiring
the employees and completing the infrastructure associated with servicing and
collections. Additionally, the Company's accounting department did not have the
required structure to generate and supply management with timely and accurate
reports related to the status of Contracts purchased and serviced. Thus,
information concerning the performance of Contracts was not being identified in
a timely fashion. Consequently, the Company's management was unable to timely
monitor the Company's default rate and average loss per Contract. In addition,
the combination of the Company's growth, deterioration in the quality of the
underlying Contracts due to increased competition in the industry and an
inadequate infrastructure in the servicing and collection departments and
inadequate generation of information contributed to the Company incurring a net
loss of $10,154,677 in 1996 compared to net income of $579,160 in 1995. The bulk
of the loss in 1996 can be attributed to three areas.
The first area is related to the Company's used car retail sales facility
that was closed in March 1997. The primary reason the used car retail sales
facility was closed was the loss of the credit facility to fund the Contracts
generated from the sale of repossessed vehicles. This created the lack of
capital to support the used car retail sales facility. During 1996, the Company
suffered losses of approximately $1,000,000 as a result of the operations of the
used car retail sales facility. The loss was mainly due to a significant
increase in repossession of vehicles by the Company that resulted in a need by
the Company to significantly increase the efficiency of the operations of the
used car retail sales facility which did not occur. The used car retail sales
facility continued to sustain losses through its closing. As a result of the
closure of the used car retail sales facility, the provision for credit losses
was significantly increased.
18
<PAGE>
Second, in late 1996, the Company determined to adopt the static pool
method of determining credit losses. In addition, management of the Company made
two other changes that had an impact on the provision for credit losses. The
first was its decision to close the used car retail sales facility as discussed
above and dispose of repossessed vehicles at public auction. This decision
increased the average loss incurred by the Company from $2,500 to $6,500 per
repossessed vehicle. In addition, the static pool analysis revealed that the
Company's Contract default rate dramatically increased from the fall of 1995
through 1996. The Company had been projecting a default rate of approximately
25%. Actual projected losses based on the specific pool analysis revealed that
default rates were in the 35% to 40% range. This high default rate is
attributable to the fact that in 1996 the Company sold to third parties or
through securitizations approximately $22,000,000 in Contracts which generally
had a better performance history than Contracts that were retained by the
Company. These changes caused the Company to incur approximately $5,700,000 in
additional credit losses. Approximately $4,000,000 of this was related to the
increase in average loss per repossessed vehicle from $2,500 to $6,500 and the
balance was related to an increased default rate due to the quality of the
Contract portfolio that was retained by the Company.
The other significant item that affected the Company's performance in 1996
related to the write-off of its interest participation in a sale of Contracts to
a financial institution. In 1995, the Company sold approximately $12,000,000 of
Contracts to this financial institution and retained an interest participation
in the excess cash flow. When the Contracts were sold to the financial
institution, the financial institution engaged a third-party servicing company
to service the Contracts. It is the Company's belief that this third party
inadequately serviced the Contracts due to lack of follow-up and poor collection
efforts. The Contracts experienced approximately a 50% default rate. Due to the
default rate, any residual interest of the Company in the excess cash flow was
impaired and in the fourth quarter of 1996 the Company wrote off the Company's
remaining interest (approximately $1,700,000) in the excess cash flow.
Other significant changes from 1995 to 1996 related to interest and loan
costs. These costs approximately doubled due to the Company obtaining borrowings
to purchase Contracts. The primary sources of new borrowings were obtained with
the $20 million secured credit facility in late June 1996 and $10 million of
subordinated debt in late July 1996.
Administrative costs increased $1,300,000 in 1996 over 1995. This
represents the Company's growth in the number of employees engaged in servicing
and collections, accounting and the used car retail sales facility, and growth
in facilities expense and professional fees.
19
<PAGE>
At the end of January 1997, the financial institution from which the
Company had previously obtained a $20 million secured credit facility presented
the Company with a proposal to increase the secured credit facility to $50
million. In mid February 1997, the financial institution withdrew the $50
million proposal because of financial difficulties publicly reported by other
companies engaged in the same business as the Company. In April 1997, the
financial institution advised the Company that the financial institution would
provide no additional funding under the existing $20 million secured credit
facility because the Company was in default thereof as a result of the violation
by the Company of certain financial covenants contained in the credit facility
agreement provided by the financial institution to the Company. As a result, the
Company discontinued acquiring Contracts and reduced its staff from
approximately 184 employees on March 31, 1997, to 55 employees on June 9, 1997.
The Company has also received notice from the financial institution that
provided the Company with subordinated debt of approximately $10 million that
the Company is in default of the provisions of such loan. The Company has also
defaulted on required payments on insurance company loans. Further, the Company
is in default on the payment on the loans from the G.E.O. Income Trusts III, IV
and V. As of December 31, 1996, the Company had an accumulated deficit of
$11,328,311. The independent auditors report on the consolidated financial
statements of the Company for the year ended December 31, 1996, contains a
paragraph raising a substantial doubt about the Company's ability to continue as
a going concern. The Company did not pay preferred stock dividends for the
quarter ended March 31, 1997.
In May, 1997, the Company engaged Key Capital Markets, Inc., a wholly-owned
subsidiary of KeyCorp, to explore strategic business options and alternatives
for the Company's business. If the Company is unable to enter into satisfactory
arrangements with its creditors, obtain additional financing or enter into a
business combination, it is likely that the Company will have to file for
protection from its creditors under the United States Bankruptcy Code.
The foregoing discussion contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are intended to be covered by the safe
harbors created thereby. These statements include the plans and objectives of
management for future operations, including plans and objectives relating to the
development. The forward-looking statements included herein are based on current
expectations that involve numerous risks and uncertain ties. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be inaccurate and, therefore, there can
be no assurance that the forward-looking statements included in this Form 10-KSB
will prove to be accurate. In light of the significant uncertainties inherent in
20
<PAGE>
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
Item 7. Financial Statements
WESTERN FIDELITY FUNDING, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page
Number
------
Independent Auditors' Report F-1
Consolidated Financial Statements
Consolidated Balance Sheets - December 31, 1996 and 1995 F-2
Consolidated Statements of Operations - For the Years Ended F-3
December 31, 1996 and 1995
Consolidated Statements of Stockholders Equity - For the Years F-4
Ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows - For the Years Ended F-5
December 31, 1996 and 1995
Notes to the Consolidated Financial Statements F-6
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
There were no changes of the Company's principal independent accountants
during the Company's last two fiscal years.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
The following table sets forth the names and ages of the current directors
and executive officers of the Company and the principal offices and positions
with the Company held by each such person. Each director serves a one year term
and until the director's successor is elected or until the director's death,
21
<PAGE>
resignation or removal. The executive officers of the Company are elected
annually by the Company's board of directors. The executive officers serve terms
of one year or until their death, resignation or removal by the Company's board
of directors.
The directors and executive officers of the Company are as follows:
Name Age Position With the Company
---- --- -------------------------
Gene E. Osborn 60 President
Director
Leonard L. Skerjanc 49 Executive Vice President
Chief Operating Officer
Director
John J. Scordo, II 51 Executive Vice President
Director
Marya L. Brancio 32 Vice President and Secretary
Gene E. Osborn. Mr. Osborn has been the president and a director of the
Company since 1990. Mr. Osborn has been involved in the automotive industry for
over 30 years, and has owned and operated automobile dealerships including,
Toyota and Lincoln Mercury dealerships in Colorado Springs, Colorado, Chevrolet,
Lincoln Mercury and Mazada dealerships in Aurora, Colorado and Subaru, AMC Jeep,
and Hyundai dealerships in Denver, Colorado. Mr. Osborn devotes a majority of
his time to the Company. Mr. Osborn devotes some of his time to D&O, Inc., a
company which is engaged in the marketing of a protective coating for the
exterior paint of vehicles. Mr. Osborn is an officer, director and majority
shareholder of D&O, Inc.
Leonard L. Skerjanc. Mr. Skerjanc has been the executive vice president of
the Company since 1994, the chief operating officer of the Company since April,
1996 and a director of the Company since 1991. Mr. Skerjanc also served as vice
president of the Company from 1990 to 1996. He has been involved in retail,
lease and wholesale automotive financing for 25 years. Mr. Skerjanc was employed
by General Motors Acceptance Corporation between 1969 and September 1985 where
he held numerous positions including credit manager and dealer relations
manager. In September 1985, Mr. Skerjanc joined Toyota Motor Credit Corporation
as assistant branch manager, a position he held until October 1990 when he
joined the Company. Mr. Skerjanc received a Bachelor of Science degree in
Business Administration from the University of Southern Colorado. Mr. Skerjanc
devotes his full time to the Company.
22
<PAGE>
John J. Scordo, II. Mr. Scordo has been executive vice president of the
Company since April 26, 1996, and a director of the Company since 1991. He has
been involved in the ownership, operation, and management of automobile
dealerships for over 25 years. Mr. Scordo was the general manager of Menlove
Dodge-Toyota in Bountiful, Utah from 1976 to 1978, and co-owned and acted as
general manager for a Chrysler dealership in Castle Rock, Colorado from 1977 to
1980. From 1980 to 1984 Mr. Scordo was a general manager of several automobile
dealerships in Colorado. From 1984 until joining the Company, Mr. Scordo was a
consultant for automobile dealerships and related businesses. Mr. Scordo
received a Bachelor of Science degree from the University of Colorado. Mr.
Scordo currently devotes his full time to the Company.
Marya L. Brancio. Mrs. Brancio has been the vice president and secretary of
the Company since April 1996 and the general counsel for the Company since 1995.
Ms. Brancio was engaged in the practice of law from the beginning of 1993 to
1995 and served as in-house counsel to Oversight Management Company, a due
diligence firm, in 1991 and 1992. Ms. Brancio graduated from the University of
Denver College of Law in 1990 and from Moorhead State University in 1987,
receiving a Bachelor of Arts degree. Ms. Brancio devotes her full time to the
Company.
There are no family relationships among any of the officers or directors of
the Company.
The Company has obtained and pays the annual premiums on $500,000 "key
person" life insurance policies on the lives of Leonard L. Skerjanc and John J.
Scordo, II. The death benefit proceeds of these policies are payable to the
Company. The Company is considering obtaining a similar $1,000,000 policy on the
life of Gene E. Osborn.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who beneficially own
more than 10% of a registered class of the Company's equity securities to file
various reports with the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc. concerning their holdings of, and
transactions in, securities of the Company. Copies of these filings must be
furnished to the Company.
Based on a review of the copies of such forms furnished to the Company and
written representations from the Company's executive officers, directors and
persons who beneficially own more than 10% of the Company's outstanding Common
Stock, the Company believes that none of such persons failed to timely file a
Form 3, 4 or 5 required by Section 16(a) under the Securities Exchange Act of
1934 during the Company's fiscal year ended December 31, 1996.
23
<PAGE>
Item 10. Executive Compensation.
The following table provides certain compensation information for services
rendered in all capacities to the Company during each of the Company's last
three fiscal years by Gene E. Osborn, the president of the Company, and by the
only other executive officers whose salary and bonus from the Company exceeded
$100,000 in 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
-------------------------------- ------------
Securities
Name and Principal Other Annual Underlying All Other
Positions at 12/31/96 Year Salary Bonus Compensation Options Compensation
- ---------------------------------------- ---------- ------- -------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gene E. Osborn 1996 $187,500 $17,604 -0- 136,670 $24,886
1995 $180,000 $10,000 -0- 100,000 $25,107
1994 $179,429 -0- -0- -0- $26,552
Leonard L. Skerjanc 1996 $100,000 $ 8,802 -0- 86,666 -0-
1995 $ 84,416 $ 7,000 -0- 50,000 -0-
1994 $ 74,062 $ 6,062 -0- -0- -0-
John J. Scordo, II 1996 $100,000 $ 8,802 -0- 86,666 -0-
1995 $ 74,666 $ 7,000 -0- 50,000 -0-
1994 $ 30,000 $ 531 -0- -0- -0-
- ------------------
</TABLE>
(1) The remuneration does not include use of Company owned automobiles.
(2) Represents life insurance premiums of $17,900, $15,000, and $18,523
paid by the Company in 1996, 1995 and 1994, respectively, and amounts of $6,986,
$10,107, and $8,029 paid by the Company in 1996, 1995 and 1994, respectively, to
a country club.
Option Grants in the Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------------------------------
Number of Securities % of Total Options Exercise
Underlying Options Granted to Employees or Base Expiration
Name Granted (#) in Fiscal Year Price ($/sh) Date
- ---- -------------------- -------------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Gene E. Osborn 134,680(1) 26.9% $3.7125 12/29/2001
Gene E. Osborn 1,990(2) .4% $3.375 12/29/2001
Leonard L. Skerjanc 86,666(1) 17.3% $3.7125 12/29/2001
John J. Scordo, II 86,666(1) 17.3% $3.375 12/29/2001
</TABLE>
24
<PAGE>
(1) Represents incentive stock options granted pursuant to the 1996
Incentive and Nonstatutory Stock Option Plan. See "Report on Repricing of
Options."
(2) Represents nonstatutory stock options granted pursuant to the 1996
Incentive and Nonstatutory Stock Option Plan. See "Report on Repricing of
Options."
Value of Options at December 31, 1997
<TABLE>
<CAPTION>
Aggregate Fiscal Year End Option Values
----------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year End at Fiscal Year End
Exercisable/Unexercisable Exercisable/Unexercisable
-------------------------- -------------------------
<S> <C> <C>
Gene E. Osborn 0/136,670 0/0
Leonard L. Skerjanc 0/ 86,660 0/0
John J. Scordo, II 0/ 86,660 0/$25,566.47
</TABLE>
The value is based on the closing sale price of $3.67 of the Company's
Common Stock on December 31, 1996 minus the exercise price of the options.
No options to purchase the Company's Common Stock were exercised by Messrs.
Osborn, Skerjanc or Scordo during the Company's fiscal year ended December 31,
1996.
Compensation of Directors
The Company currently does not compensate its directors for acting in such
capacity.
Employment Contracts and Termination of Employment and Changes-In-Control
The Company has not entered into any employment, termination of employment
or change-in-control agreements with its officers.
Report on Repricing of Options
The Company has cancelled the 1995 Incentive and Nonstatutory Stock Option
Plan ("Option Plan") which authorized the Company to issue incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, and other nonstatutory stock options to purchase up to a total of
250,000 shares of Common Stock. Options to purchase up to a total of 150,000
shares of Common Stock at an exercise price of $5.50 per share and options to
purchase up to a total of 100,000 shares of Common Stock at an exercise price of
$5.00 per share had been granted pursuant to the Option Plan. Included in the
25
<PAGE>
total options granted pursuant to the Option Plan were options to purchase
100,000 shares, 50,000 shares and 50,000 shares that were exercisable at $5.00
per share and that had been granted to Gene E. Osborn, Leonard L. Skerjanc and
John J. Scordo, II, respectively. All of the options were forfeited by the
optionees in connection with the grants set forth below.
The Company has adopted, subject to shareholder approval, the 1996
Incentive and Nonstatutory Stock Option Plan ("1996 Plan") which authorizes the
Company to grant incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended, and to grant nonstatutory stock
options. The 1996 Plan relates to a total of 500,000 shares of Common Stock.
Incentive stock options relating to 498,010 shares of common stock of the
Company have been granted as incentive stock options of which options relating
to 359,678 shares were granted to the current officers of the Company, including
Gene E. Osborn, Leonard L. Skerjanc and John J. Scordo, II, who received options
to purchase 134,680 shares, 86,666 shares and 86,666 shares, respectively, under
the 1996 Plan. The options will become exercisable on the earlier of the date
that the 1996 Plan is approved by the shareholders or December 29, 1997. Also,
nonstatutory stock options relating to 1,990 shares of the Company's Common
Stock were granted to Gene E. Osborn. The options are exercisable on the earlier
of the date the 1996 Plan is approved by the shareholders or December 29, 1997.
Mr. Osborn's options are exercisable at $3.7125 and $3.375 per share,
respectively, Mr. Skerjanc's options are exercisable at $3.7125, per share, Mr.
Scordo's options are exercisable at $3.375 per share and the other options are
exercisable at $3.375 per share. All of the options must be exercised by
December 29, 2001.
As stated previously, the options that were granted pursuant to the Option
Plan had exercise prices of $5.00 per share and $5.50 per share which were
significantly above the current market price of the Company's Common Stock in
December 1996. The Board of Directors of the Company believed that the previous
options granted pursuant to the Option Plan were no longer an incentive for the
holders thereof because of the fact that the exercise prices thereof were
significantly higher than the then market price of the Common Stock. The Board
of Directors also believed that it would be appropriate to reward employees in
recognition of the fact that in December 1996 the Company had a record month
regarding Contracts purchased. Therefore, the Board of Directors granted the new
options pursuant to the 1996 Plan as bonuses and incentives for the Company's
employees.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as of June 9, 1997,
regarding the beneficial ownership of the Company's Common Stock, its only class
of outstanding voting securities by (i) each person who is known to the Company
to own beneficially more than 5% of the outstanding Common Stock with the
address of each such person, (ii) each of the Company's directors and officers,
and (iii) all of the Company's directors and officers as a group.
26
<PAGE>
<TABLE>
<CAPTION>
Name of Beneficial Owner
or Name of Officer or Amount and Nature of Percent
Director and Addresses Beneficial Ownership(1) of Class(2)
- ---------------------- ---------------------- ----------
<S> <C> <C>
Gene E. Osborn .................................. 1,624,170(3)(7) 58.5%
4704 Harlan Street, Suite 260
Denver, Colorado 80212
Leonard L. Skerjanc ............................. 261,666(4) 9.6%
4704 Harlan Street, Suite 260
Denver, Colorado 80212
John J. Scordo, II .............................. 174,166(4) 6.4%
4704 Harlan Street, Suite 260
Denver, Colorado 80212
Marya L. Brancio ................................ 51,666(5) 1.9%
4704 Harlan Street, Suite 260
Denver, Colorado 80212
All Officers and Directors as a ................. 2,111,668(6) 70.4%
Group (4 Persons)
</TABLE>
(1) The beneficial owners listed have sole voting and investment power with
respect to the shares of Common Stock.
(2) Assumes no shares of Series A Preferred Stock are converted into Common
Stock and that each individual's stock option is exercised.
(3) Includes 136,670 shares of Common Stock underlying options granted
pursuant to the 1996 Plan which will not be exercisable until the earlier of the
date the 1996 Plan is approved by the shareholders or December 29, 1997.
(4) Includes 86,666 shares of Common Stock underlying an option granted
pursuant to the 1996 Plan which will not be exercisable until the earlier of the
date the 1996 Plan is approved by the shareholders or December 29, 1997.
(5) Represents shares of Common Stock underlying an option granted pursuant
to the 1996 Plan which will not be exercisable until the earlier of the date the
1996 Plan is approved by the shareholders or December 29, 1997.
(6) Includes 275,002 shares of Common Stock underlying the options
described above.
27
<PAGE>
(7) Mr. Osborn has entered into an installment payment agreement with the
IRS which requires Mr. Osborn and his wife to pay approximately $770,000 of
taxes owed for the years 1989, 1990 and 1991. The monthly installment payment is
about $4,900 and the IRS has filed a tax lien with regard to such unpaid taxes.
The tax liability arose primarily as a result of deductions claimed by Mr.
Osborn when he sold various automobile dealerships which were subsequently
disallowed by the IRS. Mr. Osborn beneficially owns approximately 56.4% of the
outstanding Common Stock of the Company. This stock constitutes the major asset
of Mr. and Mrs. Osborn. If Mr. and Mrs. Osborn should default under the
installment payment agreement, the IRS could bring a judicial proceeding to
enforce the federal tax lien and attempt to levy on and sell enough of the
Common Stock of the Company owned by Mr. Osborn to pay the amount owed by Mr.
and Mrs. Osborn to the IRS. Mr. Osborn has pledged 200,000 shares of his Common
Stock of the Company as security for the payment of any amounts which may become
due under an indemnification agreement between Mr. Osborn and the Company.
Item 12. Certain Relationships and Related Transactions.
The Company borrowed $11,000 from family members of Gene E. Osborn and
provided the family members with a demand note with a 15% stated interest rate.
Interest is paid monthly, and the unpaid principal balance of the demand note at
December 31, 1996 was $11,000. The demand note was paid in full in April 1997.
Between March, 1992 and June, 1995 the Company loaned approximately
$418,175 to Outcome Sales and Marketing, Inc., a company owned by Gene E.
Osborn, ("Outcome"). Of that amount, approximately $131,844 was repaid to the
Company. Gene E. Osborn and Mr. Skerjanc are directors and officers of Outcome
and Mr. Scordo is an officer of Outcome. Outcome, which was formed by Gene E.
Osborn to market vehicle security and safety related products, was initially
capitalized with $600,000 borrowed from an investor trust. After expending this
capital, Outcome borrowed the additional funds described above from the Company.
Outcome's business has been a failure. During the periods ended December 31,
1993, 1994 and, 1995, the remainder of this loan in the amount of $301,200 was
uncollectible and was charged off by including it in distributions to affiliates
in shareholders' equity during such periods. On November 7, 1995, the trustee of
this investor trust notified Outcome that he was declaring the notes from
Outcome to this trust in the amount of $600,000 to be in default because of
alleged breach of indenture covenants and warranties, including improper
expenditure of trust assets; improper distributions of trust assets to the
noteholders of the trust; failure to pay compensation to and expenses of the
trustee; and failure to indemnify the trustee. Outcome has paid all interest due
on these notes. The Company became aware that this trustee, in a letter to
noteholders of this trust, has stated his intention to cause the trust to file a
legal action against Outcome, the Company, and other unnamed persons. This
trustee has been subsequently removed by the noteholders. Because of this treat
of legal action against the Company, Gene E. Osborn has entered into an
indemnification and pledge agreement with the Company in which he agrees to
indemnify the Company against any monetary loss, including attorney's fees,
28
<PAGE>
resulting from this threatened litigation and in which he pledges 200,000 shares
of Common Stock of the Company owned by him as security for the payment of any
obligations which may arise under such agreement. If the Company acquires shares
from Mr. Osborn under the pledge agreement, the Company would retain such shares
thereby reducing the number of shares outstanding. Under the pledge agreement,
such shares would be reacquired at a discount of 20%.
The Company loaned $26,000 to D & O, Inc., a company that is owned 51% by
Gene E. Osborn and 49% by an unaffiliated party. The directors of D & O, Inc.
are Gene E. Osborn, Leonard L. Skerjanc, and the unaffiliated party. The loan
was represented by a promissory note bearing interest at a rate of 7% per annum.
As of September 30, 1995, the principal and accrued interest on this loan in the
amount of $29,289 was charged off by including such amount in stockholders'
equity.
As of June 1, 1995, the Company entered into a Management Agreement with a
corporation which is wholly owned by James A. Osborn, the son of Gene E. Osborn.
Under this Agreement, the corporation managed and operated the Company's used
car retail sales facility for a fee of $3,800 per month plus 20% of the net
profit of such facility. This Agreement was terminated in April 1997, after the
Company closed its used car retail sales facility. Management fees paid during
the year ended December 31, 1996 were approximately $283,000. James A. Osborn is
also an employee of the Company. On August 28, 1995, the Company granted James
A. Osborn a nonstatutory stock option entitling him to purchase 3,400 shares of
Common Stock during a five year period at $5.00 per share. The Company granted
this option to James A. Osborn to provide him with an additional incentive under
the Management Agreement. This option has been subsequently forfeited and
replaced by an incentive stock option to purchase 40,066 shares at an exercise
price of $3.375 per share pursuant to the 1996 Plan.
The Company has and will continue to make travel arrangements through First
World Travel, a travel agency which is owned and operated by Rosemarie E.
Osborn, the wife of Gene E. Osborn. The Company purchased airline tickets from
First World Travel in the following amounts: $24,500 during 1996 and $24,000
during 1995. First World Travel received customary industry commissions with
respect to such ticket purchases by the Company.
Although the Company believes that the terms of the Management Agreement
involving Gene E. Osborn's son and the terms under which the Company uses the
travel agency owned by Gene E. Osborn's wife were fair and reasonable to the
Company, the Company has not obtained an independent determination with respect
to the fairness and reasonableness of these arrangements. The Company's belief
with respect to the Management Agreement is based upon the experience and
knowledge of the Company's directors other than Mr. Osborn in the automobile
used car retail sales business, and the Company's belief with respect to the use
of the travel agency is based upon the Company's directors' knowledge of rates
and fees charged by unaffiliated travel agencies. Any transaction between the
Company and a member of management or a relative or affiliate of a member of
management involves obvious inherent conflicts of interest. The board of
directors has adopted a resolution that provides that any future proposed
29
<PAGE>
transaction between the Company and any member of management of the Company or a
relative or affiliate of a member of management of the Company must be
determined by an independent person to be fair and reasonable to the Company
before the Company enters into such proposed transaction. The directors of the
Company have adopted a resolution which requires that all compensation matters,
including the grant of stock options, relating to any member of management must
be approved by a majority of the directors who do not have a personal interest
in such determination.
The board of directors of the Company has adopted a resolution that
provides that the areas of business in which the Company shall be interested for
the purpose of the doctrine of corporate opportunities shall be the business of
acquiring and servicing automobile retail installment loan contracts for
purchases of late model used automobiles (cars and light trucks) and purchasing
and selling used automobiles. Any business opportunity which falls within such
areas of interest must be brought to the attention of the Company for acceptance
or rejection prior to any officer or director of the Company taking advantage of
such opportunity. Any business opportunity outside such areas of interest may be
entered into by any officer or director of the Company without the officer or
director first offering the business opportunity to the Company. Gene E. Osborn
and Mr. Skerjanc are involved, and in the future intend to become involved, in
other businesses independent of the Company, and intend to engage in other
businesses that provide financing other than in connection with the financing of
automobiles. Also, Mr. Scordo may become involved in other businesses in the
future which do not compete with the Company's business. To the extent Mr.
Osborn, Mr. Skerjanc or Mr. Scordo engage in such other activities, the time he
devotes to the Company will be diminished. However, Mr. Osborn, Mr. Skerjanc and
Mr. Scordo each currently estimate that he will devote at least a majority of
his time to the affairs of the Company. No shareholder of the Company will
benefit from any of the independent business activities of Mr. Osborn, Mr.
Skerjanc or Mr. Scordo or any of the other officers or directors of the Company.
Item 13. Exhibits and Reports on Form 8-K.
(a) The following documents are filed as part of this Report:
1. Financial Statements
Page of
this Report
-----------
Independent Auditors' Report........................................ F-1
Consolidated Balance Sheets December 31, 1996 and 1995.............. F-2
30
<PAGE>
Consolidated Statements of Operations For The Years
Ended December 31, 1996 and 1995.................................... F-3
Consolidated Statement of Stockholders' Equity For
The Years Ended December 31, 1996 and 1995.......................... F-4
Consolidated Statements of Cash Flows For The Years
Ended December 31, 1996 and 1995.................................... F-5
Notes to Consolidated Financial Statements.......................... F-6
2. Financial Statement Schedules:
All other statements or schedules for which provision is made in the
applicable regulation of the Securities and Exchange Commission have been
omitted because they are not required under related instructions or are
inapplicable, or the information is shown in the financial statements and
related notes.
3. Exhibits:
Exhibit No. Description and Method of Filing
- ---------- ---------------------------------
(3.1) Restated Articles of Incorporation of Registrant*
(3.2) Articles of Amendment to the Restated Articles of Incorporation of
Registrant*
(3.3) Bylaws of Registrant*
(4.1) Form of Underwriting Agreement*
(4.2) Form of Representative's Warrants*
(10.1) Master Notes issued by Registrant to G.E.O. Income Trust 1991-1,
G.E.O. Income Trust I, G.E.O. Income Trust III, G.E.O. Income Trust
IV, G.E.O. Income Trust V on June 30, 1995*
(10.2) Promissory Note dated August 18, 1992, by and between Registrant and
James R. Osborn and Reta Bailey*
(10.3) Contract Purchase Agreement between O & S Finance, Inc. and
Registrant dated as of November 23, 1994*
(10.4) Master Purchase Agreement between O & S Finance, Inc. and Greyrock
Capital Group, Inc. dated as of November 23, 1994*
31
<PAGE>
Exhibit No. Description and Method of Filing
- ---------- ---------------------------------
(10.5) Promissory Note dated December 12, 1994, from Registrant to Farmers
Automobile Insurance Company, Pekin Life Insurance Company and
Grinnell Mutual Reinsurance Company; and Pledge Agreement and
Security Agreement both dated December 9, 1994, among Registrant and
Farmers Automobile Insurance Company, Pekin Life Insurance Company,
and Grinnell Mutual Reinsurance Company*
(10.6) Promissory Note dated April 19, 1995, from Registrant to Pekin Life
Insurance Company*
(10.7) Promissory Note dated May 12, 1995, from Registrant to Farmers
Automobile Insurance Company*
(10.8) Promissory Note dated June 9, 1995, from Registrant to Pekin Life
Insurance Company*
(10.9) Promissory Note dated September 13, 1995, from Registrant to
Grinnell Mutual Reinsurance Company*
(10.10) Promissory Note Dated September 13, 1995, from Registrant to
Grinnell Mutual Reinsurance Company*
(10.11) Promissory Note dated September 21, 1995, from Registrant to
Grange Mutual Casualty Company*
(10.12) Promissory Note dated September 21, 1995, from Registrant to
Farmers Automobile Insurance Company*
(10.13) Promissory Note dated September 21, 1995, from Registrant to
Pekin Life Insurance Company*
(10.14) Loan Sale Agreement dated as of February 9, 1994, by and between
Registrant and NAFCO Auto Funding, L.P. and Exhibit A to such
Agreement*
(10.15) Financing Agreement dated as of July 27, 1990, between Berjac of
Colorado, Registrant, and Gene E. Osborn and the Amendment thereto
dated February 6, 1991*
(10.16) Master Policy dated March 28, 1994, issued by Empire Fire and Marine
Insurance Company/Empire Indemnity Insurance Company*
32
<PAGE>
Exhibit No. Description and Method of Filing
- ---------- ---------------------------------
(10.17) Agreement dated June 22, 1995, between Empire Fire and Marine
Insurance Company/Empire Indemnity Insurance Company and Registrant*
(10.18) Trust/Escrow Agreement dated June 22, 1995, among the First National
Bank of Omaha, Nebraska, Empire Fire and Marine Insurance Company
of Omaha/Empire Indemnity Insurance Company and Registrant*
(10.19) Management Agreement dated September 20, 1995, between Registrant
and Christopher Creations, Inc.*
(10.20) Form of Selling Agent's Warrants to Purchase Common Stock*
(10.21) Promissory Note dated July 26, 1995, from D & O, Inc. to Registrant*
(10.22) 1995 Incentive and Nonstatutory Stock Option Plan*
(10.23) 1996 Incentive and Nonstatutory Stock Option Plan
(10.24) Office Sublease dated May 11, 1995, between Registrant and Bank One,
Denver N.A.*
(10.25) Office Leases dated October 11, 1995, between Registrant and
Lakeside Office, Ltd. and Western Terrace Investment Co., Ltd.*
(10.26) Agreement dated November 15, 1992, between Registrant and J. D. Mull
& Co.*
(10.27) Letter Agreement dated November 29, 1994, between Registrant and
Joseph Roberts & Co., Inc.*
(10.28) Termination Agreement dated October 13, 1995*
(10.29) Form of Purchase Agreement between Registrant and Dealers*
(10.30) Promissory Note dated October 18, 1995, from Registrant to Grinnell
Mutual Reinsurance Company*
(10.31) Promissory Note dated October 20, 1995, from Registrant to Farmers
Automobile Insurance Company*
(10.32) Promissory Note dated October 20, 1995, from Registrant to Pekin
Life Insurance Company*
33
<PAGE>
Exhibit No. Description and Method of Filing
- ---------- ---------------------------------
(10.33) Master Notes issued by Registrant to G.E.O. Income Trust 1991-I,
G.E.O. Income Trust II, G.E.O. Income Trust III, G.E.O. Income Trust
IV and G.E.O. Income Trust V on September 30, 1995*
(10.34) Form of Notes issued by Registrant to G.E.O. Income Trust 1991-I,
G.E.O. Income Trust II, G.E.O. Income Trust III, G.E.O. Income Trust
IV, and G.E.O. Income Trust V*
(10.35) Trust Indenture dated as of October 1, 1991, and Security Agreement
dated December 5, 1991, between Registrant and G.E.O. Income Trust
1991-I*
(10.36) Trust Indenture dated as of July 27, 1992, and Security Agreement
dated September 2, 1992, between Registrant and G.E.O. Income Trust
II*
(10.37) Trust Indenture dated as of March 22, 1993, and Security Agreement
dated May 28, 1993, between Registrant and G.E.O. Income Trust III*
(10.38) Trust Agreement dated as of December 24, 1993, and Security
Agreement dated February 7, 1994, between Registrant and G.E.O.
Income Trust IV*
(10.39) Trust Indenture dated as of September 15, 1994, and Security
Agreement dated October 13, 1994, between Registrant and G.E.O.
Income Trust V*
(10.40) Amendments dated May 16, 1994, and June 1, 1994, to Berjac of
Colorado Agreement dated July 27, 1990, which was previously filed
as Exhibit (10.15)*
(10.41) Trust Notes Exchanged for Series A Preferred Stock*
(10.42) Letter dated June 26, 1995, from Empire Fire and Marine Insurance
Company to the Registrant*
(10.43) Indemnification and Stock Pledge Agreement dated November 13, 1995,
between Gene E. Osborn and Registrant*
(10.44) Used Car Facility Lease dated April 3, 1996, between Registrant and
D&J Investments, Colorado General Partnership**
(10.45) Loan Purchase Agreement dated February 28, 1996, by and between
Registrant and Primus Automotive Financial Services, Inc.**
34
<PAGE>
Exhibit No. Description and Method of Filing
- ---------- ---------------------------------
(10.46) Loan Purchase Agreement dated April 3, 1996, by and between
Registrant and Primus Automotive Financial Services, Inc.**
(10.47) Transfer and Assignment dated as of December 30, 1996, by and
between Western Fidelity Funding, Inc. and Western Fidelity Finance,
Inc.***
(10.48) Servicing Agreement dated as of December 30, 1996, by and among
Western Fidelity Finance, Inc., Texas Commerce Bank, National
Association, and Western Fidelity Funding, Inc.***
(10.49) Pooling and Servicing Agreement dated as of December 30, 1996,
between Western Fidelity Finance, Inc. and Texas Commerce Bank,
National Association****
(10.50) Facilities Agreement and Subscription dated July 31, 1996****
(10.51) 12% Subordinated Note - Due July 31, 2001****
(10.52) Selling Agent's Class A Common Stock Purchase Warrant dated July 31,
1996****
(10.53) Revolving Credit and Security Agreement dated June 24, 1996, between
Western Fidelity Funding, Inc. and BNY Financial Corporation*****
(10.54) Three Promissory Notes Aggregating $1,522,713.10 from Registrant to
Western Fraternal Life Association
(10.55) Auto Loan Warehouse Credit and Security Agreement dated August 12,
1996, between Princeton Capital Credit Corporation and Registrant
(10.56) Purchase Agreement dated March 14, 1997 between Registrant and
Mountain Parks Financial Services, Inc.
(10.57) Business Lease dated January 22, 1997, between Ramsey Family
Partnership and Registrant
(10.58) Office Lease dated July 18, 1997 between Bank One-Colorado, N.A. and
Registrant
(21) Subsidiary of Registrant
(27) Financial Data Schedule
35
<PAGE>
* Incorporated by reference to the Registrant's Registration Statement on
Form SB-2 and all amendments thereto, as filed with the Securities and
Exchange Commission Registration No. 33-98116-D, and which was declared
effective on November 21, 1995.
** Incorporated by reference to the Issuer's Annual Report on Form 10-KSB
as filed with the Securities and Exchange Commission for the fiscal
year ended December 31, 1995.
*** Incorporated by reference to the Issuer's Current Report on Form 8-K,
as filed with the Securities and Exchange Commission on December 30,
1996.
**** Incorporated by reference to the Issuer's Current Report on Form 8-K as
filed with the Securities and Exchange Commission on August 7, 1996.
***** Incorporated by reference to the Issuer's Current Report on Current
Form 8-K as filed with the Securities and Exchange Commission on July
2, 1996.
(b) A Current Report on Form 8-K was filed on December 30, 1996, reporting
under Item 5 the transfer of receivables of approximately $17,200,000 to the
Western Fidelity Receivables Trust 1996-A and the issuance by the Trust of
Pass-Through Certificates and filing under Item 7 the exhibits relating thereto.
36
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WESTERN FIDELITY FUNDING, INC.,
a Colorado corporation
By:/s/ Gene E. Osborn
-----------------------------------
Gene E. Osborn,
President, Chief Executive Officer,
Chief Financial Officer and
Principal Accounting Officer
Date: July 8, 1997
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated:
/s/ Gene E. Osborn July 8, 1997
- ------------------------------------
Gene E. Osborn, Director
/s/ Leonard L. Skerjanc July 8, 1997
- ------------------------------------
Leonard L. Skerjanc, Director
/s/ John J. Scordo, II July 8, 1997
- ------------------------------------
John J. Scordo, II, Director
37
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description and Method of Filing Page
- ---------- -------------------------------- ----
<S> <C>
(3.1) Restated Articles of Incorporation of Registrant* N/A
(3.2) Articles of Amendment to the Restated Articles of Incorporation of
Registrant* N/A
(3.3) Bylaws of Registrant* N/A
(4.1) Form of Underwriting Agreement* N/A
(4.2) Form of Representative's Warrants* N/A
(10.1) Master Notes issued by Registrant to G.E.O. Income Trust 1991-1,
G.E.O. Income Trust I, G.E.O. Income Trust III, G.E.O. Income Trust
IV, G.E.O. Income Trust V on June 30, 1995* N/A
(10.2) Promissory Note dated August 18, 1992, by and between Registrant and
James R. Osborn and Reta Bailey* N/A
(10.3) Contract Purchase Agreement between O & S Finance, Inc. and
Registrant dated as of November 23, 1994* N/A
(10.4) Master Purchase Agreement between O & S Finance, Inc. and Greyrock
Capital Group, Inc. dated as of November 23, 1994* N/A
(10.5) Promissory Note dated December 12, 1994, from Registrant to Farmers
Automobile Insurance Company, Pekin Life Insurance Company and
Grinnell Mutual Reinsurance Company; and Pledge Agreement and
Security Agreement both dated December 9, 1994, among Registrant and
Farmers Automobile Insurance Company, Pekin Life Insurance Company,
and Grinnell Mutual Reinsurance Company* N/A
(10.6) Promissory Note dated April 19, 1995, from Registrant to Pekin Life
Insurance Company* N/A
(10.7) Promissory Note dated May 12, 1995, from Registrant to Farmers
Automobile Insurance Company* N/A
(10.8) Promissory Note dated June 9, 1995, from Registrant to Pekin Life
Insurance Company* N/A
(10.9) Promissory Note dated September 13, 1995, from Registrant to
Grinnell Mutual Reinsurance Company* N/A
<PAGE>
<CAPTION>
Exhibit No. Description and Method of Filing Page
- ---------- -------------------------------- ----
<S> <C>
(10.10) Promissory Note Dated September 13, 1995, from Registrant to
Grinnell Mutual Reinsurance Company* N/A
(10.11) Promissory Note dated September 21, 1995, from Registrant to
Grange Mutual Casualty Company* N/A
(10.12) Promissory Note dated September 21, 1995, from Registrant to
Farmers Automobile Insurance Company* N/A
(10.13) Promissory Note dated September 21, 1995, from Registrant to
Pekin Life Insurance Company* N/A
(10.14) Loan Sale Agreement dated as of February 9, 1994, by and between
Registrant and NAFCO Auto Funding, L.P. and Exhibit A to such
Agreement* N/A
(10.15) Financing Agreement dated as of July 27, 1990, between Berjac of
Colorado, Registrant, and Gene E. Osborn and the Amendment thereto
dated February 6, 1991* N/A
(10.16) Master Policy dated March 28, 1994, issued by Empire Fire and Marine
Insurance Company/Empire Indemnity Insurance Company* N/A
(10.17) Agreement dated June 22, 1995, between Empire Fire and Marine
Insurance Company/Empire Indemnity Insurance Company and Registrant* N/A
(10.18) Trust/Escrow Agreement dated June 22, 1995, among the First National
Bank of Omaha, Nebraska, Empire Fire and Marine Insurance Company
of Omaha/Empire Indemnity Insurance Company and Registrant* N/A
(10.19) Management Agreement dated September 20, 1995, between Registrant
and Christopher Creations, Inc.* N/A
(10.20) Form of Selling Agent's Warrants to Purchase Common Stock* N/A
(10.21) Promissory Note dated July 26, 1995, from D & O, Inc. to Registrant* N/A
(10.22) 1995 Incentive and Nonstatutory Stock Option Plan* N/A
(10.23) 1996 Incentive and Nonstatutory Stock Option Plan
(10.24) Office Sublease dated May 11, 1995, between Registrant and Bank One,
Denver N.A.* N/A
<PAGE>
<CAPTION>
Exhibit No. Description and Method of Filing Page
- ---------- -------------------------------- ----
<S> <C>
(10.25) Office Leases dated October 11, 1995, between Registrant and
Lakeside Office, Ltd. and Western Terrace Investment Co., Ltd.* N/A
(10.26) Agreement dated November 15, 1992, between Registrant and J. D. Mull
& Co.* N/A
(10.27) Letter Agreement dated November 29, 1994, between Registrant and
Joseph Roberts & Co., Inc.* N/A
(10.28) Termination Agreement dated October 13, 1995* N/A
(10.29) Form of Purchase Agreement between Registrant and Dealers* N/A
(10.30) Promissory Note dated October 18, 1995, from Registrant to Grinnell
Mutual Reinsurance Company* N/A
(10.31) Promissory Note dated October 20, 1995, from Registrant to Farmers
Automobile Insurance Company* N/A
(10.32) Promissory Note dated October 20, 1995, from Registrant to Pekin
Life Insurance Company* N/A
(10.33) Master Notes issued by Registrant to G.E.O. Income Trust 1991-I,
G.E.O. Income Trust II, G.E.O. Income Trust III, G.E.O. Income Trust
IV and G.E.O. Income Trust V on September 30, 1995* N/A
(10.34) Form of Notes issued by Registrant to G.E.O. Income Trust 1991-I,
G.E.O. Income Trust II, G.E.O. Income Trust III, G.E.O. Income Trust
IV, and G.E.O. Income Trust V* N/A
(10.35) Trust Indenture dated as of October 1, 1991, and Security Agreement
dated December 5, 1991, between Registrant and G.E.O. Income Trust
1991-I* N/A
(10.36) Trust Indenture dated as of July 27, 1992, and Security Agreement
dated September 2, 1992, between Registrant and G.E.O. Income Trust
II* N/A
(10.37) Trust Indenture dated as of March 22, 1993, and Security Agreement
dated May 28, 1993, between Registrant and G.E.O. Income Trust III* N/A
(10.38) Trust Agreement dated as of December 24, 1993, and Security
Agreement dated February 7, 1994, between Registrant and G.E.O.
Income Trust IV* N/A
<PAGE>
<CAPTION>
Exhibit No. Description and Method of Filing Page
- ---------- -------------------------------- ----
<S> <C>
(10.39) Trust Indenture dated as of September 15, 1994, and Security
Agreement dated October 13, 1994, between Registrant and G.E.O.
Income Trust V* N/A
(10.40) Amendments dated May 16, 1994, and June 1, 1994, to Berjac of
Colorado Agreement dated July 27, 1990, which was previously filed
as Exhibit (10.15)* N/A
(10.41) Trust Notes Exchanged for Series A Preferred Stock* N/A
(10.42) Letter dated June 26, 1995, from Empire Fire and Marine Insurance
Company to the Registrant* N/A
(10.43) Indemnification and Stock Pledge Agreement dated November 13, 1995,
between Gene E. Osborn and Registrant* N/A
(10.44) Used Car Facility Lease dated April 3, 1996, between Registrant and
D&J Investments, Colorado General Partnership** N/A
(10.45) Loan Purchase Agreement dated February 28, 1996, by and between
Registrant and Primus Automotive Financial Services, Inc.** N/A
(10.46) Loan Purchase Agreement dated April 3, 1996, by and between
Registrant and Primus Automotive Financial Services, Inc.** N/A
(10.47) Transfer and Assignment dated as of December 30, 1996, by and
between Western Fidelity Funding, Inc. and Western Fidelity Finance,
Inc.*** N/A
(10.48) Servicing Agreement dated as of December 30, 1996, by and among
Western Fidelity Finance, Inc., Texas Commerce Bank, National
Association, and Western Fidelity Funding, Inc.*** N/A
(10.49) Pooling and Servicing Agreement dated as of December 30, 1996,
between Western Fidelity Finance, Inc. and Texas Commerce Bank,
National Association**** N/A
(10.50) Facilities Agreement and Subscription dated July 31, 1996**** N/A
(10.51) 12% Subordinated Note - Due July 31, 2001**** N/A
(10.52) Selling Agent's Class A Common Stock Purchase Warrant dated July 31,
1996**** N/A
(10.53) Revolving Credit and Security Agreement dated June 24, 1996, between
Western Fidelity Funding, Inc. and BNY Financial Corporation***** N/A
<PAGE>
<CAPTION>
Exhibit No. Description and Method of Filing Page
- ---------- -------------------------------- ----
<S> <C>
(10.54) Three Promissory Notes Aggregating $1,522,713.10 from Registrant to
Western Fraternal Life Association
(10.55) Auto Loan Warehouse Credit and Security Agreement dated August 12,
1996, between Princeton Capital Credit Corporation and Registrant
(10.56) Purchase Agreement dated March 14, 1997 between Registrant and
Mountain Parks Financial Services, Inc.
(10.57) Business Lease dated January 22, 1997, between Ramsey Family
Partnership and Registrant
(10.58) Office Lease dated July 18, 1997 between Bank One-Colorado, N.A. and
Registrant
(21) Subsidiary of Registrant
(27) Financial Data Schedule
</TABLE>
* Incorporated by reference to the Registrant's Registration Statement on
Form SB-2 and all amendments thereto, as filed with the Securities and
Exchange Commission Registration No. 33-98116-D, and which was declared
effective on November 21, 1995.
** Incorporated by reference to the Issuer's Annual Report on Form 10-KSB
as filed with the Securities and Exchange Commission for the fiscal
year ended December 31, 1995.
*** Incorporated by reference to the Issuer's Current Report on Form 8-K,
as filed with the Securities and Exchange Commission on December 30,
1996.
**** Incorporated by reference to the Issuer's Current Report on Form 8-K as
filed with the Securities and Exchange Commission on August 7, 1996.
***** Incorporated by reference to the Issuer's Current Report on Current
Form 8-K as filed with the Securities and Exchange Commission on July
2, 1996.
<PAGE>
WESTERN FIDELITY FUNDING, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
and
Independent Auditors' Report
December 31, 1995 and 1996
<PAGE>
WESTERN FIDELITY FUNDING, INC. AND SUBSIDIARIES
Table of Contents
-----------------
Independent Auditors' Report................................................ F-1
Consolidated Financial Statements
Consolidated Balance Sheets........................................ F-2
Consolidated Statements of Operations.............................. F-3
Consolidated Statement of Stockholders' Equity (Deficit)........... F-4
Consolidated Statements of Cash Flows.............................. F-5
Notes to Consolidated Financial Statements.................................. F-6
<PAGE>
Ehrhardt
Keefe
Steiner &
Hottman PC
INDEPENDENT AUDITORS' REPORT
Certified Public Accountants
and Consultants
To the Board of Directors and Stockholders
Western Fidelity Funding, Inc. and Subsidiaries
Denver, Colorado
We have audited the consolidated balance sheets of Western Fidelity Funding,
Inc. and Subsidiaries as of December 31, 1995 and 1996 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the management, as well as evaluating the overall
consolidated financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Western
Fidelity Funding, Inc. and Subsidiaries as of December 31, 1995 and 1996 and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As further discussed in Note
2 to the consolidated financial statements, the Company has incurred losses from
operations of $10,154,677 resulting in an accumulated deficit of $11,328,311, at
December 31, 1996. In addition the Company is currently in default or out of
trust on significantly all of its debt totaling $26,021,077 at December 31,
1996. These factors among others raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters
are also described in Note 2. The consolidated financial statements do not
include any adjustments that might result if the Company is unable to continue
in existence.
