UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended March 31, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from ________ to _______.
Commission File No. 0-24686
FIRST MERCHANTS ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
36-3759045
(I.R.S. Employer Identification Number)
570 Lake Cook Road, Suite 126, Deerfield, Illinois 60015
(Address of principal executive offices)
(847) 948-9300
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock $.01 par value, 6,525,519 shares outstanding as
of May 1, 1996.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
FIRST MERCHANTS ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31 December 31
1996 1995
ASSETS (Unaudited)
<S> <C> <C>
Net finance receivables $ 297,703,658 $ 251,908,318
Allowance for credit losses (17,947,136) (14,300,661)
------------- -------------
Net receivables 279,756,522 237,607,657
------------- -------------
Finance receivables
held for sale, net 37,049,018 32,264,734
Excess servicing receivable 6,272,424 -
Cash 113,213 112,040
Restricted cash 7,506,188 6,317,779
Repossessed collateral 2,561,310 2,304,509
Property and equipment, net 2,378,723 1,623,679
Other assets 1,980,651 2,043,430
------------- -------------
Total assets $337,618,049 $ 282,273,828
============= =============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Liabilities:
Borrowings under senior
revolving credit facility $ 159,525,000 $ 104,000,000
Notes payable-securitized pool 62,694,777 70,378,298
Accounts payable and
accrued expenses 8,918,290 5,765,322
Interest payable 965,626 471,085
Dealer reserves 480,520 552,548
Income taxes payable 1,241,333 722,776
Deferred income taxes 2,591,000 2,209,000
------------- -------------
236,416,546 184,099,029
------------- -------------
Subordinated reset notes, net 13,924,583 13,895,833
------------- -------------
Total liabilities 250,341,129 197,994,862
------------- -------------
Stockholders' equity:
Preferred stock - $100 par value,
500,000 shares authorized,
no shares issued and outstanding - -
Common stock - $.01 par value:
Non-voting - 300,000 shares
authorized, no shares issued
and outstanding at March 31,
1996 and December 31, 1995 - -
Voting - 20,000,000 shares
authorized, 6,525,519 shares
issued and outstanding at March
31, 1996 and Decemeber 31, 1995 65,255 65,255
Additional paid-in-capital 75,077,317 75,101,401
Retained earnings 12,134,348 9,112,310
------------- -------------
Total stockholders' equity 87,276,920 84,278,966
------------- -------------
Total liabilities and
stockholders' equity $ 337,618,049 $ 282,273,828
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
FIRST MERCHANTS ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended March 31,
1996 1995
------------------------------
<S> <C> <C>
Revenues:
Interest income - finance contracts $ 17,149,642 6,211,192
Other portfolio income 505,960 216,765
------------ ---------
Income from finance contract portfolio 17,655,602 6,427,957
Interest expense 4,564,378 1,782,745
------------ ---------
Net interest income 13,091,224 4,645,212
Provision for credit losses 3,500,000 -
------------ ---------
Net interest income after provision
for credit losses 9,591,224 4,645,212
Gain on sale of finance receivables 3,005,814 -
Servicing fee income 164,196 -
------------ ---------
Net revenues after provision
for credit losses 12,761,234 4,645,212
------------ ---------
Operating expenses:
Employee compensation and
related costs 4,857,410 1,811,399
Other 2,949,786 949,785
------------ ---------
Total operating expenses 7,807,196 2,761,184
------------ ---------
Earnings before income taxes 4,954,038 1,884,028
Income taxes 1,932,000 716,000
------------ ---------
Net earnings $ 3,022,038 1,168,028
============ =========
Net earnings per share $ 0.45 0.26
============ =========
Weighted average number of common
and common equivalent shares
outstanding 6,732,603 4,452,850
============ =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
FIRST MERCHANTS ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended March 31
1996 1995
---------------------------
<S> <C> <C>
Cash flows from operating activities:
Interest income received -
finance contracts $ 17,399,475 6,353,980
Servicing fees received 164,196 -
Ancillary and other operating
receipts 500,960 213,347
Purchases of finance receivables,
held for sale (59,032,709) -
Proceeds from sale of finance
receivables, held for sale 52,109,086 -
Principal payments received on
finance receivables, held for sale 2,139,339 -
Payments for operating expenses (7,652,317) (2,207,487)
Payments for interest and
borrowing fees (3,696,881) (1,240,907)
Income taxes paid (1,031,442) (132,906)
------------ -----------
Net cash flows from
operating activities 899,707 2,986,027