/s/ Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
April 2, 1997, except for Note 14, as to which
the date is May 31, 1997
Denver, Colorado
F-1
7979 E. Tufts Avenue, Suite 400 Denver, Colorado 80237-2843
303 740-9400 Fax 303 740-9009
Member of DFK International and PKF International--
Providing Services in Cities Worldwide
<PAGE>
<TABLE>
<CAPTION>
WESTERN FIDELITY FUNDING, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
-------------------
1995 1996
---- ----
Assets
<S> <C> <C>
Cash ................................................................................... $ 480,838 $ 361,362
Restricted cash (Note 6) ............................................................ 891,065 2,326,203
Finance receivables - net (Notes 3, 4, 5 and 7) ........................................ 21,319,223 14,941,703
Other receivables ...................................................................... -- 385,781
Residual interest in Securitization (Note 5) ........................................... -- 1,195,000
Prepaid expenses ....................................................................... 665,486 1,257,419
Vehicles held for sale (Notes 3 and 4) ................................................. 982,156 3,109,326
Furniture and equipment - net of accumulated depreciation
of $39,839 (1995) and $188,079 (1996) ................................................. 85,642 642,362
Loan origination fees - net of accumulated amortization
of $201,487 (1995) and $731,510 (1996) ................................................ 689,473 1,252,940
----------- ------------
$ 25,113,883 $ 25,472,096
=========== ============
Liabilities and Stockholders' Equity (Deficit)
Checks written in excess of bank balance ............................................... $ -- $ 316,745
Accounts payable .................................................................... 3,147,430 1,220,112
Accrued liabilities ................................................................. 445,572 614,368
Note payable - related party (Note 7) .................................................. 11,000 11,000
Master notes (Note 7) .................................................................. 4,157,993 2,608,689
Notes payable - other (Note 7) ......................................................... 12,542,106 26,021,077
----------- ------------
20,304,101 30,791,991
----------- ------------
Commitments (Notes 8, 12 and 14)
Stockholders' equity (deficit) (Note 11)
Preferred stock; 2,000,000 shares authorized
Series A, 10% convertible, $.0001 par value;
400,000 shares designated, 328,540 shares issued
and outstanding (liquidation preference of
$1,642,700) .......................................................... 33 33
Common stock, $.0001 par value; 10,000,000 shares
authorized, 2,637,500 issued and outstanding.......................... 264 264
Additional paid-in capital ..................................................... 5,983,119 6,008,119
Accumulated deficit ............................................................ (1,173,634) (11,328,311)
----------- ------------
4,809,782 (5,319,895)
----------- ------------
$ 25,113,883 $ 25,472,096
=========== ============
</TABLE>
See notes to consolidated financial statements.
F - 2
<PAGE>
<TABLE>
<CAPTION>
WESTERN FIDELITY FUNDING, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Year Ended
December 31,
------------------------
1995 1996
---- ----
<S> <C> <C>
Revenue
Interest and fee income (Note 5) ............................................... $ 2,295,441 $ 4,902,074
Gain on sales of retail contracts ......................................... 2,512,463 2,461,262
Gain (loss) on retail sales facility ...................................... 336,247 (1,000,545)
----------- -----------
Total revenues ............................................................ 5,144,151 6,362,791
----------- -----------
Expenses
Interest and loan commission expense ...................................... 1,996,200 3,652,000
Provision for credit losses .................................................... 291,200 6,780,120
Salaries and employee benefits ................................................. 1,121,970 1,698,730
Insurance on contracts ......................................................... 236,580 459,485
Loss on interest participation ................................................. -- 1,637,131
Other administrative expenses .................................................. 864,284 2,125,732
----------- -----------
Total expenses ............................................................ 4,510,234 16,353,198
----------- -----------
Net income (loss) ................................................................... 633,917 (9,990,407)
Preferred stock dividends (Note 11) ................................................. 54,757 164,270
----------- -----------
Net income (loss) applicable to common shareholders ............................... $ 579,160 $(10,154,677)
=========== ===========
Net income (loss) per common share ................................................ $ .30 $ (3.85)
=========== ===========
Weighted average common shares outstanding ........................................ 1,923,150 2,637,500
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE>
<TABLE>
<CAPTION>
WESTERN FIDELITY FUNDING, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Deficit)
Series A Preferred Stock Common Stock
------------------------ --------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance December 31, 1994 ...................................... -- $ -- 1,750,000 $ 175
Distributions to affiliates (Note 9) ........................... -- -- -- --
Issuance of Series A preferred stock
net of $107,135 of offering costs ............................ 328,540 33 -- --
Issuance of stock for services ................................. -- -- 25,000 2
Issuance of common stock net of
$967,249 of offering costs (Note 11) ......................... -- -- 862,500 87
Net income .................................................. -- -- -- --
---------- --------- --------- -------
Balance December 31, 1995 ...................................... 328,540 33 2,637,500 264
Issuance of common stock warrants
for loan origination fee ..................................... -- -- -- --
Net loss .................................................... -- -- -- --
---------- --------- --------- -------
Balance December 31, 1996 ...................................... 328,540 $ 33 2,637,500 $ 264
========== ========== ========= =======
<CAPTION>
Additional
Paid-In Accumulated
Capital Deficit Total
----------- ----------- -----
<S> <C> <C> <C>
Balance December 31, 1994 ...................................... $ 89,825 $ (1,677,091) $(1,587,091)
Distributions to affiliates (Note 9) ........................... -- (75,703) (75,703)
Issuance of Series A preferred stock
net of $107,135 of offering costs ............................ 1,535,532 -- 1,535,565
Issuance of stock for services ................................. 149,998 -- 150,000
Issuance of common stock net of
$967,249 of offering costs (Note 11) ......................... 4,207,764 -- 4,207,851
Net income .................................................. -- 579,160 579,160
---------- --------- ---------
Balance December 31, 1995 ...................................... 5,983,119 (1,173,634) 4,809,782
Issuance of common stock warrants
for loan origination fee ..................................... 25,000 -- 25,000
Net loss .................................................... -- (10,154,677) (10,154,677)
---------- ---------- ----------
Balance December 31, 1996 ...................................... $ 6,008,119 $(11,328,311)$ (5,319,895)
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
<TABLE>
<CAPTION>
WESTERN FIDELITY FUNDING, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Year Ended
December 31,
--------------------------
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income (loss) ............................................................................... $ 579,160 $ (10,154,677)
----------- ------------
Adjustments to reconcile net (loss) income to net cash provided (used) by
operating activities
Depreciation and amortization ................................................................ 164,595 678,263
Provision for credit losses .................................................................. 291,200 6,780,120
Changes in operating assets and liabilities -
Accrued interest receivable ............................................................... (235,141) (211,690)
Interest receivable on portfolio sales .................................. (1,466,026) --
Residual interest in securitization ....................................................... -- (1,195,000)
Vehicles held for sale .................................................................... (742,105) (2,127,170)
Restricted cash ........................................................................... (120,341) (1,435,138)
Prepaid expenses .......................................................................... (336,988) (977,714)
Accounts payable .......................................................................... 2,761,289 (1,610,573)
Accrued liabilities ....................................................................... 247,576 168,796
------------ ------------
564,059 69,894
------------ ------------
Net cash provided (used) by operating activities ....... 1,143,219 (10,084,783)
------------ ------------
Cash flows from investing activities
Contracts originated or purchased ............................................................... (26,480,714) (26,946,535)
Contracts repaid ................................................................................ 2,233,791 4,211,596
Contracts sold and securitized .................................................................. 9,577,911 22,544,029
Purchases of fixed assets ....................................................................... (73,551) (704,960)
------------ ------------
Net cash (used) provided by investing activities ....... (14,742,563) (895,870)
------------ ------------
Cash flows from financing activities
Expenditures for loan acquisition fees .......................................................... (326,154) (1,068,490)
Net change in line-of-credit ................................................................. -- 7,670,757
Proceeds from notes payable - insurance companies ............................................ 10,181,020 1,023,222
Payments on notes payable - insurance companies .............................................. (1,240,473) (3,925,336)
Proceeds from note payable - related party ................................................... 165 --
Proceeds from the issuance of master notes ................................................... 2,459,181 --
Payments on master notes ........................................................................ (1,459,545) (1,549,304)
Proceeds from notes payable - other .............................................. 1,477,034 10,483,274
Payments on notes payable - other ................................................ (1,117,179) (1,772,946)
Proceeds from issuance of Series A preferred stock ............................... 35,000 --
Proceeds from issuance of common stock ....................................................... 4,207,851 --
Offering costs related to issuance of Series A preferred stock ............................... (107,135) --
Distributions to affiliates ...................................................... (75,703) --
------------ ------------
Net cash provided by financing activities .............. 14,034,062 10,861,177
------------ ------------
Increase (decrease) in cash for the year ........................................................... 434,718 (119,476)
Beginning cash balance ............................................................................. 46,120 480,838
------------ ------------
Ending cash balance ................................................................................ $ 480,838 $ 361,362
============ ============
</TABLE>
Supplemental disclosure of cashflow in formation:
Cash paid for interest was $1,381,800 and $3,499,792 for December 31, 1995
and 1996, respectively.
Supplemental disclosure of noncash investing and financing activities:
During the year ended December 31, 1995, the Company issued preferred stock
in exchange for $1,607,700 of an interest in the Trusts, which is reflected
as a reduction in the outstanding principal balance of the Master Notes.
During the year ended December 31, 1995, the Company issued 25,000 shares
of common stock in consideration for loan origination fees for $150,000.
During the year ended December 31, 1996, the Company issued common stock
warrants valued at $25,000 as a loan origination fee.
See notes to consolidated financial statements.
F - 5
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies
The Company was incorporated under the laws of Colorado in June 1990 to provide
alternative financing programs to the purchasers of used cars. The Company
provides such financing by acquiring retail installment sales contracts
("Contracts") from auto dealers in the United States. The Contracts are also
originated through the sale of used cars at the used car retail sales facility
operated by the Company in Denver, Colorado. Contracts acquired are either held
in the Company's portfolio, sold to third parties or securitized. The Contracts
are sold on varying terms to various financial institutions located in the
United States. In 1994, the Company formed a wholly-owned subsidiary, O and S
Finance, Inc., for the purpose of acquiring and selling contracts. In December
1996, the Company formed a wholly-owned subsidiary, Western Fidelity Finance,
Inc., a "bankruptcy remote entity" to facilitate securitization transactions.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Western Fidelity Funding, Inc. and its wholly-owned subsidiaries, Western
Fidelity Finance, Inc. and O and S Finance, Inc. All intercompany accounts and
transactions have been eliminated.
Finance Receivables
Finance receivables consist of those Contracts purchased from auto dealers or
from the retail sale of automobiles at the Company-owned retail auto store.
Broker Commissions
Broker commissions are commissions and administrative costs paid to securities
brokers who arrange financing through various trusts established by the Company.
These commissions are included in loan origination fees in the accompanying
consolidated financial statements and are amortized to expense over the
contractual life of the related loans.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash, finance
receivables, accounts payable, notes payable and accrued expenses approximated
fair value as of December 31, 1996 because of the relatively short maturity of
these instruments.
Vehicles Held for Sale
Vehicles held for sale consist of the Company's inventory of used cars at the
retail auto store and vehicles held on consignment by various dealerships
located throughout the United States. Vehicles acquired through wholesale
dealers are valued at the lower of wholesale cost or net realizable value.
Repossessed vehicles are stated at the remaining finance receivable balance on
date of repossession for a four-month period and after this four-month period
are written down to the lower of wholesale cost or net realizable value. To the
extent vehicles are determined to be impaired, they are written down to net
realizable value immediately.
F-6
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation is computed using
accelerated methods over the estimated useful life of the assets ranging from
five to seven years.
Revenue Recognition
The Company purchases Contracts from vehicle dealerships at a discount,
generally 15 percent off face value. Interest income from finance receivables is
recognized using the interest (actuarial) method. Accrual of interest income on
finance receivables is suspended when the loan becomes contractually delinquent
for thirty days or more. The accrual is resumed when the loan becomes
contractually current, and past-due interest is recognized at that time. Any
discounts recognized from the purchase of installment contracts are added to the
allowance for credit losses.
The Company recognizes the revenue on sale of vehicles at the point of sale.
Vehicle sales that are financed by the Company are discounted at a rate from 10
to 15%.
Credit Losses
Provisions for credit losses are charged to income in amounts sufficient to
maintain the allowance at a level considered adequate to cover the losses of
principal in the existing portfolio. The Company's charge-off policy is based on
a loan-by-loan review for all Contracts in the Company's portfolio, which are
charged off when deemed uncollectible.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
The Company's business is to purchase and sell installment sales contracts. In
connection with the purchase and sale, the Company is required to estimate the
amount of loans expected to result in repossessions and to estimate the amount
of loss that will be incurred under each repossession. The Company currently
provides allowances for these losses based on the historical performance of the
Contracts which are tracked by the Company on a pool basis. These losses relate
both to Contracts that are held by the Company to maturity along with losses
that could result on contracts sold to third parties. The actual losses incurred
could differ materially from the amounts that the Company has estimated in
preparing the historical consolidated financial statements.
F-7
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
Loan Origination Fees
Fees received and direct costs incurred for the origination of loans are
deferred and amortized to interest income over the contractual lives of the
loans using the interest method. Unamortized amounts are recognized in income at
the time that loans are sold or paid in full.
Master Notes
The Company has entered into master note agreements ("Master Notes") with the
G.E.O. Income Trusts ("Trusts") specifically to fund the Company's purchases of
contracts.
Concentration of Credit Risks
During the year ended December 31, 1995 and 1996, approximately 44% and 25%, and
52% and 3%, of all contracts purchased were in Texas and New Jersey,
respectively. However, the primary concentration of credit risk relates to
lending to individuals who cannot obtain traditional bank financing. The Company
places its temporary cash investments with high quality institutions, and by
policy, limits the amount of credit exposure to any one institution. The Company
does, however, on occasion exceed the FDIC federally insured limits and at
December 31, 1995 and 1996, exceeded the limit by approximately $506,000 and
$178,000, respectively.
Income Taxes
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the consolidated
financial statements or tax returns. Deferred tax liabilities and assets are
determined based on the difference between the consolidated financial statements
and tax basis of assets and liabilities using enacted tax rates in effect. The
measurement of deferred tax assets is reduced, if necessary, by the amount of
any tax benefits that, based on available evidence, are not expected to be
realized (Note 10).
Net Income (Loss) Per Common Share
Net income (loss) per common share has been computed based on the weighted
average number of common shares outstanding during each year. Common stock
equivalents have been excluded from the weighted average number of common shares
outstanding as their effect would be immaterial or anti-dilutive.
Reclassifications
Certain prior year balances have been reclassified in order to conform with the
current year presentation.
F-8
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
Accounting Standards Not Yet Adopted
In June 1996, the FASB issued Statement No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("FAS 125").
FAS 125 provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. Under FAS 125,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. FAS 125 prohibits early application and, accordingly, the
Company plans to adopt this standard for transactions occurring after December
31, 1996. Upon adoption, transferred assets and the related nonrecourse debt
will be removed from the balance sheet with the resulting gain or loss on sale
reflected in the consolidated statement of operations. Management of the Company
does not expect that adoption of SFAS No. 125 will have a material impact on the
Company's consolidated financial position or results of operations.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this statement did not have a material impact on the
Company's consolidated financial position, results of operations or
liquidity.
Note 2 - Continued Operations and Realization of Assets
The accompanying consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and liquidation of
liabilities in the ordinary course of business. The Company has suffered a
significant loss from operations of $10,154,677 in 1996 resulting in an
accumulated deficit of $11,328,311 at December 31, 1996.
These losses have caused the Company to be in default or out of trust on
$26,021,077 of its debt obligations. The Company is not current with its
preferred stock dividend payments and is involved in exclusive litigation as
described in Note 14. The Company has hired an investment banking firm to
explore strategic business alternatives. If the Company is unable to enter into
satisfactory arrangements with its creditors or obtain additional financing, the
Company may be unable to continue in existence.
F-9
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 - Continued Operations and Realization of Assets (continued)
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that might be necessary
should the Company be unable to continue in existence.
Note 3 - Accounting Changes
Change in Accounting Method
Effective October 1, 1996, the Company adopted a new methodology for analyzing
its loan losses. This accounting method is commonly referred to as static
pooling. The static pooling reserve methodology allows the Company to stratify
its finance receivable portfolio into separate and identifiable monthly pools.
The monthly pools, along with the Company's estimate of future principal losses
and recoveries, are analyzed quarterly to determine the adequacy of the
allowance for credit losses. The method previously used by the Company to
analyze the allowance for credit losses was based on the total finance
receivables portfolio. In management's opinion, the static pool reserve method
provides a more sophisticated and comprehensive analysis of the adequacy of the
allowance for credit losses and is preferable to the method previously used. As
part of its adoption of the static pool reserve method, where necessary, the
Company will adjust its pool allowances to a level necessary to cover all
anticipated future losses (i.e., life of loan) for each related pool of loans.
Under static pool analysis, unearned discounts are used to increase the
allowance for credit losses and represent the Company's primary reserve for
future losses on its portfolio. To the extent that any monthly pool's discount
reserves are insufficient to absorb future estimated losses, net of recoveries,
adjusted for the impact of current delinquencies, collection efforts and other
economic indicators including analysis of the Company's historical data, the
Company will provide for such deficiency through a charge to the provision for
credit losses. To the extent that any discount reserves are determined to be
sufficient to absorb future estimated losses, net of recoveries, the difference
will be accreted into interest income on an effective yield method over the
estimated remaining life of the related monthly static pool.
As the portfolio method previously used was calculated on a life of loan basis,
as is the static pool method, the effect of adoption was not considered
material.
F-10
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 3 - Accounting Changes
Change in Accounting Estimate
The Company has operated its used car retail sales facility for both retail and
repossessed vehicles since 1994. Historically, the Company has utilized retail
sales prices in calculating the average loss per repossessed vehicle when
estimating the allowance for credit losses. Subsequent to year end, the Company
closed its retail sales facility (Note 13). Accordingly, the allowance for
credit losses at December 31, 1996 has been calculated by pool assuming
recoveries on repossessed vehicles will be based on wholesale prices which
increased the estimated average loss per repossession. In addition,
management's estimate of the portfolio default rate increased due to a
decline in the performance of the Company's portfolio during 1996. The
effect of these changes in estimate is an increase in the allowance for credit
losses and a charge to operations in the current year of approximately
$5,698,000.
Additionally, the closing of the retail sales facility resulted in an adjustment
to the carrying value of the Company's vehicle inventory. Historically, the
vehicle inventory had been valued at the lower of cost or market assuming a
retail sales price. At December 31, 1996, an inventory writedown of
approximately $1,530,000 was recorded to write down the inventory to its net
realizable value based on wholesale prices.
Note 4 - Significant Fourth Quarter Adjustments
During the fourth quarter of 1996, the Company recorded the following
adjustments which increased the net loss by $8,127,000:
Increase in the allowance for credit losses (Note 3) $ 4,960,000
Inventory reserve to adjust inventory to net
realizable value (Note 3) 1,530,000
Uncollectible interest participation receivable
(Note 5) 1,637,000
----------
$ 8,127,000
==========
F-11
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 - Finance Receivables
Finance receivables consist of the following:
December 31,
--------------------
1995 1996
---- ----
Finance receivables ............................ $ 23,466,954 $ 20,546,022
Accrued interest ............................... 283,991 495,681
Interest receivable on portfolio sales ......... 1,692,011 --
Allowance for credit losses .................... (4,123,733) (6,100,000)
------------ ------------
Finance Receivables - Net ...................... $ 21,319,223 $ 14,941,703
============ ============
On December 31, 1995 and 1996, the accrual of interest income was suspended on
$2,472,095 and $5,248,298, respectively, of Contracts.
The contractual maturities on finance receivables were as follows:
Year Ending December 31,
------------------------
1997 $ 4,951,676
1998 4,381,409
1999 4,593,502
2000 4,006,688
2001 2,612,747
----------
$ 20,546,022
==========
It is the Company's experience that a portion of the Contracts in the portfolio
is charged off or repaid before contractual maturity dates. The above
tabulation, therefore, is not to be regarded as a forecast of future cash
collections.
At the time Contracts are originated or purchased, the Company estimates future
losses of principal based on the type and terms of the Contract, the credit
quality of the borrower and the underlying value of the vehicle financed. This
estimate of loss is based on the Company's static pool analysis (Note 3).
However, since the static pool analysis uses past history to predict the future,
changes in national and regional economic condition, borrower mix and other
factors could result in actual losses differing from initially predicted losses.
F-12
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 - Finance Receivables (continued)
The allowance for credit losses, as presented below, has been established
utilizing data obtained from the Company's static pool analysis and will
be continually reviewed and adjusted in order to maintain the allowance at a
level which, in the opinion of management, provides adequately for current and
future losses that may develop in the present portfolio. This allowance is
reported as a reduction to Finance Receivables.
December 31,
------------------
1995 1996
---- ----
Beginning balance ................................... $ 1,488,076 $ 4,123,733
Provision for credit losses ......................... 291,200 6,780,120
Contracts charged off ............................... (411,304) (4,742,213)
Change in unearned discounts and acquisition fees ... 2,755,761 (61,640)
--------- ----------
Ending balance ...................................... $ 4,123,733 $ 6,100,000
========= =========
Private Offering of Asset-Backed Certificates
In 1996, the Company's wholly-owned subsidiary, Western Fidelity Finance, Inc.,
initiated a securitization program under which it sells finance receivables to a
trust which uses the finance receivables to create asset-backed securities
(certificates) which are remitted to the Company in consideration for the sale.
The Company then sells the certificates to third party investors and retains a
subordinated interest. The certificates represent an undivided interest in the
trust assets which consist of all of the rights, title and interest in the
future cash flows underlying the finance receivables, the related vehicles, and
all amounts on deposit in the capitalized interest and pre-funding accounts. The
Company receives cash proceeds from the sale of the certificates which are
collateralized by the finance receivables. In addition, the Company receives the
right to future cash flows (the residual interest in securitization) arising
from those receivables to the extent not required to make payments on the senior
certificates or to pay related servicing and administrative costs.
In December 1996, the Company completed a private offering of $24,500,000 of
Class A, B and C Pass-Through Certificates (the Certificates) with interest
ranging from 7.5% to 12%. The Company sold approximately $17,200,000 of finance
receivables to the trust in consideration for the Certificates. The remaining
finance receivables of $7,300,000 were funded subsequent to year end at which
time the related proceeds were released. The Company recognized a gain on the
sale of the initial contracts of $1,863,000 which is reflected in the
accompanying 1996 consolidated statement of operations.
F-13
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 - Finance Receivables (continued)
Private Offering of Asset-Backed Certificates (continued)
In connection with the securitization, the Company is required to make an
initial cash deposit into two accounts held by the trustee (the reserve fund and
the capitalized interest fund) and to assign a security interest in these funds
to the trust. The Company (through the trustee) deposits additional cash flows
into the reserve fund to maintain the fund at a specified percentage of the
principal balance of the finance receivables. All payments received from the
underlying finance receivables are sent directly to the trustee where the cash
flow is distributed in the priority as defined in the Pooling and Servicing
Agreement. Any remaining cash flows, after all required payments have been made,
are deposited into the reserve fund. To the extent there is available cash in
excess of the required reserve fund amount, the remaining cash is distributed to
the Company. This excess cash of $1,195,000, net of an estimate for default
losses and prepayments, is reflected as a residual interest in securitization in
the accompanying 1996 consolidated financial statements.
Sales to Third Parties
During 1995 and 1996, the Company sold $11,767,187 and $9,715,425, respectively,
contracts to several financial institutions. The purchase price of the contracts
is determined on a contract by contract basis. The Company recognized a gain of
$2,512,463 and $598,262 in 1995 and 1996, respectively. Pursuant to the 1995
sale, the Company was to receive interest over the life of the Contracts at a
rate of 10.6% per annum. Revenue was recognized on the date of sale based upon
the present value of present and future payments to be received. The arrangement
required the Company to fund a reserve account of 5 % of the face value of the
Contracts sold for anticipated losses on repossessions. During 1996, the Company
determined the interest participation receivable and related reserve were
uncollectible due to the performance and servicing of the underlying contracts.
Accordingly, a charge to operations of approximately $1,637,000 is reflected in
the 1996 consolidated statement of operations.
Note 6 - Restricted Cash
As required by the Master Note agreements and a note to a financial institution
(Note 7), the Company maintains an insurance policy to insure against potential
losses incurred on repossession. The surety requires the Company to deposit cash
into a restricted account equal to seven percent of the face value of Contracts
funded by Master Note and financial institution proceeds. The cash reserve is
maintained to reimburse the Company for losses incurred on Contracts in default.
The Company's surety will reimburse the Company for losses in excess of the
amounts held in the cash reserve. As of December 31, 1996, Contract losses have
been solely funded from the cash reserve. At December 31, 1995 and 1996, the
cash reserve had a balance of $862,754 and $2,308,397, respectively.
F-14
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 6 - Restricted Cash (continued)
Also included in restricted cash is cash held by financial institutions as
collateral for credit losses on Contracts purchased from the Company. The
financial institutions withhold four to five percent of the face value of
Contracts sold. Any funds remaining in the account at maturity of the Contracts
will be refunded to the Company. At December 31, 1995, the balance of the
reserves was $144,848 less allowances for credit losses of $138,467. There were
no such reserves at December 31, 1996.
The Company's restricted cash balance also includes cash advanced to the Company
by the Trusts under the Master Note agreement (Note 7). Cash is advanced from
the Trusts specifically for the purchase of Contracts. The Company is required
to reimburse the Trust's cash accounts for principal amounts received from
customers on Contracts originally purchased with the Trust funds.
At December 31, 1995 and 1996, the balance of restricted cash relating to the
Trusts was $21,930 and $17,806, respectively. As a result of the significant
operating losses the Company has incurred to date, the principal amounts of the
Contracts held as collateral for the borrowings from the Trusts under the Master
Note agreement is approximately $152,000 and $1,224,111 below the amounts owed
by the Company to the Trusts as of December 31, 1995 and 1996, respectively. The
Trusts do not have the right to accelerate principal and interest payments due
on the Master Notes.
Note 7 - Debt
Master Notes
During the years 1991 through 1995, the Company entered into the Master Notes to
fund the Company's purchases of contracts. The Master Notes are secured by the
pledge of the Company's security interest in the vehicles underlying the
Contracts, the restricted cash held in trust (Note 6), and the insurance
maintained by the Company (Note 6). The loan proceeds were funded through
private offerings by the Trusts in the form of two and four year notes, with
interest payable in monthly installments and principal due upon maturity. As of
December 31, 1996 all of the two year notes had matured and only four year notes
remained outstanding. The stated interest rates on the Master Notes vary from
eight to twelve percent per annum. At December 31, 1997, the Company was in
default and has used collateral to fund operations resulting in insufficient
collateral on these loans.
In July and August 1995, the Company issued 321,540 shares of Series A preferred
stock to holders of the Trusts' promissory notes in exchange for their
respective interests in the Trusts (Note 11). There are no restrictions on the
Company's right to pay off the Master Notes by use of the purchased interests in
the Trusts.
F-15
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 7 - Debt (continued)
Master Notes (continued)
The interest in the Trusts is reflected as a reduction to the outstanding
principal of the Master Notes as follows:
December 31,
-------------------
1995 1996
---- ----
Master Notes, unpaid principal balance ... $ 5,765,693 $ 4,021,389
Less interest purchased in Trusts ........ (1,607,700) (1,412,700)
--------- ---------
$ 4,157,993 $ 2,608,689
========= =========
Notes payable - other and related party consist of:
December 31,
-------------------
1995 1996
---- ----
$10,000,000 revolving loan - finance company, interest
is payable monthly at a floating rate equivalent to the
LIBOR plus 3.25% or a specified bank alternative rate
plus 1% (9.25% at December 31, 1996). The loan matures
July 1997 and is collateralized by all finance
receivables, vehicles held for sale and virtually all
other assets of the Company. The note is currently in
default and out of trust.* $ -- $ 7,670,757
Note payable - financial institution, interest at prime
plus 3.75% (12% at December 31, 1996). The note is due
on demand and is collateralized by the underlying
contracts. The note is currently in default and out of
trust.* -- 483,274
Notes payable - insurance companies, monthly principal
and interest payments ranging from $12,399 to $50,251,
interest ranging from 9.85% to 10.5%. The notes mature
between April 1998 and January 2000 and are
collateralized by the underlying finance receivables
and the related assets. The note is currently in
default and out of trust.* 10,769,160 7,029,886
Note payable - insurance company, interest at 12%
payable quarterly through October 1998 at which time
quarterly principal and interest installments ranging
from $704,621 to $975,360 commence. The note matures
July 2001 and is subordinate to all other debt of the
Company. The Company is currently out of trust on this
note.* -- 10,000,000
F-16
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 7 - Debt (continued)
Master Notes (continued)
December 31,
-------------------
1995 1996
---- ----
Notes payable - financial institution - paid in full
during 1996. 1,772,946 --
Note payable - related party, interest at 15% payable
monthly; principal due upon demand. Paid in full
subsequent to year end. 11,000 11,000
Notes payable - insurance company, interest at 9.85%.
Monthly principal and interest payments range from
$12,601 to $12,851. The notes mature in February and
March of 2000 and are collateralized by the underlying
finance receivables and the related assets. The note is
currently in default and out of trust.* -- 837,160
---------- ----------
$12,553,106 $26,032,077
========== ==========
The future maturities of debt are as follows:
Year Ending December 31,
------------------------
1997 $12,660,713
1998 4,802,015
1999 4,856,383
2000 3,479,971
2001 2,841,684
----------
Total $28,640,766
==========
At December 31, 1996, the Company was in violation of various financial
covenants on several note agreements. The outstanding balance on these note
agreements at December 31, 1996 was $26,021,077.
F-17
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 7 - Debt (continued)
Master Notes (continued)
* As a result of the significant operating losses the Company has incurred to
date, the principal amounts of the contracts held as collateral for the
borrowings on substantially all debt agreements were below the amounts required
or were out of trust as of December 31, 1996 or subsequent to year end
approximately as follows:
Amount Out of Trust
-------------------
Master notes $ 1,200,000
Notes payable - insurance companies 10,500,000
Revolving loan - finance company 1,300,000
----------
Total $ 13,000,000
==========
Note 8 - Commitments
Under the Master Note funding agreements (Note 7), the Company is obligated to
pay a broker annual commissions and quarterly Trust accounting fees on the four
year notes of 5 and 1 1/2 percent, respectively. The fees and commissions are
paid annually until maturity. Fees and commissions paid during the years ended
December 31, 1995 and 1996 were approximately $319,000 and $212,000,
respectively.
In 1992, the Company entered into an agreement with a company which provides for
the payment of finder's fees and the issuance of a warrant upon obtaining
commitments of funding for the Company. The Company paid cash fees in connection
with funding obtained from three insurance companies and Contracts sold to a
financial institution. In October 1995, the Company terminated the agreement and
has agreed to pay future finder's fees in an amount equal to 2% of the sales
price of the Contracts sold with respect to the financial institution introduced
by the company. In addition, the Company issued 25,000 shares of common stock in
complete substitution for any obligation of the Company to issue the warrants
under the agreement. Also, the Company agreed to pay a fee of 1/8 of 1% on all
financings up to $200,000,000 (except for the sale of equity securities or
unsecured debt) received by the Company through October 31, 1997. The maximum
obligation under this provision would be $250,000.
The Company leases its office facility under two operating leases. The leases
require total monthly lease payments ranging from $4,840 to $7,899 through terms
ranging from October 1997 to August 1999.
F-18
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 8 - Commitments (continued)
Future minimum lease payments under these leases are as follows:
Year Ending December 31,
------------------------
1997 $ 87,518
1998 76,507
1999 19,359
-------
Total $183,384
=======
The Company entered into a lease on its used car sales facility in January 1997
requiring monthly payments of $1,100 through January 2001.
Note 9 - Related Party
The Company has advanced money to a company related by common ownership. For the
period ended December 31, 1995 and 1996, these advances total $75,703 and $0,
respectively, and are included in the distributions to affiliates in
stockholders' equity.
The Company purchased airline tickets of approximately $24,000 and $25,000
during the years ended December 31, 1995 and 1996, respectively, from a travel
agency owned by the wife of the President of the Company. The travel agency
received customary industry commissions with respect to such ticket purchases by
the Company.
In June of 1995, the Company entered into a Management Agreement with a company
owned by the son of the President of the Company for the operation and
management of the Company's used car retail sales facility. Under this
agreement, the Company pays a fee of $3,800 per month plus 20% of the net profit
of the facility as defined. Management fees paid during the year ended December
31, 1995 and 1996 were approximately $151,000 and $283,000, respectively. As an
additional incentive under the agreement, the President's son was granted a
nonstatutory stock option entitling him to purchase up to 3,400 shares of common
stock during a five year period at $5.00 per share. These options were canceled
during 1996.
F-19
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 10 - Income Taxes
At December 31, 1995 and 1996, the Company had the following temporary
differences which resulted in a net deferred tax asset.
December 31,
-------------------
1995 1996
---- ----
Net interest receivable on portfolio sales $ (487,000) $ --
Allowance for credit loss 583,000 2,074,000
Net operating loss carry forward 331,000 1,783,000
Gain on securitized contracts -- (64,000)
--------- ---------
427,000 3,793,000
Valuation allowance (427,000) (3,793,000)
--------- ---------
$ -- $ --
========= =========
At December 31, 1995 and 1996, the Company has approximately $828,000 and
$11,000,000, respectively, of net operating loss carryforwards for income tax
reporting purposes which expire in 2005 through 2011. The availability of the
Company's net operating loss carryforward may be limited due to changes in
control.
Note 11 - Stockholders' Equity
Stock Split
In June 1995, the stockholders approved a 1,750 for one stock split of the
Company's common stock, a change in par value of the common stock from no par to
$.0001 per share and an increase in the authorized number of shares from 100,000
to 10,000,000. All share and per share data have been adjusted to reflect these
changes.
Preferred Stock
In June 1995, the stockholders authorized the issuance of 2,000,000 shares of
preferred stock. The directors of the Company designated 400,000 shares of this
preferred stock as Series A 10% Convertible Preferred Stock ("Series A Preferred
Stock"). During July and August 1995, the Company issued 328,540 shares of the
Series A Preferred Stock. The remaining preferred stock may be issued in one or
more series with rights and preferences as may be fixed and determined by the
Board of Directors.
F-20
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 11 - Stockholders' Equity (continued)
Sale of Stock in a Private Offering
During July and August 1995, the Company sold 328,540 shares of its Series A
Preferred Stock at $5.00 per share. The Series A Preferred Stock is convertible
into common stock at a price equal to $7.50 and will automatically convert into
Common Stock at such price on August 31, 1998. The Series A Preferred Stock is
redeemable at the Company's option in whole or in part, upon 90 days notice, at
a redemption price of $6.50 through August 31, 1996, $6.00 through August 31,
1997 and $5.50 through August 30, 1998, plus unpaid dividends, if any. Unless
prohibited by Colorado law, dividends will be paid on the Series A Preferred
Stock at a rate of $.50 per share per year and will be paid quarterly in
arrears. A preferred stock dividend of $54,757 and $164,270 was accrued at
December 31, 1995 and 1996, respectively.
The Series A Preferred Stock was sold to holders of G.E.O. Income Trusts'
promissory notes in exchange for their interest in the Trusts (Note 7).
Noteholders electing to exchange their interest for the Series A Preferred Stock
exchanged at a rate of one share of Series A Preferred Stock for each $5.00 of
principal of the notes held. Of the 328,540 shares of Series A Preferred Stock
issued, 321,540 shares were issued in exchange for $1,607,700 of an interest in
the Trusts and 7,000 shares were issued for $35,000 in cash. The net proceeds of
$1,535,565 are net of $107,135 of offering costs. In addition, the Company
granted 32,854 warrants to purchase common stock at an exercise price of $6.00
as commission for the sale.
Public Offering
In November 1995, the Company completed a public offering of 862,500 shares of
common stock at $6.00 per share. The proceeds from the offering were $4,207,751
net of offering costs of $967,249. In connection with this offering, the Company
issued warrants to the underwriter to purchase 75,000 shares of common stock at
$7.20 per share.
Stock Options
Effective August 1, 1995, the Company adopted an Incentive and Nonstatutory
Stock Option Plan (the "Plan"). Pursuant to this plan, the Company granted
150,000 options to purchase common stock at an exercise price of $5.50 and
100,000 options at an exercise price of $5.00. During 1996, this plan was
terminated and the related stock options were canceled.
F-21
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 11 - Stockholders' Equity (continued)
Stock Options (continued)
Effective December 30, 1996, the Company adopted another Incentive and
Nonstatutory Stock Option Plan. The Plan covers 500,000 shares of common stock.
Options granted under the Plan may be either incentive or nonstatutory stock
options and will be granted at an exercise price determined by the Board of
Directors. The exercise price of the incentive stock options cannot be less than
100-110% of the fair market value of the stock on the date of grant. The options
expire up to four years from the date of grant.
The Company granted 276,664 options to purchase common stock at an exercise
price of $3.38 and 221,346 at an exercise price of $3.70 under this plan.
The following is a summary of options and warrants at December 31, 1996:
Exercise
Options Warrants Price
------- -------- --------
Outstanding, December 31, 1995 250,000 107,854 $ 5.00 to 7.20
Granted 498,010 263,750 $ 3.14 to 3.71
Canceled (250,000) -- $ 5.00
------- ------- ------------
Outstanding, December 31, 1996 498,010 371,604 $ 3.14 to 7.20
======= ======= ============
The above options where issued pursuant to an incentive and nonstatutory stock
option plan adopted during 1996.
The above warrants were granted as a commission to the selling agent pursuant to
obtaining the subordinated debt. Loan origination fees of $25,000 were recorded
as a result of granting the warrants.
F-22
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 11 - Stockholders' Equity (continued)
Stock Options (continued)
The Corporation has adopted the disclosure - only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost for the Corporation 's stock option
plans been determined based on the fair value at the grant date for awards in
1995 and 1996 consistent with the provisions of SFAS No. 123, the Corporation's
net earnings and earnings per share would have been reduced to the pro forma
amounted indicated below:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1996
---- ----
<S> <C> <C>
Net income (loss) applicable to common stockholders - as
reported $ 579,160 $ (10,154,677)
Net income (loss) applicable to common stockholders - pro
forma
$ (303,834) $ (10,336,868)
Income (loss) per share - as reported $ .30 $ (3.81)
(Loss) income per share - pro forma $ (.16) $ (3.92)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants: dividend yield of 0%; expected volatility of 69%
discount rate of 10%; and expected lives of 4 years.
Note 12 - Major Customer
The Company purchased approximately 18% of the total Contracts purchased during
the year ended December 31, 1995 from one dealer. There were no major customers
during the year ended December 31, 1996.
Note 13 - Segment Information
The Company operates in two principal business segments: used car financing and
used car sales. Selected financial information is presented below for the years
ended December 31, 1995 and 1996.
F-23
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 13 - Segment Information (continued)
Purchases consist of purchases of used cars and the costs of Contracts
purchased. Direct cost salaries consist primarily of management fees, salaries,
and commissions.
1996 Used Car Vehicle
- ---- Sales Financing
-------- ---------
Revenues ........................................ $ 2,576,096 $ 7,358,664
========== ===========
Direct costs
Purchases .................................... $ 1,669,365 $ --
========== ===========
Salaries ..................................... $ 943,600 $ 1,698,730
========== ===========
Interest expense ............................. $ -- $ 2,750,446
========== ===========
Loan acquisition costs ....................... $ -- $ 901,554
========== ===========
Advertising and other ........................ $ 941,062 $ --
========== ===========
Identifiable assets ............................. $ 3,254,335 $ 22,217,761
========== ===========
Depreciation .................................... $ 22,614 $ 125,626
========== ===========
1996 Used Car Vehicle
- ---- Sales Financing
-------- ---------
Revenues ........................................ $ 1,924,795 $ 4,819,477
========== ===========
Direct costs
Purchases ................................ $ 1,065,777 $ --
========== ===========
Salaries ................................. $ 317,145 $ 1,121,970
========== ===========
Interest expense ......................... $ -- $ 1,824,100
========== ===========
Loan acquisition costs ................... $ -- $ 172,419
========== ===========
Advertising and other .................... $ 204,801 $ --
========== ===========
Identifiable assets ............................. $ 994,706 $ 24,119,177
========== ===========
Depreciation .................................... $ 825 $ 7,425
========== ===========
Discontinued Segment
In March 1997, the Company closed its used car retail sales facility and
associated financing operations. The Company is currently liquidating the
remaining inventory and is negotiating a sublease agreement for the remaining
lease term of the facility.
F-24
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 14 - Subsequent Event
Subsequent to year end, the Company completed the second phase of a
securitization as discussed in Note 5. In addition, the Company sold
approximately $4,400,000 in contracts to a third party.
Due to significant losses from operations, in April 1997, the Company reduced
its business activities. The Company has been unable to obtain financing and
accordingly is no longer purchasing new loans. The current activities of the
Company consist of servicing and collecting contracts in its portfolio.
In April 1997, Durrett Motor Company, Incorporated filed a lawsuit against the
Company for breach of contract in the District Court of Harris County, Texas. In
this action, the Plaintiffs allege that the Company breached a purchase
agreement with Plaintiff relating to the sale of certain motor vehicle
installment contracts. The Plaintiffs are seeking damages in the amount of
$239,401 plus costs, fees and interest. A writ of garnishment on monthly
payments of thirteen Contracts purchased by the Company from Durrett Motor
Company, Incorporated was issued by the court in this case in May 1997.
In May 1997, Pekin Life Insurance Company, Farmers Automobile Insurance Company,
Western Fraternal Life Association and Grinnell Mutual Reinsurance Company filed
a lawsuit against the Company in the United States District Court for the
Northern District of Illinois, Eastern Division, for declaratory, injunctive and
other relief. In this action, the Plaintiffs allege that the Company defaulted
on 14 separate loan transactions pursuant to which Plaintiffs cumulatively
loaned the Company $12,500,000. The Plaintiffs are seeking a declaratory
judgment from the court finding that each Plaintiff is entitled to immediate
delivery of collateral pertaining to each loan, a preliminary injunction
ordering delivery of the collateral, an accounting from the Company of all
current funds received under the notes and an inspection and examination of the
books and records of the Company.
F-25
<PAGE>
WESTERN FIDELITY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 14 - Subsequent Event (continued)
In May 1997, Equity Participation, Inc. filed a lawsuit in the United States
District Court for the District of Colorado against the Company, Insight, D&O,
Inc., Gene E. Osborn, Leonard L. Skerjanc and John J. Scordo, II, alleging mail
fraud, securities frauid, violations of the Racketeer, Influenced and Corrupt
Organizations Act and the Colorado Organized Crime Control Act. The lawsuit also
contains claims against Messrs. Osborne, Skerjanc and Scordo for violations of
their duty of fidelity to Insight noteholders and commercial bribery. In the
complaint, Plaintiff alleges that Plaintiff agreed to raise capital for Insight
through the Trust in return for royalty payments from the sales of an automobile
security device ("Product"), that Insight and Messrs. Osborn, Skerjanc and
Scordo failed to maintain distribution of the Product due to misappropriation of
funds, that Insight and Messrs. Osborn, Skerjanc and Scordo made misstatements
about the quality of a replacement of the Product, that in connection with
various offerings Insight and Messrs Osborn, Skerjanc and Scordo failed to
disclose material facts as to the use of the proceeds therefrom, that the monies
were used for purposes other than represented and that the proceeds were used to
further the business of the Company and to personally benefit Messrs. Osborn,
Skerjanc and Scordo. The lawsuit further claims that Messers. Osborn, Skerjanc
and Scordo violated their fiduciary duty to Plaintiff in the distribution of the
assets of D&O, Inc., a Colorado corporation to which Plaintiff claims certain
assets of Insight were improperly transferred. The Plaintiff requests the remedy
of a constructive trust be imposed on Mr. Osborn's interest in D&O, Inc. and on
the business of D&O, Inc. and an unspecified amount of actual, treble and
exemplary damages, interest and attorneys' fees.
F-26
WESTERN FIDELITY FUNDING, INC.
1996 INCENTIVE AND NONSTATUTORY
STOCK OPTION PLAN
1. Purpose of the Plan. The purposes of this 1996 Incentive and
Nonstatutory Stock Option Plan are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to the Employees and Consultants of the Company and to promote the
success of the Company's business. Options granted hereunder may be either
"incentive stock options," as defined in Section 422 of the Internal Revenue
Code of 1986, as amended, or "nonstatutory stock options," at the discretion of
the Board and as reflected in the terms of the written stock option agreement.
2. Definitions. As used herein, the following definitions shall apply:
a. "Board" shall mean the Committee, if one has been appointed, or the
Board of Directors of the Company if no Committee is appointed.
b. "Code" shall mean the Internal Revenue Code of 1986, as amended.
c. "Common Stock" shall mean the $0.0001 par value common stock of the
Company.
d. "Company" shall mean Western Fidelity Funding, Inc., a Colorado
corporation.
e. "Committee" shall mean the Committee appointed by the Board in
accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed, or the Board if no committee is appointed.
f. "Consultant" shall mean any person who is engaged by the Company or
any Subsidiary to render consulting services and is compensated for such
consulting services, but does not include a director of the Company who is
compensated for services as a director only with the payment of a
director's fee by the Company.
g. "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of sick leave,
military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than 90 days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
<PAGE>
h. "Employee" shall mean any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The
payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
i. "Incentive Stock Option" shall mean an Option which is intended to
qualify as an incentive stock option within the meaning of Section 422 of
the Code and which shall be clearly identified as such in the written Stock
Option Agreement provided by the Company to each Optionee granted an
Incentive Stock Option under the Plan.
j. "Non-Employee Director" shall mean a director who:
(i) Is not currently an officer (as defined in Section 16a-1(f)
of the Securities Exchange Act of 1934, as amended) of the Company or
a Parent or Subsidiary of the Company, or otherwise currently employed
by the Company or a Parent or Subsidiary of the Company.
(ii) Does not receive compensation, either directly or
indirectly, from the Company or a Parent or Subsidiary of the Company,
for services rendered as a Consultant or in any capacity other than as
a director, except for an amount that does not exceed the dollar
amount for which disclosure would be required pursuant to Item 404(a)
of Regulation S-K adopted by the United States Securities and Exchange
Commission.
(iii) Does not possess an interest in any other transaction for
which disclosure would be required pursuant to Item 404(a) of
Regulation S-K adopted by the United States Securities and Exchange
Commission.
k. "Nonstatutory Stock Option" shall mean an Option granted under this
Plan which does not qualify as an Incentive Stock Option and which shall be
clearly identified as such in the written Stock Option Agreement provided
by the Company to each Optionee granted a Nonstatutory Stock Option under
this Plan. To the extent that the aggregate fair market value of Optioned
Stock to which Incentive Stock Options granted under Options to an Employee
are exercisable for the first time during any calendar year (under the Plan
and all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such Options shall be treated as Nonstatutory Stock Options under the Plan.
The aggregate fair market value of the Optioned Stock shall be determined
as of the date of grant of each Option and the determination of which
Incentive Stock Options shall be treated as qualified incentive stock
options under Section 422 of the Code and which Incentive Stock Options
exercisable for the first time in a particular year in excess of the
$100,000 limitation shall be treated as Nonstatutory Stock Options shall be
determined based on the order in which such Options were granted in
accordance with Section 422(d) of the Code.
2
<PAGE>
l. "Option" shall mean an Incentive Stock Option, a Nonstatutory Stock
Option or both as identified in a written Stock Option Agreement
representing such stock option granted pursuant to the Plan.
m. "Optioned Stock" shall mean the Common Stock subject to an Option.
n. "Optionee" shall mean an Employee or other person who is granted an
Option.
o. "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
p. "Plan" shall mean this 1996 Incentive and Nonstatutory Stock Option
Plan.
q. "Share" shall mean a share of the Common Stock of the Company, as
adjusted in accordance with Section 11 of the Plan.
r. "Stock Option Agreement" shall mean the agreement to be entered
into between the Company and each Optionee which shall set forth the terms
and conditions of each Option granted to each Optionee, including the
number of Shares underlying such Option and the exercise price of each
Option granted to such Optionee under such agreement.
s. "Subsidiary" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 500,000 shares of Common Stock. The Shares may be authorized,
but unissued, or reacquired Common Stock. If an Option should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares which were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant under the Plan.
4. Administration of the Plan.
a. Procedure. The Plan shall be administered by the Board or a
Committee appointed by the Board consisting of two or more Non-Employee
Directors to administer the Plan on behalf of the Board, subject to such
terms and conditions as the Board may prescribe.
3
<PAGE>
(i) Once appointed, the Committee shall continue to serve until
otherwise directed by the Board (which for purposes of this paragraph
(a)(i) of this Section 4 shall be the Board of Directors of the
Company). From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with
or without cause) and appoint new members in substitution therefor,
fill vacancies however caused, or remove all members of the Committee
and thereafter directly administer the Plan.
(ii) Members of the Board who are granted, or have been granted,
Options may vote on any matters affecting the administration of the
Plan or the grant of any Options pursuant to the Plan.
b. Powers of the Board. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion:
(i) To grant Incentive Stock Options, in accordance with Section
422 of the Code, and Nonstatutory Stock Options or both as provided
and identified in a separate written Stock Option Agreement to each
Optionee granted such Option or Options under the Plan; provided
however, that in no event shall an Incentive Stock Option and a
Nonstatutory Stock Option granted to any Optionee under a single Stock
Option Agreement be subject to a "tandem" exercise arrangement such
that the exercise of one such Option affects the Optionee's right to
exercise the other Option granted under such Stock Option Agreement;
(ii) To determine, upon review of relevant information and in
accordance with Section 8(b) of the Plan, the fair market value of the
Common Stock;
(iii) To determine the exercise price per Share of Options to be
granted, which exercise price shall be determined in accordance with
Section 8(a) of the Plan;
(iv) To determine the Employees or other persons to whom, and the
time or times at which, Options shall be granted and the number of
Shares to be represented by each Option;
(v) To interpret the Plan;
4
<PAGE>
(vi) To prescribe, amend and rescind rules and regulations
relating to the Plan;
(vii) To determine the terms and provisions of each Option
granted (which need not be identical) and, with the consent of the
holder thereof, modify or amend each Option;
(viii) To accelerate or defer (with the consent of the Optionee)
the exercise date of any Option, consistent with the provisions of
Section 7 of the Plan;
(ix) To authorize any person to execute on behalf of the Company
any instrument required to effectuate the grant of an Option
previously granted by the Board; and
(x) To make all other determinations deemed necessary or
advisable for the administration of the Plan.
c. Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees
and any other permissible holders of any Options granted under the Plan.
5. Eligibility.
a. Persons Eligible. Options may be granted to any person selected by
the Board. Incentive Stock Options may be granted only to Employees. An
Employee, who is also a director of the Company, its Parent or a
Subsidiary, shall be treated as an Employee for purposes of this Section 5.
An Employee or other person who has been granted an Option may, if he is
otherwise eligible, be granted an additional Option or Options.
b. No Effect on Relationship. The Plan shall not confer upon any
Optionee any right with respect to continuation of employment or other
relationship with the Company nor shall it interfere in any way with his
right or the Company's right to terminate his employment or other
relationship at any time.
6. Term of Plan. The Plan became effective on December 30, 1996. It shall
continue in effect until December 29, 2006, unless sooner terminated under
Section 13 of the Plan.
7. Term of Option. The term of each Option shall be 10 years from the date
of grant thereof or such shorter term as may be provided in the Stock Option
Agreement. However, in the case of an Option granted to an Optionee who, at the
time the Option is granted, owns stock representing more than 10% of the total
5
<PAGE>
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, if the Option is an Incentive Stock Option, the term of the Option
shall be five years from the date of grant thereof or such shorter time as may
be provided in the Stock Option Agreement.
8. Exercise Price and Consideration.
a. Exercise Price. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be such price as is
determined by the Board, but the per Share exercise price under an
Incentive Stock Option shall be subject to the following:
(i) If granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than 10% of
the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall not be less than
110% of the fair market value per Share on the date of grant.
(ii) If granted to any other Employee, the per Share exercise
price shall not be less than 100% of the fair market value per Share
on the date of grant.
b. Determination of Fair Market Value. The fair market value per Share
on the date of grant shall be determined as follows:
(i) If the Common Stock is listed on the New York Stock Exchange,
the American Stock Exchange or such other securities exchange
designated by the Board, or admitted to unlisted trading privileges on
any such exchange, or if the Common Stock is quoted on a National
Association of Securities Dealers, Inc. system that reports closing
prices, the fair market value shall be the closing price of the Common
Stock as reported by such exchange or system on the day the fair
market value is to be determined, or if no such price is reported for
such day, then the determination of such closing price shall be as of
the last immediately preceding day on which the closing price is so
reported;
(ii) If the Common Stock is not so listed or admitted to unlisted
trading privileges or so quoted, the fair market value shall be the
average of the last reported highest bid and the lowest asked prices
quoted on the National Association of Securities Dealers, Inc.
Automated Quotations System or, if not so quoted, then by the National
Quotation Bureau, Inc. on the day the fair market value is determined;
or
6
<PAGE>
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges or so quoted, and bid and asked prices are
not reported, the fair market value shall be determined in such
reasonable manner as may be prescribed by the Board.
c. Consideration and Method of Payment. The consideration to be paid
for the Shares to be issued upon exercise of an Option, including the
method of payment, shall be determined by the Board and may consist
entirely of cash, check, other shares of Common Stock having a fair market
value on the date of exercise equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, or any combination of
such methods of payment, or such other consideration and method of payment
for the issuance of Shares to the extent permitted under the Colorado
Business Corporation Act.
9. Exercise of Option.
a. Procedure for Exercise: Rights as a Shareholder. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of
the Plan.
In the sole discretion of the Board, at the time of the grant of an
Option or subsequent thereto but prior to the exercise of an Option, an
Optionee may be provided with the right to exchange, in a cashless
transaction, all or part of the Option for Common Stock of the Company on
terms and conditions determined by the Board.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received
by the Company. Full payment, as authorized by the Board, may consist of a
consideration and method of payment allowable under Section 8(c) and this
Section 9(a) of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of the duly authorized
transfer agent of the Company) of the stock certificate evidencing such
Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 11 of the Plan.
7
<PAGE>
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which
the Option is exercised.
b. Termination of Status as an Employee. In the case of an Incentive
Stock Option, if any Employee ceases to serve as an Employee, he may, but
only within such period of time not exceeding three months as is determined
by the Board at the time of grant of the Option after the date he ceases to
be an Employee of the Company, exercise his Option to the extent that he
was entitled to exercise it at the date of such termination. To the extent
that he was not entitled to exercise the Option at the date of such
termination, or if he does not exercise such Option (which he was entitled
to exercise) within the time specified herein, the Option shall terminate.
c. Disability of Optionee. In the case of an Incentive Stock Option,
notwithstanding the provisions of Section 9(b) above, in the event an
Employee is unable to continue his employment with the Company as a result
of his total and permanent disability (as defined in Section 22(e)(3) of
the Code), he may, but only within such period of time not exceeding 12
months as is determined by the Board at the time of grant of the Option
from the date of termination, exercise his Option to the extent he was
entitled to exercise it at the date of such termination. To the extent that
he was not entitled to exercise the Option at the date of termination, or
if he does not exercise such Option (which he was entitled to exercise)
within the time specified herein, the Option shall terminate.
d. Death of Optionee. In the case of an Incentive Stock Option, in the
event of the death of the Optionee:
(i) During the term of the Option if the Optionee was at the time
of his death an Employee the Company and had been in Continuous Status
as an Employee or Consultant since the date of grant of the Option,
the Option may be exercised, at any time within 12 months following
the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance,
but only to the extent of the right to exercise that would have
accrued had the Optionee continued living and remained in Continuous
Status as an Employee 12 months after the date of death; or
(ii) Within such period of time not exceeding three months as is
determined by the Board at the time of grant of the Option after the
termination of Continuous Status as an Employee, the Option may be
exercised, at any time within 12 months following the date of death,
8
<PAGE>
by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of termination.
10. Nontransferability of Options. Unless permitted by the Code, in the
case of an Incentive Stock Option, the Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent and distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization or Merger. Subject to any
required action by the shareholders of the Company, the number of Shares covered
by each outstanding Option, and the number of Shares which have been authorized
for issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of any
Option, as well as the price per Share covered by each such outstanding Option,
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares subject to an Option.
In the event of the proposed dissolution or liquidation of the Company, the
Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board. The Board may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his Option as to all or any part of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable. In the event
of the proposed sale of all or substantially all of the assets of the Company,
or the merger of the Company with or into another corporation in a transaction
in which the Company is not the survivor, the Option shall be assumed or an
equivalent option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Board determines, in the
exercise of its sole discretion and in lieu of such assumption or substitution,
that the Optionee shall have the right to exercise the Option as to all of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of such a merger or sale of assets, the
Board shall notify the Optionee that the Option shall be fully exercisable for a
period of 30 days from the date of such notice, and the Option will terminate
upon the expiration of such period.
9
<PAGE>
12. Time of Granting Options. The date of grant of an Option shall, for all
purposes, be the date on which the Board makes the determination granting such
Option. Notice of the determination shall be given to each Employee or other
person to whom an Option is so granted within a reasonable time after the date
of such grant. Within a reasonable time after the date of the grant of an
Option, the Company shall enter into and deliver to each Employee or other
person granted such Option a written Stock Option Agreement as provided in
Sections 2(r) and 16 hereof, setting forth the terms and conditions of such
Option and separately identifying the portion of the Option which is an
Incentive Stock Option and/or the portion of such Option which is a Nonstatutory
Stock Option.
13. Amendment and Termination of the Plan.
a. Amendment and Termination. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval
of the shareholders of the Company in the manner described in Section 17 of
the Plan:
(i) An increase in the number of Shares subject to the Plan above
500,000 Shares, other than in connection with an adjustment under
Section 11 of the Plan;
(ii) Any change in the designation of the class of Employees
eligible to be granted Incentive Stock Options; or
(iii) Any material amendment under the Plan that would have to be
approved by the shareholders of the Company for the Board to continue
to be able to grant Incentive Stock Options under the Plan.
b. Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if the Plan had not been
amended or terminated, unless mutually agreed otherwise between the
Optionee and the Board, which agreement must be in writing and signed by
the Optionee and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
10
<PAGE>
amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, applicable state securities laws, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of legal counsel for the Company with
respect to such compliance.
As a condition to the existence of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares and such other
representations and warranties which in the opinion of legal counsel for the
Company, are necessary or appropriate to establish an exemption from the
registration requirements under applicable federal and state securities laws
with respect to the acquisition of such Shares.
15. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's legal counsel to be necessary for the lawful issuance
and sale of any Share hereunder, shall relieve the Company of any liability
relating to the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
16. Option Agreement. Each Option granted to an Employee or other persons
shall be evidenced by a written Stock Option Agreement in such form as the Board
shall approve.
17. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company on or before December 29, 1997. Such
shareholder approval and any shareholder approval required under Section 13 of
the Plan, may be obtained at a duly held shareholders meeting by the affirmative
vote of the holders of a majority of the outstanding shares of the voting stock
of the Company, who are present or represented and entitled to vote thereon, or
by unanimous written consent of the shareholders in accordance with the
provisions of the Colorado Business Corporation Act.
18. Information to Optionees. The Company shall provide to each Optionee,
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports and other information which are provided to all
shareholders of the Company. The Company shall not be required to provide such
information if the issuance of Options under the Plan is limited to key
employees whose duties in connection with the Company assure their access to
equivalent information.
19. Gender. As used herein, the masculine, feminine and neuter genders
shall be deemed to include the others in all cases where they would so apply.
11
<PAGE>
20. CHOICE OF LAW. ALL QUESTIONS CONCERNING THE CON- STRUCTION, VALIDITY
AND INTERPRETATION OF THIS PLAN AND THE INSTRUMENTS EVIDENCING OPTIONS WILL BE
GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF
COLORADO.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Plan effective as of December 30, 1996.
WESTERN FIDELITY FUNDING, INC.,
a Colorado corporation
By:
------------------------------
Gene E. Osborn, President
12
NOTICE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AS A COMMERCIAL LOAN NOT CONSTITUTING A SECURITY OR IN
RELIANCE ON AN EXEMPTION PROVIDED IN THE ACT AND/OR RULES AND REGULATIONS
PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, OR OTHERWISE DISPOSED OF BY ANY PAYEE, OR HOLDER THEREIN
UNLESS THE NOTE IS REGISTERED UNDER THE ACT OF THE MAKER RECEIVES AN OPINION OF
COUNSEL ACCEPTABLE TO IT THAT SUCH REGISTRATION IS NOT REQUIRED, AND THEN ONLY
IN COMPLIANCE WITH STATE SECURITIES LAWS. IN ADDITION, THE NOTE HAS NOT BEEN
REGISTERED UNDER THE COLORADO SECURITIES ACT OF 1990 BY REASON OF THE COMMERCIAL
LOAN NOT CONSTITUTING A SECURITY OR SPECIFIC EXEMPTIONS THEREUNDER RELATING TO
THE LIMITED AVAILABILITY OF THE NOTE. THE NOTE CANNOT BE SOLD, TRANSFERRED,
ASSIGNED OR OTHERWISE DISPOSED OF TO ANY PERSON OF ENTITY UNLESS SUBSEQUENTLY
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE COLORADO
SECURITIES ACT OF 1990, IF SUCH REGISTRATION IS REQUIRED. FURTHER, THE NOTE HAS
NOT BEEN REVIEWED APPROVED OR DISAPPROVED BY THE SECRETARY OF STATE, OR OTHER
SIMILAR GOVERNMENTAL OFFICE, OF ANY OTHER STATE.
PROMISSORY NOTE
(Commercial Loan)
$515,077.12 January 31, 1996
FOR VALUE RECEIVED, the undersigned promises to pay to WESTERN FRATERNAL
LIFE ASSOCIATION (individually referred to as "Holder") at the address for
Holder shown in the Notice provision hereof, or as such other address as any
Holder may from time to time designate in writing in accordance with the Notice
provision, in the legal and lawful tender of the United States, the principal
sum of FIVE HUNDRED FIFTHTEEN THOUSAND SEVENTY SEVEN AND 12/100'S DOLLARS
($515,077,12), together with interest which shall accrue at the rate of nine and
eighty five one hundredths percent (9.85%) per annum payable on the terms set
forth in paragraph I hereof.
I. Terms of Repayment. The principal shall be amortized over fifty (50)
months with interest at the rate of nine and eighty five one hundredths percent
(9.85%) per annum resulting in monthly payments of principal and interest in the
amount of TWELVE THOUSAND SIX HUNDRED ONE AND 34/100-S DOLLARS ($12,601.34). An
amortization schedule is attached hereto as Exhibit A and incorporated herein by
this reference. Said monthly payments shall commence on the twentieth day of
<PAGE>
February, 1996 and on the twentieth day of each month thereafter until this Note
is paid in full. The first monthly payment shall be adjusted to reflect only
that interest due in arrears from the date the principal is advanced by Holder
to Maker. The last monthly payment shall be adjusted to reflect any prepayments
or principal reductions during the term of this Note. Payments shall be due on
the twentieth day of each month and shall be considered delinquent on the
thirtieth day of each month.
2. Application of Payment. All payments of principal and interest by Maker
to the Holder of this Note shall be first applied to accrued interest with the
balance applied to principal.
3. Security. This Note shall be secured by Maker's Security Agreement and
Pledge Agreement which pledges retail installment sale contracts entered into
between various customers and the Maker for the purchase of automobiles, more
particularly described in the Security Agreement and Pledge Agreement (the
"Contracts" or "Collateral"). Maker shall continue to service and collect the
payments on said Contracts in accordance with their terms from the life of the
Contracts, Maker covenants and agrees that the outstanding principal balance
plus accrued interest payable over the life of said Contracts in monthly
payments from customers shall be equal to or greater than principal and interest
payable to Holder under this Note, which payments due under the Contracts are to
be pledged by Maker as security for this Note.
4. Substitution of Collateral. Maker agrees in the event any individual
retail installment contract contained in the Contracts is prepaid by a customer,
prepaid from insurance proceeds in the event of destruction of any automobile
which is security for any retail installment sale contract or becomes sixty (60)
days or more past due (the "Substitution Events"), Maker will substitute a
similar retail installment contract to be replaced. The Security Agreement and
Pledge Agreement which secure this Note shall continue to apply to any
substituted retail installment contract which replaces any retail installment
contract previously included in the Contracts or Collateral.
5. Release of Collateral. As the principal balance of this Note is repaid
(including prepayments), the Holder agrees to release that portion of the
Collateral from the Security Agreement and Pledge Agreement which secures this
Note as corresponds to the reduction of the principal balance and accrued
interest due under this Note. For each one dollar reduction in the principal and
accrued interest due under this Note, a proportionate amount of Collateral shall
be released from the Security Agreement and Pledge Agreement and shall
thereafter be free of the lien and encumbrance created thereunder. In no event
shall the amount of principal and interest remaining on the Contracts
constituting the Collateral be less than the amount of principal and interest
outstanding on the Note.
6. No Sale, Transfer or Assignment. This Note constitutes a non-negotiable
instrument and shall not be sold, transferred or assigned without the consent of
Maker and without meeting the possible securities registration requirement set
forth in the NOTICE contained above.
<PAGE>
7. Miscellaneous.
(a) There shall be no acceleration of any amount due under this Note,
except as specifically provided in this Note,
(b) Upon payment of monies due on this Note, in accordance with its
terms, Holder shall release the collateral or the applicable portion thereof in
accordance with the terms of the Security Agreement and Pledge Agreement.
(c) In the event of a default by Maker on this Note, Holder shall look
solely to the assets of Maker for repayment, including the property, cash and
other property or assets of Maker, but none of the officers, directors, or
shareholders shall have any personal liability for payment hereunder, and no
such action or other legal proceedings shall be brought against any of the
officers, directors or shareholders of Maker, for any deficiency if the
Collateral and assets of Maker are not sufficient to satisfy the repayment of
this Note.
(d) If Maker fails to make any Payment when due hereunder, whether of
principal, interest or otherwise, or commits any default hereunder or under the
Security Agreement, Pledge Agreement or any other instrument related hereto, the
Holder shall have those options set forth in the Security Agreement and Pledge
Agreement after ten (10) days notice to Maker specifying the event of default
after which time this Note shall bear interest at the rate of twelve percent
(12%) per annum, unless the default is timely cured. During the ten (1 0) days
following notice from Holder, the Maker shall have the right to cure any
monetary or non-monetary default and if the cure be made, this Note and the
security therefore shall continue in full force and effect as if no default had
occurred.
(e) This Note sets forth the entire understanding of the parties
hereto with respect to the subject matter hereof and shall not be changed,
modified, or terminated except by a written instrument, duly executed by all
parties hereto. No waiver of any term or condition herein by any party hereto
shall be effective unless such waiver shall be expressed in a written instrument
duly executed by the party or parties against whom enforcement of such waiver is
sought.
(f) Any un-enforceability for any reason against any person or persons
or in any particular circumstance of any provision of the Note shall not limit
or impair the operation or validity or any other provision of this Note and
shall not limit or impair the operation and validity of the same provision or
provisions against any other person or persons or in any other particular
circumstance.
<PAGE>
(g) It is the intention of Maker and Holder that this Note be
construed tin accordance with and governed by the laws of the State of Colorado
for contracts entered into and wholly performed in such state.
(h) The Maker and all other parties who are now or who may hereafter
become liable on this Note severally waive, except as expressly set forth
herein, demand, presentment for payment, protest, notice of dishonor, protest or
intent to accelerate and acceleration and diligence in collecting and bringing
suit against any party liable on this Note.
(i) Holder shall be entitled to collect a reasonable attorney's fee
from the Maker, as well as other costs and expenses reasonably incurred, in
curing any default of or attempting collection of the payment due under the Note
and to receive from the Maker (or in lieu thereof, the Maker may advance) all
expenses paid by the Holder under the terms of the Security Agreement.
(i) This Note is secured by a Security Agreement and Pledge Agreement
Of even date made by Maker for the benefit of the Holder hereof and the terms
and provisions of said Security Agreement and Pledge Agreement by this reference
are make a part hereof,
(k) All actions or proceedings in any way, manner or respect, arising
from or related to this Note may be litigated in Courts having situs within the
State of Colorado. Maker and Holder hereby consent and submit to the
jurisdiction of any local, state or federal court located in said state. Each
party hereby waives any right it may have to transfer or change of venue of any
litigation in accordance herewith.
(1) Each party hereto waives any right to a trial by jury in any
action or proceeding to enforce or defend any rights (i) under this Note or any
amendment, instrument, document or agreement delivered or which may in the
future be delivered in connection herewith, or (ii) arising from any
relationship existing in connection with this Note, and agree that any such
action or proceeding shall be tried before a court and not before a jury.
(m) Legal matters in connection with the Note and any Security
Agreement, Pledge Agreement or other documents securing the Note have been
prepared or reviewed on behalf of the Maker as its counsel by Marya L. Brancio
("Maker's Counsel"). Maker's Counsel does not purport to have made any
investigation or to have acted independently on behalf of any payee, holder, or
assignee of any note or any secured party and has relied upon representations
made by Western Fidelity Funding, Inc. as to all matters which affect the Note
or any security agreement or pledge agreement must look to its own counsel in
connection with the commercial loan represented by the Note or any collateral
therefore and understand that Marya L. Brancio has acted only as Maker's
Counsel.
<PAGE>
(n) All notices, requests and other communications hereunder shall be
given in writing and shall be deemed sufficiently given, served, or received for
all purposes when delivered personally, by United States mail, postage prepaid,
return receipt requested, by express courier, or by immediate notice, and
properly addressed as follows, or to such other address as shall be set forth in
a notice given in accordance with this sub-section n
(a) in the case of Holder to:
Western Fraternal Life Association
1900 First Avenue NE
Cedar Rapids, Iowa 52492
Attention: Mr. Philip J. Torticilii
Telephone # (319)363-2653
(b) in the case of Maker to:
Western Fidelity Funding, Inc.
4704 Harlan Street, Suite 260
Denver, Colorado 80212-7417
Attention: Mr. Gene Osborn, President
Telephone #: (800) 223-9334
Telefax # (800) 854-7939
IN WITNESS WHEREOF, the Maker has caused this instrument to be executed this the
31day of January, 1996
MAKER: WESTERN FIDELITY FUNDING, INC. a Colorado
corporation
By:
------------------------------------
Gene E. Osborn, President
<PAGE>
PLEDGE AGREEMENT
This pledge is made as of this 31st day of January, 1996 by WESTERN
FIDELITY FUNDING, INC. (hereinafter referred to as "WFFI"), to WESTERN FRATERNAL
LIFE ASSOCIATION (hereinafter referred to as "Lender").
RECITALS
WHEREAS WFFI has acquired and is the owner of the automobile installment
sale contracts ("Contracts") listed on Exhibit A attached hereto and
incorporated herein by this reference, and
WHEREAS Lender requires the right to collect payments made by the maker(s)
of the Contracts, and the right to enforce all of WFFI's rights, claims and
interests related to said Contracts, (including but not limited to the right to
repossess the auto(s) which are the subject of the Contracts herein pledged).
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, WFFI and Lender agree as follows:
1. The Contracts are hereby pledged to Lenders to secure payment of
Lender's loan to WFFI evidenced by a Promissory Note dated January 31, 1996 in
the amount of $515,077.12.
2. In accordance with the terms of the Promissory Note which is secured by
this Pledge Agreement, WFFI agrees that in the event any individual retail
installment contract contained in the Contracts is prepaid by a customer,
prepaid from insurance proceeds in the event of destruction of any automobile
which is security for any retail installment sale contract or becomes sixty (60)
days or more past due (the "Substitution Events"), WFFI will substitute a
similar retail installment contract in substantially like amount and terms for
the retail installment contract to be replaced. This Pledge Agreement shall
continue to apply to any substitute retail installment sale contract which
replaces any retail installment sale contract previously included in the
Contracts pledged hereunder.
3. WFFI agrees to notify Lender promptly of any material changes involving
the Contracts, including, but not limited to, prompt notice of any Substitution
Event or any other proceeding which WFF] may be notified of which may materially
and adversely affects WFFI's or Lender's rights under the terms and conditions
of the Contracts or to the collateral encumbered by said Contracts.
<PAGE>
4. As the principal balance of the Note secured hereby is repaid, the
Lender agrees to release that portion of the Contracts from this Pledge
Agreement as corresponds to the reduction or the principal balance and accrued
interest due under the Note for each one dollar reduction in the principal and
accrued interest due under the Note, a proportionate amount of Contracts shall
be released from this Pledge Agreement and shall thereafter be free of the lien
or pledge created hereunder. In no event shall the amount of principal and
interest remaining on the Contracts pledged hereunder be less that the amount of
principal and interest outstanding on the Note.
5. This Pledge Agreement shall terminate when the obligation has been paid
in full. No waiver by the Lenders of any default shall be effective unless in
writing nor operate as a waiver of any other default or of the same default on a
future occasion. All rights of the Lender hereunder shall inure to the benefit
of its successors and bind the successors and assigns of the WFFI, This Pledge
Agreement shall take effect when signed by the parties hereto.
6. WFFI agrees to pay any and all of Lender's costs, including reasonable
attorney's fees, incurred in exercising or enforcing its rights under this
Pledge Agreement.
7. All notices, requests and other communications hereunder shall be given
in writing and shall be deemed sufficiently given, served, or received for all
purposes when delivered personally, by United States mail, postage prepaid,
return receipt requested, by express courier, or by Immediate Notice, and
properly addressed as follows, or to such other address as shall be set forth in
a notice given in accordance with this Section 7.
(a) in the case of Holder to
Western Fraternal Life Association
1900 First Avenue NE
Cedar Rapids, Iowa 52492
Attention: Mr. Philip J. Torticill
Telephone #: (319)363-2653
(b) in the case of Maker to:
Western Fidelity Funding, Inc.
4704 Harlan Street, Suite 260
Denver, Colorado 80212-7417
Attention: Mr. Gene Osborn, President
Telephone #: (800) 223-9334
Telefax # (800) 854-7939
<PAGE>
8. Miscellaneous.
(a) This Pledge Agreement sets forth the entire understanding of the
parties hereto with respect to the subject matter hereof and shall not be
changed, modified, or terminated except by a written instrument, duly executed
by all parties hereto. No waiver of any term or condition herein by any party
hereto shall be effective unless such waiver shall be expressed in a written
instrument duly executed by the party or parties against whom enforcement of
such waiver is sought.
(b) Any un-enforceability for any reason against any person or persons
or in any particular circumstance of any provision of this Pledge Agreement
shall not limit or impair the operation of validity of any other provision of
this Pledge Agreement and shall not limit or impair the operation and validity
of the same provision or provisions against any other person or persons or in
any other particular circumstances.
(c) Should any provision of this Pledge Agreement violate any federal,
state or local law or ordinance, that provision shall be deemed amended to so
comply with such law or ordinance, and shall be construed in a manner so as to
comply.
(d) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, executors, administrators, legal
representatives, successors, and permitted assigns.
(e) This Agreement shall be deemed entered into within Colorado and
shall be governed by and interpreted in accordance with the laws of the State of
Colorado (without giving effect to principles relating to conflicts of laws).
(f) Legal matters in connection with the Note(s) and any security
agreement, Pledge Agreement or other documents securing the Note(s) have been
prepared or reviewed on behalf of WFFI as its counsel by Marya L. Brancio
("WFFI's Counsel"). WFFI's Counsel does not purport to have made any
investigation or to have acted independently on behalf of any payee, holder, or
assignee of any note or any secured party or pledgee and has relied upon
representations made by WFFI as to all matters which affect the Note(s) or any
collateral security therefore. Each payee, holder, assignee, pledgee or secured
party of the Note(s) or any security agreement or Pledge Agreement must look to
its own counsel in connection with any loan represented by the Note(s) or any
collateral therefore and understand that Marya L. Brancio has acted only as
WFFI's Counsel.
(g) All actions or proceedings in any way, manner or respect, arising
from or related to this Agreement may be litigated in courts having situs within
the State of Colorado. WFFI and Lender hereby consent and submit to the
jurisdiction of any local, state or federal court located in said state. Each
party hereby waives any right it may have to transfer or change of venue of any
litigation in accordance herewith.
<PAGE>
(h) Each party hereto waives any right to a trial by jury in any
action or proceeding to enforce or defend any rights (i) under this Agreement or
any amendment, instrument, document or agreement delivered or which may in the
future be delivered in connection herewith, or (ii) arising from any
relationship existing in connection with this Agreement, and agree that any such
action or proceeding shall be tried before a court and not before a jury.
(i) This Agreement may be executed in any number of counterparts, and
each such counterpart shall be deemed to any original and all such counterparts
shall constitute but one and the same instrument. Facsimile signatures shall be
considered as original signatures.
Dated this 31st day of January, 1996.
WESTERN FIDELITY FUNDING, INC.
By: /s/ Gene E. Osborn
------------------------------------
Gene E. Osborn, President
WESTERN FRATERNAL LIFE ASSOCIATION
By: /s/ Philip J. Torticilli
------------------------------------
Name: Philip J. Torticilli
----------------------------------
Its: Vice President
----------------------------------
<PAGE>
SECURITY AGREEMENT
This Agreement entered into between WESTERN FIDELITY FUNDING, INC., a
Colorado corporation ("Debtor") and WESTERN FRATERNAL LIFE ASSOCIATION (the
"Secured Party"), The Debtor hereby warrants and covenants that:
Section 1.0 Collateral. The Debtor is the beneficial owner of the
"Collateral" which consists of the retail installment sale contracts entered
into between the customer and the Debtor (the "Contracts"). The Contracts which
comprise the Collateral are listed on Exhibit A attached hereto and incorporated
herein by this reference. The Collateral will be maintained by the Debtor at its
principal office and Debtor will service the collection of the Contracts. Except
for the security interest granted hereby, the collateral will be free from any
prior lien, security interest, pledge or encumbrance, and the Debtor will defend
the Collateral against all claims and demands of all persons at any time
claiming the same or any interest therein.
Section 2.0 No Transfer. The Debtor will not sell or otherwise transfer or
encumber the Collateral or any interest therein without the prior written
consent of the Secured Party,
Section 3.0 Perfection of Interest. The Debtor will immediately notify the
Secured Party in writing of any change in address from that shown in this
Agreement and will also upon demand furnish to the Secured Party such further
information and will execute and deliver to the Secured Party such financing
statements, mortgages and other papers and will do all such acts and things as
the Secured Party may at any time or from time to time reasonably request and/or
as may be necessary or appropriate to establish and maintain a valid security
interest in the Collateral as security for the obligations, subject to no prior
liens or encumbrances.
Section 4.0 Insurance. The Debtor will keep the Collateral at all times
insured against risks of loss and such other casualties as the Secured Party may
reasonably require, all in such amounts, under such forms of policies, including
the Indemnity Policy currently issued by Empire Fire & Marine, upon such terms,
for such periods and written by such other companies or underwriters as the
Secured Party may approve, but in no event less than the face value of the loan
on the Vehicle, losses in all cases to be payable to the Secured Party and
Debtor as their respective interests may appear. All policies of insurance shall
provide for at least ten days prior written notice cancellation to the Secured
Party, and the Debtor shall furnish the Secured Party with certificates of such
insurance or other evidence satisfactory to the Secured Party as to compliance
with the provisions of this paragraph. The Secured Party may act as attorney for
the Debtor in making, adjusting and settling claims under or canceling such
insurance and endorsing the Debtors name on any drafts drawn by insurers of the
Collateral.
<PAGE>
Section 5.0 Free of Liens. The Debtor will keep the Collateral free from
any adverse lien, security interest, pledge or encumbrance and will not waste or
destroy the Collateral or any part thereof and will not use the Collateral in
violation of any applicable statute, ordinance or policy of insurance thereon.
Upon reasonable notice, the Secured Party may examine and inspect the books and
records of Debtor at any reasonable time or times.
Section 6.0 Substitution of Collateral. In accordance with the terms of the
Promissory Note which is secured by this Security Agreement, Debtor agrees that
in the event any individual retail installment contract contained in the
Contracts is prepaid by a customer, prepaid from insurance proceeds in the event
of destruction of any automobile which is security for any retail installment
sale contract or becomes sixty (60) days or more past due (the "Substitution
Events"), Debtor will substitute a similar retail installment contract in
substantially like amount and terms for the retail installment contract to be
replaced. This Security Agreement shall continue to apply to any substituted
retail installment contract which replaces any retail installment sale contract
previously included in the Contracts listed as collateral hereunder.
Section 7.0 Notice of Matters Affecting Collateral. Debtor agrees to notify
secured party promptly of any material changes involving the Contracts,
including, but not limited to, prompt notice of any Substitution Event or any
other proceeding which Debtor may be notified of which may materially and
adversely affect Debtor' s or Lender's rights under the terms and conditions of
the Contracts or to the collateral encumbered by said Contracts.
Section 8.0 Taxes. The Debtor will pay promptly when due all taxes and
assessments upon the Collateral, if any.
Section 9.0 Additional Rights of Parties. At its option but without
obligation to do so, the Secured party may (a) discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on the Collateral;
(b) place and pay for insurance on Collateral in the event Debtor fails to keep
the Collateral insured.
Section 10.0 Events of Default-Remedies. Upon the happening of any of the
following events or conditions and within ten day notice thereof, namely; (a)
default in the payment or performance of any of the obligations or of any
covenant contained or referred to herein or in any note evidencing any of the
obligations; (b) any warranty, representation or statement make or furnished to
the Secured Party by or on behalf of the Debtor in connection with this
Agreement proving to have been false in material respect when made or furnished,
(c) substantial amount of sale or encumbrance of the Collateral as determined in
the sale or encumbrance of the Collateral as determined in the reasonable
discretion of the Secured Party, or the making of any levy, seizure or
attachment thereof or thereon, (d) death, dissolution, termination of existence,
insolvency, business failure, appointment of a receiver of any part of the
Collateral of, assignment for the benefit of creditors by, or the commencement
<PAGE>
of any proceedings under any bankruptcy or insolvency laws by, against or of
Debtor or any guarantor or surety for the Debtor, thereupon or at any time
thereafter (such default not having previously been cured), the Secured Party at
its option may declare all obligations that are in default to be immediately due
and payable, subject to any notice required by law or agreement, and shall then
have the remedies of a secured party under the Uniform Commercial Code ("UCC"),
or other applicable law, including, without limitation thereto, the right to
take possession of the Collateral, and for that purpose may pursue the
Collateral whenever the same may be found and with or without legal process, but
without a breach of the peace, may enter any premises where the Collateral may
be found and take possession thereof and remove the same.
Section 11.0 No Waste. The Secured Party may require the Debtor to make the
Collateral available to the Secured Party at a place to be designated by the
Secured Party which is reasonably convenient to both parties. The Secured Party
will give at least ten (10) days written notice to Debtor at the address shown
herein of the time and place of any public sale thereof or of the time after
which any private sale or any other intended disposition thereof is to be made.
Expenses of retaking, holding. preparing for sale, selling or the like shall,
subject to UCC limits if applicable, include the Secured Party's reasonable
attorney's fees and costs.
Section 12.0 Release of Collateral. As the principal balance of the Note
secured hereby is repaid, the Secured Party agrees to release that portion of
the Collateral from this Security Agreement as corresponds to the reduction of
the principal balance and accrued interest due under the Note. For each one
dollar reduction in the principal and accrued interest due under the Note, a
proportionate amount of Collateral shall be released from this Security
Agreement and shall thereafter be free of the lien and encumbrance created
hereunder. In no event shall the amount of principal and interest remaining on
the contracts constituting the Collateral be less than the amount of principal
and interest outstanding on the Note.
Section 13.0 General. This Agreement and the security interest in the
Collateral created hereby shall terminate when the obligation has been paid in
full. No waiver by the Secured Party of any default shall be effective unless in
writing nor operate as a waiver of any other default or of the same default on a
future occasion. All rights of the Secured Party hereunder shall inure to the
benefit of its successors and bind the successors and assigns of the Debtor. If
there be more than one Debtor, their obligations hereunder shall be joint and
several. This Agreement shall take effect when signed by the parties hereto.
Section 14.0 Construction. Should any provision of this Agreement violate
any federal, state or local law or ordinance, that provision shall be construed
in a manner so as to comply.
Section 15.0 Notices. All notices, requests and other communications
hereunder shall be given in writing and shall be deemed sufficiently given,
served, or received for all purposes when delivered personally, by United States
<PAGE>
mail, postage prepaid, return receipt requested, by express courier, or by
Immediate Notice, and properly addressed as follows, or to such other address as
shall be set forth in a notice given in accordance with this Section 15.0.
(a) in the case of Holder to:
Western Fraternal Life Association
1900 First Avenue NE
Cedar Rapids, Iowa 52492
Attention: Mr. Philip J. Torticilli
Telephone #: (319)363-2653
(b) in the case of Maker to:
Western Fidelity Funding, Inc.
4704 Harlan Street, Suite 260
Denver, Colorado 80212-7417
Attention: Mr. Gene Osborn, President
Telephone # (800) 223-9334
Telefax #: (800) 854-7939
Section 16.0 Miscellaneous.
(a) This Security Agreement sets forth the entire understanding of the
parties hereto with respect to the subject matter hereof and shall not be
changed, modified, or terminated except by a written instrument, duly executed
by all parties hereto. No waiver of any term or condition herein by any party
hereto shall be effective unless such waiver shall be expressed in a written
instrument duly executed by the party or parties against whom enforcement of
such waiver is sought.
(b) Any un-enforceability for any reason against any person or persons
or in any particular circumstance of any provision of this Security Agreement
shall not limit or impair the operation of validity of any other provision of
this Security Agreement and shall not limit or impair the operation and validity
of the same provision or provisions against any other person or persons or in
any other particular circumstances.
(c) This Security Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors, and permitted assigns.
(d) This Agreement shall be deemed entered into within Colorado and
Shall be governed by and interpreted in accordance with the laws of the State of
Colorado (without giving effect to principles relating to conflicts of laws).
<PAGE>
(e) Legal matters in connection with the Note(s) and any security
agreement, pledge or other documents securing the Note(s) have been prepared or
reviewed on behalf of the debtor as its counsel by Marya L. Brancio ("Debtor's
Counsel"). Debtor's Counsel does not purport to have made any investigation or
to have acted independently on behalf of any payee, holder, or assignee of any
note or any secured party and has relied upon representations made by Western
Fidelity Funding, Inc., as to all matters which affect the Note(s) or any
collateral security therefore. Each payee, holder, assignee or secured party of
the Note(s) or any security agreement or pledge agreement must look to its own
counsel in connection with any loan represented by the Note(s) or any collateral
therefore and understand that Marya L. Brancio has acted only as Debtor's
Counsel.
If) All actions or proceedings in any way, manner or respect, arising
from or related to this Security Agreement may be litigated in courts having
situs within the State of Colorado. Debtor and Secured Party hereby consent and
Submit to the jurisdiction of any local, state or federal court located in said
state. Each party hereby waives any right it may have to transfer or change of
venue of any litigation in accordance herewith.
(g) Each party hereto waives any right to a trial by jury in any
action or proceeding to enforce or defend any rights (i) under this Security
Agreement or any amendment, instrument, document or agreement delivered or which
may in the future be delivered in connection herewith, or (ii) arising from any
relationship existing in connection with this Agreement, and agree that any such
action or proceeding shall be tried before a court and not before a jury.
(h) This Agreement may be executed in any number of counterparts, and
each such counterpart shall be deemed to an original and all such counterparts
shall constitute but one and the same instrument. Facsimile signatures shall be
considered as original signatures,
Dated this 31st day of January, 1996.
DEBTOR: SECURED PARTY:
WESTERN FIDELITY FUNDING, INC. WESTERN FRATERNAL LIFE ASSOCIATION
By: /s/ Gene E. Osborn By: /s/ Philip J. Torticilli
------------------------------------- -------------------------------
Gene E.Osborn, President
Name: Philip J. Torticilli
----------------------------
Its: Vice President
-----------------------------
<PAGE>
NOTICE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AS A COMMERCIAL LOAN NOT CONSTITUTING A SECURITY OR IN
RELIANCE ON AN EXEMPTION PROVIDED IN THE ACT AND/OR RULES AND REGULATIONS
PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, OR OTHERWISE DISPOSED OF BY ANY PAYEE, OR HOLDER THEREIN
UNLESS THE NOTE IS REGISTERED UNDER THE ACT OF THE MAKER RECEIVES AN OPINION OF
COUNSEL ACCEPTABLE TO IT THAT SUCH REGISTRATION IS NOT REQUIRED, AND THEN ONLY
IN COMPLIANCE WITH STATE SECURITIES LAWS. IN ADDITION, THE NOTE HAS NOT BEEN
REGISTERED UNDER THE COLORADO SECURITIES ACT OF 1990 BY REASON OF THE COMMERCIAL
LOAN NOT CONSTITUTING A SECURITY OR SPECIFIC EXEMPTIONS THEREUNDER RELATING TO
THE LIMITED AVAILABILITY OF THE NOTE. THE NOTE CANNOT BE SOLD, TRANSFERRED,
ASSIGNED OR OTHERWISE DISPOSED OF TO ANY PERSON OF ENTITY UNLESS SUBSEQUENTLY
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE COLORADO
SECURITIES ACT OF 1990, IF SUCH REGISTRATION IS REQUIRED. FURTHER, THE NOTE HAS
NOT BEEN REVIEWED APPROVED OR DISAPPROVED BY THE SECRETARY OF STATE, OR OTHER
SIMILAR GOVERNMENTAL OFFICE, OF ANY OTHER STATE.
PROMISSORY NOTE
(Commercial Loan)
$508,145.79 February 12, 1996
FOR VALUE RECEIVED, the undersigned promises to pay to WESTERN FRATERNAL
LIFE ASSOCIATION (individually referred to as "Holder") at the address for
Holder shown in the Notice provision hereof, or as such other address as any
Holder may from time to time designate in writing in accordance with the Notice
provision, in the legal and lawful tender of the United States, the principal
sum of FIVE HUNDRED EIGHT ONE HUNDRED FORTY FIVE AND 79/100'S DOLLARS
($508,145.79), together with interest which shall accrue at the rate of nine and
eighty five one hundredths percent (9.85%) per annum payable on the terms set
forth in paragraph I hereof.
I. Terms of Repayment. The principal shall be amortized over forty eight
(48) months with interest at the rate of nine and eighty five one hundredths
percent (9.85%) per annum resulting in monthly payments of principal and
interest in the amount of TWELVE THOUSAND EIGHT HUNDRED FIFTY ONE AND 32/100'S
DOLLARS ($12,851.32). An amortization schedule is attached hereto as Exhibit A
and incorporated herein by this reference. Said monthly payments shall commence
on the twentieth day of March, 1996 and on the twentieth day of each month
<PAGE>
thereafter until this Note is paid in full. The first monthly payment shall be
adjusted to reflect only that interest due in arrears from the date the
principal is advanced by Holder to Maker. The last monthly payment shall be
adjusted to reflect any prepayments or principal reductions during the term of
this Note. Payments shall be due on the twentieth day of each month and shall be
considered delinquent on the thirtieth day of each month.
2. Application of Payment. All payments of principal and interest by Maker
to the Holder of this Note shall be first applied to accrued interest with the
balance applied to principal.
3. Security. This Note shall be secured by Maker's Security Agreement and
Pledge Agreement which pledges retail installment sale contracts entered into
between various customers and the Maker for the purchase of automobiles, more
particularly described in the Security Agreement and Pledge Agreement (the
"Contracts" or "Collateral"). Maker shall continue to service and collect the
payments on said Contracts in accordance with their terms from the life of the
Contracts, Maker covenants and agrees that the outstanding principal balance
plus accrued interest payable over the life of said Contracts in monthly
payments from customers shall be equal to or greater than principal and interest
payable to Holder under this Note, which payments due under the Contracts are to
be pledged by Maker as security for this Note.
4. Substitution of Collateral. Maker agrees in the event any individual
retail installment contract contained in the Contracts is prepaid by a customer,
prepaid from insurance proceeds in the event of destruction of any automobile
which is security for any retail installment sale contract or becomes sixty (60)
days or more past due (the "Substitution Events"), Maker will substitute a
similar retail installment contract to be replaced. The Security Agreement and
Pledge Agreement which secure this Note shall continue to apply to any
substituted retail installment contract which replaces any retail installment
contract previously included in the Contracts or Collateral.
5. Release of Collateral. As the principal balance of this Note is repaid
(including prepayments), the Holder agrees to release that portion of the
Collateral from the Security Agreement and Pledge Agreement which secures this
Note as corresponds to the reduction of the principal balance and accrued
interest due under this Note. For each one dollar reduction in the principal and
accrued interest due under this Note, a proportionate amount of Collateral shall
be released from the Security Agreement and Pledge Agreement and shall
thereafter be free of the lien and encumbrance created thereunder. In no event
shall the amount of principal and interest remaining on the Contracts
constituting the Collateral be less than the amount of principal and interest
outstanding on the Note.
<PAGE>
6. No Sale, Transfer or Assignment. This Note constitutes a non-negotiable
instrument and shall not be sold, transferred or assigned without the consent of
Maker and without meeting the possible securities registration requirement set
forth in the NOTICE contained above.
7. Miscellaneous.
(a) There shall be no acceleration of any amount due under this Note,
except as specifically provided in this Note,
(b) Upon payment of monies due on this Note, in accordance with its
terms, Holder shall release the collateral or the applicable portion thereof in
accordance with the terms of the Security Agreement and Pledge Agreement.
(c) In the event of a default by Maker on this Note, Holder shall look
solely to the assets of Maker for repayment, including the property, cash and
other property or assets of Maker, but none of the officers, directors, or
shareholders shall have any personal liability for payment hereunder, and no
such action or other legal proceedings shall be brought against any of the
officers, directors or shareholders of Maker, for any deficiency if the
Collateral and assets of Maker are not sufficient to satisfy the repayment of
this Note.
(d) If Maker fails to make any Payment when due hereunder, whether of
principal, interest or otherwise, or commits any default hereunder or under the
Security Agreement, Pledge Agreement or any other instrument related hereto, the
Holder shall have those options set forth in the Security Agreement and Pledge
Agreement after ten (10) days notice to Maker specifying the event of default
after which time this Note shall bear interest at the rate of twelve percent
(12%) per annum, unless the default is timely cured. During the ten (10) days
following notice from Holder, the Maker shall have the right to cure any
monetary or non-monetary default and if the cure be made, this Note and the
security therefore shall continue in full force and effect as if no default had
occurred.
(e) This Note sets forth the entire understanding of the parties
hereto with respect to the subject matter hereof and shall not be changed,
modified, or terminated except by a written instrument, duly executed by all
parties hereto. No waiver of any term or condition herein by any party hereto
shall be effective unless such waiver shall be expressed in a written instrument
duly executed by the party or parties against whom enforcement of such waiver is
sought.
(f) Any un-enforceability for any reason against any person or persons
or in any particular circumstance of any provision of the Note shall not limit
or impair the operation or validity or any other provision of this Note and
shall not limit or impair the operation and validity of the same provision or
provisions against any other person or persons or in any other particular
circumstance.
<PAGE>
(g) It is the intention of Maker and Holder that this Note be
construed tin accordance with and governed by the laws of the State of Colorado
for contracts entered into and wholly performed in such state.
(h) The Maker and all other parties who are now or who may hereafter
become liable on this Note severally waive, except as expressly set forth
herein, demand, presentment for payment, protest, notice of dishonor, protest or
intent to accelerate and acceleration and diligence in collecting and bringing
suit against any party liable on this Note.
(i) Holder shall be entitled to collect a reasonable attorney's fee
from the Maker, as well as other costs and expenses reasonably incurred, in
curing any default of or attempting collection of the payment due under the Note
and to receive from the Maker (or in lieu thereof, the Maker may advance) all
expenses paid by the Holder under the terms of the Security Agreement.
(i) This Note is secured by a Security Agreement and Pledge Agreement
Of even date made by Maker for the benefit of the Holder hereof and the terms
and provisions of said Security Agreement and Pledge Agreement by this reference
are make a part hereof,
(k) All actions or proceedings in any way, manner or respect, arising
from or related to this Note may be litigated in Courts having situs within the
State of Colorado. Maker and Holder hereby consent and submit to the
jurisdiction of any local, state or federal court located in said state. Each
party hereby waives any right it may have to transfer or change of venue of any
litigation in accordance herewith.
(1) Each party hereto waives any right to a trial by jury in any
action or proceeding to enforce or defend any rights (i) under this Note or any
amendment, instrument, document or agreement delivered or which may in the
future be delivered in connection herewith, or (ii) arising from any
relationship existing in connection with this Note, and agree that any such
action or proceeding shall be tried before a court and not before a jury.
(m) Legal matters in connection with the Note and any Security
Agreement, Pledge Agreement or other documents securing the Note have been
prepared or reviewed on behalf of the Maker as its counsel by Marya L. Brancio
("Maker's Counsel"). Maker's Counsel does not purport to have made any
investigation or to have acted independently on behalf of any payee, holder, or
assignee of any note or any secured party and has relied upon representations
made by Western Fidelity Funding, Inc. as to all matters which affect the Note
or any security agreement or pledge agreement must look to its own counsel in
connection with the commercial loan represented by the Note or any collateral
therefore and understand that Marya L. Brancio has acted only as Maker's
Counsel.
<PAGE>
(n) All notices, requests and other communications hereunder shall be
given in writing and shall be deemed sufficiently given, served, or received for
all purposes when delivered personally, by United States mail, postage prepaid,
return receipt requested, by express courier, or by immediate notice, and
properly addressed as follows, or to such other address as shall be set forth in
a notice given in accordance with this sub-section n
(a) in the case of Holder to:
Western Fraternal Life Association
1900 First Avenue NE
Cedar Rapids, Iowa 52492
Attention: Mr. Philip J. Torticilii
Telephone # (319)363-2653
(b) in the case of Maker to:
Western Fidelity Funding, Inc.
4704 Harlan Street, Suite 260
Denver, Colorado 80212-7417
Attention: Mr. Gene Osborn, President
Telephone #: (800) 223-9334
Telefax # (800) 854-7939
IN WITNESS WHEREOF, the Maker has caused this instrument to be executed this the
12th day of February, 1996
MAKER: WESTERN FIDELITY FUNDING, INC. a Colorado
corporation
By: /s/ Gene E. Osborn
------------------------------------
Gene E. Osborn, President
<PAGE>
PLEDGE AGREEMENT
This pledge is made as of this 12th day of February, 1996 by WESTERN
FIDELITY FUNDING, INC. (hereinafter referred to as "WFFI"), to WESTERN FRATERNAL
LIFE ASSOCIATION (hereinafter referred to as "Lender").
RECITALS
WHEREAS WFFI has acquired and is the owner of the automobile installment
sale contracts ("Contracts") listed on Exhibit A attached hereto and
incorporated herein by this reference, and
WHEREAS Lender requires the right to collect payments made by the maker(s)
of the Contracts, and the right to enforce all of WFFI's rights, claims and
interests related to said Contracts, (including but not limited to the right to
repossess the auto(s) which are the subject of the Contracts herein pledged).
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, WFFI and Lender agree as follows:
1. The Contracts are hereby pledged to Lenders to secure payment of
Lender's loan to WFFI evidenced by a Promissory Note dated February 12, 1996 in
the amount of $508,145.79.
2. In accordance with the terms of the Promissory Note which is secured by
this Pledge Agreement, WFFI agrees that in the event any individual retail
installment contract contained in the Contracts is prepaid by a customer,
prepaid from insurance proceeds in the event of destruction of any automobile
which is security for any retail installment sale contract or becomes sixty (60)
days or more past due (the "Substitution Events"), WFFI will substitute a
similar retail installment contract in substantially like amount and terms for
the retail installment contract to be replaced. This Pledge Agreement shall
continue to apply to any substitute retail installment sale contract which
replaces any retail installment sale contract previously included in the
Contracts pledged hereunder.
3. WFFI agrees to notify Lender promptly of any material changes involving
the Contracts, including, but not limited to, prompt notice of any Substitution
Event or any other proceeding which WFF] may be notified of which may materially
and adversely affects WFFI's or Lender's rights under the terms and conditions
of the Contracts or to the collateral encumbered by said Contracts.
<PAGE>
4. As the principal balance of the Note secured hereby is repaid, the
Lender agrees to release that portion of the Contracts from this Pledge
Agreement as corresponds to the reduction or the principal balance and accrued
interest due under the Note for each one dollar reduction in the principal and
accrued interest due under the Note, a proportionate amount of Contracts shall
be released from this Pledge Agreement and shall thereafter be free of the lien
or pledge created hereunder. In no event shall the amount of principal and
interest remaining on the Contracts pledged hereunder be less that the amount of
principal and interest outstanding on the Note.
5. This Pledge Agreement shall terminate when the obligation has been paid
in full. No waiver by the Lenders of any default shall be effective unless in
writing nor operate as a waiver of any other default or of the same default on a
future occasion. All rights of the Lender hereunder shall inure to the benefit
of its successors and bind the successors and assigns of the WFFI, This Pledge
Agreement shall take effect when signed by the parties hereto.
6. WFFI agrees to pay any and all of Lender's costs, including reasonable
attorney's fees, incurred in exercising or enforcing its rights under this
Pledge Agreement.
7. All notices, requests and other communications hereunder shall be given
in writing and shall be deemed sufficiently given, served, or received for all
purposes when delivered personally, by United States mail, postage prepaid,
return receipt requested, by express courier, or by Immediate Notice, and
properly addressed as follows, or to such other address as shall be set forth in
a notice given in accordance with this Section 7.
(a) in the case of Holder to
Western Fraternal Life Association
1900 First Avenue NE
Cedar Rapids, Iowa 52492
Attention: Mr. Philip J. Torticill
Telephone #: (319)363-2653
(b) in the case of Maker to:
Western Fidelity Funding, Inc.
4704 Harlan Street, Suite 260
Denver, Colorado 80212-7417
Attention: Mr. Gene Osborn, President
Telephone #: (800) 223-9334
Telefax # (800) 854-7939
<PAGE>
8. Miscellaneous.
(a) This Pledge Agreement sets forth the entire understanding of the
parties hereto with respect to the subject matter hereof and shall not be
changed, modified, or terminated except by a written instrument, duly executed
by all parties hereto. No waiver of any term or condition herein by any party
hereto shall be effective unless such waiver shall be expressed in a written
instrument duly executed by the party or parties against whom enforcement of
such waiver is sought.
(b) Any un-enforceability for any reason against any person or persons
or in any particular circumstance of any provision of this Pledge Agreement
shall not limit or impair the operation of validity of any other provision of
this Pledge Agreement and shall not limit or impair the operation and validity
of the same provision or provisions against any other person or persons or in
any other particular circumstances.
(c) Should any provision of this Pledge Agreement violate any federal,
state or local law or ordinance, that provision shall be deemed amended to so
comply with such law or ordinance, and shall be construed in a manner so as to
comply.
(d) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, executors, administrators, legal
representatives, successors, and permitted assigns.
(e) This Agreement shall be deemed entered into within Colorado and
shall be governed by and interpreted in accordance with the laws of the State of
Colorado (without giving effect to principles relating to conflicts of laws).
(f) Legal matters in connection with the Note(s) and any security
agreement, Pledge Agreement or other documents securing the Note(s) have been
prepared or reviewed on behalf of WFFI as its counsel by Marya L. Brancio
("WFFI's Counsel"). WFFI's Counsel does not purport to have made any
investigation or to have acted independently on behalf of any payee, holder, or
assignee of any note or any secured party or pledgee and has relied upon
representations made by WFFI as to all matters which affect the Note(s) or any
collateral security therefore. Each payee, holder, assignee, pledgee or secured
party of the Note(s) or any security agreement or Pledge Agreement must look to
its own counsel in connection with any loan represented by the Note(s) or any
collateral therefore and understand that Marya L. Brancio has acted only as
WFFI's Counsel.
(g) All actions or proceedings in any way, manner or respect, arising
from or related to this Agreement may be litigated in courts having situs within
the State of Colorado. WFFI and Lender hereby consent and submit to the
jurisdiction of any local, state or federal court located in said state. Each
party hereby waives any right it may have to transfer or change of venue of any
litigation in accordance herewith.
<PAGE>
(h) Each party hereto waives any right to a trial by jury in any
action or proceeding to enforce or defend any rights (i) under this Agreement or
any amendment, instrument, document or agreement delivered or which may in the
future be delivered in connection herewith, or (ii) arising from any
relationship existing in connection with this Agreement, and agree that any such
action or proceeding shall be tried before a court and not before a jury.
(i) This Agreement may be executed in any number of counterparts, and
each such counterpart shall be deemed to any original and all such counterparts
shall constitute but one and the same instrument. Facsimile signatures shall be
considered as original signatures.
Dated this 12th day of February, 1996.
WESTERN FIDELITY FUNDING, INC.
By: /s/ Gene E. Osborn
-----------------------------------------
Gene E. Osborn, President
WESTERN FRATERNAL LIFE ASSOCIATION
By: /s/ Philip J. Torticill
-----------------------------------------
Name: Philip J. Torticill
--------------------------------------
Its: Vice President
--------------------------------------
<PAGE>
SECURITY AGREEMENT
This Agreement entered into between WESTERN FIDELITY FUNDING, INC., a
Colorado corporation ("Debtor") and WESTERN FRATERNAL LIFE ASSOCIATION (the
"Secured Party"), The Debtor hereby warrants and covenants that:
Section 1.0 Collateral. The Debtor is the beneficial owner of the
"Collateral" which consists of the retail installment sale contracts entered
into between the customer and the Debtor (the "Contracts"). The Contracts which
comprise the Collateral are listed on Exhibit A attached hereto and incorporated
herein by this reference. The Collateral will be maintained by the Debtor at its
principal office and Debtor will service the collection of the Contracts. Except
for the security interest granted hereby, the collateral will be free from any
prior lien, security interest, pledge or encumbrance, and the Debtor will defend
the Collateral against all claims and demands of all persons at any time
claiming the same or any interest therein.
Section 2.0 No Transfer. The Debtor will not sell or otherwise transfer or
encumber the Collateral or any interest therein without the prior written
consent of the Secured Party,
Section 3.0 Perfection of Interest. The Debtor will immediately notify the
Secured Party in writing of any change in address from that shown in this
Agreement and will also upon demand furnish to the Secured Party such further
information and will execute and deliver to the Secured Party such financing
statements, mortgages and other papers and will do all such acts and things as
the Secured Party may at any time or from time to time reasonably request and/or
as may be necessary or appropriate to establish and maintain a valid security
interest in the Collateral as security for the obligations, subject to no prior
liens or encumbrances.
Section 4.0 Insurance. The Debtor will keep the Collateral at all times
insured against risks of loss and such other casualties as the Secured Party may
reasonably require, all in such amounts, under such forms of policies, including
the Indemnity Policy currently issued by Empire Fire & Marine, upon such terms,
for such periods and written by such other companies or underwriters as the
Secured Party may approve, but in no event less than the face value of the loan
on the Vehicle, losses in all cases to be payable to the Secured Party and
Debtor as their respective interests may appear. All policies of insurance shall
provide for at least ten days prior written notice cancellation to the Secured
Party, and the Debtor shall furnish the Secured Party with certificates of such
insurance or other evidence satisfactory to the Secured Party as to compliance
with the provisions of this paragraph. The Secured Party may act as attorney for
the Debtor in making, adjusting and settling claims under or canceling such
insurance and endorsing the Debtors name on any drafts drawn by insurers of the
Collateral.
<PAGE>
Section 5.0 Free of Liens. The Debtor will keep the Collateral free from
any adverse lien, security interest, pledge or encumbrance and will not waste or
destroy the Collateral or any part thereof and will not use the Collateral in
violation of any applicable statute, ordinance or policy of insurance thereon.
Upon reasonable notice, the Secured Party may examine and inspect the books and
records of Debtor at any reasonable time or times.
Section 6.0 Substitution of Collateral. In accordance with the terms of the
Promissory Note which is secured by this Security Agreement, Debtor agrees that
in the event any individual retail installment contract contained in the
Contracts is prepaid by a customer, prepaid from insurance proceeds in the event
of destruction of any automobile which is security for any retail installment
sale contract or becomes sixty (60) days or more past due (the "Substitution
Events"), Debtor will substitute a similar retail installment contract in
substantially like amount and terms for the retail installment contract to be
replaced. This Security Agreement shall continue to apply to any substituted
retail installment contract which replaces any retail installment sale contract
previously included in the Contracts listed as collateral hereunder.
Section 7.0 Notice of Matters Affecting Collateral. Debtor agrees to notify
secured party promptly of any material changes involving the Contracts,
including, but not limited to, prompt notice of any Substitution Event or any
other proceeding which Debtor may be notified of which may materially and
adversely affect Debtor' s or Lender's rights under the terms and conditions of
the Contracts or to the collateral encumbered by said Contracts.
Section 8.0 Taxes. The Debtor will pay promptly when due all taxes and
assessments upon the Collateral, if any.
Section 9.0 Additional Rights of Parties. At its option but without
obligation to do so, the Secured party may (a) discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on the Collateral;
(b) place and pay for insurance on Collateral in the event Debtor fails to keep
the Collateral insured.
Section 10.0 Events of Default-Remedies. Upon the happening of any of the
following events or conditions and within ten day notice thereof, namely; (a)
default in the payment or performance of any of the obligations or of any
covenant contained or referred to herein or in any note evidencing any of the
obligations; (b) any warranty, representation or statement make or furnished to
the Secured Party by or on behalf of the Debtor in connection with this
Agreement proving to have been false in material respect when made or furnished,
(c) substantial amount of sale or encumbrance of the Collateral as determined in
the sale or encumbrance of the Collateral as determined in the reasonable
discretion of the Secured Party, or the making of any levy, seizure or
attachment thereof or thereon, (d) death, dissolution, termination of existence,
insolvency, business failure, appointment of a receiver of any part of the
Collateral of, assignment for the benefit of creditors by, or the commencement
<PAGE>
of any proceedings under any bankruptcy or insolvency laws by, against or of
Debtor or any guarantor or surety for the Debtor, thereupon or at any time
thereafter (such default not having previously been cured), the Secured Party at
its option may declare all obligations that are in default to be immediately due
and payable, subject to any notice required by law or agreement, and shall then
have the remedies of a secured party under the Uniform Commercial Code ("UCC"),
or other applicable law, including, without limitation thereto, the right to
take possession of the Collateral, and for that purpose may pursue the
Collateral whenever the same may be found and with or without legal process, but
without a breach of the peace, may enter any premises where the Collateral may
be found and take possession thereof and remove the same.
Section 11.0 No Waste. The Secured Party may require the Debtor to make the
Collateral available to the Secured Party at a place to be designated by the
Secured Party which is reasonably convenient to both parties. The Secured Party
will give at least ten (10) days written notice to Debtor at the address shown
herein of the time and place of any public sale thereof or of the time after
which any private sale or any other intended disposition thereof is to be made.
Expenses of retaking, holding. preparing for sale, selling or the like shall,
subject to UCC limits if applicable, include the Secured Party's reasonable
attorney's fees and costs.
Section 12.0 Release of Collateral. As the principal balance of the Note
secured hereby is repaid, the Secured Party agrees to release that portion of
the Collateral from this Security Agreement as corresponds to the reduction of
the principal balance and accrued interest due under the Note. For each one
dollar reduction in the principal and accrued interest due under the Note, a
proportionate amount of Collateral shall be released from this Security
Agreement and shall thereafter be free of the lien and encumbrance created
hereunder. In no event shall the amount of principal and interest remaining on
the contracts constituting the Collateral be less than the amount of principal
and interest outstanding on the Note.
Section 13.0 General. This Agreement and the security interest in the
Collateral created hereby shall terminate when the obligation has been paid in
full. No waiver by the Secured Party of any default shall be effective unless in
writing nor operate as a waiver of any other default or of the same default on a
future occasion. All rights of the Secured Party hereunder shall inure to the
benefit of its successors and bind the successors and assigns of the Debtor. If
there be more than one Debtor, their obligations hereunder shall be joint and
several. This Agreement shall take effect when signed by the parties hereto.
Section 14.0 Construction. Should any provision of this Agreement violate
any federal, state or local law or ordinance, that provision shall be construed
in a manner so as to comply.
Section 15.0 Notices. All notices, requests and other communications
hereunder shall be given in writing and shall be deemed sufficiently given,
served, or received for all purposes when delivered personally, by United States
<PAGE>
mail, postage prepaid, return receipt requested, by express courier, or by
Immediate Notice, and properly addressed as follows, or to such other address as
shall be set forth in a notice given in accordance with this Section 15.0.
(a) in the case of Holder to:
Western Fraternal Life Association
1900 First Avenue NE
Cedar Rapids, Iowa 52492
Attention: Mr. Philip J. Torticill
Telephone #: (319)363-2653
(b) in the case of Maker to:
Western Fidelity Funding, Inc.
4704 Harlan Street, Suite 260
Denver, Colorado 80212-7417
Attention: Mr. Gene Osborn, President
Telephone # (800) 223-9334
Telefax #: (800) 854-7939
Section 16.0 Miscellaneous.
(a) This Security Agreement sets forth the entire understanding of the
parties hereto with respect to the subject matter hereof and shall not be
changed, modified, or terminated except by a written instrument, duly executed
by all parties hereto. No waiver of any term or condition herein by any party
hereto shall be effective unless such waiver shall be expressed in a written
instrument duly executed by the party or parties against whom enforcement of
such waiver is sought.
(b) Any un-enforceability for any reason against any person or persons
or in any particular circumstance of any provision of this Security Agreement
shall not limit or impair the operation of validity of any other provision of
this Security Agreement and shall not limit or impair the operation and validity
of the same provision or provisions against any other person or persons or in
any other particular circumstances.
(c) This Security Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors, and permitted assigns.
(d) This Agreement shall be deemed entered into within Colorado and
Shall be governed by and interpreted in accordance with the laws of the State of
Colorado (without giving effect to principles relating to conflicts of laws).
<PAGE>
(e) Legal matters in connection with the Note(s) and any security
agreement, pledge or other documents securing the Note(s) have been prepared or
reviewed on behalf of the debtor as its counsel by Marya L. Brancio ("Debtor's
Counsel"). Debtor's Counsel does not purport to have made any investigation or
to have acted independently on behalf of any payee, holder, or assignee of any
note or any secured party and has relied upon representations made by Western
Fidelity Funding, Inc., as to all matters which affect the Note(s) or any
collateral security therefore. Each payee, holder, assignee or secured party of
the Note(s) or any security agreement or pledge agreement must look to its own
counsel in connection with any loan represented by the Note(s) or any collateral
therefore and understand that Marya L. Brancio has acted only as Debtor's
Counsel.
If) All actions or proceedings in any way, manner or respect, arising
from or related to this Security Agreement may be litigated in courts having
situs within the State of Colorado. Debtor and Secured Party hereby consent and
Submit to the jurisdiction of any local, state or federal court located in said
state. Each party hereby waives any right it may have to transfer or change of
venue of any litigation in accordance herewith.
(g) Each party hereto waives any right to a trial by jury in any
action or proceeding to enforce or defend any rights (i) under this Security
Agreement or any amendment, instrument, document or agreement delivered or which
may in the future be delivered in connection herewith, or (ii) arising from any
relationship existing in connection with this Agreement, and agree that any such
action or proceeding shall be tried before a court and not before a jury.
(h) This Agreement may be executed in any number of counterparts, and
each such counterpart shall be deemed to an original and all such counterparts
shall constitute but one and the same instrument. Facsimile signatures shall be
considered as original signatures.
Dated this 12th day of February, 1996.
DEBTOR: SECURED PARTY:
WESTERN FIDELITY FUNDING, INC. WESTERN FRATERNAL LIFE ASSOCIATION
By: /s/ Gene E. Osborn By: /s/ Philip J. Torticill
----------------------------------- ------------------------------
Gene E. Osborn, President
Name: Philip J. Torticill
----------------------------
Its: Vice President
<PAGE>
NOTICE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AS A COMMERCIAL LOAN NOT CONSTITUTING A SECURITY OR IN
RELIANCE ON AN EXEMPTION PROVIDED IN THE ACT AND/OR RULES AND REGULATIONS
PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, OR OTHERWISE DISPOSED OF BY ANY PAYEE, OR HOLDER THEREIN
UNLESS THE NOTE IS REGISTERED UNDER THE ACT OF THE MAKER RECEIVES AN OPINION OF
COUNSEL ACCEPTABLE TO IT THAT SUCH REGISTRATION IS NOT REQUIRED, AND THEN ONLY
IN COMPLIANCE WITH STATE SECURITIES LAWS. IN ADDITION, THE NOTE HAS NOT BEEN
REGISTERED UNDER THE COLORADO SECURITIES ACT OF 1990 BY REASON OF THE COMMERCIAL
LOAN NOT CONSTITUTING A SECURITY OR SPECIFIC EXEMPTIONS THEREUNDER RELATING TO
THE LIMITED AVAILABILITY OF THE NOTE. THE NOTE CANNOT BE SOLD, TRANSFERRED,
ASSIGNED OR OTHERWISE DISPOSED OF TO ANY PERSON OF ENTITY UNLESS SUBSEQUENTLY
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE COLORADO
SECURITIES ACT OF 1990, IF SUCH REGISTRATION IS REQUIRED. FURTHER, THE NOTE HAS
NOT BEEN REVIEWED APPROVED OR DISAPPROVED BY THE SECRETARY OF STATE, OR OTHER
SIMILAR GOVERNMENTAL OFFICE, OF ANY OTHER STATE.
PROMISSORY NOTE
(Commercial Loan)
$499,490.21 January 23, 1997
FOR VALUE RECEIVED, the undersigned promises to pay to WESTERN FRATERNAL
LIFE ASSOCIATION (individually referred to as "Holder") at the address for
Holder shown in the Notice provision hereof, or as such other address as any
Holder may from time to time designate in writing in accordance with the Notice
provision, in the legal and lawful tender of the United States, the principal
sum of FOUR HUNDRED NINETY-NINE THOUSAND FOUR HUNDRED NINETY AND 21/100'S
DOLLARS ($499,490.21), together with interest which shall accrue at the rate of
nine and eighty five one hundredths percent (9.85%) per annum payable on the
terms set forth in paragraph I hereof.
I. Terms of Repayment. The principal shall be amortized over forty eight
(57) months with interest at the rate of nine and eighty five one hundredths
percent (9.85%) per annum resulting in monthly payments of principal and
interest in the amount of ELEVEN THOUSAND SEVEN AND 52/100'S DOLLARS
($11,007.52). An amortization schedule is attached hereto as Exhibit A and
incorporated herein by this reference. Said monthly payments shall commence on
<PAGE>
the twentieth day of February, 1996 and on the twentieth day of each month
thereafter until this Note is paid in full. The first monthly payment shall be
adjusted to reflect only that interest due in arrears from the date the
principal is advanced by Holder to Maker. The last monthly payment shall be
adjusted to reflect any prepayments or principal reductions during the term of
this Note. Payments shall be due on the twentieth day of each month and shall be
considered delinquent on the thirtieth day of each month.
2. Application of Payment. All payments of principal and interest by Maker
to the Holder of this Note shall be first applied to accrued interest with the
balance applied to principal.
3. Security. This Note shall be secured by Maker's Security Agreement and
Pledge Agreement which pledges retail installment sale contracts entered into
between various customers and the Maker for the purchase of automobiles, more
particularly described in the Security Agreement and Pledge Agreement (the
"Contracts" or "Collateral"). Maker shall continue to service and collect the
payments on said Contracts in accordance with their terms from the life of the
Contracts, Maker covenants and agrees that the outstanding principal balance
plus accrued interest payable over the life of said Contracts in monthly
payments from customers shall be equal to or greater than principal and interest
payable to Holder under this Note, which payments due under the Contracts are to
be pledged by Maker as security for this Note.
4. Substitution of Collateral. Maker agrees in the event any individual
retail installment contract contained in the Contracts is prepaid by a customer,
prepaid from insurance proceeds in the event of destruction of any automobile
which is security for any retail installment sale contract or becomes sixty (60)
days or more past due (the "Substitution Events"), Maker will substitute a
similar retail installment contract to be replaced. The Security Agreement and
Pledge Agreement which secure this Note shall continue to apply to any
substituted retail installment contract which replaces any retail installment
contract previously included in the Contracts or Collateral.
5. Release of Collateral. As the principal balance of this Note is repaid
(including prepayments), the Holder agrees to release that portion of the
Collateral from the Security Agreement and Pledge Agreement which secures this
Note as corresponds to the reduction of the principal balance and accrued
interest due under this Note. For each one dollar reduction in the principal and
accrued interest due under this Note, a proportionate amount of Collateral shall
be released from the Security Agreement and Pledge Agreement and shall
thereafter be free of the lien and encumbrance created thereunder. In no event
shall the amount of principal and interest remaining on the Contracts
constituting the Collateral be less than the amount of principal and interest
outstanding on the Note.
<PAGE>
6. No Sale, Transfer or Assignment. This Note constitutes a non-negotiable
instrument and shall not be sold, transferred or assigned without the consent of
Maker and without meeting the possible securities registration requirement set
forth in the NOTICE contained above.
7. Miscellaneous.
(a) There shall be no acceleration of any amount due under this Note,
except as specifically provided in this Note,
(b) Upon payment of monies due on this Note, in accordance with its
terms, Holder shall release the collateral or the applicable portion thereof in
accordance with the terms of the Security Agreement and Pledge Agreement.
(c) In the event of a default by Maker on this Note, Holder shall look
solely to the assets of Maker for repayment, including the property, cash and
other property or assets of Maker, but none of the officers, directors, or
shareholders shall have any personal liability for payment hereunder, and no
such action or other legal proceedings shall be brought against any of the
officers, directors or shareholders of Maker, for any deficiency if the
Collateral and assets of Maker are not sufficient to satisfy the repayment of
this Note.
(d) If Maker fails to make any Payment when due hereunder, whether of
principal, interest or otherwise, or commits any default hereunder or under the
Security Agreement, Pledge Agreement or any other instrument related hereto, the
Holder shall have those options set forth in the Security Agreement and Pledge
Agreement after ten (10) days notice to Maker specifying the event of default
after which time this Note shall bear interest at the rate of twelve percent
(12%) per annum, unless the default is timely cured. During the ten (1 0) days
following notice from Holder, the Maker shall have the right to cure any
monetary or non-monetary default and if the cure be made, this Note and the
security therefore shall continue in full force and effect as if no default had
occurred.
(e) This Note sets forth the entire understanding of the parties
hereto with respect to the subject matter hereof and shall not be changed,
modified, or terminated except by a written instrument, duly executed by all
parties hereto. No waiver of any term or condition herein by any party hereto
shall be effective unless such waiver shall be expressed in a written instrument
duly executed by the party or parties against whom enforcement of such waiver is
sought.
<PAGE>
(f) Any un-enforceability for any reason against any person or persons
or in any particular circumstance of any provision of the Note shall not limit
or impair the operation or validity or any other provision of this Note and
shall not limit or impair the operation and validity of the same provision or
provisions against any other person or persons or in any other particular
circumstance.
(g) It is the intention of Maker and Holder that this Note be
construed tin accordance with and governed by the laws of the State of Colorado
for contracts entered into and wholly performed in such state.
(h) The Maker and all other parties who are now or who may hereafter
become liable on this Note severally waive, except as expressly set forth
herein, demand, presentment for payment, protest, notice of dishonor, protest or
intent to accelerate and acceleration and diligence in collecting and bringing
suit against any party liable on this Note.
(i) Holder shall be entitled to collect a reasonable attorney's fee
from the Maker, as well as other costs and expenses reasonably incurred, in
curing any default of or attempting collection of the payment due under the Note
and to receive from the Maker (or in lieu thereof, the Maker may advance) all
expenses paid by the Holder under the terms of the Security Agreement.
(i) This Note is secured by a Security Agreement and Pledge Agreement
of even date made by Maker for the benefit of the Holder hereof and the terms
and provisions of said Security Agreement and Pledge Agreement by this reference
are make a part hereof,
(k) All actions or proceedings in any way, manner or respect, arising
from or related to this Note may be litigated in Courts having situs within the
State of Colorado. Maker and Holder hereby consent and submit to the
jurisdiction of any local, state or federal court located in said state. Each
party hereby waives any right it may have to transfer or change of venue of any
litigation in accordance herewith.
(1) Each party hereto waives any right to a trial by jury in any
action or proceeding to enforce or defend any rights (i) under this Note or any
amendment, instrument, document or agreement delivered or which may in the
future be delivered in connection herewith, or (ii) arising from any
relationship existing in connection with this Note, and agree that any such
action or proceeding shall be tried before a court and not before a jury.
(m) Legal matters in connection with the Note and any Security
Agreement, Pledge Agreement or other documents securing the Note have been
prepared or reviewed on behalf of the Maker as its counsel by Marya L. Brancio
("Maker's Counsel"). Maker's Counsel does not purport to have made any
investigation or to have acted independently on behalf of any payee, holder, or
assignee of any note or any secured party and has relied upon representations
made by Western Fidelity Funding, Inc. as to all matters which affect the Note
or any security agreement or pledge agreement must look to its own counsel in
connection with the commercial loan represented by the Note or any collateral
therefore and understand that Marya L. Brancio has acted only as Maker's
Counsel.
<PAGE>
(n) All notices, requests and other communications hereunder shall be
given in writing and shall be deemed sufficiently given, served, or received for
all purposes when delivered personally, by United States mail, postage prepaid,
return receipt requested, by express courier, or by immediate notice, and
properly addressed as follows, or to such other address as shall be set forth in
a notice given in accordance with this sub-section n
(a) in the case of Holder to:
Western Fraternal Life Association
1900 First Avenue NE
Cedar Rapids, Iowa 52492
Attention: Mr. Philip J. Torticilii
Telephone # (319)363-2653
(b) in the case of Maker to:
Western Fidelity Funding, Inc.
4704 Harlan Street, Suite 260
Denver, Colorado 80212-7417
Attention: Mr. Gene Osborn, President
Telephone #: (800) 223-9334
Telefax # (800) 854-7939
IN WITNESS WHEREOF, the Maker has caused this instrument to be executed this the
31day of January, 1996
MAKER: WESTERN FIDELITY FUNDING, INC. a Colorado
corporation
By: /s/ Gene E. Osborn
------------------------------------
Gene E. Osborn, President
<PAGE>
PLEDGE AGREEMENT
This pledge is made as of this 31st day of January, 1996 by WESTERN
FIDELITY FUNDING, INC. (hereinafter referred to as "WFFI"), to WESTERN FRATERNAL
LIFE ASSOCIATION (hereinafter referred to as "Lender").
RECITALS
WHEREAS WFFI has acquired and is the owner of the automobile installment
sale contracts ("Contracts") listed on Exhibit A attached hereto and
incorporated herein by this reference, and
WHEREAS Lender requires the right to collect payments made by the maker(s)
of the Contracts, and the right to enforce all of WFFI's rights, claims and
interests related to said Contracts, (including but not limited to the right to
repossess the auto(s) which are the subject of the Contracts herein pledged).
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, WFFI and Lender agree as follows:
1. The Contracts are hereby pledged to Lenders to secure payment of
Lender's loan to WFFI evidenced by a Promissory Note dated January 23, 1997 in
the amount of $499,490.21.
2. In accordance with the terms of the Promissory Note which is secured by
this Pledge Agreement, WFFI agrees that in the event any individual retail
installment contract contained in the Contracts is prepaid by a customer,
prepaid from insurance proceeds in the event of destruction of any automobile
which is security for any retail installment sale contract or becomes sixty (60)
days or more past due (the "Substitution Events"), WFFI will substitute a
similar retail installment contract in substantially like amount and terms for
the retail installment contract to be replaced. This Pledge Agreement shall
continue to apply to any substitute retail installment sale contract which
replaces any retail installment sale contract previously included in the
Contracts pledged hereunder.
3. WFFI agrees to notify Lender promptly of any material changes involving
the Contracts, including, but not limited to, prompt notice of any Substitution
Event or any other proceeding which WFF] may be notified of which may materially
and adversely affects WFFI's or Lender's rights under the terms and conditions
of the Contracts or to the collateral encumbered by said Contracts.
<PAGE>
4. As the principal balance of the Note secured hereby is repaid, the
Lender agrees to release that portion of the Contracts from this Pledge
Agreement as corresponds to the reduction or the principal balance and accrued
interest due under the Note for each one dollar reduction in the principal and
accrued interest due under the Note, a proportionate amount of Contracts shall
be released from this Pledge Agreement and shall thereafter be free of the lien
or pledge created hereunder. In no event shall the amount of principal and
interest remaining on the Contracts pledged hereunder be less that the amount of
principal and interest outstanding on the Note.
5. This Pledge Agreement shall terminate when the obligation has been paid
in full. No waiver by the Lenders of any default shall be effective unless in
writing nor operate as a waiver of any other default or of the same default on a
future occasion. All rights of the Lender hereunder shall inure to the benefit
of its successors and bind the successors and assigns of the WFFI, This Pledge
Agreement shall take effect when signed by the parties hereto.
6. WFFI agrees to pay any and all of Lender's costs, including reasonable
attorney's fees, incurred in exercising or enforcing its rights under this
Pledge Agreement.
7. All notices, requests and other communications hereunder shall be given
in writing and shall be deemed sufficiently given, served, or received for all
purposes when delivered personally, by United States mail, postage prepaid,
return receipt requested, by express courier, or by Immediate Notice, and
properly addressed as follows, or to such other address as shall be set forth in
a notice given in accordance with this Section 7.
(a) in the case of Holder to
Western Fraternal Life Association
1900 First Avenue NE
Cedar Rapids, Iowa 52492
Attention: Mr. Philip J. Torticill
Telephone #: (319)363-2653
(b) in the case of Maker to:
Western Fidelity Funding, Inc.
4704 Harlan Street, Suite 260
Denver, Colorado 80212-7417
Attention: Mr. Gene Osborn, President
Telephone #: (800) 223-9334
Telefax # (800) 854-7939
<PAGE>
8. Miscellaneous.
(a) This Pledge Agreement sets forth the entire understanding of the
parties hereto with respect to the subject matter hereof and shall not be
changed, modified, or terminated except by a written instrument, duly executed
by all parties hereto. No waiver of any term or condition herein by any party
hereto shall be effective unless such waiver shall be expressed in a written
instrument duly executed by the party or parties against whom enforcement of
such waiver is sought.
(b) Any un-enforceability for any reason against any person or persons
or in any particular circumstance of any provision of this Pledge Agreement
shall not limit or impair the operation of validity of any other provision of
this Pledge Agreement and shall not limit or impair the operation and validity
of the same provision or provisions against any other person or persons or in
any other particular circumstances.
(c) Should any provision of this Pledge Agreement violate any federal,
state or local law or ordinance, that provision shall be deemed amended to so
comply with such law or ordinance, and shall be construed in a manner so as to
comply.
(d) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, executors, administrators, legal
representatives, successors, and permitted assigns.
(e) This Agreement shall be deemed entered into within Colorado and
shall be governed by and interpreted in accordance with the laws of the State of
Colorado (without giving effect to principles relating to conflicts of laws).
(f) Legal matters in connection with the Note(s) and any security
agreement, Pledge Agreement or other documents securing the Note(s) have been
prepared or reviewed on behalf of WFFI as its counsel by Marya L. Brancio
("WFFI's Counsel"). WFFI's Counsel does not purport to have made any
investigation or to have acted independently on behalf of any payee, holder, or
assignee of any note or any secured party or pledgee and has relied upon
representations made by WFFI as to all matters which affect the Note(s) or any
collateral security therefore. Each payee, holder, assignee, pledgee or secured
party of the Note(s) or any security agreement or Pledge Agreement must look to
its own counsel in connection with any loan represented by the Note(s) or any
collateral therefore and understand that Marya L. Brancio has acted only as
WFFI's Counsel.
(g) All actions or proceedings in any way, manner or respect, arising
from or related to this Agreement may be litigated in courts having situs within
the State of Colorado. WFFI and Lender hereby consent and submit to the
jurisdiction of any local, state or federal court located in said state. Each
party hereby waives any right it may have to transfer or change of venue of any
litigation in accordance herewith.
<PAGE>
(h) Each party hereto waives any right to a trial by jury in any
action or proceeding to enforce or defend any rights (i) under this Agreement or
any amendment, instrument, document or agreement delivered or which may in the
future be delivered in connection herewith, or (ii) arising from any
relationship existing in connection with this Agreement, and agree that any such
action or proceeding shall be tried before a court and not before a jury.
(i) This Agreement may be executed in any number of counterparts, and
each such counterpart shall be deemed to any original and all such counterparts
shall constitute but one and the same instrument. Facsimile signatures shall be
considered as original signatures.
Dated this 23rd day of January, 1997.
WESTERN FIDELITY FUNDING, INC.
By: /s/ Gene E. Osborn
-----------------------------------------
Gene E. Osborn, President
WESTERN FRATERNAL LIFE ASSOCIATION
By: /s/ Philip J. Torticill
-----------------------------------------
Name: Philip J. Torticill
--------------------------------------
Its: Vice President
--------------------------------------
<PAGE>
SECURITY AGREEMENT
This Agreement entered into between WESTERN FIDELITY FUNDING, INC., a
Colorado corporation ("Debtor") and WESTERN FRATERNAL LIFE ASSOCIATION (the
"Secured Party"), The Debtor hereby warrants and covenants that:
Section 1.0 Collateral. The Debtor is the beneficial owner of the
"Collateral" which consists of the retail installment sale contracts entered
into between the customer and the Debtor (the "Contracts"). The Contracts which
comprise the Collateral are listed on Exhibit A attached hereto and incorporated
herein by this reference. The Collateral will be maintained by the Debtor at its
principal office and Debtor will service the collection of the Contracts. Except
for the security interest granted hereby, the collateral will be free from any
prior lien, security interest, pledge or encumbrance, and the Debtor will defend
the Collateral against all claims and demands of all persons at any time
claiming the same or any interest therein.
Section 2.0 No Transfer. The Debtor will not sell or otherwise transfer or
encumber the Collateral or any interest therein without the prior written
consent of the Secured Party,
Section 3.0 Perfection of Interest. The Debtor will immediately notify the
Secured Party in writing of any change in address from that shown in this
Agreement and will also upon demand furnish to the Secured Party such further
information and will execute and deliver to the Secured Party such financing
statements, mortgages and other papers and will do all such acts and things as
the Secured Party may at any time or from time to time reasonably request and/or
as may be necessary or appropriate to establish and maintain a valid security
interest in the Collateral as security for the obligations, subject to no prior
liens or encumbrances.
Section 4.0 Insurance. The Debtor will keep the Collateral at all times
insured against risks of loss and such other casualties as the Secured Party may
reasonably require, all in such amounts, under such forms of policies, including
the Indemnity Policy currently issued by Empire Fire & Marine, upon such terms,
for such periods and written by such other companies or underwriters as the
Secured Party may approve, but in no event less than the face value of the loan
on the Vehicle, losses in all cases to be payable to the Secured Party and
Debtor as their respective interests may appear. All policies of insurance shall
provide for at least ten days prior written notice cancellation to the Secured
Party, and the Debtor shall furnish the Secured Party with certificates of such
insurance or other evidence satisfactory to the Secured Party as to compliance
with the provisions of this paragraph. The Secured Party may act as attorney for
the Debtor in making, adjusting and settling claims under or canceling such
insurance and endorsing the Debtors name on any drafts drawn by insurers of the
Collateral.
<PAGE>
Section 5.0 Free of Liens. The Debtor will keep the Collateral free from
any adverse lien, security interest, pledge or encumbrance and will not waste or
destroy the Collateral or any part thereof and will not use the Collateral in
violation of any applicable statute, ordinance or policy of insurance thereon.
Upon reasonable notice, the Secured Party may examine and inspect the books and
records of Debtor at any reasonable time or times.
Section 6.0 Substitution of Collateral. In accordance with the terms of the
Promissory Note which is secured by this Security Agreement, Debtor agrees that
in the event any individual retail installment contract contained in the
Contracts is prepaid by a customer, prepaid from insurance proceeds in the event
of destruction of any automobile which is security for any retail installment
sale contract or becomes sixty (60) days or more past due (the "Substitution
Events"), Debtor will substitute a similar retail installment contract in
substantially like amount and terms for the retail installment contract to be
replaced. This Security Agreement shall continue to apply to any substituted
retail installment contract which replaces any retail installment sale contract
previously included in the Contracts listed as collateral hereunder.
Section 7.0 Notice of Matters Affecting Collateral. Debtor agrees to notify
secured party promptly of any material changes involving the Contracts,
including, but not limited to, prompt notice of any Substitution Event or any
other proceeding which Debtor may be notified of which may materially and
adversely affect Debtor' s or Lender's rights under the terms and conditions of
the Contracts or to the collateral encumbered by said Contracts.
Section 8.0 Taxes. The Debtor will pay promptly when due all taxes and
assessments upon the Collateral, if any.
Section 9.0 Additional Rights of Parties. At its option but without
obligation to do so, the Secured party may (a) discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on the Collateral;
(b) place and pay for insurance on Collateral in the event Debtor fails to keep
the Collateral insured.
Section 10.0 Events of Default-Remedies. Upon the happening of any of the
following events or conditions and within ten day notice thereof, namely; (a)
default in the payment or performance of any of the obligations or of any
covenant contained or referred to herein or in any note evidencing any of the
obligations; (b) any warranty, representation or statement make or furnished to
the Secured Party by or on behalf of the Debtor in connection with this
Agreement proving to have been false in material respect when made or furnished,
(c) substantial amount of sale or encumbrance of the Collateral as determined in
the sale or encumbrance of the Collateral as determined in the reasonable
discretion of the Secured Party, or the making of any levy, seizure or
attachment thereof or thereon, (d) death, dissolution, termination of existence,
insolvency, business failure, appointment of a receiver of any part of the
Collateral of, assignment for the benefit of creditors by, or the commencement
of any proceedings under any bankruptcy or insolvency laws by, against or of
<PAGE>
Debtor or any guarantor or surety for the Debtor, thereupon or at any time
thereafter (such default not having previously been cured), the Secured Party at
its option may declare all obligations that are in default to be immediately due
and payable, subject to any notice required by law or agreement, and shall then
have the remedies of a secured party under the Uniform Commercial Code ("UCC"),
or other applicable law, including, without limitation thereto, the right to
take possession of the Collateral, and for that purpose may pursue the
Collateral whenever the same may be found and with or without legal process, but
without a breach of the peace, may enter any premises where the Collateral may
be found and take possession thereof and remove the same.
Section 11.0 No Waste. The Secured Party may require the Debtor to make the
Collateral available to the Secured Party at a place to be designated by the
Secured Party which is reasonably convenient to both parties. The Secured Party
will give at least ten (10) days written notice to Debtor at the address shown
herein of the time and place of any public sale thereof or of the time after
which any private sale or any other intended disposition thereof is to be made.
Expenses of retaking, holding. preparing for sale, selling or the like shall,
subject to UCC limits if applicable, include the Secured Party's reasonable
attorney's fees and costs.
Section 12.0 Release of Collateral. As the principal balance of the Note
secured hereby is repaid, the Secured Party agrees to release that portion of
the Collateral from this Security Agreement as corresponds to the reduction of
the principal balance and accrued interest due under the Note. For each one
dollar reduction in the principal and accrued interest due under the Note, a
proportionate amount of Collateral shall be released from this Security
Agreement and shall thereafter be free of the lien and encumbrance created
hereunder. In no event shall the amount of principal and interest remaining on
the contracts constituting the Collateral be less than the amount of principal
and interest outstanding on the Note.
Section 13.0 General. This Agreement and the security interest in the
Collateral created hereby shall terminate when the obligation has been paid in
full. No waiver by the Secured Party of any default shall be effective unless in
writing nor operate as a waiver of any other default or of the same default on a
future occasion. All rights of the Secured Party hereunder shall inure to the
benefit of its successors and bind the successors and assigns of the Debtor. If
there be more than one Debtor, their obligations hereunder shall be joint and
several. This Agreement shall take effect when signed by the parties hereto.
Section 14.0 Construction. Should any provision of this Agreement violate
any federal, state or local law or ordinance, that provision shall be construed
in a manner so as to comply.
Section 15.0 Notices. All notices, requests and other communications
hereunder shall be given in writing and shall be deemed sufficiently given,
served, or received for all purposes when delivered personally, by United States
<PAGE>
mail, postage prepaid, return receipt requested, by express courier, or by
Immediate Notice, and properly addressed as follows, or to such other address as
shall be set forth in a notice given in accordance with this Section 15.0.
(a) in the case of Holder to:
Western Fraternal Life Association
1900 First Avenue NE
Cedar Rapids, Iowa 52492
Attention: Mr. Philip J. Torticill
Telephone #: (319)363-2653
(b) in the case of Maker to:
Western Fidelity Funding, Inc.
4704 Harlan Street, Suite 260
Denver, Colorado 80212-7417
Attention: Mr. Gene Osborn, President
Telephone # (800) 223-9334
Telefax #: (800) 854-7939
Section 16.0 Miscellaneous.
(a) This Security Agreement sets forth the entire understanding of the
parties hereto with respect to the subject matter hereof and shall not be
changed, modified, or terminated except by a written instrument, duly executed
by all parties hereto. No waiver of any term or condition herein by any party
hereto shall be effective unless such waiver shall be expressed in a written
instrument duly executed by the party or parties against whom enforcement of
such waiver is sought.
(b) Any un-enforceability for any reason against any person or persons
or in any particular circumstance of any provision of this Security Agreement
shall not limit or impair the operation of validity of any other provision of
this Security Agreement and shall not limit or impair the operation and validity
of the same provision or provisions against any other person or persons or in
any other particular circumstances.
(c) This Security Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors, and permitted assigns.
(d) This Agreement shall be deemed entered into within Colorado and
Shall be governed by and interpreted in accordance with the laws of the State of
Colorado (without giving effect to principles relating to conflicts of laws).
<PAGE>
(e) Legal matters in connection with the Note(s) and any security
agreement, pledge or other documents securing the Note(s) have been prepared or
reviewed on behalf of the debtor as its counsel by Marya L. Brancio ("Debtor's
Counsel"). Debtor's Counsel does not purport to have made any investigation or
to have acted independently on behalf of any payee, holder, or assignee of any
note or any secured party and has relied upon representations made by Western
Fidelity Funding, Inc., as to all matters which affect the Note(s) or any
collateral security therefore. Each payee, holder, assignee or secured party of
the Note(s) or any security agreement or pledge agreement must look to its own
counsel in connection with any loan represented by the Note(s) or any collateral
therefore and understand that Marya L. Brancio has acted only as Debtor's
Counsel.
(f) All actions or proceedings in any way, manner or respect, arising
from or related to this Security Agreement may be litigated in courts having
situs within the State of Colorado. Debtor and Secured Party hereby consent and
Submit to the jurisdiction of any local, state or federal court located in said
state. Each party hereby waives any right it may have to transfer or change of
venue of any litigation in accordance herewith.
(g) Each party hereto waives any right to a trial by jury in any
action or proceeding to enforce or defend any rights (i) under this Security
Agreement or any amendment, instrument, document or agreement delivered or which
may in the future be delivered in connection herewith, or (ii) arising from any
relationship existing in connection with this Agreement, and agree that any such
action or proceeding shall be tried before a court and not before a jury.
(h) This Agreement may be executed in any number of counterparts, and
each such counterpart shall be deemed to an original and all such counterparts
shall constitute but one and the same instrument. Facsimile signatures shall be
considered as original signatures.
Dated this23rd day of January, 1997.
DEBTOR: SECURED PARTY:
WESTERN FIDELITY FUNDING, INC. WESTERN FRATERNAL LIFE ASSOCIATION
By: /s/ Gene E. Osborn By: /s/ Philip J. Torticill
----------------------------------- ------------------------------
Gene E. Osborn, President
Name: Philip J. Torticill
----------------------------
Its: Vice President
[EXECUTION COPY]
- --------------------------------------------------------------------------------
AUTO LOAN WAREHOUSE
CREDIT AND SECURITY AGREEMENT
Between
PRINCETON CAPITAL CREDIT CORPORATION,
as Lender,
and
WESTERN FIDELITY FUNDING INC.,
as Borrower
Dated as of August 12, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS .............................................................. 1
SECTION 1.1 Defined Terms ....................................... 1
SECTION 1.2 Number .............................................. 7
SECTION 1.3 Terms Defined in UCC ................................ 7
SECTION 1.4 Accounting Terms .................................... 7
ARTICLE II
LOANS TO THE BORROWER .................................................... 7
SECTION 2.1. Loans .............................................. 7
SECTION 2.2. Procedure for Borrowing ............................ 8
SECTION 2.3. Delivery and Use of Borrowed Funds ................. 9
SECTION 2.4. Maturity of Principal .............................. 9
SECTION 2.5. Accrual of Interest ................................ 9
SECTION 2.6. Application of Collections and Take-Out Receipts. 9
SECTION 2.7. Statement of Account ............................... 11
SECTION 2.8. Additional Payments ................................ 11
SECTION 2.9. Method and Manner of Payment ....................... 11
SECTION 2.10. Application of Payments ........................... 11
SECTION 2.11. Maximum Interest Rate ............................. 11
SECTION 2.12. No Deduction ...................................... 12
SECTION 2.13. Computation of Interest and Fees .................. 12
ARTICLE III
COLLATERAL ............................................................... 12
SECTION 3.1. Security for Loans ................................. 12
SECTION 3.2. Perfection of Security Interest .................... 14
SECTION 3.3. Grant of Lien Not to Alter the Borrower's Loans .... 14
SECTION 3.4. Defense of Lender's Interests ...................... 14
SECTION 3.5. Set-Off ............................................ 14
SECTION 3.6. Post-Closing Documentation ......................... 15
SECTION 3.7. Collateral Agents .................................. 15
SECTION 3.8. Power of Attorney .................................. 15
SECTION 3.9. Exculpation of Liability ........................... 16
ARTICLE IV
ADMINISTRATION AND SERVICING OF AUTO LOANS ............................... 16
ARTICLE V
COLLECTION, RESERVE AND LOCKBOX ACCOUNTS ................................. 16
SECTION 5.1 Establishment and Maintenance of Collection Account . 16
i
<PAGE>
SECTION 5.2 Required Deposits to the Collection Account ......... 17
SECTION 5.3 Rights of Withdrawal from the Collection Account .... 17
SECTION 5.4 Establishment and Maintenance of Reserve Account .... 18
SECTION 5.5 Application of Funds in the Reserve Account ......... 18
SECTION 5.6 Establishment and Maintenance of Cash Account ....... 18
SECTION 5.7 Application of Funds in the Cash Account ............ 18
SECTION 5.8 Establishment of Lockbox Accounts ................... 18
SECTION 5.9 Misapplication of Funds ............................. 19
ARTICLE VI
TAKE-OUT PROCEDURE ....................................................... 19
SECTION 6.1 Loans Due Upon Take-Out ............................. 19
SECTION 6.2 Instructions to the Lender .......................... 19
SECTION 6.3 Delivery of Documents to Take-Out Investor .......... 20
SECTION 6.4 Substitution of Take-Out Investors .................. 20
SECTION 6.5 Take-Out Fee ........................................ 20
SECTION 6.6 Take-Out Status Report .............................. 20
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF BORROWER ............................... 21
SECTION 7.1 Representations and Warranties Concerning Borrower .. 21
SECTION 7.2 Representations and Warranties Concerning Collateral 23
SECTION 7.3 Survival of Representations and Warranties .......... 25
ARTICLE VIII
CERTAIN COVENANTS OF THE BORROWER ........................................ 26
SECTION 8.1 Maintenance of Office ............................... 26
SECTION 8.2 Existence ........................................... 26
SECTION 8.3 General Maintenance of Business, Etc. ............... 26
SECTION 8.4 Financial Statements and Reports .................... 27
SECTION 8.5 Inspection .......................................... 27
SECTION 8.6 Books and Records ................................... 28
SECTION 8.7 Transfers of Assets ................................. 28
SECTION 8.8 Fidelity Bond ....................................... 28
SECTION 8.9 Preservation of Collateral .......................... 28
SECTION 8.10 Compliance with Law, etc ........................... 28
SECTION 8.11 Indemnification .................................... 29
SECTION 8.12 Net Worth .......................................... 29
SECTION 8.13 Payment of Taxes and Claims ........................ 29
SECTION 8.14 Insurance .......................................... 29
SECTION 8.15 Borrower to Pay Expenses ........................... 29
SECTION 8.16 Further Assurances ................................. 29
SECTION 8.17 Other Agreements and Parties ....................... 29
SECTION 8.18 Defaults on Collateral ............................. 30
ii
<PAGE>
SECTION 8.19 No Disposition of Collateral ....................... 30
SECTION 8.20 Payment of Fees .................................... 30
SECTION 8.21 Violations ......................................... 30
SECTION 8.22 Payment of Indebtedness ............................ 30
SECTION 8.23 Exercise of Rights ................................. 30
SECTION 8.24 Negative Covenants ................................. 30
ARTICLE IX
CONDITIONS PRECEDENT ..................................................... 31
SECTION 9.1. Conditions to Initial .............................. 31
SECTION 9.2. Conditions to Each Loan ............................ 32
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES ........................................... 34
SECTION 10. 1 Events of Default ................................. 34
SECTION 10.2 Loans Due Upon Event of Default .................... 36
SECTION 10.3 Rights and Remedies ................................ 36
SECTION 10.4 Realization Upon Collateral ........................ 37
SECTION 10.5 Cure of Defaults ................................... 37
SECTION 10.6 Application of Proceeds of Sale of Collateral....... 37
SECTION 10.7 Lender May Purchase Collateral ..................... 38
SECTION 10.8 No Loans After Event of Default .................... 38
SECTION 10.9 Consents............................................ 38
SECTION 10.10 Lender's Retention of Property .................... 39
SECTION 10.11 Remedies Not Exclusive; No Waiver of Remedies...... 39
SECTION 10.12 Waiver by Borrower ................................ 39
SECTION 10.13 Lender's Discretion ............................... 40
SECTION 10.14 Set-Off ........................................... 40
SECTION 10.15 Delay ............................................. 40
ARTICLE XI
BANKRUPTCY PROVISIONS ................................................... 40
SECTION 11.1 Waiver of Automatic or Supplemental Stay ........... 40
SECTION 11.2 Acknowledgment of the Borrower ..................... 40
ARTICLE XII
NOTES .................................................................... 41
SECTION 12.1 Exchange, Consolidation, Transfer and Assignment
of Notes .......................................... 41
SECTION 12.2 Mutilated, Lost or Destroyed Notes ................. 41
SECTION 12.3 Validity of Replacement Notes ...................... 42
ARTICLE XIII
MISCELLANEOUS ............................................................ 42
iii
<PAGE>
SECTION 13.1 Term ............................................... 42
SECTION 13.2 Termination ........................................ 42
SECTION 13.3 Entire Understanding ............................... 43
SECTION 13.4 Liability of Lender ................................ 43
SECTION 13.5 No Third Party Rights .............................. 43
SECTION 13.6 Expenses ........................................... 43
SECTION 13.7 Notices ............................................ 43
SECTION 13.8 Counterparts ....................................... 44
SECTION 13.9 Severability ....................................... 44
SECTION 13.10 Successors and Assigns ............................ 44
SECTION 13.11 Governing Law ..................................... 44
SECTION 13.12 Waiver of Jury Trial; Jurisdiction ................ 44
SECTION 13.13 Injunctive Relief ................................. 45
SECTION 13.14 Headings Not to Affect Interpretation ............. 45
iv
<PAGE>
AUTO LOAN WAREHOUSE CREDIT AND SECURITY AGREEMENT
THIS AUTO LOAN WAREHOUSE CREDIT AND SECURITY AGREEMENT (this "Agreement"),
dated as of August 12, 1996, is hereby executed by and between PRINCETON CAPITAL
CREDIT CORPORATION, a corporation organized under the laws of Delaware (the
"Lender"), and WESTERN FIDELITY FUNDING INC., a corporation organized under the
laws of Colorado (the "Borrower").
PRELIMINARY STATEMENT
The defined terms used in this Agreement shall have the respective meanings
specified in Article 1.
The Borrower has deemed it necessary to borrow money from the Lender in
connection with the Borrower's automobile, sport utility vehicle and light truck
loan business, and the Lender has agreed to make loans to the Borrower, subject
to all of the terms and conditions of this Agreement. The Borrower is duly
authorized under all applicable provisions of law, its Certificate of
Incorporation and By-Laws to borrow from the Lender upon the terms specified
herein and to execute and deliver this Agreement and the other instruments
referred to herein and to perform all obligations imposed upon the Borrower in
connection with the transactions contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Lender and the Borrower hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1. 1 Defined Terms. As used in this Agreement, the following terms
have the following respective meanings:
Agreement: This Auto Loan Warehouse Credit and Security Agreement, as
amended, supplemented or renewed from time to time.
Amount Financed: With respect to an Auto Loan, the aggregate amount
borrowed by the Obligor under such Auto Loan toward the purchase price of the
Financed Vehicle and related costs, including amounts advanced in respect of
accessories, insurance premiums, service and warranty contracts, other items
customarily financed as part of retail automobile installment sale contracts or
promissory notes, and related costs.
Application Fee: As shown on Exhibit D hereto.
<PAGE>
Assignment: An assignment from the Borrower to the Lender of the Lien
Certificate for an Auto Loan, substantially in the form of Exhibit F hereto.
Auto Loan: A fixed-rate, fully-amortizing simple interest installment loan
pledged as Collateral and arising from the sale of a new or used automobiles,
sport utility vehicles or light duty trucks which includes, without limitation,
(i) all security interests or Liens and property subject thereto from time to
time purporting to secure payment by the Obligor thereunder, (ii) all
guarantees, indemnities and warranties, insurance policies, Lien Certificates
and other agreements or arrangements of any character from time to time
supporting or securing payment of such loan, (iii) all collections and records
with respect to the foregoing and (iv) all proceeds of any of the foregoing.
Borrower: Western Fidelity Funding Inc., in its capacity as borrower under
this Agreement.
Borrower's Underwriting Guidelines: The underwriting guidelines used by the
Borrower in the origination of the Auto Loans, a copy of which has been
delivered to the Lender on the date of this Agreement.
Business Day: Any day other than a Saturday, Sunday, legal holiday or other
day on which commercial banks in New Jersey are authorized or obligated by law,
executive order or governmental decree to be closed.
Cash Account: As defined in Section 5.6 hereof.
Closing Date: With respect to any Loan, the date on which such Loan is to
be funded by the Lender.
Collateral: As defined in Section 3.1 hereof.
Collateral Agent: Each entity selected and approved by the Lender, in its
sole discretion, serving as collateral agent under a Custodial Agreement.
Collection Account: As defined in Section 5.1 hereof.
Collection Records: All manually prepared or computer generated records
relating to collection efforts or payment histories with respect to the Auto
Loans.
Custodial Agreement: Each agreement, between the Lender, the Borrower and
the Collateral Agent named therein, providing for the custody of any portion or
all of the Collateral.
Dealer: A seller of new or used automobiles, sport utility vehicles or
light trucks that originated one or more of the Auto Loans for the Borrower and
has executed a dealer agreement with the Borrower substantially in the form of
Exhibit C hereto.
2
<PAGE>
Default Rate: The "Interest Rate" as defined herein plus 6%.
Defaulted Auto Loan: An Auto Loan that by its terms (i) has three or more
payments due, without regard to any applicable grace period, (ii) has its first
and second payments due without regard to any applicable grace period or (iii)
an event of default occurs under any Auto Loan.
Delinquent Auto Loan: An Auto Loan that by its terms has two or more
payments due without regard to any applicable grace period.
Disbursement Summary: Each statement, substantially in the form of Exhibit
B hereto, signed by the Lender and countersigned by the Borrower, that serves as
a receipt for the delivery of net funds from a Loan to the Borrower or its
designees.
Disposition: Any sale or other transfer of an Auto Loan by the Borrower
whether pursuant to a Take-Out Agreement or otherwise.
Eligible Account: Either (i) a segregated trust account that is maintained
with the corporate trust department of a depository institution acceptable to
the Lender or (ii) a segregated direct deposit account maintained with a
depository institution or trust company acceptable to the Lender.
Eligible Auto Loan: Any Auto Loan that (i) has been originated by the
Borrower in accordance with the Borrower's Underwriting Guidelines, (ii)
satisfies all of the representations and warranties contained in Section 7.2
hereof, (iii) is subject to a Take-Out Commitment from an Eligible Take-Out
Investor which will result in a transfer of such Auto Loan within 90 days of the
Closing Date for the Loan that such Auto Loan is pledged to secure; provided,
however, that, during the Start-Up Period, such transfer may occur within such
longer time period as the Lender may agree to in writing, (iv) has not been
pledged to secure any other Loan, (v) is not a Defaulted Auto Loan, (vi) unless
waived by the Lender, is not a Delinquent Auto Loan and (vii) does not exceed
the Maximum Auto Loan Amount.
Eligible Take-Out Investor: A Take-out Investor that has been approved by
the Lender in its sole discretion.
Event of Default: Any event described in Section 10.1 hereof.
Financed Vehicle: A new or used automobile, sport utility vehicle or light
truck, together with all accessories thereto, securing or purporting to secure
an Obligor's indebtedness under an Auto Loan, together with any Insurance
Policies relating thereto.
Funding Amount: With respect to each Auto Loan, that secures a Loan, the
amount to be advanced to the Borrower by the Lender which shall equal the least
of (i) 98 % of the Amount Financed, as reduced for any payments of principal
3
<PAGE>
collected prior to the applicable Closing date, (ii) the Take-Out Price for such
Auto Loan, (iii) the amount on Exhibit G and (iv) the amount of funds advanced
by the Borrower with respect to such Auto Loan plus an amount approved in
writing by the Lender.
Funding and Fee Schedule: The schedule attached hereto as Exhibit D, if
any.
Funding Fee: As shown on Exhibit D hereto.
General Intangibles: All of the Borrower's general intangibles, whether now
owned or hereafter acquired, including all choses in action, causes of action,
inventions, designs, patents, patent applications, quality control procedures,
trademarks, trade secrets, goodwill, copyrights, registrations, licenses,
franchises, customer lists, computer programs, all claims under guaranties,
security interests or other security held by or granted to the Borrower to
secure payment of any of the Collateral, all rights of indemnification and all
other intangible property of every kind and nature.
Insurance Policy: With respect to an Auto Loan, any insurance policy
benefiting the holder of the Auto Loan providing loss or physical damage, credit
life, credit disability, theft, mechanical breakdown or similar coverage with
respect to the Financed Vehicle or the Obligor.
Interest Rate: As shown on Exhibit D hereto.
Lender: Princeton Capital Credit Corporation, as lender under this
Agreement, or any successor or assignee.
Lien: Any security interest, lien, charge, pledge, preference, equity or
encumbrance of any kind, including tax liens, mechanics' liens and any liens
that attach by operation of law.
Lien Certificate: With respect to a Financed Vehicle, an original
certificate of title, certificate of lien or other notification issued by the
registrar of titles (or comparable agency or office) of the applicable state to
a secured party which indicates that the lien of the secured party on the
Financed Vehicle is recorded on the original certificate of title. In any
jurisdiction in which the original certificate of title is required to be given
to the Obligor, the term "Lien Certificate" shall mean only a certificate or
notification issued to a secured party.
Loan: Each loan made by the Lender to the Borrower pursuant to this
Agreement, all of which, in the aggregate, may be evidenced by one or more
Notes.
Loan Funding Request: Shall have the meaning set forth in Section 2.2(a)
hereof.
Lockbox Account: As defined in Section 5.6 hereof.
Maturity Date: With respect to a Note, the date set forth on such Note as
the date on which it is due and payable.
4
<PAGE>
Maximum Auto Loan Amount: $25,000 or such other amount as may be approved
in writing by the Lender.
Maximum Credit Line: $5,000,000.
Monthly Records: All records and data maintained by the Borrower with
respect to the Auto Loans, including the following with respect to each Auto
Loan: the account number; the identity of the originating Dealer; Obligor name;
Obligor address; Obligor home phone number; Obligor business phone number;
original Principal Balance; original term; Annual Percentage Rate; current
Principal Balance; current remaining term; origination date; first payment date;
final scheduled payment date; next payment due date; date of most recent
payment; new/used classification; collateral description; days currently
delinquent; number of contract extensions (months) to date; amount, if any, of
Force-Placed Insurance payable monthly; amount of the scheduled payment; and
past due late charges, if any.
Note: Any note issued by the Borrower to the Lender evidencing all or a
portion of the Loan made pursuant to the terms of this Agreement and
substantially in the form of Exhibit A hereto, including any Note that has been
issued in substitution, exchange or replacement of any Note previously issued by
the Borrower to the Lender pursuant to the terms hereof.
Obligor: The purchaser or the co-purchasers of the Financed Vehicle and any
other Person or Persons who are primarily or secondarily obligated to make
payments under an Auto Loan.
Pending Event of Default: An event that, with the giving of notice or
passage of time or both, would constitute an Event of Default.
Permitted Liens: Shall mean (i) Liens created under this Agreement and (ii)
Liens securing taxes, assessments, governmental charges or levies not yet due.
Person: Any individual, corporation, partnership, joint venture,
association, joint stock company, trust, estate, unincorporated organization or
government (or agency or subdivision thereof).
Proceeds: Shall have the meaning assigned such term under the UCC of the
State of New Jersey, and of each other jurisdiction whose law governs the grant
or perfection of the Collateral Agent's interest in the particular proceeds of
the Collateral and shall also include (to the extent not already included): (i)
any and all proceeds of any insurance, indemnity, warranty, guaranty or letter
of credit payable to the Borrower from time to time with respect to any of the
Collateral, (ii) any and all payments (in any form whatsoever) made or rights to
amounts payable to the Borrower from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any governmental body, authority, bureau or agency (or
any person acting under color of governmental authority),(iii) any and all other
amounts, products, offspring, rents or profits from time to time paid or payable
under or in connection with the Collateral and (iv) all additions to or
substitutions or replacements for any of the Collateral.
5
<PAGE>
Program Documents: This Agreement, each Auto Loan, each Lien Certificate,
each Assignment, each Servicing Agreement, each Custodial Agreement and all UCC
financing statements and any other agreement, document, instrument, power of
attorney, certificate and application related to the transactions contemplated
by this Agreement.
Renewal Date: Any date on which this Agreement is renewed pursuant to
Section 13.1 hereof.
Renewal Fee: As shown on Exhibit D hereto.
Reserve Account: As defined in Section 5.4 hereof.
Reserve Account Deficiency Amount: As of any date the amount, if any, by
which the Reserve Account Required Balance exceeds the amount on deposit in the
Reserve Account as of such date.
Reserve Account Excess Amount: As of any date, the amount, if any, held in
the Reserve Account in excess of the Reserve Account Required Balance after
giving effect to any withdrawals from the Reserve Account pursuant to Section
5.3 on such date.
Reserve Account Required Balance: As of any date the greater of (i) $10,000
and (ii) 2.00% of the aggregate amount of all Loans made from the date hereof
(until such amount equals 2.00% of the Maximum Credit Line).
Security Interest: The assignments and pledges to the Under, or a
Collateral Agent on its behalf, of, and the continuing security interest of the
Lender in, the Collateral intended to be effected by the terms of this Agreement
or any other Program Documents.
Each entity selected and approved by the Under, in its sole discretion,
Serving as servicer under a Servicing Agreement or Western Fidelity Funding
Inc., in its capacity as servicer, under the terms of this Agreement.
Servicing Agreement: Each agreement, between the Lender, the Borrower and
the servicer named therein, providing for the servicing of any portion or all of
the Collateral.
Start-Up Period: The period, if any, designated as such on the Start-Up
Period Volume Projection Schedule and beginning on the date hereof.
Start-Up Period Volume Projection Schedule: The schedule attached hereto as
Exhibit E, if any.
6
<PAGE>
Take-Out Agreement: An agreement, in form and substance satisfactory to the
Lender, from a Take-Out Investor to purchase one or more Auto Loans pledged to
the Lender as security for any Note.
Take-Out Commitment: With respect to an Auto Loan, the agreement by a
Take-Out Investor pursuant to a Take-Out Agreement to purchase or otherwise fund
and acquire such Auto Loan on a date and at a price specified in such Take-Out
Agreement.
Take-Out Fee: As shown on Exhibit D hereto.
Take-Out Investor: Any corporation, institution or agency that regularly
purchases Auto Loans and is approved by the Lender to issue a Take-Out
Agreement.
Take-Out Price: With respect to an Auto Loan, the amount of funds to be
advanced by the Take-Out Investor pursuant to the Take-Out Agreement relating to
such Auto Loan.
UCC: The Uniform Commercial Code, as in effect in the relevant
jurisdiction.
Vendor Single Interest Insurance Policy: A blanket insurance policy
obtained by the Borrower and acceptable to the Lender covering all of the Auto
Loans and naming the Lender as an additional loss payee.
SECTION 1.2 Number. Each reference to a term defined herein is intended to
include the plural as well as the singular number.
SECTION 1.3 Terms Defined in UCC. The terms "Inventory," "Goods,"
"Accounts," "Contract Rights," "Charter," "General Intangibles" and "Documents"
have the respective meanings ascribed in the UCC.
SECTION 1.4 Accounting Terms. As used in this Agreement or any certificate,
report or Program Document made or delivered pursuant to this Agreement,
accounting terms not defined in this agreement shall have the meanings given to
them under generally accepted accounting principals in the United States in
effect from time to time.
ARTICLE II
LOANS TO THE BORROWER
SECTION 2.1. Loans. Subject to the terms and conditions set forth in this
Agreement, the Lender will make Loans to the Borrower in aggregate amounts
outstanding at any time equal to the Maximum Credit Line. The Loans shall be
evidenced by this Agreement and the Notes.
7
<PAGE>
Each Loan to be made on a Closing Date will be made in an amount equal to
the sum of the Funded Amounts for the Auto Loans being pledged as Collateral
pursuant to the related Loan Funding Request.
SECTION 2.2. Procedure for Borrowing.
(a) Notice. The Borrower shall give the Lender written notice, or
electronic notice acceptable to the Lender (the "Loan Funding Request"), of the
proposed Loan not less than one Business Day prior to the proposed Closing Date.
The Loan Funding Request shall specify the following: (i) the loan numbers of
the Auto Loans to secure such Loan; (ii) the note date for each such Auto Loan;
(iii) the original and current principal balance of such Auto Loans; (iv) the
interest rate on such Auto Loans; (v) the amount of each Auto Loan that the
Borrower funded; (vi) the maturity date of such Auto Loans; (vii) the
anticipated Funded Amount for each Auto Loan; (viii) the amount of the Loan
requested; (ix) the identity of the Take-Out Investor for each Auto Loan; (x)
the proposed Maturity Date for the Loan which shall be the date of the last
Take-Out Commitment relating to the Auto Loans securing that Loan; provided,
however, that no Maturity Date shall be more than 90 days from the Closing Date
for a Loan except during the Start-Up Period; and (xi) wire instructions for
distribution of the Loan proceeds. Simultaneously with the delivery of a Loan
Funding Request, the Borrower shall also deliver to the Lender all documents
relating to each Auto Loan as the Lender may reasonably require. The Loan
Funding Request shall also specify the manner and anticipated delivery date to
the Lender, or a Collateral Agent acting on behalf of the Lender, of the
documents relating to such Auto Loans required by the Lender.
(b) Disbursement Summary. Upon receipt of the Loan Funding Request and
review and verification of the information contained in such Loan Funding
Request, the Lender shall prepare the Disbursement Summary. The Disbursement
Summary shall set forth the following: (i) the amount of the Loan; (ii) the
Funded Amount for each Auto Loan being pledged to secure such Loan; (iii) the
fees and other amounts to be deducted from the proceeds of such Loan; (iv) the
net Loan proceeds; and (v) the parties to whom the Borrower has directed the
Lender to deliver such net Loan proceeds. The Disbursement Summary shall he
delivered to the Borrower on or before the Closing Date, by facsimile or
electronic delivery methods. Upon receipt, the Borrower shall, by
countersignature, acknowledge its agreement with the computations and amounts
set forth in the Disbursement Summary. The Borrower shall promptly return the
countersigned Disbursement Summary to the Lender by facsimile.
(c) Satisfaction of Conditions Precedent. Prior to the disbursement of any
Loan proceeds, the Borrower shall have satisfied all of the conditions precedent
set forth in Article IX hereof and shall have complied with all other terms and
conditions of this Agreement.
(d) Disbursement of Funds. If the requirements set forth above have been
satisfied, on each Closing Date, the Lender will make a Loan to the Borrower in
the amount specified in the Disbursement Summary for such Loan.
8
<PAGE>
(e) Notes. The Lender, in its sole discretion, shall determine which Auto
Loans will serve as security for a Loan and whether a new Note will be issued on
a Closing Date. Each Loan, or all Loans in the aggregate, as the case may be,
shall be evidenced by a Note executed on behalf of the Borrower.
SECTION 2.3. Delivery and Use of Borrowed Funds. Upon the making of a Loan
pursuant to Section 2.2, the lender, at the request of the Borrower contained in
the Loan Funding Request and verified in the Disbursement Summary, shall deliver
funds representing the amount of such Loan (net of any fees or other moneys owed
to the Lender by the Borrower on such Closing Date) to the Borrower by wire
transfer. The proceeds of any Loan shall be used by the Borrower solely (a) to
disburse funds to the applicable Dealer in connection with the origination of
each Auto Loan that secures the related Note, (b) to reimburse the Borrower for
funds previously disbursed in connection with the origination of an Auto Loan
securing such Loan or (c) with respect to proceeds in excess of amounts required
to satisfy clauses (a) or (b) hereof, for general corporate purposes of the
Borrower.
SECTION 2.4. Maturity of Principal. Each Loan shall be payable (a) on
demand or (b) automatically without notice, presentment, demand or protest to
the Borrower upon the earliest of (i) the Maturity Date set forth in the
Disbursement Summary for such Loan, (ii) the occurrence of an Event of Default
hereunder, (iii) the termination of this Agreement, (iv) the termination,
expiration, lapse, rescission or cancellation of the Take-Out Agreement relating
to any Auto Loan securing such Note unless another Take-Out Agreement is secured
by the Borrower or (v) the Auto Loan securing such Loan becomes a Defaulted Auto
Loan.
SECTION 2.5. Accrual of Interest. The Borrower agrees to pay interest from
the applicable Closing Date on each Note through the date of payment thereof at
the Interest Rate. Interest on each Note is due and payable on the first day of
each month. The Interest Rate is a "floating rate" and any change in such
floating rate shall be effective immediately without notice to the Borrower,
which such notice the Borrower hereby waives. Notwithstanding anything herein to
the contrary, if any Note remains unpaid after its maturity or acceleration, or
if an Event of Default shall occur, interest shall accrue from such date at a
rate equal to the Default Rate.
SECTION 2.6. Application of Collections and Take-Out Receipts. The Borrower
hereby acknowledges that all collections on the Auto Loans less servicing
expense and all proceeds of the Disposition of an Auto Loan to a Take-Out
Investor will be paid to the Lender and will be applied to reduce the
outstanding amount of any Note and to pay any other fees and expenses due
hereunder. If no Event of Default has occurred, such collections and proceeds
shall be applied as follows:
(a) On the Business Day following receipt by the Lender, collections
on each Auto Loan shall be applied in the following order:
9
<PAGE>
(i) to pay principal of the Loan that the books and records of
the Lender indicate is secured by the Auto Loan to which such
collections relate until the outstanding principal balance thereof is
reduced to zero;
(ii) to pay all accrued and unpaid interest due on all Loans, pro
rata;
(iii) to deposit into the Reserve Account the Reserve Account
Deficiency Amount, if any on such date;
(iv) to pay all fees due and amounts owing hereunder; and
(v) to deposit into the Cash Account all remaining funds.
(b) On the Business Day following receipt by the Lender, proceeds of
the Disposition of an Auto Loan to a Take-Out Investor shall be applied in
the following order:
(i) to pay principal of the Loan that the books and records of
the Lender indicate is secured by the Auto Loan to which such proceeds
relate until the outstanding principal balance thereof is reduced to
zero;
(ii) to pay all accrued and unpaid interest due on the Loan
secured by the Auto Loan to which such proceeds relate;
(iii) to pay the Take-Out Fee for such Auto Loan;
(iv) if more than one Loan is outstanding, to pay all accrued and
unpaid interest due on all Loans, other than the Loan to which payment
made pursuant to clause (ii) above, pro rata;
(v) to deposit into the Reserve Account the Reserve Account
Deficiency Amount, if any on such date;
(vi) to pay all other fees due and amounts owing hereunder; and
(vii) to make distributions to the Borrower,
(c) If, in connection with a Disposition, items (i) through (vi) of
clause (b) above have been paid in full, then the Lender shall release and
pay to the Borrower all amounts on deposit in the Cash Account that relate
to the Auto Loan transferred pursuant to such Disposition.
10
<PAGE>
(d) If proceeds of a Disposition are insufficient to pay in full items
(i) through (vi) of clause (b) above, then the Lender may withdraw funds
from either the Reserve Account or the Cash Account to make up the
shortfall.
SECTION 2.7. Statement of Account. The Lender shall maintain loan records
for the Borrower in which shall be recorded the date and amount of each Loan
made by the Lender and the date and amount of each payment in respect thereof;
provided, however, that the failure by the Lender to record the date and amount
of any Loan shall not adversely affect the Lender. For each month, the Lender
shall send to the Borrower a statement showing the accounting for the Loans
made, payments made or credited in respect thereof, and other transactions
between the Lender and the Borrower, during such month. The monthly statements
shall be deemed correct and binding upon the Borrower in the absence of manifest
error and shall constitute an account stated between the Lender and the Borrower
unless the Lender receives a written statement of the Borrower's specific
exceptions thereto within 30 days after such statement is received by the
Borrower. The records of the Lender shall be prima facie evidence of the amounts
of Loans and other charges thereto and of payments applicable thereto.
SECTION 2.8. Additional Payments. Any reasonable sums expended by the
Lender due to the Borrower's failure to perform or comply with its obligations
under this Agreement may be charged to the Borrower's account as a Loan and
added to an outstanding Note.
SECTION 2.9. Method and Manner of Payment. The Borrower agrees that all
payments of principal of and interest on any Loan shall be made by or on behalf
of the Borrower by wire transfer to the Lender at the following wire address:
CoreStates/New Jersey National Bank, Philadelphia, Pennsylvania, ABA #031200730,
Account No. 10459882. All payments of principal, interest and other amounts
payable hereunder, or under any of the other Program Documents shall be made to
the Lender not later than 1:00 P.M. (New Jersey time) on the due date therefor
in lawful money of the United States of America in Federal or other funds
immediately available to the Lender. The Lender shall have the right to
effectuate payment on any and all Loans due and owing hereunder by increasing
the outstanding amount of any Note.
SECTION 2.10. Application of Payments. The Lender shall have the continuing
and exclusive right to apply or reverse and reapply any and all Proceeds of
Collateral to any portion of the Loans. To the extend that the Borrower makes a
payment or the Lender receives any payment or Proceeds of the Collateral for the
Borrower's benefit, which are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to a trustee,
debtor in possession, receiver, custodian or any other party under any
bankruptcy law, common law or equitable cause, then, to such extent, the Loans
or part thereof intended to be satisfied shall be revived and continue as if
such payment or proceeds had not been received by the Lender.
SECTION 2. 11. Maximum Interest Rate. No provision of this Agreement or of
any Note shall require the payment of or permit the collection of interest in
excess of the maximum permitted by law. If any rate of interest required hereby
or by any Note shall be found to be in excess of the maximum rate permitted by
11
<PAGE>
law, neither the Borrower nor its successors or assigns shall be obligated to
pay such interest in excess of the maximum permitted by law, and the right to
demand the payment of any such excess shall be and hereby is waived and this
Section 9.6 shall control any provision of this Agreement or any Note which is
inconsistent herewith.
SECTION 2.12. No Deduction. Borrower shall pay principal, interest, and all
other amounts payable hereunder, or under any related agreement, without any
deduction whatsoever, including, but not limited to, any deduction for any
set-off or counterclaim.
SECTION 2.13. Computation of Interest and Fees. Interest and fees under
this Agreement shall be computed on the basis of a year of 360 days and for the
actual number of days elapsed. If any payment becomes due and payable on a day
other than a Business Day, then such due date shall be extended to the next
Business Day.
ARTICLE III
COLLATERAL
SECTION 3. 1. Security for Loans. As security for the prompt, complete and
unconditional payment and performance of all obligations of the Borrower in
respect of the Loans, the Borrower hereby pledges, assigns, transfers and
delivers to the Lender, or, if so directed by the Lender, to a Collateral Agent
for the benefit of the Lender, and grants to the Lender, a continuing first lien
on, and first and prior Security Interest in, all of the Borrower's estate,
right, title and interest in, to and under the following, whether now owned or
at any time hereafter acquired, whether now existing or hereafter acquired, and
whether the same is now contemplated, anticipated or foreseeable, and wherever
located (collectively, the "Collateral"):
(a)each Auto Loan delivered to the Lender, or a Collateral Agent on
behalf of the Lender, and all other Auto Loans at any time in the
possession of the Lender, or, if so directed by the Lender, to a Collateral
Agent on behalf of the Lender, or otherwise subject to, or intended or
purported to be subject to, the Security Interest, including without
limitation, all rights to payments thereunder;
(b) each Financed Vehicle and all other property, now or hereafter
acquired, securing or evidenced by, each Auto Loan including, without
limitation, the Lien Certificate relating to each Financed Vehicle and the
Assignment thereof, any Insurance Policies and Proceeds thereof with
respect to any Financed Vehicle or Auto Loan, the Proceeds of any
repossession and liquidation of a Financed Vehicle, rights under judgments
with respect to defaulted Obligors, right to deficiency judgments with
respect to defaulted Obligors and rights under any service contracts with
respect to any Financed Vehicle;
12
<PAGE>
(c) all right, title and interest of the Borrower where permitted
under each Take-Out Agreement, including, without limitation, the right to
execute and deliver in the name of the Borrower, as agent or attorney, an
appropriate instrument transferring any Auto Loan pursuant to the
provisions thereof and to take such action upon the occurrence of an Event
of Default hereunder as shall be permitted by this Agreement and any such
Take-Out Agreement or by law; and to do any and all other things which the
Borrower is or may be entitled to do thereunder, including, without
limitation, the commencement, conduct and consummation of any
administrative, legal or equitable proceedings;
(d) all bank and trust accounts relating to any of the Collateral
(including, without limitation, the Reserve Account, the Cash Account, all
Lockbox Accounts and the Collection Account) and all moneys, checks,
instruments, documents, securities, investments, deposits and other credits
(whether or not permitted by the Program Documents) credited to the
Collection Account, or otherwise held by the Borrower, a Servicer or a
Collateral Agent;
(e) all causes of action, claims, demands and rights which the
Borrower now has or hereafter may have, in law or in equity, against any
party in connection with each Auto Loan, including claims for negligence
and fraud;
(f) all General Intangibles that relate to the Collateral;
(g) all of the Borrower's Monthly Records, ledger sheets, ledger
cards, files, correspondence, records, books of account, business papers,
computers, computer software (owned by the Borrower or in which it has an
interest), tapes, disks and documents relating to any item of Collateral or
otherwise necessary or helpful in the collection thereof or the realization
thereupon, whether held by the Borrower or a Servicer, on behalf of the
Borrower; and
(h) all Proceeds of any of the foregoing.
The Borrower shall mark its books and records as may be necessary or appropriate
to evidence, protect and perfect Lender's security interest and shall cause its
financial statements to reflect such security interest.
The Borrower agrees that the Security Interest shall at all times be valid
and perfected and enforceable against the Borrower and all third parties, in
accordance with the terms hereof, as security for the obligations and that the
Collateral shall not at any time be subject to any Lien that is prior to, on a
parity with or junior to the Security Interest. All rights of the Lender and all
liens and Security Interests granted hereunder, shall be absolute, unconditional
and irrevocable unless and until released pursuant to the Program Documents,
irrespective of any condition or circumstance whatsoever.
13
<PAGE>
SECTION 3.2. Perfection of Security Interest. The Borrower shall take all
action that may be necessary or desirable, or that Lender may request, so as at
all time to maintain the validity, perfection, enforceability and priority of
the Lender's Security Interest in the Collateral or to enable the Lender to
protect, exercise or enforce its rights hereunder and in the Collateral,
including, but not limited to (a) immediately discharging all Liens that are not
Permitted Liens, (b) delivering to the Lender, endorsed or accompanied by such
instruments of assignment as the Under may specify, and stamping or marking, in
such manner as the Lender may specify, any and all chattel paper, instruments,
letters of credits and advice thereof and documents evidencing or forming a part
of the Collateral, (c) entering into lockbox and other custodial arrangements
satisfactory to the Lender, and (d) executing and delivering financing
statements, instruments of pledge, notices and assignments, in each case in form
and substance satisfactory to the Lender, relating to the creation, validity,
perfection, maintenance or continuation of the Lender's Security Interest under
the UCC or other applicable law. With respect to each Lien Certificate relating
to an Auto Loan, the Borrower shall deliver to the Lender, or a Collateral Agent
on behalf of the Lender, an assignment of such Lien Certificate, in blank, in
recordable form. All charges, expenses and fees that the Lender may incur in
doing any of the foregoing, and any local taxes relating thereto, shall be
charged to the Borrower's account and added to the obligations, or at the
Lender's option, shall be paid to the Lender immediately upon demand.
SECTION 3.3. Grant of Lien Not to Alter the Borrower's Loans . The grant of
the Security Interest to the Lender pursuant to Section 3. 1 hereof shall not:
(a) relieve the Borrower from the performance of any term, covenant, condition
or agreement on the Borrower's part to be performed or observed under or in
connection with the Collateral, (b) impose any obligation on the Lender or any
Collateral Agent to perform or observe any such term, covenant, condition or
agreement on the Borrower's part to be so performed or observed, or (c) impose
any liability on the Lender or any Collateral Agent for any act or omission on
the part of the Borrower, or any Person acting as agent for or on behalf of the
Borrower, relative to or for any breach of any representation or warranty on the
part of the Borrower in connection with the Collateral.
SECTION 3.4. Defense of Lender's Interests. Until (a) payment and
performance in full of all of obligations of the Borrower and (b) termination of
this Agreement, the Lender's interests in the Collateral hereby granted to the
Lender shall continue in full force and effect. During such period the Borrower
shall not, without the Lender's prior written consent, pledge, sell (except
Dispositions permitted under Article VI hereof), assign, transfer, create or
suffer to exist a security interest in, Lien, claim or charge upon or encumber
or allow or suffer to be encumbered in any way, any part of the Collateral. The
Borrower shall defend the Lender's interests in the Collateral against any and
all persons whatsoever. In addition, with respect to all Collateral, the Lender
shall be entitled to all of the rights and remedies set forth herein and further
provided by the UCC or other applicable law.
SECTION 3.5. Set-Off. The Lender is hereby authorized by the Borrower, at
any time and from time to time, without prior notice, during any Event of
Default or Pending Event of Default, to set off against, and to appropriate and
apply to the payment of, the Loans (whether matured or unmatured, fixed or
14
<PAGE>
contingent or liquidated or unliquidated) any and all liabilities owing by the
Lender or any of its affiliates to the Borrower. The Lender shall give notice to
the Borrower of any such set-off, but the failure to give such notice shall not
affect the validity of such set-off or its application, nor result in any
liability of the Lender to the Borrower or any other Person.
SECTION 3.6. Post-Closing Documentation. Immediately after each Closing
Date, the Borrower shall deliver, or cause to be delivered to the Lender, or, if
so directed by the Lender, a Collateral Agent, all documents requested by the
Lender.
SECTION 3.7. Collateral Agents. The Borrower hereby acknowledges that all
right, title and interest in and to the Collateral are being assigned by the
Borrower to one or more Collateral Agents, which may include affiliates of the
Lender, for the benefit of the Lender, its successors and assigns, and any
holder or assignee of a Note, pursuant to the terms of the applicable Custodial
Agreement pursuant to which each Collateral Agent holds Collateral.
SECTION 3.8. Power of Attorney. Borrower does hereby irrevocably appoint
the Lender and any of its respective officers, employees or agents as its true
and lawful attorney-in-fact, with full power of substitution, and hereby
authorizes and empowers each of such Persons or entities, acting singly, in the
name of and on behalf of the Borrower, to take the following actions from time
to time in accordance with and subject to the terms of this Agreement:
(a) upon the occurrence of an Event of Default, collect any and all
amounts or portions thereof due under any Auto Loans including, without
limitation, endorsing the name of the Borrower on checks and other
instruments representing payments or collections with respect to such Auto
Loans and on such instruments and documents as may be necessary to
effectuate foreclosure, repossession or other conversions of ownership of
any vehicle financed with any such Auto Loan and enforcing such Auto Loan;
(b) execute and deliver any and all instruments and take any and all
further action in the name of and on behalf of Borrower as may be necessary
or desirable, in the determination of the Lender, to accomplish any and all
of the foregoing; and
(c) execute and file such financing or continuation statements, or
amendments thereto or assignments thereof, and such other instruments or
notices, as Lender may reasonably determine to be necessary or appropriate,
including without limitation, such documents or instruments as may be
necessary to change the notation of the Borrower's Lien on any Lien
Certificate or any Financed Vehicle financed under a Auto Loan to a
notation indicating that Lender or any assignee thereof is the lienholder
with respect to such Financed Vehicle.
The Lender is hereby empowered to do any and all lawful acts and Borrower
hereby ratifies and confirms any and all lawful acts that the Under shall do
pursuant to and in conformity with this power of attorney. This power of
attorney is coupled with an interest and is irrevocable. The Borrower executes
15
<PAGE>
this power of attorney with the intent to be legally bound hereby, and with the
intent that the execution shall have the full dignity afforded by the
accompanying witnessing and notarization.
SECTION 3.9. Exculpation of Liability. Nothing in this Agreement shall be
construed to constitute the Lender as the Borrower's agent for any purpose
whatsoever, nor shall the Lender be responsible or liable for any shortage,
discrepancy, damage, loss or destruction of any part of the Collateral wherever
the same may be located and regardless of the cause thereof, except for
shortages, discrepancies, damages, losses, and destructions that are determined
by a final judgment of a court having jurisdiction over the Lender to be solely
the result of the Lender's gross negligence, wilful misconduct or knowing
violations of law. The Lender does not, whether by anything herein or in any
assignment or other-wise, assume any of the Borrower's obligations under any
contract or agreement assigned to the Lender, and the Lender shall not be
responsible in any way for the performance by the Borrower of any of the terms
and conditions thereof.
ARTICLE IV
ADMINISTRATION AND SERVICING OF AUTO LOANS
To provide for the proper servicing and administration of the Collateral,
either:
(a) the Borrower shall act as Servicer of the Auto Loans and shall
employ the same procedures and exercise the same standard of care that it
customarily employs and exercises in servicing and administering Auto Loans
for its own account or the account of others; or
(b) the Borrower and the Lender will execute and deliver one or more
Servicing Agreements pursuant to which one or more Servicers shall service
the Collateral for the benefit of the Under, its successors and assigns,
and any holder or assignee of a Note. In such case, all servicing of the
Collateral shall be done in accordance with the terms of the applicable
Servicing Agreement.
The Borrower shall be responsible for paying all fees and expenses of any
Servicer that services the Auto Loans. The Lender shall have no liability to any
Servicer for fees or expenses.
ARTICLE V
COLLECTION, RESERVE AND LOCKBOX ACCOUNTS
SECTION 5.1 Establishment and Maintenance of Collection Account.
Concurrently with the execution and delivery of this Agreement, the Lender shall
establish at CoreStates/New Jersey National Bank, Philadelphia, Pennsylvania, a
segregated account entitled "Princeton Capital Credit Corporation, Western
16
<PAGE>
Fidelity Collection Account" (the "Collection Account"). The Collection Account
shall be maintained as an Eligible Account. The Lender shall have sole control
over the Collection Account and Borrower shall have no right of withdrawal from
the Collection Account.
SECTION 5.2 Required Deposits to the Collection Account.
(a) The Borrower shall cause the following amounts to be paid to the
Lender, or the Collateral Agent on behalf of the Lender, for deposit to the
Collection Account:
(i) all amounts representing collections in respect of Auto Loans
(including without limitation payments in respect of the purchase
price of Auto Loans purchased by the related Take-Out Investor in
accordance with the applicable Take-Out Agreement) through deposit
into the Collection Account or by direct payment into the Lockbox
Account held in the Lender's or the Collateral Agent's, as applicable,
name;
(ii) all amounts representing insurance proceeds;
(iii) all amounts representing repossession proceeds; and
(iv) all Proceeds of any of the foregoing.
(b) The Lender or the Collateral Agent, as applicable, is hereby
irrevocably authorized and empowered, as the Borrower's attorney-in-fact,
to endorse any check or any other instrument or security presented for
deposit in the Collection Account requiring the endorsement of the
Borrower.
(c) Notwithstanding the foregoing provisions of this Section 5.2 if at
any time the Borrower, or any Person on behalf of the Borrower, receives
any proceeds or payments required to be deposited in the Collection
Account, all such amounts shall be held by the Borrower or such other
person as the agent of, and in trust for, the L4ender and shall, forthwith
upon receipt by the Borrower, or such other Person, be turned over to the
Lender, or the Collateral Agent, on behalf of the Lender, for deposit into
the Collection Account, as the case may be, in the same form as received by
the Borrower or such other Person (and, if received in the form of a check,
instrument or security requiring endorsement, duly endorsed on behalf of
the Borrower or such other Person to the order of the Collateral Agent).
(d) The Borrower shall cause all amounts remitted to the Lender or the
Collateral Agent for deposit pursuant to Section 5.2(a) to be identified to
permit the proper allocation of such amounts; any amounts not so identified
shall be applied at the direction of the Lender.
SECTION 5.3 Rights of Withdrawal from the Collection Account . In
furtherance of the Security Interest provided in this Agreement, the Lender
shall have the sole right of withdrawal from the Collection Account to apply
amounts on deposit therein in accordance with Section 2.6 hereof.
17
<PAGE>
SECTION 5.4 Establishment and Maintenance of Reserve Account . Concurrently
with the execution and delivery of this Agreement, the Borrower shall establish
at CoreStates/New Jersey National Bank, Philadelphia, Pennsylvania, for the
benefit of the Lender, a segregated account entitled "Western Fidelity Reserve
Account, for the benefit of Princeton Capital Credit Corporation, as Secured
Party" (the "Reserve Account"). Upon its establishment and at all times
thereafter, the Reserve Account shall contain not less than the Reserve Account
Required Minimum. The Reserve Account shall be maintained as an Eligible
Account. The Lender shall have the exclusive right to make withdrawals pursuant
to Section 5.5 from the Reserve Account until this Agreement has been terminated
and no Note issued pursuant hereto is outstanding.
SECTION 5.5 Application of Funds in the Reserve Account. The Lender has the
sole right to withdraw funds from the Reserve Account, on any date, to the
extent the Lender deems such withdrawals necessary to pay the principal of or
accrued and unpaid interest on any Loan that has come due or to pay any
outstanding fees or other expenses payable hereunder. All funds withdrawn from
the Reserve Account shall be deposited by the Lender into the Collection Account
and applied to make the payments specified in Section 2.6 hereof.
SECTION 5.6 Establishment and Maintenance of Cash Account. Concurrently
with the execution and delivery of this Agreement, the Borrower shall establish
at CoreStates/New Jersey National Bank, Philadelphia, Pennsylvania, for the
benefit of the Lender, a segregated account entitled "Western Fidelity Cash
Account, for the benefit of Princeton Capital Credit Corporation, as Secured
Party" (the "Cash Account"). The Cash Account shall be maintained as an Eligible
Account. The Lender shall have the exclusive right to make withdrawals from the
Cash Account until this Agreement has been terminated and no Note issued
pursuant hereto is outstanding.
SECTION 5.7 Application of Funds in the Cash Account. The Lender has the
sole right to withdraw funds from the Cash Account, on any date, to the extent
the Lender deems such withdrawals necessary to pay the principal of or accrued
and unpaid interest on any Uan that has come due or to pay any outstanding fees
or other expenses payable hereunder. All funds withdrawn from the Cash Account
shall be deposited by the Lender into the Collection Account and applied to make
the payments specified in Section 2.6 hereof.
SECTION 5.8 Establishment of Lockbox Accounts. All Proceeds of Auto Loans
shall, at the direction of the Lender, be deposited by the Borrower into one or
more segregated lockbox accounts (each, a "Lockbox Account") pursuant to an
arrangement with such bank as may be selected by the Borrower and be acceptable
to the Lender in its sole discretion. Each Lockbox Account shall be an Eligible
Account. The Borrower shall issue to any such bank, an irrevocable letter of
instruction directing such bank to transfer such funds so deposited to the
Lender by wire transfer to the Collection Account. All funds deposited in any
Lockbox Account shall immediately become a part of the Collateral for the
benefit of the Lender and the Borrower shall obtain the agreement by such bank
18
<PAGE>
to waive any set-off rights against the fund so deposited. The Lender assumes no
responsibility for any Lockbox Account arrangement, including without
limitation, any claim of accord and satisfaction or release with respect to
deposits accepted by any bank thereunder.
SECTION 5.9 Misapplication of Funds. The Under agrees that any funds
incorrectly paid to it by the Borrower, or any Servicer on behalf of the
Borrower, shall be promptly returned to the Borrower or the Servicer, as
applicable, upon receipt of written notice from the Borrower or the Servicer, as
applicable, that such funds were incorrectly paid to the Lender, or any
Collateral Agent on behalf of the Lender, prior to the Collateral Agent's
transfer of such funds in accordance with applicable Custodial Agreement.
ARTICLE VI
TAKE-OUT PROCEDURE
SECTION 6.1 Loans Due Upon Take-Out. Notwithstanding any provision herein
or in any Note to the contrary, each Loan secured by an Auto Loan shall become
due and payable, without notice or demand, upon the date that such Auto Loan is
required to be sold or transferred to a Take-Out Investor pursuant to a Take-Out
Agreement, regardless whether such sale or transfer actually occurs. If one or
more Auto Loans that secure a Loan would not be sold or otherwise transferred on
the same date that another Auto Loan that secures such Loan is being sold or
otherwise transferred to a Take-Out Investor, such Loan may remain outstanding
until such time as the remaining Auto Loans are sold or transferred; provided
that the principal of the Loan is paid down by an amount equal to the Funding
Amount, plus accrued interest and fees, for any Auto Loan that is sold or
transferred on such date.
SECTION 6.2 Instructions to the Lender. Prior to the date provided for any
sale or transfer of an Auto Loan to a Take-Out Investor pursuant to a Take-Out
Agreement, the Borrower shall deliver to the Lender complete instructions
together with such documents, if any, required to be delivered to the Take-Out
Investor pursuant to the provisions of such Take-Out Agreement which have not
been previously delivered to the Lender and such other documents, including
without limitation, transmittal envelopes and transmittal packages, as the
Lender may require. Such instructions shall be given to the Lender sufficiently
in advance to allow timely delivery by methods the Lender customarily uses for
delivery of documents of that type. Subject to Section 6.3 hereof, upon receipt
of such instructions, the Lender shall forward the appropriate documents to the
Take-Out Investor acquiring such Auto Loan, or its designee. The Lender shall
also provide the Take-Out Investor with written instructions to wire to the
Lender, in immediately available federal funds, an amount equal to the purchase
price or funding amount specified in the Take-Out Commitment for each Auto Loan
being transferred to such Take-Out Investor or its designee. All amounts
received by The Under from a Take-Out Investor with respect to an Auto Loan
shall be applied in accordance with Section 2.6 hereof.
19
<PAGE>
SECTION 6.3 Delivery of Documents to Take-Out Investor. If the Lender is
required to deliver any documents relating to an Auto Loan to a Take-Out
Investor prior to the payment to the Lender of the Take-Out Price for such Auto
Loan, then the Borrower must ensure that the Take-Out Investor, or a custodian
acting on behalf of the Take-Out Investor, acts as bailee of the L4ender until
the Take-Out Price is paid and the Auto Loan is removed from the Security
Interest of the Lender. The Take-Out Investor or custodian will evidence that it
is acting as bailee on behalf of the Lender by issuing a trust receipt to the
Lender. Such trust receipt shall properly identify the Auto Loan and related
documents and shall state that such documents are being held for the benefit of
the Lender until the Take-Out Price is paid to the Lender.
SECTION 6.4 Substitution of Take-Out Investors.
(a) Notwithstanding the foregoing, if the Borrower instructs the Lender to
deliver an Auto Loan to a Person other than the Take-Out Investor for the
Take-Orut Agreement relating to such Auto Loan, or the designee of such Take-Out
Investor, then, in addition to providing delivery instructions to the Lender in
accordance with Section 6.2, the Borrower must deliver to the Lender a new
Take-Out Agreement pursuant to which such proposed transferee is the Take-Out
Investor. Such new Take-Out Agreement is hereby deemed pledged by the Borrower
as Collateral for the related Note pursuant to this Agreement. Such pledge will
be effective upon delivery of the Take-Out Agreement to the Lender.
(b) If the Borrower is not in possession of the new Take-Out Agreement at
the time of its request for delivery of an Auto Loan to a Person other than the
original Take-Out Lender, pursuant to Section 6.4(a) then the Borrower shall
certify the following to the Lender in writing:
(i) such new Take-Out Agreement has been executed by a Take-Out
Investor acceptable to the Lender and is the legally valid and binding
obligation of such Take-Out Investor to purchase each Auto Loan subject
thereto; and
(ii) each Auto Loan subject to such Take-Out Agreement complies, in
all material respects, with the requirements of the Take-Out Agreement.
(c) Notwithstanding the substitution of Take-out Investors permitted by
this Section 6.4, the rights assigned and granted to the Lender in the original
Take-Out Agreement and any new Take-Out Agreement shall continue until the
Lender has received the Funding Amount for each related Auto Loan, plus any
accrued interest and fees thereon.
SECTION 6.5 Take-Out Fee. Upon the Disposition of an Auto Loan, the
Borrower shall pay to the Under the Take-Out Fee for such Auto Loan.
SECTION 6.6 Take-Out Status Report. The Borrower shall, on or before the
last day of each month, furnish to the Lender a certificate indicating, in each
case if applicable: (a) the original amount committed to be purchased pursuant
to each Take-Out Agreement; (b) the amount under each Take-Out Agreement that
has been funded; and (e) the amount remaining to be funded under each Take-Out
be funded under each Take-Out Agreement. At such time, the Borrower shall also
deliver an officer's certificate stating that the Borrower is in compliance with
all of the terms of each TakeOut Agreement.
20
<PAGE>
be funded under each Take-Out Agreement. At such time, the Borrower shall also
deliver an officer's certificate stating that the Borrower is in compliance with
all of the terms of each TakeOut Agreement.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF BORROWER
SECTION 7.1 Representations and Warranties Concerning Borrower. The
Borrower hereby represents and warrants to the Lender, as of the date of this
Agreement and any renewal or extension hereof and as of each Closing Date, that:
(a) Organization and Authority. (i) The Borrower is a corporation,
partnership or other business entity duly organized, validly existing and
in good standing under the laws of the state of its formation and (ii) the
Borrower has all requisite power and authority, corporate and/or otherwise,
and all necessary licenses and permits to engage in the transactions
contemplated by this Agreement and any other Program Documents and to
conduct a consumer loan business.
(b) No Proceedings. There are no proceedings pending, or to the
knowledge of the Borrower threatened, against the Borrower or any of its
affiliates in any court or before any governmental authority or arbitration
board or tribunal which involve the possibility of materially and adversely
affecting the business, prospects, profits or condition (financial or
otherwise) of the Borrower or the ability of the Borrower to perform any of
the transactions contemplated by this Agreement. The Borrower is not in
default with respect to any order of any court, governmental authority or
arbitration board or tribunal.
(e) No Conflict. The issuance of each Note by the Borrower and
compliance by the Borrower with all of the provisions of this Agreement,
any other related Program Document to which it is a party, and the other
instruments referred to herein (i) are within the corporate, partnership or
other business entity powers of the Borrower, and (ii) are legal and will
not conflict with or result in any breach in any of the provisions of, or
constitute a default under, or result in the creation of any lien upon the
assets of the Borrower under the provisions of any other agreement, charter
instrument, by-law or other instrument to which the Borrower is a party or
by which it is bound.
(d) No Event of Default. No event has occurred and no condition exists
which, upon the Closing Date for any Loan, would constitute a Pending Event
of Default or an Event of Default under this Agreement.
(e) Taxes. All tax returns required to be filed by the Borrower in any
jurisdiction have been filed, and all taxes, assessments, fees and other
governmental charges upon the Borrower or upon its properties, income or
franchises, which are due and payable have been paid. The Borrower does not
know of any proposed additional tax assessment against it or any basis
therefor.
21
<PAGE>
(f) Governmental Authorizations. The Borrower (i) is not in violation
of any laws, ordinances, governmental rules or regulations to which either
is subject, which would materially effect their obligations; and/or (ii)
has not failed to obtain any licenses, permits, franchises or other
governmental authorizations necessary to the conduct of its business.
(g) No Restrictive Agreements. The Borrower is not a party to any
contract or agreement, or subject to any charter or other corporate
restrictions, which materially and adversely affects its business. The
Borrower is not a party to any contract or agreement which restricts its
right or ability to incur any indebtedness.
(h) Corporate Name. The Borrower has not been known by any other
corporate name in the past five years and does not conduct business under
any other name, nor has the Borrower been the surviving corporation of a
merger or consolidation or acquired all or substantially all of the assets
of any person during the preceding five years.
(i) Solvency. The Borrower is solvent, able to pay its debts as they
mature, has capital sufficient to carry on its business and all businesses
in which it is about to engage, and (a) as of the date of this Agreement,
the fair present saleable value of its assets, calculated on a going
concern basis, is in excess of the amount of its liabilities and (b)
subsequent to the date of this Agreement, the fair saleable value of its
assets (calculated on a going concern basis) will be in excess of the
amount of its liabilities.
(j) Licenses and Permits. The Borrower is in compliance with, and has
procured and is now in possession of, all material licenses or permits
required by any applicable federal, state or local law or regulation for
the operation of its business in each jurisdiction wherein it is now
conducting or proposes to conduct business and where the failure to procure
such licenses or permits would have a material adverse effect on the
business, properties, condition (financial or otherwise) or operations,
present or prospective of Borrower.
(k) Default of Indebtedness. The Borrower is not in default in the
payment of the principal of or interest on any Indebtedness or under any
instrument or agreement under or subject to which any indebtedness has been
issued and no event has occurred under the provisions of any such
instrument or agreement which with or without the lapse of time or the
giving of notice, or both, constitutes or would constitute an event of
default thereunder.
22
<PAGE>
(1) Investment Company Act. The Borrower is not an "investment
company" registered or required to be registered under the Investment
Company Act of 1940, as amended, nor is it controlled by such a company.
(m) Disclosure. No representation or warranty made by the Borrower in
this Agreement or in any financial statement, report, certificate or any
other document furnished in connection herewith or therewith contains any
untrue statement of a material fact or omits to state any material fact
necessary to make the statements herein or therein not misleading. There is
no fact known to the Borrower or which reasonably should be known to the
Borrower that the Borrower has not disclosed to the Lender in writing with
respect to the transactions contemplated by this Agreement which materially
and adversely affects the condition (financial or otherwise), results of
operations, business, or assets of the Borrower.
SECTION 7.2 Representations and Warranties Concerning Collateral. The
Borrower hereby represents and warrants to the Lender, as of the date of this
Agreement and any renewal or extension hereof and as of each Closing Date, that:
(a) Good Title to Collateral. The Borrower has good title to each item
of Collateral, free and clear of all Liens, charges and encumbrances, and
that it has full power, authority and legal right to pledge the Collateral
pursuant to this Agreement.
(b) First Lien on Collateral. The Security Interest is and will remain
a valid and enforceable first lien on each item of Collateral. The Borrower
will not create or permit to be created or to remain, and will promptly
discharge or cause to be discharged without cost to the Lender, any lien,
charge or encumbrance upon the Collateral. If the validity, enforceability
or priority of the Security Interest in the Collateral or any portion
thereof, shall be endangered or attacked, directly or indirectly, the Under
shall be authorized to take, at the expense of the Borrower, all reasonable
necessary and proper action in defense thereof, including the retention of
legal counsel, the prosecution of defense of litigation and the compromise
or discharge of claims.
(c) Auto Loans Secured by Financed Vehicle. Each Auto Loan is secured
by Financed Vehicle.
(d) Conformity to Take-Out Requirements. Each Auto Loan conforms and
will conform in all respects with all requirements of the Take-Out
Commitment and the applicable underwriting criteria of the related Take-Out
Investor. The Borrower can and will comply with the terms and conditions of
the Take-Out Commitment relating to each Auto Loan.
(e) Origination Complied With Applicable Loan. Each Auto Loan arose
from a bona fide loan complying with all applicable laws and regulations,
was made to an Obligor having legal capacity to contract, and is not
subject to any defense, dispute, set- off or counterclaim. This warranty
shall be deemed breached upon the assertion by any Obligor on the Auto Loan
of such a defense, dispute, set-off or counterclaim including a claim that
the transaction which gave rise to the Auto Loan did not comply with any
applicable statute or regulation.
23
<PAGE>
(f) Disclosures Proper. All disclosures required by any state or
federal or local law or regulation in connection with each Auto Loan have
been duly and properly made and given.
(g) Valid Oblilzations of Oblilzor. Each instrument comprising a
portion of the Collateral represents the valid, binding and enforceable
obligation of the Obligor thereunder and each such Obligor has agreed to
pay the principal, interest and all other amounts due thereunder in
accordance with its terms, without defense, offset or counterclaim.
(h) No Set-Off by Take-Out Investors. There are no claims or right of
set-off against the Borrower by the Take-Out Investor that issued the
Take-Out Agreement or to whom an Auto Loan is to be delivered, that could
result in a net payment for such Auto Loan in an amount insufficient to pay
the Lender's entitlement thereto, including the Funding Amount, all
interest thereon and all fees due to the Lender, whether such claim arises
with respect to such Auto Loan or otherwise.
(i) Origination in Accordance With Underwriting Guidelines. Each Auto
Loan was originated in accordance with the Borrower's Underwriting
Guidelines and was acquired in the ordinary course of Borrower's business.
(j) Adequate Insurance. Each Auto Loan is covered by the Vendor's
Single Interest Insurance Policy and the Lender shall have received
evidence satisfactory to it in its sole discretion that each Financed
Vehicle is insured with respect to loss, theft and physical damage under
policies of insurance in form and substance and issued by insurers
satisfactory to it in its sole discretion.
(k) Delivery of Title and Assignment. Each Auto Loan shall have been
delivered to the Lender, or a Collateral Agent acting on its behalf,
together with any necessary endorsements. The Lien Certificate which shows
the Borrower's security interest in the Financed Vehicle relating to such
Auto Loan (other than a Lien Certificate that under applicable law must
remain with the owner of such Financed Vehicle) and an Assignment of such
Lien Certificate shall have been delivered to the Lender, or if such Lien
Certificate or an application therefor, as required by applicable state
law, has been submitted to the relevant authority for notation thereon of
the Borrower's security interest in such Financed Vehicle, then a copy of
such Lien Certificate or application therefor shall have been delivered to
the Lender together with an Assignment of such Lien Certificate. If the
Borrower has delivered a copy of the Lien Certificate or an application in
24
<PAGE>
lieu of delivering the actual Lien Certificate, then the Borrower shall
deliver the Lien Certificate to the Lender within 90 days of the date on
which the Borrower acquired the related Auto Loan. Pursuant to each
Assignment, the Borrower has assigned to the Lender all of its right, title
and interest in and to the applicable Auto Loan and related Collateral.
(1) No Counterparts. Each Auto Loan is the sole original counterpart
and no Lien in such Auto Loan may be created through the transfer or
possession of any counterpart other than such original counterpart.
(m) No Delinquency or Default. No Auto Loan is a Delinquent Auto Loan
or a Defaulted Auto Loan, and no default exists under the terms of such
Auto Loan.
(n) Payments to Lockbox. Notice that all payments by the Obligor under
such Auto Loan are to be made to the applicable Lockbox Account shall have
been given to the Obligor and the Lender shall have received evidence,
satisfactory to the Lender, of the giving of such notice.
(o) Length of Loan. The term of each Auto Loan does not exceed 60
months or such other length of time that the Lender may agree to in
writing.
1
<PAGE>
(p) Binding Loan of Obligor. Each Auto Loan is a binding and valid
obligation of the Obligor, in full force and effect and enforceable in
accordance with its terms.
(q) Genuine. Each Auto Loan is genuine in all respects as it appears
on its face and as represented in the books and records of the Borrower and
all information set forth therein is true and correct.
(r) No Defenses. (i) No default by any party to such Auto Loan
(including the Dealer) exists, (ii) the obligations of the Obligor or
Obligors under such Auto Loan are not subject to any counterclaims, offsets
or defenses and (iii) such Obligor or Obligors have no right of rescission,
cancellation or avoidance, whether by operation of law or otherwise.
(s) Entire Agreement. Each Auto Loan contains the entire agreement of
the parties thereto with respect to the subject matter thereof, has not
been modified or amended in any respect and is free of concessions to or
understandings with the Obligor of any kind not expressed in writing
therein.
(t) No Insolvency. No case under the Bankruptcy Code shall have been
commenced by or against any Obligor under such Auto Loan and be pending.
SECTION 7.3 Survival of Representations and Warranties. Each representation
and warranty of the Borrower contained in Section 7.1 or 7.2 hereof shall be
true and correct on the date hereof and on each Closing Date, and shall be
deemed a continuing representation and warranty at all times during the term of
this Agreement.
25
<PAGE>
ARTICLE VIII
CERTAIN COVENANTS OF THE BORROWER
The Borrower covenants and agrees that so long as any Loan shall remain
unpaid:
SECTION 8.1 Maintenance of Office. The Borrower will maintain at its office
located at its address shown in Section 13.7 of this Agreement an office where
notices, presentations and demands in respect of this Agreement and any Note may
be given to and made upon it; provided, however, that it may, upon fifteen
Business Days prior written notice to the Lender, move such office to any other
location within the boundaries of the continental United States of America. The
Borrower hereby agrees that it will pay, and will hold the Lender harmless
against liability for, any stamp or other similar tax or governmental charge
imposed in respect of any assignment of a Loan (excluding taxes payable with
respect to profit resulting from any such transfer); and such obligation of the
Borrower shall survive the payment or prepayment of the Loans and the
termination of the Program Documents.
SECTION 8.2 Existence. The Borrower will take and fulfill, or cause to be
taken and fulfilled, all actions and conditions necessary to preserve and keep
in full force and effect its existence, rights and privileges and will not
liquidate or dissolve, and it will take and fulfill, or cause to be taken and
fulfilled, all actions and conditions necessary to qualify, and to preserve and
keep in full force and effect its qualification, to do business in each
jurisdiction in which the conduct of its business or the ownership or leasing of
its properties requires such qualification.
SECTION 8.3 General Maintenance of Business, Etc. The Borrower will:
(a) keep proper books of record and accounts in which entries will be
made of its business transactions in accordance with and to the extent
required by generally accepted accounting principles;
(b) set aside on its books from its earnings for each fiscal year, in
amounts deemed adequate in the reasonable opinion of the Borrower, all
proper accruals and reserves that, in accordance with generally accepted
accounting principles, should be set aside from such earnings in connection
with its business, including reserves for depreciation, obsolescence and/or
amortization and accruals for taxes based on or measured by income or
profits and for all other taxes; and
(c) enforce (or cause a Servicer or a Collateral Agent, as may be
appropriate, to enforce) all of its rights under each of the Program
Documents to which it is a party and each other agreement entered into in
connection with the transactions contemplated hereby.
26
<PAGE>
SECTION 8.4 Financial Statements and Reports. The Borrower will maintain a
system of accounting established and administered in accordance with generally
accepted accounting principals consistently applied. It being understood that
the form of information requested in this Section 8.4 may be the Borrower's
statements that are filed with the Securities and Exchange Commission and
published as SEC Form 10-KSB, 10-QSB, or annual report, as applicable.
(a) As soon as practicable after the end of each of the Borrower's
fiscal years, and in any event within 90 days thereafter (or such later
time as the Securities and Exchange Commission shall permit for their
filing), the Borrower shall furnish to the Lender, one copy of:
(i) a balance sheet of the Borrower as of the end of such year,
and a statement of earnings and of stockholders' equity and changes in
financial position of the Borrower for such year, in each case
prepared in audited or certified form by a certified public accountant
acceptable to the Lender; and
(ii) a certificate from such certified public accountant stating
that he knows of no condition or event which then constitutes an Event
of Default hereunder, or, if any such condition or event then exists,
specifying the nature and period of existence thereof.
(b) As soon as practicable after the end of each of the Borrower's
quarterly fiscal periods, and in any event within 45 days thereafter (or
such later time as the Securities and Exchange Commission shall permit for
their filing), the Borrower shall furnish to the Lender, one copy of an
unaudited balance sheet and statement of earnings of the Borrower as at the
end of such quarter certified by the Borrower's chief financial officer.
(c) The Borrower shall, with reasonable promptness, furnish to the
Lender such other documents and information with respect to the business,
affairs and condition of the Borrower as from time to time the Lender may
reasonably request.
SECTION 8.5 Inspection. The Borrower will permit, upon reasonable notice to
it, the Lender by its representatives, agents or attorneys: (a) to examine all
books of account, records, reports and other papers of the Borrower relating to
the Collateral and the operation of the Borrower's business, (b) to make copies
and take extracts from any thereof, (c) to discuss the affairs, finances and
accounts of the Borrower with its respective officers and independent certified
public accountants (and by this provision the Borrower hereby authorizes said
accountants to discuss with the Lender the finances and accounts of the
Borrower) and (d) to visit and inspect, at reasonable times during normal
27
<PAGE>
business hours, the properties of the Borrower. It is understood and agreed by
the parties hereto that all reasonable expenses in connection with any such
inspection or discussion incurred by the Lender or the Borrower, any officers
and employees thereof and the independent certified public accountants therefor
shall be expenses payable by the Person malting the inspection or discussion.
SECTION 8.6 Books and Records. The Borrower shall, or shall cause any
Servicer acting on behalf of the Borrower to, maintain accounts and records as
to each Auto Loan accurately and in sufficient detail to permit (a) the reader
thereof to know at any time the status of such Auto Loan, including payments and
recoveries made and payments owing (and the nature of each) and (b)
reconciliation between payments or recoveries on (or with respect to) each Auto
Loan and the amounts from time to time deposited in the Collection Account in
respect of such Auto Loan.
SECTION 8.7 Transfers of Assets. If at any time the Borrower proposes to
sell, grant a security interest in, or otherwise transfer any interest in
automotive receivables to any prospective purchaser, lender or other transferee,
the Borrower shall give to such prospective purchaser, lender or other
transferee computer tapes, records or printouts (including any restored from
backup archives) that, if they refer in any manner whatsoever to any Auto Loan,
indicate clearly that such Auto Loan has been pledged as Collateral to the
Lender unless the Loan relating to such Auto Loan has been paid in full or the
Auto Loan has been repurchased by the Borrower.
SECTION 8.8 Fidelity Bond. The Borrower shall maintain fidelity insurance
or fidelity bonds in form, with limits and with companies, satisfactory to the
Lender with respect to any employee or employees of the Borrower designated from
time to time by the Lender, such insurance or bonds to be endorsed to expressly
recognize that the Lender has an interest therein and that same will not be
canceled, terminated or permitted to lapse unless not less than ten days prior
written notice is given to the Lender.
SECTION 8.9 Preservation of Collateral. The Borrower will observe and
perform all provisions to be observed or performed by it, and will cause to be
observed and performed by each other Person all provisions to be performed by
it, contained in this Agreement and in each instrument included in the
Collateral, in accordance with the terms thereof and within the time permitted
thereby, and will maintain, or cause to be maintained, the validity and
effectiveness of each such instrument and the assignment thereof or of rights in
respect thereto to the Lender.
SECTION 8. 10 Compliance with Law, etc. The Borrower will not (a) violate
any laws, ordinances, governments rules or regulations to which it is or may
become subject, or (b) fail to obtain or maintain any patents, trademarks,
service marks, trade names, copyrights, design patents, licenses, permits,
franchises or other governmental authorizations necessary to the ownership of
its property or to the conduct of its business except to the extent that any
such violation or failure could not materially and adversely affect the
business, earnings, prospects, properties or condition (financial or other) of
the Borrower.
28
<PAGE>
SECTION 8. 11 Indemnification. The Borrower agrees to indemnify, and shall
protect and hold the Lender harmless, from and against ail liabilities, losses,
claims, demands, costs, expenses (including attorneys' fees and expenses) and
judgments of any nature arising, or alleged to arise, from or in connection with
(a) any violation, or alleged violation of this Agreement, any other Program
Document or any instrument, contract or agreement included in the Collateral, or
(b) any damage or loss sustained by the Lender in connection with this
Agreement, unless such damage or loss is caused by the gross negligence or
willful misconduct of the Lender. The Borrower will resist and defend any
action, suit or proceeding brought against the Lender by reason of such
occurrence by counsel designated by the lender. The obligation of this Section
8. 11 shall survive any termination of this Agreement.
SECTION 8.12 Net Worth. The Borrower shall maintain a corporate net worth
in excess of $500,000.
SECTION 8.13 Payment of Taxes and Claims, The Borrower will pay and
discharge promptly when due all taxes, assessments and governmental charges and
levies imposed upon it, its income or profits or any of its properties;
provided, however, that the foregoing need not be paid while the same is being
contested in good faith by appropriate proceedings diligently conducted so long
as:
(a) adequate reserves shall have been established in accordance with
generally accepted accounting principles with respect thereto; and
(b) the right of the Borrower to use the particular property shall not
be materially and adversely affected thereby.
SECTION 8.14 Insurance. The Borrower shall obtain, and keep in place at all
times, the Vendor Single Interest Insurance Policy or shall otherwise satisfy
the lender that the Lender's interest in the Collateral is adequately insured.
If the Borrower fails to obtain such insurance, or to keep the same in force,
the Lender may obtain such insurance and pay the premium therefor for the
Borrower's account, and charge the Borrower's account therefor and such expenses
so paid shall be part of the Loans.
SECTION 8.15 Borrower to Pay Expenses. The Borrower shall pay the fees and
expenses of each Servicer and each Collateral Agent incurred pursuant to each
Servicing Agreement and each Custodial Agreement, respectively.
SECTION 8.16 Further Assurances. The Borrower will promptly execute and
deliver all further instruments and documents and take all further action that
may be necessary in order to give effect to the Security Interest and the
provisions of the Program Documents and any Note.
SECTION 8.17 Other Agreements and Parties. The Borrower will comply with
all terms of the Program Documents to which it is a party. Without the consent
of the Lender, such consent not to be unreasonably withheld, the Borrower will
not (a) except as otherwise expressly set forth herein, agree to any amendment,
supplement or modification to or waiver of the terms of the Program Documents to
29
<PAGE>
which it is a party or any document related thereto (b) appoint any Servicer or
Collateral Agent. Without notification to the Lender, the Borrower will not
enter into any agreements other than the Program Documents to which it is a
party.
SECTION 8.18 Defaults on Collateral. The Borrower will give notice to the
Lender of any default by any Person under any instrument included in the
Collateral promptly after the Borrower obtains knowledge of the same. If a
default under any Auto Loan shall occur, the Borrower shall pay to the Lender
the outstanding principal balance the Loan secured thereby, plus accrued
interest thereon and any related fees.
SECTION 8.19 No Disposition of Collateral. The Borrower will not sell,
lease, transfer or otherwise dispose of the Collateral or any portion thereof or
interest therein, except that the Borrower may sell, transfer or otherwise
dispose of any of the foregoing to the extent expressly permitted or required by
a valid Take-Out Commitment.
SECTION 8.20 Payment of Fees. The Borrower will pay to the Lender on demand
all usual and customary fees and expenses which the Lender incurs in connection
with (a) the forwarding of Loan Proceeds and (b) the establishment and
maintenance of any Lockbox Accounts. The Lender may, without making demand,
charge the Borrower, and thus increase the amount owing under this Agreement for
all such fees and expenses.
SECTION 8.21 Violations. The Borrower will promptly notify the Under in
writing of any violation of any law, statute, regulation or ordinance of any
governmental entity, or of any agency thereof, applicable to the Borrower which
may adversely affect the Collateral or the Borrower's business, assets,
operations, condition or prospects (financial or otherwise).
SECTION 8.22 Payment of Indebtedness. The Borrower will pay, discharge or
otherwise satisfy at or before maturity (subject, where applicable, to specified
grace periods and, in the case of the trade payables, to normal payment
practices) all its obligations and liabilities of any nature, unless the Lender
shall have consented thereto.
SECTION 8.23 Exercise of Rights. The Borrower will enforce all of its
rights under the Collateral and pursue all remedies available to it with
diligence and in good faith in connection with the enforcement of any such
rights.
SECTION 8.24 Negative Covenants. Without the consent of the Lender, the
Borrower shall not: (a) merge or consolidate with or into any corporation or
materially alter, amend or change its corporate business; (b) sell, lease,
assign or otherwise dispose of all or substantially of its assets; (e) engage in
any business other than consumer lending; (d) change in any substantial respect
its methods of operating its existing consumer lending business; (e) change in
any material respect its present management; (f) take any action nor permit any
action to be taken by any others, which would release any Person from any of its
covenants or obligations under any instrument included in the Collateral, or
which would result in the amendment, hypothecation, subordination, waiver,
30
<PAGE>
termination or discharge or impair the validity or effectiveness, of any such
instrument, or release any security comprising the Collateral, except as
expressly provided herein or therein; and (g) permit any Lien to exist on any
Auto Loan except Lender's Security Interest.
ARTICLE IX
CONDITIONS PRECEDENT
SECTION 9.1. Conditions to Initial Loan. The agreement of the Lender to
make the initial Loan requested to be made on the first Closing Date hereunder
is subject to the satisfaction or waiver by the Under, immediately prior to or
concurrently with the making of such Loan, of the following conditions
precedent:
(a) Note. The Lender shall have received an initial Note duly executed
and delivered by an authorized officer of the Borrower.
(b) Filings Registrations and Recordings. Each document (including,
without limitation, all necessary UCC financing statements) required under
law or reasonably requested by Lender to be filed, registered, recorded or
possessed in order to create, in favor of the Lender, the Security Interest
in the Collateral shall have been properly filed, registered, recorded or
possessed in each jurisdiction in which the filing, registration,
recordation or possession thereof is so required or requested, and the
Lender shall have received an acknowledgment copy, or other evidence
reasonably satisfactory to it, of each such filing, registration,
recordation possession and reasonably satisfactory evidence of the payment
of any necessary fee, tax or expense relating thereto.
(c) Corporate Proceedings of Borrower. The Lender shall have received
a copy of the resolutions in form and substance reasonably satisfactory to
the Lender, of the Board of Directors of the Borrower authorizing (i) the
execution, delivery and performance of the Program Documents and (ii) the
granting by the Borrower of the Security Interests in the Collateral in
each case certified by the Secretary or an Assistant Secretary of the
Borrower as of the initial Closing Date; and, such certificate shall state
that the resolutions thereby certified have not been amended, modified,
revoked or rescinded as of the date of such certificate.
(d) Incumbency Certificates of Borrower. The Lender shall have
received a certificate of the Secretary or any Assistant Secretary of the
Borrower, dated the initial Closing Date, as to the incumbency and
signature of the officers of the Borrower executing this Agreement, any
certificate or other Program Documents to be delivered by it pursuant
hereto, together with evidence of the incumbency of such Secretary or
Assistant Secretary.
31
<PAGE>
(e) Legal Opinion. The Lender shall have received a legal opinion of
counsel to the Borrower in form and substance reasonably satisfactory to
the Lender (which may be of in-house counsel) which shall cover such
matters incident to the transactions contemplated by this Agreement, the
Notes and other Program Documents as Lender may reasonably require.
(f) Fees. The Lender shall have received the Application Fee.
(g) Borrower's Underwriting Guidelines. The Lender shall have received
a copy of the Borrower's Underwriting Guidelines.
(h) Insurance. The Lender shall have received satisfactory proof of
the insurance policies required to be maintained by the Borrower under
Section 8.14 hereof.
(i) UCC Search Report. The Lender shall have received a copy of search
reports for the Borrower with respect to UCC financing statements and tax
and judgment liens as of a recent date acceptable to the Lender.
(j) Servicing Agreement. Unless the Borrower will be the Servicer, the
Lender shall have received a Servicing Agreement duly executed and
delivered by the Borrower and a Servicer acceptable to the Lender, in its
sole discretion.
(k) Custodial Agreement. The Lender shall have received a Custodial
Agreement duly executed and delivered by the Borrower and a Collateral
Agent acceptable to the Lender, in its sole discretion.
(1) Reserve Account. The Borrower shall have established the Reserve
Account containing at least the Reserve Account Required Balance.
(m) Cash Account. The Borrower shall have established the Cash
Account.
(n) Other. All corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the transactions
contemplated hereby shall be satisfactory in form and substance to the
Lender and its counsel.
SECTION 9.2. Conditions to Each Loan. The agreement of the Lender to make
any Loan requested to be made on any Closing Date (including, without
limitation, its initial Loan), is subject to the satisfaction of the following
conditions precedent as of such Closing Date:
(a) Representations and Warranties. Each of the representations and
warranties made by the Borrower in or pursuant to this Agreement, and any
other Program Documents to which it is a party, and each of the
representations and warranties contained in any certificate, insurance
policy, document or financial or other statement furnished at any time
32
<PAGE>
under or in connection with this Agreement or any other Program Documents
shall be true and correct in all material respects on and as of such date
as if made on and as of such date.
(b) No Default. No Event of Default or Pending Event of Default shall
have occurred and be continuing on such date, or would exist after giving
effect to the Loan requested to be made, on such date; provided, however,
that the Lender, in its sole discretion, may continue to make Loans
notwithstanding the existence of an Event of Default or Pending Event of
Default.
(c) Maximum Loans. With regard to the Loan requested to be made, after
giving effect thereto, the aggregate of all Loans outstanding on such
Closing Date shall not exceed the Maximum Credit Line; provided, however,
that the Lender, in its sole discretion, may exceed the Maximum Credit
Line.
(d) Delivery of Collateral. The Lender, or a Collateral Agent on
behalf of the Lender, shall have received all documents relating to the
Auto Loans to serve as Collateral for such Loan as Lender shall reasonably
require.
(e) Funding Fee. The Lender shall have received the Funding Fee for
each Auto Loan to be delivered to the Lender, or a Collateral Agent on
behalf of the Lender, in connection with such Loan. Such Funding Fees may
be deemed by the Lender to be paid by deducting the amount thereof from the
Loan proceeds to be delivered to the Borrower on such Closing Date.
(f) Reserve Account. The Lender shall have received funds in an amount
equal to the Reserve Account Deficiency Amount, if any. Such Reserve
Account Deficiency Amount may be deemed by the Lender to be delivered by
deducting the amount thereof from the Loan proceeds to be delivered to the
Borrower on such Closing Date.
(g) Take-Out Agreement The Lender shall have received satisfactory
evidence that a Take-Out Agreement is in existence for each Auto Loan that
will be pledged to secure such Loan. Each Loan Funding Request delivered by
the Borrower shall constitute a representation and warranty by the Borrower
as of the date of such Loan that the conditions contained in this
subsection shall have been satisfied.
33
<PAGE>
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
SECTION 10.1 Events of Default. Any of the following occurrences or acts
(whether the same shall occur voluntarily, involuntarily, by operation of law or
otherwise) shall constitute an Event of Default under this Agreement:
(a) if default shall be made in the payment of any interest or
principal of any Loan, when and as the same shall become due and payable or
failure to pay any other liabilities or make any other payment, fee or
charge provided for herein when due;
(b) if any representation, warranty or other statement of the Borrower
set forth in this Agreement, or any representation or warranty of any party
set forth in any Program Document, certificate or other instrument
delivered pursuant to this Agreement, or any instrument included in the
Collateral, shall prove to have been incorrect in any material respect at
the time it was made or at any time such representation warranty or
statement is or was deemed to be effective pursuant to Article VII hereof;
(c) if default shall be made in the due observance or performance of
any other provision of this Agreement or other Program Document to be
observed or performed by the Borrower;
(d) if the Borrower is also a Servicer, an "Event of Default" shall
have occurred under the related Servicing Agreement, if any;
(e) if the Borrower shall default under the provisions of any Take-Out
Agreement and no other Take-Out Agreement is available;
(f) if any instrument included in the Collateral shall be canceled,
terminated, or discharged, or in any way amended or modified to diminish
the value of the Collateral to the Lender in a material way, or shall be
hypothecated, or any portion of the Collateral shall be released except as
expressly provided for herein and therein;
(g) if by order of a court or agency of competent jurisdiction, a
receiver, trustee, custodian or liquidator (or other similar official) of
the Borrower or of the Collateral or any portion thereof shall be appointed
in any proceeding by any federal or state officer or agency, and such order
shall not be vacated or set aside or stayed within 60 days after the entry
thereof (provided, however, that such 60-day waiting period shall not be
permitted if the appointment of such receiver, trustee, custodian,
liquidator or similar official would cause immediate impairment of the
Collateral), or if the Borrower shall consent to such appointment;
34
<PAGE>
(h) if the Borrower shall file a petition in bankruptcy or for relief
or for reorganization or for an arrangement pursuant to the Bankruptcy Code
or any similar federal or state law, now or hereafter in effect, or shall
be adjudicated a bankrupt or become insolvent, or shall make an assignment
for the benefit of creditors or shall admit in writing its inability to pay
debts generally as they become due or shall be dissolved or shall suspend
payment of its obligations or shall take any action in furtherance of any
of the foregoing; or if a petition or an answer shall be filed proposing
the adjudication of the Borrower as a bankrupt or its reorganization under
the Bankruptcy Code or any similar federal or state law, now or hereafter
in effect, or consent to the appointment of a custodian, receiver, trustee
or other officer with similar powers for itself or any substantial part of
its property and (i) the Borrower shall consent to the filing thereof, or
(ii) such petition or answer shall be approved by a court of competent
jurisdiction and the order approving the same shall not be vacated or set
aside or stayed within 60 days after the entry thereof; provided, however,
that such 60-day waiting period shall not be permitted if the appointment
of such receiver, trustee, custodian, liquidator or similar official would
cause immediate impairment of the Collateral;
(i) if final judgment for the payment of money shall be rendered
against the Borrower in an amount that, in the reasonable judgment of the
Lender, would impair the Borrower's ability to fulfill its obligation to
the Lender and the Borrower shall not discharge the same or provide for its
discharge in accordance with its terms or procure a stay of execution
thereon within 60 days from the entry date thereof, and shall not within
such 60-day period, or such longer period during which execution on such
judgment shall have been stayed, appeal therefrom or from the order, decree
or process upon or pursuant to which said judgment shall have been granted,
passed or entered and cause the execution thereof to be stayed during such
appeal, and if on appeal such order, decree or process shall be affirmed
and the Borrower shall not discharge such judgment or provide for its
discharge in accordance with its terms within 60 days after the entry of
the order or decree of affirmance;
(j) if the Borrower fails to make any payment due on any indebtedness
or any event shall occur or any condition shall exist in respect of any
indebtedness of the Borrower or under any agreement securing or relating to
such indebtedness, the effect of which is to cause or permit such
indebtedness, or a portion thereof, to become due prior to its stated
maturity or prior to its regular scheduled dates of payment, in an amount
that, in the reasonable judgment of the Lender would impair the Borrower's
ability to fulfill its obligation to the Lender;
(k) if there shall occur, in the reasonable judgment of the Lender, a
material adverse change in the Borrower's financial condition or business;
or
(1) if any Lien created or intended to be created by this Agreement
shall cease to be a valid, fully perfected and enforceable Lien prior to
the rights of all Persons other than the Lender whether or not such Persons
have notice of any such Lien and, if curable, such failure shall continue
unremedied for 30 days after the Borrower obtains knowledge thereof.
35
<PAGE>
The Borrower shall give prompt written notice to the Lender of the occurrence of
any Event of Default or of any event or circumstances that constitute a Pending
Event of Default. Failure to provide such notice shall constitute an Event of
Default under subsection (e) above.
SECTION 10.2 Loans Due Upon Event of Default. If an Event of Default has
occurred and shall remain uncured past any cure period provided by Section 10.5,
the Lender may, with or without notice to the Borrower, declare (i) the entire
unpaid principal amount of all of the Loans, (ii) all accrued and unpaid
interest thereon, including any interest accrued at the Default Rate, and (iii)
all other sums required to be paid by the Borrower pursuant to this Agreement or
any other Program Document, to be due and payable, and upon any such declaration
the amounts referred to in clauses (i) through (iii) of this Section 10.2 shall
mature and become due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived.
SECTION 10.3 Rights and Remedies. If an Event of Default shall occur and
shall remain uncured past any cure period provided by Section 10.5, the Lender
may exercise any right, power or remedy permitted to it by law, either by suit
in equity or by action at law, or both, whether for specific performance of any
covenant or agreement contained in the Program Documents or in any Note
evidencing one or more Loans or for an injunction against a violation of any of
the terms of the Program Documents or such Loan or in aid of any exercise of any
power granted to the Lender in the Program Documents or in such Loan, or may
proceed to enforce payment of such Loan or to enforce any other legal or
equitable right of the Lender. No remedy herein conferred upon the Lender is
intended to be exclusive of any other remedy and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law, in equity, by statute or otherwise. No course of
dealing on the part of the Lender or any delay or failure on the part of the
Lender to exercise any right or power, shall operate as a waiver of such right
or power or otherwise prejudice the rights, powers and remedies of the Lender.
No failure to insist upon strict compliance with any covenant, term, condition
or other provision of the Program Documents or any Note shall constitute a
waiver by the Lender of any such covenant, term, condition or other provision or
of any default or Event of Default in connection therewith. To the extent
effective under applicable law, the Borrower hereby agrees to waive, and does
hereby absolutely and irrevocably waive and relinquish, the benefit and
advantage of any stay, extension or redemption laws now existing or that may
hereafter exist that, but for this provision, might be applicable to any sale
made under any judgment, order or decree of any court, or otherwise, based on
the Loans or on any claim for interest in respect of the Loans. If an Event of
Default shall occur, and be continuing, the Borrower will pay to the Lender, to
the extent not prohibited by applicable law and not paid in accordance with this
Agreement, such further amount as shall be sufficient to cover the reasonable
costs and expenses of collection and of the taking of remedial actions and the
maintenance of enforcement proceedings, including, without imitation, reasonable
attorneys' fees and disbursements,
36
<PAGE>
SECTION 10.4 Realization Upon Collateral. If an Event of Default hereunder
shall have occurred and shall remain uncured past any cure period provided by
Section 10.5, the Lender, or its agents, may do any or all of the following:
(a) sell, or cause the applicable Collateral Agent to sell, to the
extent not prohibited by law, in a commercially reasonable manner, the
Collateral and all right, title, interest, claim and demand therein, and
right of redemption thereof, at one or more public or private sales, as an
entirety or otherwise, and at such time and place and upon such terms as
the Lender may fix and specify in the notice of sale to be given to the
Borrower, or as may be required by law;
(b) take any action which is appropriate to enforce the rights and
remedies of the Lender under any instrument included in the Collateral, to
the extent not prohibited thereby or by law;
(c) take all other steps to protect and enforce the rights and
remedies of the Lender whether by proceedings (for the specific performance
of any provision of the Notes or this Agreement or any other Program
Document, or in aid of the exercise of any right or remedy herein granted,
or for any foreclosure hereunder or for the enforcement of any other
appropriate legal or equitable remedy) or otherwise as the Lender shall
deem most effectual to protect and enforce the same; or
(d) exercise all of the rights of a secured party under the UCC.
SECTION 10.5 Cure of Defaults. Notwithstanding anything herein to the
contrary, (a) the Lender shall allow the Borrower three Business Days during
which to cure any Pending Event of Default or Event of Default and (b) nothing
in this Article X shall prohibit the Borrower and the Lender from agreeing to a
reasonable period of time (in addition to the three Business Days provided by
subsection (a) hereof) to cure any Pending Event of Default or Event of Default;
provided, however, that the Lender may exercise any or all of its rights at any
time if, in its reasonable judgment, the further delay in such exercise would
impair its rights, diminish the value of the Collateral or affect the priority
of the Security Interest in the Collateral.
SECTION 10.6 Application of Proceeds of Sale of Collateral. The proceeds of
any sale made under or by virtue of this Article X together with any other sums
which then may be held by the Lender under this Agreement as part of the
Collateral or the Proceeds thereof, whether under the provisions of this Article
X or otherwise, shall be applied by the Lender as follows:
First: To the payment of the costs and expenses of any such sale, and
of any proceeding related to such sale, and of all expenses, liabilities
and advances made or incurred by the Lender under this Agreement
(including, without limitation, the reasonable compensation and expenses
and disbursements of its attorney and of such agents, representatives and
experts not regularly in the employ of the Lender as it shall employ in
37
<PAGE>
connection with the exercise and performance of its powers and duties
hereunder), together with interest at the Default Rate, on all advances
made by the Lender to protect the Collateral or enforce its rights
hereunder or under any Note;
Second: To the payment of all amounts then owed under the Notes for
principal and interest and if such proceeds shall be insufficient to pay
amounts in full, then first, to interest due on all Notes then outstanding
and second, to reduce the principal of all Notes then outstanding, pro
rata, in accordance with the outstanding principal balance thereof;
Third: To the payment of any other sums required to be paid by the
Borrower to the Lender pursuant to any provision of this Agreement or the
Notes or any other Program Document; and
Fourth: To the payment of the surplus, if any, to the Borrower or such
other Person or Persons legally entitled thereto.
SECTION 10.7 Lender May Purchase Collateral. Upon any sale made under or by
virtue of this Article X to the extent permitted by applicable law, the Lender
or an independent agent, on its behalf, may bid for and acquire the Collateral
or any part thereof and in lieu of paying cash therefor may make settlement for
the purchase price by crediting upon the indebtedness of the Borrower secured by
this Agreement the net proceeds of sale, after deducting therefrom the expenses
of the sale and the costs of the proceedings and any other sums which the
Borrower is authorized to deduct under this Agreement. The Person making such
sale shall accept such settlement without requiring the production of any Note
and without such production there shall be deemed credited thereon the pro rata
share of the net proceeds of sale. The Lender or such independent agent, upon so
acquiring the Collateral or any portion thereof, shall be entitled to hold,
manage, sell or otherwise deal in and with the same in any manner not prohibited
by applicable law.
SECTION 10.8 No Loans After Event of Default. Upon the occurrence and
continuance of any Pending Event of Default or any Event of Default, the Lender
shall no longer be obligated to make additional Loans hereunder.
SECTION 10.9 Consents. If an Event of Default hereunder shall have occurred
and be continuing, then immediately upon the commencement of any proceedings by
the L4ender to obtain judgment for the principal of or interest on any Note and
other sums required to be paid by the Borrower pursuant to any provision of this
Agreement, or of any other nature in aid of the enforcement of the Notes or of
this Agreement, the Borrower will, to the extent that it lawfully may: (a)
consent to the issuance and service of process in the manner specified in
Section 13.7 for notices and other communications; lb) consent to the entry of
the judgment for the lawful costs, expenses, and compensation of the Lender and
of its agents or attorneys in any action in which the Lender obtains a judgment
for principal, interest and/or other sums, and for such other relief as the
Lender may be entitled to hereunder; and (c) if required by the Lender, consent
to the appointment of a receiver or receivers of the Collateral and the Proceeds
thereof. If an Event of Default hereunder shall have occurred and be continuing,
38
<PAGE>
or upon the filing of a proceeding to foreclose this Agreement or to enforce the
specific performance hereof or in aid thereof or upon the commencement of any
other proceeding to enforce any right or remedy of the Lender, the Lender shall
be entitled as a matter of right, if the Lender shall so elect, without the
giving of notice to any other party and without regard to the adequacy or
inadequacy of the security of the Collateral, forthwith, either before or after
declaring the entire unpaid principal of the Notes and the interest accrued and
unpaid thereon to be due and payable, to the appointment of such a receiver or
receivers.
SECTION 10.10 Lender's Retention of Property. Notwithstanding the
appointment of any receiver, trustee or liquidator (or other similar official)
of the Borrower, or of any of the property of the Borrower, or of the Collateral
or any portion thereof, the Lender, or the applicable Collateral Agent on behalf
of the Lender, shall be entitled to obtain and/or retain possession and control
of all property now or hereafter pledged to or held by the Lender, or the
Collateral Agent on behalf of the Lender, under or pursuant to the provisions of
this Agreement.
SECTION 10.11 Remedies Not Exclusive; No Waiver of Remedies. No right or
remedy herein conferred upon or reserved to the Lender is intended to be
exclusive of any other right or remedy, and each and every right and remedy
shall be cumulative and in addition to any other right or remedy given
hereunder, or now or hereafter legally existing, upon the occurrence of an Event
of Default hereunder. The failure of the Lender to insist at any time upon the
strict observance or performance of any of the provisions of this Agreement or
any other Program Document, or to exercise any right or remedy provided for in
this Agreement or any other Program Document, shall not impair any such right or
remedy nor be construed as a waiver or relinquishment thereof. Every right and
remedy given by this Agreement or any other Program Document to the Lender may
be exercised from time to time and as often as may be deemed expedient by the
Lender.
SECTION 10.12 Waiver by Borrower. The Borrower hereby waives notice of
nonpayment of any of the Loans, demand, presentment, protest and notice thereof
with respect to any and all instruments, notice of acceptance hereof, notice of
Loans or advances made, credit extended, Collateral received or delivered, or
any other action taken in reliance hereon, and all other demands and notices of
any description, except such as are expressly provided for herein, or in any
Note or in the Program Documents. To the extent that it lawfully may, upon the
occurrence of an Event of Default, the Borrower agrees that it will not at any
time insist upon, or plead, or in any manner whatever claim or take any benefit
or advantage of any applicable present or future stay, extension or moratorium
law, which may affect observance or performance of the provisions of this
Agreement, any Notes or any other Program Document; nor after any such sales or
sales, claim or exercise any right, under any applicable present or future law
or otherwise, to redeem the Collateral or any portion thereof so sold; and the
Borrower, to the extent that it lawfully may, expressly waives all benefit or
advantage of any such laws and covenants not to hinder, delay or impede the
39
<PAGE>
exercise of any right or remedy permitted to be exercised by Under, but to
suffer and permit the exercise of every such right or remedy as though no such
law or laws were in effect. The Borrower for itself and all who may claim under
it, waives, to the extent that it lawfully may, all right to have the Collateral
marshalled upon any sale.
SECTION 10.13 Lender's Discretion. The Lender shall have the right in its
sole discretion to determine which rights, Liens, Security Interests or remedies
the Lender may at any time pursue, relinquish, subordinate, or modify or to take
any other action with respect thereto and such determination will not in any way
modify or affect any of the Lender's rights hereunder.
SECTION 10.14 Set-Off. In addition to any other rights which the Lender may
have under applicable law, upon the occurrence of any Event of Default
hereunder, the Lender shall have a right to apply any of the Borrower's property
held by the Lender or by any of its affiliates to reduce the Loans.
SECTION 10.15 Delay. No delay or omission on the Lender's part in
exercising any right, remedy or option shall operate as a waiver of such or any
other right, remedy or option or of any default.
ARTICLE XI
BANKRUPTCY PROVISIONS
SECTION 11.1 Waiver of Automatic or Supplemental Stay. In the event of the
filing of any voluntary or involuntary petition under the U.S. Bankruptcy Code
by or against the Borrower (other than an involuntary petition filed by or
joined in by the Lender), the Borrower shall not assert, or request any other
party to assert, that the automatic stay under _362 of the Bankruptcy Code shall
operate or be interpreted to stay, interdict, condition, reduce or inhibit the
ability of the Lender to enforce any rights it has by virtue of this Agreement
or any Program Document. The waivers contained in this paragraph are a material
inducement to the Lender's willingness to enter into this Agreement and the
Borrower acknowledges and agrees that no ground exists for equitable relief
which would bar, delay or impede the exercise by the Lender of any of the
Lender's rights and remedies against the Borrower.
SECTION 11.2 Acknowledgment of the Borrower. If the Borrower's property
or any portion thereof or any interest therein becomes property of any
bankruptcy estate or subject to any state or federal insolvency proceeding, then
the Lender shall immediately become entitled, in addition to all other relief to
which the Lender may be entitled under this Agreement, to obtain an order from
the Bankruptcy Court or other appropriate court granting immediate relief from
the automatic stay pursuant to _362 of the Bankruptcy Code so to permit the
Lender to pursue its rights and remedies against the Borrower as provided under
40
<PAGE>
this Agreement, under any Program Document and all other rights and remedies of
the Lender at law and in equity under applicable state law. In connection with
such an order, the Borrower shall not contend or allege in any pleading or
petition filed in any court proceeding that the Lender does not have sufficient
grounds for relief from the automatic stay. Any bankruptcy petition or other
action taken by the Borrower to stay, condition, or inhibit the I-ender from
exercising its remedies are hereby admitted by the Borrower to be in bad faith
and the Borrower further admits that the Lender would have just cause for relief
from the automatic stay in order to take such actions authorized under state
law.
ARTICLE XII
NOTES
SECTION 12.1 Exchange, Consolidation, Transfer and Assignment of Notes.
(a) The Lender may exchange one or more outstanding Notes for one or more
replacement Notes which have the same outstanding principal balance, terms and
payment characteristics, in the aggregate if applicable, as old Notes. Such
exchange shall be effected by presentation of the old Notes to the Borrower
together with written exchange instructions from the Lender. In connection with
any such exchange, the Under may request that a new Note be issued in the name
of an assignee or transferee of the Lender. All such new Notes shall be
substantially in the form of Exhibit A hereto. Each new Note (i) shall be dated
and shall bear interest from the date to which interest has been paid on the
Note or Notes that it replaces or (ii) if no interest has been paid on the Note
or Notes that it replaces, shall be dated the same as the Note or Notes that it
replaces. The substitution, replacement, consolidation or exchange of any Note
shall not be intended to be, and shall not be construed as, a novation of the
obligations of the Borrower evidenced by the Note.
(b) The Borrower hereby acknowledges that (i) the Notes will be fully
negotiable and (ii) the Lender may endorse or assign any of the Notes, from time
to time, without the consent of the Borrower. If a Note is transferred or
assigned by the Under, the Under will provide written payment instructions to
the Borrower.
(c) The Borrower shall be entitled to rely upon the written exchange,
transfer or payment instructions delivered by the Under. The Borrower will incur
no additional liability by acting in accordance with such written instructions.
SECTION 12.2 Mutilated, Lost or Destroyed Notes. If any Note shall become
mutilated or be destroyed, or lost or stolen, upon request of the Lender, the
Borrower shall execute and deliver to the Lender a new Note of the same tenor
and dated as of the same date as such old Note in the same original principal
amount and bearing interest at the same rate. In no event shall the Borrower's
liability be increased thereby.
SECTION 12.3 Validity of Replacement Notes. Each new Note issued in
exchange or replacement for any old Note pursuant to Sections 12.1 or 12.2
hereof shall be a valid obligation of the Borrower evidencing the same debt as
such old Note and shall be entitled to the benefits and security of this
Agreement to the same extent as such old Note.
41
<PAGE>
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1 Term. This Agreement will terminate on the day that is one
year from the date hereof, unless renewed or terminated prior to such date in
accordance with the terms hereof. Notwithstanding the foregoing, this Agreement
may be extended by the mutual written agreement of the Lender and the Borrower
for successive one-year terms upon the payment by the Borrower to the Lender of
the Renewal Fee.
SECTION 13.2 Termination. The termination of this Agreement shall not
affect any of the Borrower's or the Lender's rights, or any of the Loans having
their inception prior to the effective date of such termination, and the
provisions hereof shall continue to be fully operative until all transactions
entered into, rights or interests created or obligations have been fully
disposed of, concluded or liquidated. The Security Interest, and rights granted
to the Lender hereunder and the financing statements filed hereunder shall
continue in full force and effect, notwithstanding the termination of this
Agreement or the fact that the Borrower's account may from time to time be
temporarily in a zero or credit position, until all of the obligations of the
Borrower have been paid or per-formed in full after the termination of this
Agreement or the Borrower has furnished the Lender with an indemnification
satisfactory to the Lender with respect thereto. Accordingly, the Borrower
waives any rights which it may have under Section 9-404(l) of the UCC to demand
the filing of termination statement with respect to the Collateral, and the
Lender shall not be required to send such termination statements to the
Borrower, or to file them with any filing office, unless and until this
Agreement shall have been terminated and in accordance with its terms and all
Loans paid in full. All representations, warranties, covenants, waivers and
agreements contained herein shall survive termination hereof until all Loans are
repaid in full.
SECTION 13.3 Entire Understanding. This Agreement and the documents
executed concurrently herewith contain the entire understanding between the
Borrower and the Lender and supersedes all prior agreements and understandings,
if any, relating to the subject matter hereof. Any promises, representations,
warranties or guarantees not herein contained and hereinafter made shall have no
force and effect unless in writing, signed by the Borrower's and the Lender's
respective officers. Neither this Agreement nor any portion or provisions hereof
may be changed, modified, amended, waived, supplemented, discharged, canceled or
terminated orally or by any course of dealing, or in any manner other than by an
agreement in writing, signed by the party to be charged.
SECTION 13.4 Liability of Lender. The Borrower agrees that the Lender shall
not be liable for taking any action or refraining from taking any action
hereunder or for negligence, it being agreed that the Lender shall be liable to
the Borrower only for gross negligence or willful misconduct and that, as a
42
<PAGE>
condition to the execution of this Agreement, the Borrower has and hereby does
waive any liability of the Lender except in the case of gross negligence or
willful misconduct.
SECTION 13.5 No Third Party Rights. Nothing in this Agreement expressed or
implied is intended or shall be construed to give any Person other than the
Lender and the Borrower any legal or equitable right, remedy or claim under or
in respect of the Notes, this Agreement or the Collateral or any provision
therein or herein contained, and such provisions are and shall be held to be for
the sole and exclusive benefit of the Lender and the Borrower.
SECTION 13.6 Expenses. All fees, costs and expenses including, without
limitation reasonable attorneys' fees and other out-of-pocket fees, cost and
expenses, incurred (a) by the Lender in all efforts made to enforce payment of
any Loan or effect collection of any Collateral, or (b) in connection with the
entering into, modification, amendment, administration and enforcement of this
Agreement or any consents or waivers hereunder and at @ related agreements,
documents and instruments, or (e) in connection with the instituting,
maintaining, preserving, enforcing and foreclosing of or on the Lender's
Security Interest in any of the Collateral, whether through judicial proceedings
or otherwise, or (d) in defending or prosecuting any actions or proceedings
arising out of or relating to the Lender's transactions with the Borrower, or
(e) upon the occurrence of an Event of Default, in obtaining any advice given to
the Lender with respect to its rights and obligations under this Agreement and
all related agreements, may be charged to the Borrower's account and shall be
part of the Loans.
SECTION 13.7 Notices. Unless otherwise expressly provided herein, all
notices, requests and demands to or upon the respective parties hereto to be
effective shall be in writing and, unless otherwise expressly provided herein,
shall be deemed to have been duly given or made when delivered by hand, or when
deposited in the mail, postage prepaid, or in the case of telegraphic notice
when delivered to the telegraph company, or, in the case of facsimile notice,
when sent, confirmation received, addressed as follows, or to such other
addresses as may be hereafter notified by the respective parties hereto:
(a) The Borrower:
Western Fidelity Funding Inc.
4704 Harlan Street, Suite 310
Denver, CO 80212
Attention: Gene E. Osborn
Telecopy: (303) 477-2158
43
<PAGE>
(b) The Lender:
Princeton Capital Credit Corporation
36 Washington Road
Princeton Junction, NJ 08550
Attention: Raymond Q. Benage
Telecopy: (609) 275-9191
SECTION 13.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and such counterparts
shall together constitute but one and the same Agreement. It shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart signed by the party against which enforcement if this
Agreement is sought.
SECTION 13.9 Severability. In case any one or more of the provisions
contained in this Agreement, any Note or any other Program Document or an
application thereof shall be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and therein and any other application thereof shall not in any way be
affected or impaired thereby.
SECTION 13.10 Successors and Assigns. All of the provisions herein
contained shall be binding upon and inure to the benefit of the respective
successors and assigns of the Lender and the Borrower, including any holders or
assignees of any Note, to the same extent as if each successor and assign were
in each case named as a party to this Agreement; provided, however, that the
Borrower has no right to assign or transfer any of its rights or obligations
under this Agreement unless the Lender shall have given its written consent
thereto.
SECTION 13. It Governing Law. THE LAW OF THE STATE OF NEW JERSEY SHALL
GOVERN THE RESPECTIVE RIGHTS AND DUTIES OF THE LENDER AND THE BORROWER WITH
RESPECT TO THIS AGREEMENT, EACH NOTE AND THE TRANSACTIONS BETWEEN THE LENDER AND
THE BORROWER CONTEMPLATED BY THIS AGREEMENT, AND THIS AGREEMENT AND EACH NOTE
SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAW OF
THE STATE OF NEW JERSEY WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAW,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
SECTION 13.12 Waiver of Jury Trial: Jurisdiction. THE BORROWER HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT
TO A JURY TRIAL IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, ANY NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY. In any action or
proceeding arising out of or relating to this Agreement or any Note, the
Borrower hereby accepts, for itself and its property, the nonexclusive
jurisdiction of the state and federal courts of the State of New Jersey, and
agrees that effective service of process may be made on the Borrower by mailing
same, in the manner set forth in Section 13.7 to the Borrower's address set
forth above.
44
<PAGE>
SECTION 13.13 lnjunctive Relief. The Borrower recognizes that, if the
Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy at law may prove to be inadequate
relief to the Lender; therefore, the Lender, if the Lender so requests, shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.
SECTION 13.14 Headings Not to Affect Interpretation. The headings to the
various Articles and Sections of this Agreement have been inserted for
convenient reference only and shall not modify, define, limit or expand the
express provisions of this Agreement.
45
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Auto Loan Warehouse
Agreement to be signed in their respective corporate names and attested by their
respective duly authorized officers on the date first written above.
WESTERN FIDELITY FUNDING INC.,
as Borrower
By: /s/ Gene Osborn
--------------------------------
Its: President
Attest: /s/ Marya Brancio
---------------------------
Its: Secretary
PRINCETON CAPITAL CREDIT
CORPORATION, as Lender
By: /s/ Ray Benage
--------------------------------
Its: Managing Director
Attest:
-----------------------------
Its:
--------------------------------
46
<PAGE>
STATE OF COLORADO )
)
COUNTY OF JEFFERSON )
On 8/12/96 before me personally came Gene Osborn, to me known, who, being
by me duly sworn, did depose and say that he or she is President of WESTERN
FIDELITY FUNDING INC. which executed the foregoing instrument; that he knows the
seal of said corporation that the seal affixed to said instrument is such
corporate seal and that he signed his name and affixed said seal thereto by
order of the Board of Directors of said corporation.
/s/
---------------------------------------
(Notary Public)
My commission expires: 05/07/00
STATE OF COLORADO )
)
COUNTY OF JEFFERSON )
On 8/12/96, before me personally came Marya Brancio, to me known, who,
being by me duly sworn, did depose and say that he or she is Secretary of
WESTERN FIDELITY FUNDING INC. which executed the foregoing instrument; that he
knows the seal of said corporation that the seal affixed to said instrument is
such corporate seal and that he signed his name and affixed said seal thereto by
order of the Board of Directors of said corporation.
/s/
---------------------------------------
(Notary Public)
My commission expires: 05/07/00
<PAGE>
STATE OF COLORADO )
)
COUNTY OF JEFFERSON )
On 8/12/96 , before me personally came Ray Benage, to me known, who, being
by me duly sworn, did depose and say that he or she is Managing Director of
PRINCETON CAPITAL CREDIT CORPORATION executed the foregoing instrument; that he
knows the seal of said corporation that the seal affixed to said instrument is
such corporate seal and that he signed his name and affixed said seal thereto by
order of the Board of Directors of said corporation.
/s/
---------------------------------------
(Notary Public)
My commission expires: 05/07/00
STATE OF )
---------------
)
COUNTY OF )
---------------
On -------------------- before me personally came ------------------------
to me known, who, being by me duly sworn, did depose and say that he or she is
- --------------- of PRINCETON CAPITAL CREDIT CORPORATION executed the foregoing
instrument; that he knows the seal of said corporation that the seal affixed to
said instrument is such corporate seal and that he signed his name and affixed
said seal thereto by order of the Board of Directors of said corporation.
/s/
---------------------------------------
(Notary Public)
My commission expires:
-------------------------
<PAGE>
EXHIBIT A
---------
FORM OF NOTE
WESTERN FIDELITY FUNDING INC.
REVOLVING CREDIT NOTE
August 12, 1996
FOR VALUE RECEIVED, WESTERN FUNDING INC. (the "Borrower") hereby promises
to pay to the order of PRINCETON CAPITAL CREDIT CORPORATION (the "Lender") the
principal amount of Five Million Dollars ($5,000,000) or, if less, the principal
amount of the Loans from the Lender outstanding, on the dates and in the amounts
specified in Sections 2.1 and 2.2 of the Warehouse Agreement referred to below,
and to pay interest on such principal amount on the dates and at the rates
specified in Section 3.1 of such Warehouse Agreement. All payments due the
Lender hereunder shall be made to the Lender at the place, in the type of money
and funds and in the manner specified in Sections 2.6 and 2.9 of such Warehouse
Agreement.
The holder hereof is authorized to endorse on the grid attached hereto, or
on a continuation thereof, each Loan of the Lender and each payment, repayment
or conversion with respect thereto.
Presentment, demand, protest, notice of dishonor and notice of intent to
accelerate are hereby waived by the undersigned.
This Revolving Credit Note evidences Loans made under, and is entitled to
the benefits of, the Auto Loan Warehouse Agreement, dated as of August 12, 1996,
between Western Fidelity Funding Inc. and Princeton Capital Credit Corporation
(the "Warehouse Agreement") Capitalized terms used and not otherwise defined
herein shall have the meanings ascribed to such terms in the Warehouse
Agreement. Reference is made to such Warehouse Agreement, as so amended, for
provisions relating to the repayment and the acceleration of the maturity
hereof.
THIS REVOLVING CREDIT NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAW OF THE STATE OF NEW JERSEY (WITHOUT GIVING EFFECT TO ITS
CHOICE OF LAW PRINCIPLES).
WESTERN FIDELITY FUNDING INC.
By:
---------------------------------
Name:
------------------------------
(Corporate Seal) Title:
------------------------------
<PAGE>
GRID
REVOLVING CREDIT NOTE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT B
---------
FORM OF DISBURSEMENT SUMMARY
Originator: client- Note: note-
Dealers: Various Date: date-
FUNDING DISBURSEMENTS
- --------------------------------------------------------------------------------
Total Collateral from Exhibit I $collateral-
- --------------------------------------------------------------------------------
Principal Amount principal-
0- 1-
2- 3-
4- 5-
6- 7-
8- 9-
10- 11-
12- 13-
14- 15-
16- 17-
18- 19-
- --------------------------------------------------------------------------------
Net Amount Held on Behalf of Originator $net-
========================
* PCCC has made every effort to identify all fees and expenses involved with
this transaction but, where appropriate, other fees incurred by PCCC will be
charged and recovered from advances and/or settlement payments as they occur.
Originator Funding Instructions:
-----------------------------------------------
- -------------------------------------------------------------------------------
Prepared for PCCC by:
------------------------------ ---------------------
Date
Acknowledged for
Originator/Maker by:
------------------------------ ---------------------
Date
<PAGE>
EXHIBIT C
---------
FORM OF DEALER AGREEMENT
<PAGE>
EXHIBIT D
---------
FUNDING AND FEE SCHEDULE
Funding Fee: $25
Application Fee: $5,000
Interest Rate: The 'Prime Rate" as published in The Wall Street
Journal plus 3.75%.
Renewal Fee: As of any Renewal Date, a fee equal to $5,000 or such
other amount as the tender and Borrower may determine
by mutual agreement.
Take-Out Fee With respect to an Auto Loan, $25, $50 or $75 if
the Disposition of such Auto Loan occurs 30 or less
days, 31- 60 days, or 61 or more days, respectively,
after the losing Date for the Loan that such Auto Loan
secures.
<PAGE>
EXHIBIT E
---------
START-UP PERIOD VOLUME PROJECTION SCHEDULE
The Start-up Period will be a maximum of 9 months from the date of the
Agreement.
The volume projections for the Start-up Period will be as determined by
Borrower.
Borrower
----------------
Lender
------------------
<PAGE>
EXHIBIT F
---------
FORM OF ASSIGNMENT OF AUTO LOAN
TO: PRINCETON CAPITAL CREDIT CORPORATION
VIN NUMBER:
-------------------------------
BORROWER NAME:
---------------------------
LOAN NUMBER:
-----------------------------
Pursuant to the Auto Loan Warehouse Credit and Security Agreement (the
"Warehouse Agreement"), dated as of August 12, 1996, between PRINCETON CAPITAL
CREDIT CORPORATION, as lender (the "Assignee"), and WESTERN FIDELITY FUNDING
INC., as borrower (the "Assignor"), for value received the Assignor hereby
transfers and assigns to the Assignee, its successors and assigns, the auto loan
referenced above (the "Auto Loan"), together with all of the Assignor's right,
title and interest in and to the Collateral relating to the Auto Loan, and all
of the Assignor's rights and remedies thereunder and under any guaranty or
endorsement thereof, including the right to collect any and all installments due
and to become due on the Auto Loan and to take, in the Assignor's or the
Assignee's name, any and all proceedings Assignor might otherwise take. All
capitalized terms not defined herein shall have the meanings assigned to them in
the Warehouse Agreement.
The Assignor subordinates to any rights the Assignee may now or hereafter
have against the Obligor any rights the Assignor may now or hereafter have. The
Assignor waives notice of the acceptance hereof.
WESTERN FIDELITY FUNDING INC.,
as Assignor
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Date:
-------------------------------
<PAGE>
EXHIBIT G
---------
FUNDING AMOUNT
Borrower's Purchase price for Auto Loan
Plus
$150
Plus
2% of Auto Loan (unless Reserve Account balance equals 2% of Maximum Credit
Line)
Example:
Auto Loan Amount = $10,000
Borrower's Purchase Price = $ 8,500
plus 150
plus 2% of Loan 200
------
Amount to be funded by Lender $ 8,850
======
Disbursement of Funds:
Proceeds to Borrower $ 8,650
Proceeds to Reserve Account 200
------
Total Disbursed $ 8,850
======
PURCHASE AGREEMENT
AGREEMENT made and entered into as of the 14th day of March, 1997 by and between
Western Fidelity Funding, Inc., a Colorado corporation, with a place of business
at 4704 Harlan Street, Suite 260, Denver, Colorado, 80212 ("Seller"); and
Mountain Parks Financial Services, Inc., MP Financial Services, (MPFS), a
Colorado corporation with a place of business at 10401 East Colfax
Avenue, Aurora, CO 80040-0605 ("Buyer").
WITNESSETH THAT
WHEREAS, Seller wishes to sell and Buyer wishes to buy all of Seller's
right, title and interest in certain consumer credit sale contracts, retail
installment contracts, promissory notes and Security agreements and similar
instruments, hereafter defined as "Contracts", upon the terms and conditions
contained herein.
NOW THEREFORE, in consideration of the Mutual promises and covenants
contained in this Agreement, the parties agree as follows:
1. DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meaning:
a. Agreement means this Purchase Agreement, including all schedules and
exhibits attached hereto.
b. Contract means a consumer credit sale contract, retail installment
contract, promissory note and related security agreement, chattel
paper, or similar instrument which evidences an Obligor's indebtedness
which is secured by a motor vehicle and which is owned, held by, and
payable to Seller. The term "Contract" includes all monies due or to
become due on such Contract, all claims, rights and causes of action
at any time belonging to Seller in connection therewith, and all
information, instruments, documents and collateral related thereto,
including but not limited to Certificates of Title, guaranties, credit
information and reports, lien search reports, files, ledger cards,
payment history reports, files, and policies or certificates of
property insurance and credit insurance.
c. Purchase Date shall be March 14, 1997, or such other date as may be
agreed upon by Buyer and Seller.
d. Determination Date shall mean March 13, 1997.
e. Obligor means the person or persons who obtained credit from Seller
or, if Seller's ownership of a Contract was established by purchase,
who obtained the credit from Seller's predecessor in interest, and who
is obligated to pay Seller in accordance with a Contract.
f. Net Outstanding Balance means the unpaid principal balance of a
Contract not including accrued but unpaid late charges or accrued but
unpaid interest as of the Determination Date.
2. SALE OF CONTRACTS
On the Purchase Date, Seller will sell, assign, transfer and set over to
Buyer all of its right, title and interest in and to the Contracts listed
on the Schedule of Contracts to be attached to this Agreement as Exhibit
"A", and Buyer will purchase the Contracts and all monies due and owing on
the Contracts. Exhibit "A" shall be prepared as of the close of business on
the Determination Date and shall list each Contract to be purchased on the
Purchase Date, The Contracts to be sold and purchased hereunder shall not
include any Contract (a) that is ten (10) days delinquent on the Purchase
Date or which is otherwise in default, (b) for which the Obligor has been
or is Currently the subject of bankruptcy proceedings, _(C) for which the
collateral has been repossessed, or which is the subject of any litigation,
or (d) for which the Seller does not have complete or proper documentation.
3. PURCHASE PRICE - CONTRACTS
a. On the Purchase Date, Buyer shall pay to Seller the purchase price for
the Contracts, which shall be an amount equal to 90% of the aggregate
Net Outstanding Balances of the Contracts shown on Exhibit "A".
<PAGE>
Payment of the Purchase Price shall be in U.S. Dollars, delivered by
wire transfer, check or other form of payment mutually agreed by the
parties.
b. If, following the Purchase Date, it is determined that Buyer has
purchased any Contract(s) which should not have been included in the
sale for any of the reasons specified ill Paragraph Two (2) above,
Seller shall repurchase each such Contract and pay to Buyer an amount
equal to 90% of the Net Outstanding Balance owing oil said
Contract(s).
4. ENDORSEMENTS
On the Purchase Date, upon payment of the Purchase Price, Seller will
execute and deliver such endorsements, assignments or other documents as
shall be necessary to evidence Setter's sale of the Contracts to Buyer and
Buyer's Security interest (to be no less than that of Seller) in the
property securing the Contracts. In addition, Seller will authorize Buyer
to endorse and assign Seller's interest in each Contract in order to
evidence the transfer of Seller's interest in the Contracts to Buyer in
such mariner as may be reasonable and appropriate. On the Purchase Date,
Seller shall furnish Buyer with a Power of Attorney in form of the document
attached hereto as Exhibit "B". Buyer agrees to save and hold Seller
harmless from any loss occasioned by Buyer's use of tile Power of Attorney.
Seller further agrees, from time to time following the Purchase Date, to
execute any individual assignments which are necessary to effect assignment
of each Contract to Buyer.
5. BUYER'S AUTHORIZATION
On the Purchase Date, upon payment of the Purchase Price, Seller
irrevocably authorizes Buyer to effect the endorsements and assignments as
provided in Paragraph Four (4) above by the impression of a rubber stamp or
stamps, facsimile signature or sticker and to endorse Seller's name upon
any notes, acceptances, checks, drafts, money order or other instruments of
payment that may come into the possession of Buyer as payment of or upon
the Contracts and, also, to execute releases, statements of termination,
satisfactions and any and all other documents required to be executed in
conjunction with the Contracts.
6. OTHER ITEMS SUBJECT TO SALE
On the Purchase Date, upon payment of the Purchase Price, Seller will also
sell, assign, transfer, and set over to Buyer in connection with the
Contracts:
a. All of Seller's interest and benefits in, to and under all
endorsements and guaranties by or of others held by it with respect to
the Contracts.
b. All of Seller's rights, title and interest in all security
instruments, and the liens created thereunder with respect to the
Contracts.
c. All individual ledger cards, bookkeeping memoranda, receipts,
correspondence, folders, credit files, fan folds, indexes, and all
other records of Seller pertaining to the Contracts. All such
materials, which may be in the form of computer disc, microfilm or
magnetic tape, shall be delivered to Buyer on the Purchase Date.
d. All filing receipts evidencing recordation or filing in governmental
filing or recording offices of financing statements and/or other
filing instruments oil all Contracts.
e. All of the interest of Seller under each and every existing policy or
certificate of insurance, if any, to the extent such relates to any
property securing any Contracts and as relates to the life or lives or
health of any Obligors of said Contracts. Seller shall provide
reasonable assistance to Buyer in securing Long Form Loss Payable
Clauses to be issued in favor of Buyer with respect to all such
insurance covering any property described in its Contracts and also an
assignment of beneficial interest in any policy(ies) covering the life
or lives and/or sickness or disability of any Obligors of such
Contracts. Seller agrees that the insurance carrier(s) shall pay to
Buyer any and all unearned premiums from cancellations occurring after
the Purchase Date and to return premium claims or hereafter to become
due to Seller.
f. All pending insurance claims and all claims filed in the future, if
any, and the proceeds thereof if any, in connection with any of the
2
<PAGE>
Contracts purchased by Buyer. Seller agrees to save and Buyer harmless
from any loss to Buyer occasioned by reason of insurance policy
defenses raised by the carrier of such insurance, where such defense
is based upon any action of or failure to act by Seller prior to the
Purchase Date.
7. SELLER'S WARRANTIES
The following covenants, warranties and representations are made by Seller
to Buyer as of the date of this Agreement, all of which shall be true and
correct as of the Purchase Date as a material condition precedent to
Buyer's obligation to purchase the Contracts as contemplated hereby, and
all of which covenants, warranties and representations shall survive the
execution of this Agreement and the Closing hereunder:
a. Seller covenants, represents and warrants that Seller is a duly
organized, validly existing and in good standing under the laws of the
State of Colorado, that is duly registered and authorized to conduct
business in every other state where the nature or conduct of its
business or its ownership of property requires it to be so registered
and authorized; and that it has obtained and maintained all licenses,
registrations and other authorizations required under any federal,
state, or local law, regulation or ordinance in connection with the
conduct of its business, its ownership of the Contracts, or otherwise.
b. Seller covenants, represents and warrants that the execution and
delivery of this Agreement and the consummation of the transaction
contemplated hereby have been duly and validly authorized by all
necessary corporate action, and no other actions or proceedings on the
part of Seller are necessary to authorize this Agreement. This
Agreement constitutes a valid and legally binding obligation of
Seller.
c. Seller covenants, represents, and warrants that neither the execution
and delivery of this Agreement nor the consummation of the transaction
contemplated hereby, nor compliance by Seller with the provisions
hereof, will violate, conflict with or result in any breach of, or
constitute a default tinder, any instrument or agreement to which
Seller is a party, or by which it is bound, or any federal or state
statute or any judicial or administrative decree, order or ruling
applicable to Seller or to the Contracts to be sold.
d. Seller covenants, represents, and warrants that the ledger cards or
equivalent records delivered to Buyer shall fully and accurately
reflect the true outstanding Unpaid balances of the Contracts as of
the close of business on the Determination Date, and the cards or
equivalent records will accurately reflect the collection activity on
the Contracts and the payments received on the Contracts from the
respective Obligors.
e. Seller covenants, represents and warrants that Seller has good title
to the Contracts to be sold under this Agreement, free and clear of
any liens, encumbrances or charges whatsoever, and that Seller is the
absolute owner thereof with full and sole right to transfer title to
the Contracts and all other items sold under Paragraph Six (6) hereof,
and that no person, firm, corporation or association has any claim
whatsoever to the Contracts sold under this Agreement or the proceeds
of the Contracts.
f. Seller covenants, represents, and warrants that, except as may be set
forth on Exhibit "C" hereto, it is not a party to and there is no
pending or threatened litigation, legal or administrative proceeding,
or otherwise, which would, if decided against Seller, have any adverse
effect on the Contracts or Seller's right to transfer same, or on any
of the other items to be sold pursuant to this Agreement.
g. Seller covenants, represents, and warrants that each Contract sold
under this Agreement is genuine, valid and complete in all respects
and is enforceable in accordance with its terms; that no understanding
or agreement has been reached with any Obligor for any variation of
the interest rate, schedule of payments or other material item or
condition of any Contract except for any modification entered into in
the ordinary course of business and noted on Seller's records; that
all information contained in Seller's books, records and files and
other documents provided to Buyer in connection with the Contracts is
true, complete and accurate, except for information Supplied by
Obligors or third parties, which information is true, complete and
correct to the best of Seller's knowledge; and that none of the
3
<PAGE>
Contracts is or will be delinquent or otherwise in default on the
Purchase Date, that none of the collateral for the Contracts has been
repossessed, and that none of the Contracts is the subject of any
litigation.
h. Seller covenants, represents and warrants that no deferments have been
granted to any Obligor.
i. Seller covenants, represents, and warrants that no Contract is subject
to any defense, set-off or counterclaim to the payment of the amount
of the unpaid balance due on the Contract, or a proceeding in
bankruptcy.
j. Seller covenants, represents, and warrants that each instrument, or
the property or goods described in each instrument, representing or
securing a Contract is in the possession of Seller; and that each
security instrument or other agreement evidencing and Securing any
Contract sold hereunder will constitute as of the close of business on
the Purchase Date, a valid enforceable and perfected first lien on the
property or goods described in Such instrument.
k. Seller covenants, represents, and warrants that all of the Contracts
and security instruments sold by Seller under this Agreement, Seller's
statements and application- relating thereto, and Seller's practices
and the conduct of its business with reference to the Contracts comply
with all applicable state, federal, and local laws and regulations.
Seller specifically covenants, represents and warrants that all
deferral fees and charges, insufficient funds check fees, and all
other fees and charges imposed by Seller on any of the Obligors were
validly imposed in accordance with applicable law.
1. Seller covenants, represents, and warrants that it has paid or will
cause to be paid any and all license, franchise, intangible or stamp
taxes or fees due and owing at the Purchase Date to the Federal
government, any State government and any political subdivision
thereof, arising from or growing out of the acquisition, collection,
or holding of any and all of the Contracts; not including, however,
any fee or charge to change the name of the first lien holder on any
titles securing the Contracts.
m. Seller covenants, represents, and warrants that it will, from and
after the Purchase Date, pay over to Buyer any payments received in
payment on the Contracts, after the Determination Date.
n. Seller covenants, represents and warrants that, on or before the
Purchase Date, it will have obtained any and all approvals necessary
to effectuate the sale of the Contracts from any and all relevant
administrative, quasi-administrative or other governmental agencies.
In the event of any breach or breaches of any of (he warranties
contained herein, Seller will, upon five (5) days prior written notice
(which notice shall describe the breach, including the nature of the
breach and such other information, documents, records and papers as
necessary) to Seller by Buyer, repurchase each Contract to which such
breach relates, by paying Buyer the Net Outstanding Balance owing on
such Contract(s) on the date of repurchase.
o. Seller covenants, represents and warrants that none of the credits
entered on any contract, and no part thereof, was gratuitous or was
given for a consideration other than the payment of money oil property
given as trade-ins for down payment credit.
8. INDEMNIFICATION
a. Indemnification: To the Buyer. The Seller agrees to defend, indemnify
and hold harmless the Buyer and its officers, directors, employees,
successors and assigns, from and against any and all losses, damages,
claims, suits, proceedings, liabilities, costs and expenses, including
without limitation reasonable attorneys' fees ("Losses" or "Claims" as
the context requires), which may be imposed on, sustained, incurred or
suffered by, or asserted against any Such persons, directly or
indirectly, as a result of or relating to or arising Out of the breach
of any representation or warranty or covenant or agreement of the
Seller contained in this Agreement.
b. Indemnification: To the Seller. The Buyer agrees to defend, indemnify
and [told harmless the Seller and its officers, directors, employees,
successors and assigns, from and against any and all losses, damages,
claims, suits, proceedings, liabilities, costs and expenses including
without limitation reasonable attorneys' fees ("Losses" or "Claims" as
the context requires) which may be imposed on, sustained, incurred or
4
<PAGE>
suffered by or asserted against any such persons, directly or
indirectly, as a result of or relating to or arising out of the breach
of any representation or warranty or covenant or agreement of the
buyer contained in this Agreement, or arising from Buyer's ownership
or servicing of the Contracts purchased under this Agreement, at any
time on or after the Purchase Date.
9. USE OF RECORDS BY SELLER
Buyer agrees that all records and memoranda of Seller hereby transferred
will be made available for the use of Seller in making tax returns or for
any other legitimate purpose which does not tend to idjure Buyer in its
competition with other companies and will remain so available for a period
of not less than 18 months after the date of this Agreement.
10. BUYER'S WARRANTIES
Buyer hereby represents and warrants to Seller, as of the Purchase Date,
which representations and warranties shall survive the execution of this
Agreement and the Purchase Date, that it is a corporation, duly organized,
validly existing and in good standing under the laws of the state of
Colorado, and has taken all corporate action necessary or advisable to
authorize the execution and consummation of the transactions contemplated
by this Agreement.
11. ADDITIONAL SELLER WARRANTY: DEFENSE AND EVIDENCE OF OWNERSHIP
Seller warrants, represents and agrees that it will warrant and defend
Buyer's title to and ownership of the Contracts after the Purchase Date;
and that Seller will, at its own expense, upon the reasonable request of
Buyer after the Purchase Date, supply copies of any additional documents it
may still have in it possession, if any, which evidence Seller's ownership
of the Contracts sold hereby, and will do, execute, acknowledge and deliver
such other acts, deeds, assignments, releases, transfers or other
instruments and assurances as Buyer may reasonably request to fully
effectuate and confirm Buyer's purchase and ownership of the Contracts.
12. ASSIGNMENT
It is understood that the contract(s) covered by this Agreement have been
pledged to BNY Financial Corporation, a New York corporation, to secure a
portion of Seller's indebtedness to Lender. It is also understood that in
lieu of paying the amounts specified in paragraph three (3) above to
Seller, Buyer will pay such amount jointly to Seller and Lender in partial
satisfaction of Seller's indebtedness to Lender and Seller will make
arrangements to procure the release including any reassignment of
individual contracts) deemed necessary by Buyer to effectuate said release)
of the Receivables pledged to Lender in a manner and form satisfactory to
Buyer and will insure their physical delivery to Buyer on the fifth day
after closing.
13. RESERVE
Buyer will retain and hold on Seller's behalf an amount equal to five
percent (5%) of the Net Outstanding Balance as noted on page one (1) of
Exhibit "A" of this Agreement (the "Reserve"). The Reserve shall be debited
by Buyer the Net Outstanding Principal Balance on any Contract that fails
to make three (3) payments not more than 30 days past due for Seller's
repurchase. Buyer will execute and deliver such endorsements, assignments
or other documents as shall be necessary to evidence the Seller's
repurchase of such Contract. Buyer will provide a monthly accounting
statement to Seller on the Reserve account no later than ten days after
month end. After all contracts shown on Exhibit "A" have met the three (3)
payment requirement, any funds remaining ill the Reserve account subject to
provisions in 13A will be remitted to Seller within 10 business days.
13 A. RESERVE OPTION
Buyer may at its discretion utilize the reserve described in item number 13
to pay the Net Outstanding Balance of any contract(s) that Seller within 90
days of the date of any contract does not provide title and/or
5
<PAGE>
documentation that guarantees Buyer that all taxes, fees or other related
costs are paid that may prevent Buyer from having a first lien position and
a valid title.
Additionally, Buyer may retain any Reserve until all requirements in items
number 13 and 13A have been met. In the event there is insufficient Reserve
to allow debiting the account because of failure to produce a valid title
within 90 days, Seller will, with Five (5) days notification from the
Buyer, repurchase any Contract for the Net Outstanding Balance.
14. INSURANCE
All of the collateral securing the contract(s) were at the time of Contract
purchase covered by property damage insurance which includes the coverages
normally required for transactions of the nature of the contracts, with the
contract obligors as the insureds and the Seller as loss payee.
15. ANNOUNCEMENTS: NOTIFICATIONS
Neither party hereto will make any announcement of this transaction either
prior to or subsequent to the Purchase Date without prior written approval
of the other, which will not be unreasonably withheld. Seller hereby agrees
that Buyer may notify its customers verbally and by mail following the
Purchase Date that a change in ownership of their account from the Seller
to Buyer has been effected. Seller authorizes the use of its name in the
notices and agrees to execute such notices if requested by Buyer. Neither
Seller nor Buyer shall disclose any material provisions of this Agreement
to any third party without the prior consent of the other, except as may be
specifically required by law or any governmental agency.
16. NOTICES
Any notice to be given or other documents to be delivered by any party to
the other party may be delivered in person to such party, or may be
deposited in the United States certified mail, return receipt requested,
with postage thereon fully prepaid and addressed to the party for whom
intended at the address shown below:
TO BUYER: Mountain Parks Financial Services, Inc.
Dennis Berglund, Presideiit/CEO
10401 East Colfax Avenue
Aurora, Colorado 80040-0605
TO SELLER: Western Fidelity Funding, Inc.
Gene Osborn, President
4704 Harlan Street, Suite 260
Denver, Colorado 80212
Any party to this Agreement may, from time to time by written notice to the
other, designate a different address which shall be substituted for the one
above. Notices sent by certified mail shall be deemed effective when
receipted for.
17. SOLE UNDERSTANDING
It is understood and agreed that this Agreement constitutes the sole mutual
understanding regarding the subject matter of this Agreement, and that no
provision hereof shall be modified or altered except in writing duly signed
by both parties to this Agreement.
18. APPLICABLE LAW
The laws of the State of Colorado shall govern the validity and
interpretation of this Agreement and the performance of the parties to this
Agreement.
6
<PAGE>
19. HEADINGS NOT PART OF AGREEMENT
Marginal headings are informational only and not a part of this Agreement.
20. EXPENSES
Except as is otherwise specifically provided in this Agreement, regardless
whether the execution of this agreement takes place or whether this
Agreement is terminated, all parties shall pay their own costs and expenses
in connection with this Agreement and the transactions contemplated hereby,
including, but not by way of limitations all regulatory fees, attorneys'
fees, accounting fees and other expenses.
21. ATTORNEY'S FEES
In the event of any action, suit, or other proceeding to interpret or
enforce this Agreement, the prevailing party shall be entitled to recover
its reasonable attorney's fees and costs incurred from the other party.
22. SUCCESSORS AND ASSIGNS
All terms and provisions of this Agreement shall be binding upon and shall
inure to the benefit of the parties to this Agreement and their respective
transferees, successors and assigns.
23. MULTIPLE COUNTERPARTS
This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original for all purposes and all of which shall be
deemed, collectively, one agreement, but in making proof hereof it shall
not be necessary to exhibit more than one such Counterpart.
24. INVALID PROVISIONS
If any provision of this Agreement is held to be illegal, invalid or
unenforceable under present or future laws effective during the term of
this Agreement, the provision shall be fully severable; this document shall
be construed and enforced as if the illegal, invalid or unenforceable
provision had never comprised a part of this Agreement, and the remaining
provisions shall remain in full force and effect and shall not be affected
by the illegal, invalid or unenforceable provision or by its severance from
this Agreement.
Furthermore, in lieu of the illegal, invalid or unenforceable provision
there shall be added automatically as a part hereof a provision as similar
in terms to the illegal, invalid or unenforceable provision as may be
possible and be legal, valid and enforceable, and, as changed or amended,
continue to reflect the original intent of the parties hereto.
25. ENTIRE AGREEMENT
The making, execution and delivery of this Agreement by the parties have
been induced by no representations, statements, warranties, or agreements
other than those herein expressed. This Agreement embodies the entire
understanding of the parties and there are no further or other agreements
or understanding, written or oral, in effect between the parties relating
to the subject matter of this Agreement.
26. TIME OF ESSENCE
The parties to this Agreement agree and stipulate that time is of the
essence with regard to the performance by each party of its obligations
under this Agreement.
27. BROKERAGE
Each of said parties hereby indemnifies and agrees to hold the other
harmless against any and all claims, losses, liabilities or expenses which
may be asserted against the other as the result of the other party's
dealings, arrangements or agreements with any such broker, finder or person
or entity.
7
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed for it and on its behalf by its respective duly authorized officers.
SELLER:
WESTERN FIDELITY FUNDING, INC.
Witness: /s/ Marya L. Brancio By: /s/ Gene Osborn
---------------------------- -----------------------------
Gene Osborn
Its President
BUYER:
MOUNTAIN PARKS FINANCIAL SERVICES, INC.
Witness: /s/ Marya L. Brancio By: /s/ Dennis Berglund
---------------------------- -----------------------------
Dennis Berglund
Its: President/CEO
Attachments:
Exhibit A
Exhibit B
Exhibit C
Exhibit D
Exhibit E
Release Agreement
8
<PAGE>
EXHIBIT "A"
CLOSING STATEMENT
Seller: WESTERN FIDELITY FUNDING, INC.
Buyer: MP FINANCIAL SERVICES
Date: March 14, 1997
1. Net Outstanding Balances $4,459,417.60
2. Less Discount (445,941.76) = 10 %of #1
3. Purchase Price $4,013,475.84
3. Less Reserve (222,970.88) = 5% of #1
3. Amount to Seller $3,790,504.96
Seller: Buyer:
WESTERN FIDELITY FUNDING, INC. MP FINANCIAL SERVICES
By: /s/ Gene Osborn By: /s/ Dennis Berglund
----------------------------- -----------------------------
Gene Osborn Dennis Berglund
(Typed or Printed Name) (Typed or Printed Name)
Its: President President/CEO
(Title) (Title)
Page 1 of 10
<PAGE>
EXHIBIT B
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that, pursuant to that certain Purchase
Agreement dated March 13, 1997, between Western Fidelity Funding, Inc., a
Colorado corporation, its successors and assigns, and MP Financial Services, a
Colorado corporation, the undersigned (herein termed the "Principal") does
constitute and appoint MP Financial Services, its successors and assigns (herein
termed the "Attorney" and sometimes termed the "Purchaser"), acting by and
through such Attorney's designated officers and employees, the true and lawful
Attorney and Attorney of the Principal, with full power by an instrument in
writing to appoint a substitute or substitutes for and in the name and stead of
the Principal but for the benefit of the Purchaser, its successors and assigns,
to demand, reduce to possession, collect, receive, receipt for, endorse,
compromise, settle or assign without recourse any and all indebtedness, notes,
commercial paper, promises to pay, retail installment sales contracts, chattel
paper, instruments, chooses in action and other obligations described in Exhibit
"A" to that certain Bill of Sale and Assignment of Receivables dated March 14,
1997, from the Principal to the Purchaser ("Receivables") together with all
monies due or to become due under said Receivables, and any and all claims,
chooses in action, and rights and causes of action relating thereto, including
without limitation any and all real estate and personal property, security
instruments and insurance policies held as security for said Receivables, and
all other property of every kind identified in said Exhibit "A"; to cancel or
release the Receivables and release any security, in whole or in part and in
connection therewith to execute, acknowledge or handle proper discharges,
releases, satisfactions or other instruments in writing which may become
necessary in order to carry the foregoing powers into effect, the Principal
hereby ratifying and confirming all acts and things lawfully and reasonably done
by the Attorney or its substitute or substitutes in pursuance of the authority
herein granted.
IN WITNESS WHEREOF, the Principal has executed this instrument this
13th day of March, 1997.
WESTERN FIDELITY FUNDING, INC.
By: /s/ Gene Osborn
------------------------------
Gene Osborn, President
STATE OF COLORADO )
COUNTY OF ADAMS )
The above and foregoing Limited Power of Attorney was acknowledged before
me on March 14, 1997, by Gene Osborn as President of Western Fidelity Funding,
Inc.,
WITNESS my hand and official seal.
/s/ John Schreven
-------------------------------------
Notary Public - State of Colorado
John Schreven
[Name Printed]
My Commission Expires November 13. 1999
<PAGE>
EXHIBIT "C'
LITIGATION, LEGAL OR ADMINISTRATIVE PROCEEDINGS
NONE
<PAGE>
EXHIBIT "D"
BILL OF SALE AND ASSIGNMENT OF RECEIVABLES
IN CONSIDERATION OF the sum of One and no/100 ($1.00) Dollars and other
good and valuable consideration, the receipt of which is hereby acknowledged,
and pursuant to and in furtherance of a certain Agreement dated March 13, 1997
and between Western Fidelity Funding, Inc. (herein called "Seller"), a Colorado
corporation, and MP Financial Services (herein called "Purchaser"), a Colorado
corporation, Seller does hereby grant, bargain, sell, assign, convey and
transfer to, and vest in, Purchaser, its successors and assigns, forever, all of
Seller's right, title and interest (legal or equitable) in and to the following
described property and assets, all in accordance with the terms and provisions
of said Agreement.
All indebtedness, notes, commercial paper, promises to pay, retail
installment sales contracts, chattel paper, instruments, choses in actions and
other obligations described in Exhibit "A" attached hereto ("Receivables"),
together with all monies due or to become due on such Receivables; all claims,
rights and causes of action at any time belonging to Seller in connection with
the Receivables; and all rights, title and interest of the Seller in all other
instruments, documents, information and collateral related thereto, including
but not limited to credit information reports, lien search reports, files,
ledger cards and certificates of title pertaining thereto, all policies or
certificates of insurance in force on collateral securing any and all of the
Receivables or insuring Seller as the owner thereof or otherwise as a party in
interest with respect thereto, such credit life and credit disability policies
and unearned premiums herein as are described in the aforesaid Agreement; and
any and all collateral securing the Receivables, including but not limited to
security agreements and chattel mortgages.
This Bill of Sale and Assignment is hereby incorporated and made a part
of said Agreement.
IN WITNESS WHEREOF, Seller has caused this instrument to be duly
executed this 13th day of March, 1997.
WESTERN FIDELITY FUNDING, INC.
By: /s/ Gene Osborn
---------------------------------
Gene Osborn, President
<PAGE>
EXHIBIT "E"
CERTIFIED COPY OF CORPORATE RESOLUTION
I hereby certify that at a special meeting of the Board of Directors of
Western Fidelity Funding, Inc., a Colorado corporation, duly called and held on
the 14th day of March, 1997, at the principal office of the corporation at 4704
Harlan Street, Suite 260, at which a quorum was present, the following
resolution was unanimously adopted:
WHEREAS, this corporation is about to execute air Agreement with MP
Financial Services, a Colorado corporation ("MPFS") pursuant to which this
corporation will sell to MP Financial Services certain assets of this
corporation consisting of retail installment contracts, promissory, Security
notes, security agreements and similar instruments (the "Contracts") for and in
consideration of the payment of approximately $ 4,000 000.00 by MP Financial
Services to this corporation; and
WHEREAS, it is the opinion of this Board of Directors that the sale of such
Contracts by this corporation to MP Financial Services is in the best interest
of this corporation, and that the consideration offered by MP Financial Services
for such Contracts is fair and adequate;
NOW THEREFORE, BE IT RESOLVED that the execution and delivery of a Purchase
Agreement by and between this corporation as the Seller and MP Financial
Services as the Buyer for the sale of Contracts owned by this corporation for a
consideration of approximately $ 4,100,000.00 by any one of the officers,
employees and agents of this corporation listed below, upon such terms and
conditions and with such covenants. representations and warranties as such
designated officers, employees and agents may deem necessary or desirable, be
and the same is hereby authorized, approved and ratified as the act and deed of
this corporation.
RESOLVED FURTHER that any one of the officers, employees and agents of this
corporation listed below are authorized to execute the Purchase Agreement; and
deal on behalf of and in the name of this corporation with MP Financial
Services:
Names Titles
----- ------
Gene Osborn President
------------------ -----------------
RESOLVED FURTHER that any of the above designated officers, employees and
agents of' this corporation are authorized to sign, endorse, make, execute,
deliver, transfer, assign and convey any and all instruments and documents
necessary or desirable to consummate the sale of the Contracts to MP Financial
Services as contemplated by the Purchase Agreement.
I further certify that said resolution is duly recorded and appears in the
Minute Book of this corporation, and has not been alerted, amended or revoked.
IN WITNESS WHEREOF I have hereunto set my hand and the seal of this
corporation this 14th day of March, 1997.
President:
[Corporate Seal] /s/ Gene Osborn
------------------------------------
------------------------------------
------------------
<PAGE>
RELEASE AGREEMENT
This RELEASE AGREEMENT (this "Agreement") is entered into as of March 14,
1997, by and among WESTERN FIDELITY FUNDING, INC., a Colorado corporation
("Borrower"), BNY FINANCIAL CORPORATION, a New York corporation ("BNYFC"), and
MP FINANCIAL SERVICES, INC., a Colorado corporation ("MPFS").
Recitals
A. BNYFC and Borrower have entered into that certain Revolving Credit and
Security Agreement dated as of June 24, 1996 (as amended, supplemented
or otherwise modified from time to time, the "Loan Agreement").
Pursuant to which BNYFC has provided to Borrower a line of credit in
the amount of Twenty Million and No/100 Dollars (20,000,000) (the "Line
of Credit").
B. The Line of Credit is secured by, among other things, security
interests and liens (the "BNYFC Lien") in and to certain receivables
and other assets described on Annex A to the Colorado UCC-3 Statement
of Change (the "UCC-3") attached hereto on Schedule A and made a part
hereof (such property described on the Annex A is the "Released
Assets").
C. Pursuant to that certain Purchase Agreement dated March 14, 1997, (the
"Purchase Agreement"), by and between Borrower and MPFS, Borrower has
agreed to sell to MPFS certain property including, without limitation,
the Released Assets (the "Purchased Assets").
D. As a condition to its purchase of the Purchased Assets pursuant to the
Purchase Agreement, BNYFC is to release the BNYFC Lien on the Released
Assets in order to permit Borrower to transfer the Purchased Assets to
MPFS free and clear of the BNYFC Lien.
Agreement
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Release of Lien. BNYFC hereby releases any and all of BNYFC's security
interests in, and any and all liens on and rights of lien on or set-
off against, the Released Assets, effective upon the closing of the
sale of the Purchased Assets to the MPFS pursuant to the Purchase
Agreement and the receipt of BNYFC of $4,236,446.7 via wire transfer
of federal funds to *(see below) (the time of such closing and receipt
of such funds being referred to as the "Effective Time"). BNYFC
warrants that, as of the Effective Time, BNYFC has not assigned any of
the foregoing security interests, liens or rights in the Released
Assets.
2. Deliveries. Further Assurances. BNYFC further agrees to deliver to
MPFS, (i) concurrently with the Effective Time, execute and deliver to
MPFS the UCC-e with respect to the UCC filings listed on Schedule A,
and such other instruments of release or discharge pertaining to the
BNYFC Lien on the Released Assets as MPFS may reasonably request to
*Bank of New York, 48 Wall Street, A/C #8090653114, ABA #021000018, for the
account of: BNY Financial Corp. - Reference: Western Fidelity Funding, Inc.
<PAGE>
effectuate, or reflect of public record, the release and discharge of
the BNYFC Lien on the Released Assets, and (ii) not later than five
business days following the Effective Time, send via Federal Express
next day delivery the original Receivable Files which includes the
original retail installment contract and certificate of title or title
documents to MPFS at 10401 East Colfax Avenue, Aurora, Colorado
80010-0605, Attention: Dennis Berglund. BNYFC further agrees, from and
after the Effective Time, (i) all Receivable Files held or sent
pursuant to the preceding sentence by BNYFC prior to delivery to MPFS
are and shall be held or sent as agent for MPFS; and (ii) to deliver
such other release statements or documents as MPFS may from time to
time deem necessary or required to effectuate the foregoing. All of the
foregoing deliveries shall be at the expense of the Borrower.
3. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Colorado.
4. Beneficiary. MPFS shall be a beneficiary of this Agreement, BNYFC
acknowledges that MPFS is relying on this Agreement in executing the
Purchase Agreement and purchasing the Purchased Assets.
5. Counterparts. 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 taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the undersigned have executed this Consent and Release
Agreement as of the date first written above.
WESTERN FIDELITY FUNDING, INC.,
a Colorado corporation
By: /s/Gene E. Osborn
-----------------------------------
Gene E. Osborn, President
BNY FINANCIAL CORPORATION,
a New York corporation
By: /s/Andrew Rogow
-----------------------------------
Name: Andrew Rogow
Title: SVP
<PAGE>
STATE OF COLORADO )
)ss.
COUNTY OF JEFFERSON )
The foregoing instrument was acknowledged before me this 14th day of March,
1997, by Gene E. Osborn, the President of WESTERN FIDELITY FUNDING, INC., a
Colorado corporation, on behalf of the corporation.
WITNESS my hand and official seal.
My Commission Expires: November 20, 2000
/s/
-------------------------------------
Notary Public
[SEAL]
STATE OF NEW YORK )
)ss.
COUNTY OF MAN. )
The foregoing instrument was acknowledged before me this 14th day of March,
1997, by Andy Rogow, the SRV of BNY FINANCIAL CORPORATION, a New York
corporation, on behalf of the corporation.
WITNESS my hand and official seal.
My Commission Expires: 8/31/97
/s/
----------------------------------------
Notary Public
[SEAL]
BUSINESS LEASE
This Lease, dated January 22, 1997, by and between RAMSEY FAMILY
PARTNERSHIP, as Landlord, and Western Fidelity Funding, Inc., as Tenant.
In consideration of the payment of the rent and the performance of the
covenants and agreements by the Tenant set forth herein, the Landlord does
hereby lease to the Tenant the following described Premises situate in Jefferson
County, in the State of Colorado; the address of which is 8291 West 14th Avenue,
Lakewood, Colorado, 80215 (Northeast corner of West 14th Avenue and Brentwood).
Said Premises, with all the appurtenances, are leased to the Tenant from
the date of February 1, 1997, until the date of January 31, 2001 at and for a
rental for the full term of $52,800, payable in monthly installments of $1,100,
in advance, on the 1st day of each calendar month during the term of this lease
payable at 1480 Brentwood Street, Lakewood, Colorado 80215.
THE TENANT, IN CONSIDERATION OF THE LEASING OF THE PREMISES
AGREES AS FOLLOWS:
1. To pay the rent for the premises described above.
2. To keep the improvements upon the Premises, including sewer connections,
plumbing, wiring and glass in good repair, all at Tenant's expense, and at the
expiration of this Lease to surrender the Premises in as good a condition as
when the Tenant entered the Premises, loss by fire, inevitable accident, and
ordinary wear excepted. To keep all sidewalks on and around the Premises free
and clear of ice and snow, and to keep the entire exterior Premises free from
all litter, dirt, debris and obstructions; to keep the Premises in a clean and
sanitary condition as required by the ordinances of the city and county in which
the property is situate.
3. To sublet no part of the Premises, and not to assign the Lease or any
interest therein without the written consent of the Landlord, which consent
shall not be unreasonably withheld.
4. To use the Premises only as retail sales of used automobiles and for no
other purpose, and to use the Premises for no purposes prohibited by the laws of
the United States or the State of Colorado, or of the ordinances of the city or
town in which said Premises are located, and for no improper or questionable
purposes whatsoever, and to neither permit nor suffer any disorderly conduct,
noise or nuisance having a tendency to annoy or disturb any persons occupying
adjacent premises.
5. To neither hold nor attempt to hold the Landlord liable for any injury
or damage, either proximate or remote, occurring through or caused by the
repairs, alterations, injury or accident on or to the Premises, or adjacent
premises, or other parts of the above Premises not herein demised, or by reason
of the negligence or default of the owners or occupants thereof or any other
person, nor to hold the Landlord liable for any injury or damage occasioned by
the defective electric wiring, or the breakage or stoppage of plumbing or
<PAGE>
sewerage upon said premises or upon adjacent premises, whether breakage or
stoppage results from freezing or otherwise; to neither permit nor suffer said
Premises, or the walls or floors thereof, to be endangered by overloading, nor
said Premises to be used for any purpose which would render the insurance
thereon void or the insurance risk more hazardous, nor make any alterations in
or changes in, upon, or about said premises without first obtaining the written
consent of the Landlord therefor, but to permit the Landlord to place a "For
Rent" sign, upon the leased Premises at any time after sixty (60) days before
the end of this Lease.
6. To allow the Landlord to enter upon the Premises at any reasonable hour.
IT IS EXPRESSLY UNDERSTOOD AND AGREED BETWEEN LANDLORD AND
TENANT AS FOLLOWS:
7. All charges for water and water rents are to be paid by Tenant. All
charges for heating and lighting are to be paid by Tenant. Janitorial services
are to be paid by Tenant.
8. No assent, express or implied, to any breach of any one or more of the
agreements hereof shall be deemed or taken to be a waiver of any succeeding or
other breach.
9. If, after the expiration of this Lease, the Tenant shall remain in
possession of the Premises and continue to pay rent without a written agreement
as to such possession, then such tenancy shall be regarded as a month-to-month
tenancy, at a monthly rental, payable in advance equivalent to the last month's
rent paid under this lease, and subject to all the terms and conditions of this
Lease.
10. If the Premises are left vacant and any part of the rent reserved
hereunder is not paid, then the Landlord may, without being obligated to do so,
and without terminating this Lease, retake possession of the said Premises and
rent the same for such rent, and upon such conditions as the Landlord may think
best, making such changes and repairs as may be required, giving credit for the
amount of rent so received less all expenses of such changes and repairs, and
the Tenant shall be liable for the balance of the rent herein reserved until the
expiration of the terms of this Lease.
11. The Landlord acknowledges receipt of a deposit in the amount of $0.00
to be held by the Landlord for the faithful performance of all of the terms,
conditions and covenants of this Lease. The Landlord may apply the deposit to
cure any default under the terms of this Lease and shall account to the Tenant
for the balance. The Tenant may not apply the deposit hereunder to the payment
of the rent reserved hereunder or the performance of other obligations.
<PAGE>
12. At the Landlord's option, it shall be deemed a breach of this Lease if
the Tenant defaults (a) in the payment of the rent or any other monetary
obligation herein; or (b) in the performance of any other term or condition of
this Lease. The Landlord may elect to cure such default and any expenses of
curing may be added to the rent and shall become immediately due and payable.
In the event that the Landlord elects to declare a breach of this Lease,
the Landlord shall have the right to give the Tenant three (3) days written
notice requiring payment of the rent or compliance with other terms or
provisions of the Lease, or delivery of the possession of the Premises. In the
event any default remains uncorrected after three (3) days written notice, the
Landlord, at Landlord's option, may declare the term ended, repossess the
Premises, expel the Tenant and those claiming through or under the Tenant and
remove the effects of the Tenant, all without being deemed guilty in trespass or
of a forcible entry and detainer and without prejudice to any other remedies to
which the Landlord may be entitled. If at any time this lease is terminated
under this paragraph, the Tenant agrees to peacefully surrender the Premises to
have the Landlord immediately upon termination, and if the Tenant remains in
possession of the Premises, the Tenant shall be deemed guilty of unlawful
detention of the Premises. The Lessor shall be entitled to recover from the
Tenant all damages by reason of the Tenant's default, including but not limited
to the cost to recover and repossess the premises, the expenses of reletting,
necessary renovation and alteration expenses, commissions and the rent for the
balance of the term of this Lease.
13. In the event the Premises shall become untenantable on account of
damage by fire, floor or act of God, this lease may be thereupon terminated and
the rent apportioned to the date of the occurrence of such damage.
14. In the event of any dispute arising under the terms of this Lease, or
in the event of non-payment of any sums arising under this Lease and in the
event the matter is turned over to an attorney, the party prevailing in such
dispute shall be entitled, in addition to other damages or costs, to receive
reasonable attorneys' fees from the other party.
15. In the event any payment required hereunder is not made within ten (10)
days after the payment is due, a late charge in the amount of five percent (5%)
of the payment will be paid by the Tenant.
16. In the event of a condemnation or other taking by any governmental
agency, all proceeds shall be paid to the Landlord hereunder, the Tenant waiving
all rights to any such payments.
17. This Lease is made with the express understanding and agreement that in
the event the Tenant becomes insolvent, the Landlord may declare this Lease
ended, and all rights of the Tenant hereunder shall terminate and cease.
<PAGE>
18. The Landlord and the Tenant further agree to the terms, covenants, and
conditions set forth in the Rider to this Lease hereto attached and incorporated
by this reference.
Tenant shall provide Ramsey Family Partnership a copy of their current
dealers license and the renewal of such license each year for the length of the
lease.
Tenant shall notify Ramsey Family Partnership immediately of any actions
taken by the Colorado Dealers Administration that would revoke Tenant's dealers
license at 8291 W. 14th Avenue.
SHOULD ANY PROVISION of this Lease violate any federal, state or local law
or ordinance, that provision shall be deemed amended to so comply with such law
or ordinance, and shall be construed in a manner so as to comply.
This Lease shall be binding on the parties, their personal representatives,
successor and assigns.
When used herein, the singular shall include the plural, and the use of any
gender shall apply to both genders.
Attest: RAMSEY FAMILY PARTNERSHIP,
-------------------- Landlord
By:
----------------------------
Partner
Attest: WESTERN FIDELITY FUNDING, INC.
------------------- Tenant
By: /s/ Gene E. Osborn
-----------------------------
Title: President
GUARANTEE
For value received, I, Gene Osborn, hereby personally guarantee the payment
of the rent and the performance of the covenants and agreements by the Tenant
between Ramsey Family Partnership, and Western Fidelity Funding in the above
Lease covenanted and agreed, in manner and form as in said Lease provided.
Dated:
-----------------------
- ------------------------------ ------------------------------
<PAGE>
ASSIGNMENT AND ACCEPTANCE
For value received --------------------------------------------------,
assignor, hereby assigns all right, title and interest in and to the within
lease unto ----------------------------------, assignee, the heirs, successors
and assigns of the assignee, with the express understanding and agreement that
the said assignor shall be and remain liable for the full payment of the rent
reserved and the performance of all the covenants and agreements made in said
lease by the Tenant therein named, and will pay said rent and fully perform said
covenants and agreements in case said assignee shall fail so to do; and in
consideration of this assignment, the said assignee hereby assumes and agrees to
make all the payments and perform all the covenants and agreements contained in
said lease, by the Tenant therein agreed to be made and performed.
Dated:
-----------------------
- ------------------------------ ------------------------------
CONSENT OF ASSIGNMENT
Consent to the assignment of the within lease to ------------------, is
hereby given, on the express condition, however, that the assignor shall remain
liable for the prompt payment of the rent and performance of the covenants on
the part of the Tenant as herein mentioned, and that no further assignment of
said lease or sub-letting of the premises or any part thereof shall be made
without further written assent first had thereto.
Dated:
-----------------------
- ------------------------------ ------------------------------
LANDLORD'S ASSIGNMENT
In consideration of One Dollar, in hand paid, I hereby transfer, assign and
set over to ---------------------------------------------------------------- and
assign my interest in the within lease, and the rent therein reserved.
Dated:
-----------------------
- ------------------------------ ------------------------------
<PAGE>
RIDER TO LEASE
between
RAMSEY FAMILY PARTNERSHIP as Landlord,
and
WESTERN FIDELITY FUNDING, INC., a Corporation, as Tenant,
dated January 22, 1997
Landlord and Tenant further agree as follows:
1. Liability Insurance:
(a) Tenant shall procure and maintain at its own cost at all times
during the term of this Lease and any extensions hereof, hazard, fire and
extended coverage on Tenant's property and the contents of the Premises,
comprehensive general liability insurance, including coverage for bodily injury,
property damage, and personal injury with the following limits of liability:
Five Hundred Thousand and no/100 Dollars, ($500,000.00) each Occurrence combined
single limit for bodily injury, property damage and personal injury. All such
insurance shall be procured from a responsible insurance company or companies
authorized to do business in Colorado, and shall be otherwise satisfactory to
Landlord. All such policies shall name Landlord as an additional insured, and
shall provide that the same may not be canceled or altered except upon thirty
(30) days prior written notice to Landlord. All insurance maintained by Tenant
shall be primary to any insurance provided by Landlord. Tenant shall provide
certificate(s) of such insurance to Landlord upon commencement of die Lease term
and at least thirty (30) days prior to any annual renewal date thereof and upon
request from time to time and such certificates shall disclose that such
insurance names Landlord as an additional insured, in addition to the other
requirements set forth herein. The limits of such insurance shall not, under any
circumstances, limit the liability of Tenant hereunder.
(b) Each party agrees to use its best efforts to include in each of
its policies insuring against loss, damage or destruction by fire or other
casualty a waiver of the insurer's right of subrogation against the other party.
2. Mortgages: It is agreed that this Lease e is subject to and subordinate
to the lien of any trust deeds or mortgages now on, or which at any time may be
made a lien upon the Premises, or the building in which the demised Premises are
situate, and to all advances made or hereafter to be made upon the security
thereof. The Tenant agrees to execute and deliver upon request such further
instrument or instruments, subordinating this Lease to the lien of any, such
trust deeds or mortgages as shall be desired by any mortgagee or proposed
mortgagee.
3. Condemnation:
(a) If the whole of the Premises or so much thereof as to render the
balance unusable by Tenant for the proper conduct of its business shall be taken
under power of eminent domain or transferred under it thereof, then this Lease,
at the option of either Landlord or Tenant exercised by either party giving
notice to the other of such election within thirty (30) days after such
conveyance or taking possession, whichever is earlier, shall forthwith cease and
terminate and the rent shall be duly apportioned as of the date of such taking
<PAGE>
or conveyance. No award for any partial or entire taking shall be apportioned
and Tenant hereby assigns to Landlord any award which may be made in such taking
or condemnation, together with any and all rights of Tenant now or hereafter
arising or to the same or any part thereof. Notwithstanding the foregoing,
Tenant shall be entitled to directly from the condemning authority, an award for
its removable trade fixtures, equipment and personal property and relocation
expenses, if any, to the extent Landlord's award is not diminished. In the event
of a partial taking which does not result in a termination of this Lease, rent
shall be reduced in proportion to the reduction in the size of the Premises so
taken and this Lease shall he modified accordingly. Promptly after obtaining
knowledge thereof, Landlord or Tenant, as the case may be, shall notify the
other of any pending or threatened condemnation or taking affecting the Premises
or the building.
(b) If all or any portion of the Premises shall be condemned or taken
for governmental occupancy for a limited period, this Lease shall not terminate
and Landlord shall be entitled to receive the entire amount of any such award or
payment thereof as damages, rent or otherwise. Tenant hereby assigns to Landlord
any award which may be made in such temporary taking, together with any and all
rights of Tenant now or hereafter arising, in or to the same or any part
thereof. Tenant shall be entitled to receive an abatement of rent in proportion
to the reduction in the size of the Premises so taken.
4. Maintenance and Repairs: Landlord shall keep and maintain the roof and
structural components of the leased premises. Except for the Landlord's
obligations, aforesaid, Tenant shall maintain the leased premises in good repair
and working order, including any plumbing, heating, ventilation, air
conditioning and electrical components. Notwithstanding anything to the contrary
contained in this paragraph, it is specifically recognized and agreed that
Tenant shall make all repairs necessitated by the negligence of Tenant's agents
and employees and shall also be responsible for and bear the sole cost of all
ordinary maintenance required in respect to the same. Tenant shall be fully
responsible for all broken and cracked glass in or upon the Premises, excepting
glass damaged by fire or other casualty to the extent covered by Landlord's fire
and extended coverage insurance.
5. Fire and Casualty Insurance: Tenant shall neither bring, nor keep on the
demised Premises anything that will cause an increase in the fire or casualty
insurance premiums on the buildings of which the demised Premises are a part,
nor shall Tenant use the Premises in any manner or for any purpose that will
cause either an increase in insurance premiums, the cancellation of any
insurance coverage, or the refusal of any insurance carrier to insure the
demised Premises against the specified hazards, and Tenant shall not permit the
employees, agents, guests, or subtenants to do any of the acts prohibited to
Tenant herein.
Tenant shall pay on demand, as additional rent, any increase that may
be required in the insurance premiums as a result of any violation of this
provision.
<PAGE>
Landlord shall have the option to terminate is Lease if any violation
of this provision results in either the cancellation of any insurance on the
premises or the refusal by an insurance carrier to insure the premises. If
Landlord elects not to terminate this Lease, Landlord may take available legal
action to enjoin Tenant from continuing the Lease or conduct detrimental to the
present insurance rate herein.
6. Indemnity: Tenant shall indemnify Landlord against all expenses,
liabilities, and claims of every kind including reasonable attorneys' fees, by
or on behalf of any person or entity arising out of either (1) a failure by
Tenant to perform any of the terms or conditions of this Lease, (2) any injury
or damage happening on or about the demised premises, (3) failure to comply with
any law of any governmental authority, or (4) any mechanic's lien or security
interest filed against the demised premises or equipment, materials or
alterations of buildings or improvements thereon.
7. Restrictions on Use: Tenant shall neither permit on the premises any
act, sale, or storage that may be prohibited under standard forms of fire
insurance policies, nor use the Premises for any such purpose. In addition, no
use shall be made or permitted to be made that shall result in (1) waste on the
Premises, (2) a public or private nuisance that may disturb the quiet enjoyment
of other tenants in the building, (3) improper, unlawful, or objectionable use,
including sale, storage or preparation, or any materials generating an odor on
the Premises, (4) noises or vibrations that may disturb other tenants. Landlord
shall be the judge of what constitutes undue waste, nuisance, odors, noises and
vibrations, or abandonment of the rise of the Premises for retail sales of used
automobiles. A copy of the Non-Conforming Use Certificate, City of Lakewood, is
attached and incorporated Herein.
8. Public Utilities: Landlord shall not be liable for any failure of a
public or private utility company or municipality to supply any utility (sewer,
water, gas or electrical service) to the demised Premises. Furthermore, any
reduction or termination of said services by utility companies or municipalities
will not alter or terminate the Lease between Landlord and Tenant.
9. Suitability: Tenant acknowledges that neither Landlord nor any agent of
Landlord has made any representations or warranties with respect to the leased
Premises or the building or with respect to the suitability of either for the
conduct of Tenant's business, nor has Landlord agreed to undertake any
modification, alteration or improvement to the Premises except as provided in
this Lease. The taking of possession of the leased premises by Tenant shall
conclusively establish that the Premises and the building are at such time in
satisfactory condition.
10. Alterations and Additions: Tenant shall make no alterations, additions
or improvements to the leased Premises or any part thereof without obtaining the
prior written consent of Landlord, which consent shall not be unreasonably
withheld. All such alterations, additions or improvements shall at the
expiration or earlier termination of this Lease become the property of Landlord
and remain upon and be surrendered with the leased Premises.
<PAGE>
11. Late Charge: Tenant shall pay to Landlord a late charge of five percent
(5 %) of any installment of rent not received by Landlord within ten (10) days
after the payment is due.
12. Hazardous Materials: Tenant shall not (either with or without
negligence) (a) cause or permit the escape, disposal, or release of any
biologically or chemically active or other hazardous substances or materials, or
(b) allow the storage or use of such substances or materials in any manner not
sanctioned by law or by the highest standards prevailing in the industry for the
storage and use of such substances or materials, or (c) allow any such materials
or substances to be brought onto the Premises except to use in the ordinary
course of the Tenant's business, and then only after written notice is given to
the Landlord of the identity of such substances or materials. The Tenant shall
defend, indemnify and hold harmless the Landlord against and from availability,
claim of liability, or expense arising out of any release of hazardous materials
on the Premises occurring while the Tenant is in possession thereof, or
elsewhere if caused by the Tenant or any person acting under the Tenant.
13. Signs: The Tenant shall have the right to erect from time to time
within the premises such signs as it desires, in accordance with applicable law,
with the approval of the City of Lakewood and Landlord. Landlord's approval
shall not be unreasonably withheld.
14. Effect of Rider: This Rider shall amend the Lease to which this Rider
is attached. In the event of any inconsistencies between this Rider and the
Lease, the provisions of this Rider shall control. Except as may be expressly
amended by this Rider, all of the terms, provisions, and conditions of this
Lease shall be and remain in full force and effect.
15. Total Agreement: This Lease contains the entire agreement between the
parties and cannot be changed or terminated except by written instrument
subsequently executed by the parties hereto. This Lease and the terms and
conditions hereof apply to and are binding on the heirs, legal representatives,
successors, and assigns of both parties.
Landlord:
RAMSEY FAMILY PARTNERSHIP
By:
-------------------------------
Partner
Tenant:
WESTERN FIDELITY FUNDING, INC.
By: /s/Gene E. Osborn
-------------------------------
Title: President
OFFICE LEASE
BETWEEN
BANK ONE - COLORADO N.A.
AS LANDLORD
AND
WESTERN FIDELITY FUNDING, INC.
AS TENANT
FOR THE PREMTSES LOCATED AT
4704 HARLAN STREET
A PORTION OF THE FIRST FLOOR
<PAGE>
LEASE
This agreement is made July 18, 1996, in Lakeside, Colorado, between BANK
ONE COLORADO, N.A. (the "Landlord"), whose address is 200 East 7th Street, (PO
Box 29, Loveland, Colorado 80537-0029 and Western Fidelity Funding, Inc., (the
"Tenant"), whose address is 4704 Harlan Street, Suite 260, Lakeside, Colorado
80212, who hereby agree as follows:
1 . Lease of Premises. On the terms and subject to the conditions described
in this agreement, Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord a portion of the first floor consisting of approximately 5531
Rentable square feet (the "Premises"), in the office building located at 4704
Harlan Street, Lakeside, CO, (the "Building"), together with all fixtures and
other improvements now or hereafter located thereon and all appurtenances
thereto.
2. Term. The basic term of this lease (the "Basic Term"), shall be for a
period of approximately Three (3) years beginning on September 1, 1996, and
terminating on August 30, 1999, both dates inclusive.
3. Rent. The Tenant shall pay to the Landlord annual rent as described in
Addendum 1, payable monthly in advance in installments on or before the first
day of each calendar month during the term of this lease.
The rent shall be paid to the Landlord when due, without notice or demand,
and without any abatement or deduction by reason of any claim, set off,
counterclaim, defense, or any other reason whatsoever. All payments to be made
by Tenant to Landlord under this lease shall be made by normal business methods
and shall be paid to Landlord at Landlord's address for receiving notices under
34.
Tenant shall pay to Landlord a one and one-half percent (1'1/2%) late
charge on any rents and/or other charges not paid by Tenant within ten (10) days
of the due date to cover the cost of handling delinquent payments. Payment of
such late charge shall not excuse or cure any default by Tenant under this
lease.
4. Taxes and Assessments. Landlord shall pay or cause to be paid when due
all real estate taxes and assessments on the premises during the term of this
lease. Tenant shall pay or cause to be paid when due all taxes or charges for or
hereafter imposed with respect to any siness conducted by Tenant on the Premises
and any fixtures or personal property owned by Tenant and located in the
Premises.
5. Utilities. Base rent shall be adjusted annually throughout the Term,
commencing on January 1, of the calendar year following the Base year, by an
amount equal to Tenant's share of the excess ("Excess"), if any, of the actual
operating expenses for such calendar year over the actual operating expenses for
the Base Year. Estimated operating expenses and reconciliation to be outlined
and as an attachment to this lease.
<PAGE>
6. Common Areas, Parking and Maintenance. During the term of this lease,
Tenant and their employees, shall have the right, in common with others entitled
to the similar use thereof, to use all of the interior and exterior common areas
of the Building, including lobbies, hallways, restrooms (which are not part of
any rented suite), stairways, elevators, doorways for ingress and egress to and
from the Building and to and from the exterior common areas of the Building. All
Tenants and their employees shall park in the designated area.
Landlord shall maintain the interior and exterior common areas of the
Building, including all fixtures, signs, equipment, and Landlord personal
property therein. Landlord's obligations shall include providing cleaning,
janitorial, landscaping, snow removal, and other services for the interior and
exterior common areas of the building.
7. Condition of Premises. The Landlord has made $15,200 available in Tenant
Improvements and will hire a contractor to do specified work in constructing a
demising wall and emergency fire exit. The Landlord makes no representation or
warranty, express, or implied, with respect to the condition of the Premises or
the fitness of the Premises for any particular use. The Tenant acknowledges that
it has fully investigated and is familiar with the size, dimensions, and
physical condition of the Premises prior to move in date. The Landlord shall not
be required to make any improvement, repair, alteration, or restoration of the
Premises, after August 1, 1996 and shall have no liability for any latent or
patent defects in the conditions of the Premises.
8. Tenant. Tenant shall maintain the Premises and all Tenant fixtures, (but
not fluorescent lighting fixtures, tubes, ballasts; nor heating, ventilating and
air conditioning equipment and controls which shall be the sole responsibility
of the Landlord to maintain), signs, business equipment, and personal property
therein in good condition, ordinary wear and tear excepted. Tenant shall keep
and maintain the Premises in a clean and sanitary condition. Tenant shall use
the Premises for an office, including uses incidental thereto, and shall not
permit the Premises to be used for any other purpose without first obtaining the
Landlord's express written consent to that specific use. Tenant shall occupy and
use the Premises only in a careful, safe and proper manner and shall not commit
or permit any waste of or on the Premises. Not later than the last day of the
term, Tenant shall, at Tenant's expense, remove all of Tenant's personal
property, repair all injury done by or in connection with the installation or
removal of said property, and surrender the Premises in as good condition as
they were at the beginning of the term, reasonable wear and tear expected, All
personal property of Tenant remaining on the Premises after Tenant vacates or
abandons same shall conclusively be deemed to be Landlord's property and
Landlord may, in Landlord's sole discretion, remove or dispose said property.
Tenant agrees that the cost of restoring the Premises to the original condition
shall be borne by Tenant.
9. Insurance. The Tenant shall maintain or cause to be maintained in force
at all times during the term of this lease:
(a) Comprehensive general liability insurance with respect to the
Premises having limits of not less than $500,000 for bodily
injury to one person, $1,000,000 for bodily injuries arising out
of one occurrence, $500,000 for property damage, or such
increased policy limits as may from time to time hereafter be
reasonably requested by the Landlord. If coverage is not
available in the exact amount stated above, then coverage in the
nearest higher amount available shall be obtained.
<PAGE>
(b) All-risk coverage insurance with respect to all Tenant's personal
property in the Premises including rental occupancy or business
interruption insurance and other coverages from time to time
reasonably requested by the Landlord.
(c) Such other insurance with respect to the Premises in such amount
and against such insurable hazards as the Landlord from time to
time may reasonably require.
Each insurance policy furnished under this section shall be
issued by a reputable insurance company approved by the Landlord; shall name the
Tenant, the Landlord (Bank One Colorado, N.A.), and any persons designated by
the Landlord as additional insured parties therein; shall contain a provision by
which the insurer specifically waives its fights of subrogation against the
Landlord and its designees with respect to any loss or losses paid thereunder;
shall provide that no act or omission (negligent or otherwise) of the Landlord,
the Tenant, or others shall affect or limit the obligation of the insurer to pay
the Landlord or its designees any and all amounts which would otherwise be
payable to it thereunder; shall provide for written notice to the Landlord and
its designees at least 10 days prior to any cancellation or expiration without
renewal; and shall be in form and content satisfactory to the Landlord and its
designees. The Tenant shall furnish the Landlord and its designees with
certificates of coverage and evidence of payment of premiums thereon from time
to time as requested by Landlord.
10. Rules and Regulations, Tenant shall use the Premises and the public
spaces and common areas, including those which contain modes of ingress to or
egress from the Premises and parking lot areas, in accordance with all
reasonable rules and regulations which may be promulgated by the Landlord from
time to time.
11. Noise. Tenant shall not permit or suffer any noise, noxious odors,
disturbance or nuisance whatsoever on the Premises which would be detrimental to
same or annoying to other tenants or occupants of the Building.
12. Advertising and Signs. Tenant shall be permitted to display Tenant's
business sign on elevator building directory to the Premises according to
Landlord specifications. All signs shall be obtained and displayed at Tenant's
cost and shall be of a size, design, and material approved by Landlord. No other
sign shall be located on the Premises or the Building without the prior written
consent of the Landlord.
13. Compliance with Laws. Tenant shall, within its leased premises, at its
cost and expense, promptly comply or cause compliance with all laws,
regulations, orders, and requirements of all federal, state and local
governments, courts, or other lawful authorities and all regulations, including,
without limitation, the Americans with Disabilities Act ("ADA") and the
regulations promulgated thereunder, and orders of the National Board of Fire
Underwriters or other organization hereafter exercising similar functions, which
now or any time hereafter may apply to or affect the Premises or any business
conducted on the Premises. Specifically, as an illustration and not a limitation
shall indemnify and save harmless the Landlord against and from costs,
liabilities, suits, penalties, claims, and demands.
<PAGE>
14. Liens. Tenant shall comply with the provisions of the Colorado
Mechanic's Lien Law, as amended from time to time, and file the appropriate
Notice of Commencement for improvements made to the Premises by the Tenant or on
Tenant's behalf If because of any act or omission of the Tenant, any lien,
charge, or order for the payment of money shall be filed against the Premises,
the Tenant shall, at its own expense, cause the same to be discharged of record
or bonded within 90 days after written notice from the Landlord to the Tenant of
the filing thereof and the Tenant shall indemnify and save harmless the Landlord
against and from costs, liabilities, suits, penalties, claims, and demands. If
the Tenant shall fail to cause such liens to be discharged or bonded within the
aforesaid 90-day period, the Landlord shall have the fight to cause the same to
be discharged and any and all costs and expenses incurred by the Landlord in
connection therewith, including without limitation reasonable attorney's fees,
shall thereupon be due and payable immediately from the Tenant to the Landlord,
with interest thereon at the rate of 2.0% a month from the time such costs and
expenses were incurred by the Landlord until the Landlord is reimbursed in full
by the Tenant, and the same shall be deemed additional rent hereunder to be paid
by the Tenant to the Landlord,
15. Alterations. The Tenant shall have the right to make alterations,
additions, and improvements to the Premises in accordance with plans and
specifications which are approved in advance by the Landlord in writing. No
alteration shall be commenced until the Tenant has first obtained and paid for
all required permits and authorizations of all governmental automobiles having
jurisdiction. Any alteration shall be made promptly and in good workmanlike
manner and in compliance with all applicable permits, authorizations, building
and zoning laws, including ADA, and the Colorado Mechanic's Lien Law, and all
other laws, ordinances, regulations, and requirements of the National Board of
Fire Underwriters or other body hereafter exercising similar function to require
the Tenant to remove any alteration and to restore the Premises to the same
condition as before the alteration was made, unless the Landlord expressly
waives the foregoing right in its written consent to the alteration. (See
Addendum 4,)
16. Quiet Enjoyment. Upon due performance of all agreements to be performed
by the Tenant under this lease, the Landlord covenants that the Tenant may at
all times peaceably and quietly have, hold and enjoy the Premises during the
term of this lease.
17. Condemnation. If all or materially all of the Premises are taken in
appropriation proceedings or by right of eminent domain, then this lease shall
terminate as of the date the Tenant is deprived of physical possession thereof
and the rent and other charges herein to be paid by the Tenant shall be paid at
that date. If less than materially all of the Premises are so taken, then this
lease shall continue in full force and effect notwithstanding such taking, and
the "Premises" shall thereafter mean the portion of the Premises remaining after
such taking. For purpose of this lease, "materially all of the Premises" shall
be deemed so taken if the portion of the Premises remaining after such taking
and after such repairs or improvements as the Landlord is then willing to make
in its discretion is insufficient to provide Tenant with facilities sufficient
to continue economical use of the Premises as described in 8.
In any event, the Landlord shall be entitled to all compensation and
damages (including consequential damages) awarded for any such taking of all or
any part of the Premises, and the Tenant shall not be entitled to share in any
such award or have any claim against the Tenant for any part thereof, or shall
there by any abatement or diminution of rent by reason thereof, provided that
the Tenant shall have the right to claim and receive from the condemning
authority any special damages from such taking; which are separately allowable
and separately awarded to the Tenant and do not have the result of reducing or
otherwise affecting the total award which otherwise would be made to the
Landlord.
<PAGE>
18. Restoration. If all or any portion of the Premises, or any portion of
the Building other than the Premises which is used by Tenant, is damaged by fire
or any other cause to such extent that the same cannot be restored, as
reasonably estimated by Landlord, within 120 days after the date of such damage
or destruction, then following notice from Landlord of such estimation, either
Landlord or Tenant may, at its option, no later than 30 days following
Landlord's notice, give notice to the other party of its election to terminate
this lease. In the event either party so elects, this lease shall terminate on
the date of such damage or destruction. In such event, the rent shall be
apportioned as of the date of such termination, and any rent paid for any period
beyond said date shall be repaid to Tenant. If the time of restoration as
reasonably estimated by Landlord shall be less than 120 days, or if neither
Landlord or Tenant elects to terminate this lease, Landlord should promptly, at
its expense, restore the Building and the Premises to the same or better
condition as existed prior to such damage. Tenant shall, in such event, be
responsible for the restoration or replacement of fixtures, personal property,
and improvements owned by Tenant.
In any such case in which the use of the Premises is affected by any damage
thereto, there shall be an abatement or an equitable reduction in rent payable
by Tenant hereunder, depending on the period for which, and the extent to which,
the Premises are not reasonably usable for the purposes for which they are
leased hereunder. The words "restoration" and restore as used in this section
shall include all repairs.
19. Default. Each of the following events shall be deemed an event of
default under this lease:
(a) Failure by Tenant to make any payment of rent to Landlord within
10 days after Landlord gives Tenant notice to do so, or
(b) Failure by Tenant to make any other payment or perform or observe
any other obligation or condition to be performed or observed by
Tenant under this lease and failure by Tenant to correct such
default within 20 days after Landlord gives Tenant notice to do
so or, if because of the nature of such default it cannot
reasonably be corrected within such 20-day period, failure by
Tenant to commence correction within such 20-day period and
thereafter to expeditiously and continuously prosecute the
correction to completion.
(c) Abandonment of the Premises by the Tenant.
(d) Assignment or sublease of any interest or rights of the Tenant
under this lease, except as express permitted by the Landlord in
writing, or
(e) The filing or execution or occurrence of any one or more of the
following:
(i) Petition in bankruptcy by or against the Tenant,
<PAGE>
(ii) Adjudication of the Tenant as a bankrupt or insolvent;
(iii)Assignment for the benefit of creditors of the Tenant,
whether by trust, mortgage, or otherwise, or the execution
of a composition agreement with the Tenant's creditors; or
(iv) Petition or other proceedings by or against the Tenant for
or the appointment of a trustee, receiver, guardian,
conservator, or liquidator of the Tenant with respect to all
or substantially all of the Tenant's property.
Immediately upon occurrence of any default or at any time thereafter,
unless the default has theretofore been cured with the written consent of the
Landlord or expressly waived by the Landlord in writing, the Landlord may at its
exclusive option elect to,
(a) Continue this lease in full force and effect notwithstanding the
occurrence of such event or default; or
(b) Terminate this lease, in which event all rights, titles, and all
interests of the Tenant in, to, or under the Premises and this
lease shall terminate forthwith. The Landlord shall be entitled
immediately to re-enter and repossess the Premises and the
Landlord shall be entitled to recover from the Tenant and the
Tenant shall pay to the Landlord forthwith an amount equal to all
unpaid rent and late charges accruing hereunder prior to the
Landlord's actual recovery of possession of the Premises and all
other unpaid amounts which were to have been paid by the Tenant
to anyone hereunder prior to the Landlord's actual recovery of
possession of the Premises.
Until such time as the Landlord expressly elects to terminate this lease
under the preceding provisions, this lease shall continue in full force and
effect notwithstanding the occurrence of such event of default. In the event the
Landlord elects to so terminate this lease, the Tenant thereupon shall be deemed
to have assigned and transferred to the Landlord all unexpired insurance
premiums and all fights of the Tenant under all insurance policies.
The provisions of this section shall be cumulative in nature, and nothing
contained in this section shall in any manner curtail, supplant, abridge, or
otherwise affect adversely any right, recourse, or remedy which otherwise would
be available to the Landlord at law or in equity.
20. Landlord's Right to Cure Tenant' s Breach. If Tenant breaches any
covenant or condition of this lease, Landlord may, but shall not be obligated
to, on reasonable notice to Tenant (except that no notice need be given in case
of emergency), cure such breach at the expense of Tenant and the reasonable
amount of all expenses, including attorneys' fees, incurred by Landlord in doing
so (whether paid by Landlord or not) shall be deemed additional rent payable on
demand.
<PAGE>
21. Indemnification. Tenant shall indemnify and save harmless the Landlord
against and from any and all liabilities, losses, damages, injuries, costs, and
expenses that hereafter may occur, arise, or be claimed to occur or arise
directly or indirectly from or out of
(a) Any failure by the Tenant to make any payment to be made by it
hereunder or fully to perform or observe any obligation or
condition to be performed or observed by the Tenant hereunder;
(b) Any cause whatsoever on, about, or relating to the Premises
during the term of this lease, however or by whomever caused,
whether due in whole or in part to negligent acts or omissions on
the part of the Tenant, the Landlord, or any one else, and
whether such acts of omissions are active or passive in
character, including without limitation any use, misuse,
possession, occupancy, or unoccupancy of the Premises by anyone
during the term of this lease, or any failure by the Tenant to
perform and observe all obligations and conditions to be
performed and observed by it under this lease, or the condition
of the Premises, including any latent or other defects in the
Premises; or
(c) Any costs or expenses incurred or paid by the Landlord in
connection with the foregoing, including tease fees, legal fees
and other costs and expenses in prosecuting or defending any of
the foregoing, whether litigated or unlitigated,
Tenant hereby assumes the risk of any and all matters described in this
section. Landlord shall not be liable to Tenant for any loss, damage, injury,
costs, or expenses whatsoever relating to the Premises, including without
limitation, any interruption or cessation of the business of Tenant or any
subtenant or loss incurred as a consequence of damage to or destruction of the
Premises, however caused, and whether or not resulting from negligence of
Landlord or its agents or employees.
22. Casualty or Theft Loss. Landlord shall not be liable for any damage to
the property of Tenant or of others located in or upon the Premises, nor for the
loss or damage to any property of Tenant or of others by theft or otherwise.
23. Water Damage. It is expressly agreed and understood by and between the
parties to this lease, that the Landlord shall not be liable for any damage or
injury by water which may be sustained by the Tenant or other persons or for any
other damage or injury resulting from the carelessness, negligence or improper
conduct on the part of Tenant or its agents or employees or by reason of the
breakage, leakage or obstruction of the water, sewer, or soil pipes or other
leakage in or about the Premises.
24. Interruption of Services or Use. Interruption or curtailment of any
service maintained in the Premises if caused by strikes, mechanical
difficulties, or causes beyond Landlord's control whether similar or dissimilar
to those enumerated shall not entitle Tenant to any claim against Landlord nor
shall the same constitute constructive or partial eviction provided, however,
Landlord shall make reasonable effort to restore such service in the lease
amount of time possible.
<PAGE>
25. Cumulative Rights and Remedies. Each fight or remedy of the Landlord
under this agreement or now or hereafter available to the Landlord by statue, at
law, in equity, or otherwise, shall be cumulative and concurrent and shall be in
addition to every other such right or remedy' and neither the existence,
availability, nor exercise of any one or more of such fights or remedies shall
preclude or otherwise affect the simultaneous or later exercise by the Landlord
of any or all other fights or remedies.
26. Memorandum of Lease. This lease shall not be recorded; however, at the
request of the Tenant, the Landlord shall execute, acknowledge, and deliver a
memorandum of this lease for purposes of giving public notice of the fights and
obligations of the Landlord and the Tenant under this lease.
27. Assignment of Sublease. No provision.
28. Landlord's Access. The Landlord and its designees shall have the right
to enter the Premises at any reasonable times for the purposes of inspecting the
Premises, performing any work which the Landlord elects to undertake hereunder,
and exhibiting the Premises for sale, lease, or mortgage. Nothing herein shall
imply any duty upon the Landlord to do any such work which under any provision
of this lease the Tenant is required to perform nor shall the Landlord incur any
liability as a result of not inspecting the Premises,
29. Non-waiver. No failure by the Landlord to exercise any option hereunder
or to enforce its rights or to seek its remedies upon any default, and no
acceptance by the Landlord of any rent accruing before or after any default,
shall affect or constitute a waiver of the Landlord's fights to exercise that
option, enforce that right, or seek that remedy with respect to that default or
any prior or subsequent default.
30. No Third Party Benefit. This agreement is intended for the benefit of
the Tenant and the Landlord and, except as otherwise provided in this agreement,
their respective successors, heirs, personal representatives, and assigns,
nothing contained in this agreement shall be construed as creating any rights or
benefits in or to any third party.
31 . Broker's Fees. No fees.
32. Surrender of Premises. No agreement to accept a surrender of the
Premises shall be valid unless in writing and signed by the Landlord. The
delivery of the keys to any employee or agent of the Landlord shall not operate
as a termination of the lease or a Surrender of the Premises, except at the end
of the full-term of this lease. The failure of the Landlord to seek redress for
violation of, or to insist upon strict performance of any of the terms,
covenants and conditions of this lease, shall not act as a waiver or be evidence
of a consent to any said violation. Further, the receipt of rent by the Landlord
with knowledge of the breach of any term, covenant or condition of this lease
shall not be deemed a waiver of such breach, with the exception of a breach
caused by Tenant's failure to pay rent or additional rent for the current month
only.
<PAGE>
33. Holding Over. If the Tenant retains possession of the Premises or any
part thereof after the termination of the lease term or any extension thereof,
by lapse of time or otherwise, the Tenant shall pay the Landlord rent on a
month-to-month basis in a monthly amount of 1.30 times the monthly rent payable
for the year immediately preceding said holdover for the time the Tenant thus
remains in possession. The provisions of this section do not waive Landlord's
rights of re-entry or any other fight hereunder. Any retention of the Premises
after the termination month will be considered as a holdover unless otherwise
agreed to in writing by both parties.
34. Notices. All notices, demands, requests, consents, approvals, offers,
statements and other instruments or communication required or permitted to be
given hereunder shall be in writing and shall be deemed to have been given when
delivered, or when mailed by first class registered or certified mail, postage
prepaid, addressed, (a) if to the Tenant, at its address set forth above, or (b)
if to the Landlord, at its address set forth above, or (c) to any such other
address as a party to this agreement may theretofore have designated in notice
to any party giving notice.
35. Estoppel Certificate. Either party to this lease shall from time to
time during the term of this lease, immediately upon request of the other party,
execute and deliver to the other party a statement certifying that this lease is
in full force and effect, the date through which the rent and other charges
hereunder have been paid, and any other factual matter reasonably requested by
the other party.
36. Severability . If any provisions of this lease or any application
thereof shall be invalid or unenforceable, the remainder of this lease and any
other application of such provision shall not be affected thereby.
37. Binding Effect. This lease shall be binding upon and inure to the
benefit of and be enforceable by the respective successors, heirs, personal
representatives and assigns of the parties hereto.
38. Section Headings. The section headings are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof
39. Counterparts. This lease may be simultaneously executed in
counterparts, each of which, when so executed and delivered, shall constitute an
original, fully enforceable counterpart for all purposes.
40. Governing Law. This lease shall be governed by and construed in
accordance with the laws of the State of Colorado.
41. Complete Agreement. This document contains the entire agreement between
the parties and supersedes any prior discussions, representations, warranties,
or agreements between them and the Landlord.
CONSULT YOUR ADVISORS - This document has been prepared for approval by your
attorney,
<PAGE>
IN WITNESS WHEREOF, all parties have executed this Lease this 18th day of July,
1996.
BANK ONE - WESTERN FIDELITY FUNDRNG, INC.
COLORADO, N.A. Tenant
Landlord
By: /s/ Nancy E. Anderson By: /s/ Gene Osburn
------------------------------ ----------------------------------
Title: Regional R/E Specialist Title: President
<PAGE>
ADDENDUM
This Addendum is attached to and made a part of that certain Lease dated July
18, 1996 between BANK ONE - COLORADO, N.A., as Landlord, and Western Fidelity
Funding, Inc., as Tenant, on the 553 1 rentable square foot premises known as a
portion of the first floor, 4704 Harlan Street, Lakeside, CO.
ADDITIONAL PROVISIONS
The following provisions are in addition to, substitution of, and/or
modification of the terms and conditions contained in Pages 1 through 11 of this
Lease, Addendum and Exhibits thereto. in this event of any conflict between such
terms and conditions of this Lease and the terms and conditions of the following
provisions, the latter shall control.
I. Rent. The following shall be the annual and monthly rental and shall be paid
in accordance with Article 3 of this Lease.
LEASE ANNUAL MONTHLY SQUARE FOOT
PERIOD RENTAL RENTAL RENTAL RATE
------ ------ ------- -----------
September 1, 1996
Through
August 30, 1997 $55,310.00 $4609.17 $10.00
September 1, 1997
Through
August 30, 1998 $56,692.75 $4724.40 $10.25
September 1,1998
Through
August 30, 1999 $58,075.50 $4839.63 $10.50
2. Condition of Premises. Landlord shall provide demising wall and emergency
fire exit at their own cost. Plans to be approved by DPC Investors. Tenant
Improvement allowance for this is $15,200.00, not to exceed.
3. Requirements for Cable in Plenum areas. Tenant hereby acknowledges to
Landlord that telephone and data cables must be in metal conduit or
teflon-coated cable to be in conformance with applicable governmental building
codes concerning cable installed in open air plenum areas, such as the demised
premises. It is the Tenant's responsibility to inform its telephone and data
communications installers of this requirement. Any additional cost for conduit
or applicable cable other than what is provided in the demised premises is a
Tenant cost.
4. Tenant Provided Improvements. For any Tenant provided remodeling or
redecoration work after August 1, 1996, Tenant agrees to have any such work done
in a "workmanlike" manner with a contractor or workman approved in writing by
the Landlord. Approval for such contractor or workman shall not be unreasonably
withheld by Landlord. Prior to the start of any remodeling or construction by
<PAGE>
Tenant, Tenant shall submit or cause to be submitted to Landlord's Agent for
written approval two (2) copies of detailed drawings to scale indicating any
structural changes, partitions, electrical, heating ventilating and air
conditioning, and plumbing work.
5. Americans With Disabilities Act. Landlord and Tenant acknowledge that the
Building and the Premises occupied by Tenant are subject to the Americans With
Disabilities Act (ADA) regulations and specifically TITLE III thereof,
concerning the provisions governing public accommodations in commercial
facilities, Landlord agrees that if the Building, except for the Demised
Premises, fails to comply with the provisions of the ADA, that Landlord will use
its reasonable efforts to comply with the ADA requirements of "reasonable
accessibility" in accordance with the standard set forth in the ADA.
Landlord shall be responsible for any alterations and costs or expenses
associated therewith, including alterations to the entrance to the demised
Premises to maintain the demised Premises in compliance with the ADA. Tenant
shall have no right to make any structural or non-structural changes to the
demised Premises to meet the ADA requirements, except as previously approved by
Landlord pursuant to the terms of the Lease.
6. Security Deposit. Landlord and Tenant hereby acknowledge that there is NO
security deposit for this lease transaction.
7. Chair Pads. Tenant agrees, at Tenant's expense, to rise chair pads under all
caster- type chairs used in the demised Premises if the casters are less than
1/2" wide.
8. Sublease Cancellation. This Lease makes null and void and cancels the
SubLease dated September 26, 1994, between Western Fidelity Funding and Bank
One. Bank One will have this lease with Western Fidelity Funding, Inc., approved
with DPC and get an acknowledgment for the file of their awareness of this
transaction. Western Fidelity Funding, Inc. is hereby made aware that this lease
must be approved, after signing, by DPC. If there is no approval by DPC, this
document is null and void.
CONSULT YOUR ADVISORS - This document has been prepared for approval by your
attorney. No representation or recommendation is made as to the legal
sufficiency or tax consequences of this document or the transaction to which it
relates. These are questions for your attorney and accountant,
IN WITNESS WHEREOF, all parties have executed this document the date indicated
below.
BANK ONE-COLORADO, N.A. WESTERN FIDELITY FUNDING, INC.
Landlord Tenant
By: /s/ Nancy E. Anderson By: /s/ Gene Osborn, President
------------------------------ ----------------------------------
Title: Real Estate Specialist Date: July 18, 1996
Date: 7/31/96, 1996
<PAGE>
RIDER
This Rider is attached to and forms a part of that certain lease dated Bank
One-Colorado, N.A., Landlord and \VESTERN FIDFLITY FUNDING, INC., Tenant,
covering space on the FIRST floor of the building known as the Bank One,
Lakeside, 4704 Harlan Street, Lakeside, CO.
The term "Landlord" as used throughout this lease and all Riders attached hereto
shall mean "Sub-Landtord" and the term "Tenant" shall mean "Sub-Tenant" . This
lease is subject to all terms and conditions of that certain lease dated March
26, 1991 between Lakeside National Bank I AKA Bank One, Lakeside, "Tenant" and
Crown Life Insurance Company, "Landlord" including "Rules and Regulations".
Existiny, Mortgages a d Deeds of Trust. This lease is subject and subordinate to
all present mortgages or Deeds of Trust affecting the real estate on which the
building is located and the building of which the lease premises form a part,
and to all renewals or extensions thereof and to any mortgage or Deeds of Trust
which may hereafter be executed, affecting the same.
Western Fidelity Funding, Inc. Bank One-Colorado, N.A.
By: /s/ Gene Osborn By: /s/ Nancy E. Anderson
----------------------------- ------------------------------
Title: President Nancy E. Anderson
Regional R/E Specialist
EXHIBIT 21
SUBSIDIARY OF REGISTRANT
Western Fidelity Finance, Inc., a Delaware corporation, is the only
subsidiary of the Registrant.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 361,362
<SECURITIES> 0
<RECEIVABLES> 21,044,703
<ALLOWANCES> 6,100,000
<INVENTORY> 3,109,326
<CURRENT-ASSETS> 0
<PP&E> 830,711
<DEPRECIATION> 188,079
<TOTAL-ASSETS> 25,472,096
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
33
<COMMON> 264
<OTHER-SE> (4,809,485)
<TOTAL-LIABILITY-AND-EQUITY> 25,472,096
<SALES> 7,363,336
<TOTAL-REVENUES> 7,363,336
<CGS> 0
<TOTAL-COSTS> 17,353,743
<OTHER-EXPENSES> 164,270
<LOSS-PROVISION> 6,780,120
<INTEREST-EXPENSE> 3,652,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,154,677)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,154,677)
<EPS-PRIMARY> (3.85)
<EPS-DILUTED> 0
</TABLE>