------------ -----------
Cash flows from investing activities:
Purchases of finance contracts, net (69,287,532) (42,346,984)
Principal payments received on
finance contracts, net 22,275,924 11,202,467
Purchases of property and equipment (874,739) (256,118)
Increase in restricted cash (693,346) (490,168)
------------- -----------
Net cash flows from
investing activities (48,579,693) (31,890,803)
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of
subordinated debt, net - 13,800,000
Repayment of notes payable -
securitized pool (7,819,758) -
Cost paid in connection with
issuance of subordinated debt - (270,000)
Net increase in borrowings
under senior revolving credit
facility 55,525,000 15,300,000
Other (24,083) -
------------ -----------
Net cash flows from
financing activities 47,681,159 28,830,000
------------ -----------
Net increase (decrease) in cash 1,173 (74,776)
Cash balance beginning of period 112,040 135,240
------------ -----------
Cash balance end of period $ 113,213 60,464
============ ===========
<CAPTION>
Reconciliation of net earnings to net cash flows
from operating activities:
<S> <C> <C>
Net earnings $ 3,022,038 1,168,028
Amortization of contract acquisition
costs and discounts, net 249,833 152,372
Provision for credit losses 3,500,000 -
Depreciation 119,875 54,684
Amortization of debt issuance costs
and other 482,700 137,224
Gain on sale of finance receivables (3,005,814) -
Provision for deferred income taxes 382,000 104,000
Increase in other assets (471,026) (72,358)
Increase in finance receivables
held for sale (4,784,284) -
Increase in accounts payable and
accrued expenses 391,287 513,208
Increase in interest payable 494,541 449,775
Increase in income taxes payable 518,557 479,094
---------- -----------
Net cash flows from
operating activities $ 899,707 2,986,027
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST MERCHANTS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
(Unaudited)
1. General
First Merchants Acceptance Corporation and its wholly owned
subsidiaries (the "Company") operate as a specialty consumer
finance company engaged in financing the purchase of automobiles
through the acquisition of dealer-originated retail installment
contracts ("finance contracts") collateralized by the underlying
automobiles. The Company was incorporated on March 22, 1991 in
Delaware and commenced operations on June 1, 1991.
The unaudited interim consolidated financial statements of the
Company, in the opinion of management, reflect all necessary
adjustments, consisting only of normal recurring adjustments, for
a fair presentation of results as of the dates and for the
interim periods covered by the financial statements. The results
for the interim periods are not necessarily indicative of the
results of operations to be expected for the entire year.
The unaudited interim consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles and reporting practices. Certain information in
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles has been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission;
however the Company believes the disclosures are adequate to make
the information not misleading. The unaudited interim
consolidated financial statements contained herein should be read
in conjunction with the audited financial statements and notes
thereto included in the Company's Annual Report to Stockholders
for the year ended December 31, 1995.
The consolidated financial statements include accounts of the
Company and its wholly owned subsidiaries. All significant
intercompany accounts have been eliminated in consolidation.
2. Finance Receivables
The finance contracts generally have terms of 18 to 60 months.
Net finance receivable balances consisted of the following at
March 31, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
------------------------------
<S> <C> <C>
Precomputed interest
contracts, net $260,617,876 $222,931,347
Simple interest contracts 37,085,782 28,976,971
------------ ------------
Net finance receivables $297,703,658 $251,908,318
============ ============
</TABLE>
Precomputed interest contracts are shown net of unearned finance
charges of $114,134,266 and $89,318,743 at March 31, 1996 and
December 31, 1995, respectively.
Activity in the contract acquisition discount and allowance for
credit losses for the three months ended March 31, 1996 and 1995
was as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1996 1995
<S> <C> <C>
Allowance for Credit Losses:
Balance - beginning of period $14,300,661 $4,488,995
Discounts allocated to allowance
for credit losses, net 5,033,019 3,136,578
Provision for credit losses 3,500,000 -
Charge-offs, net (4,886,544) (203,252)
----------- ---------
Balance-end of period $17,947,136 7,422,321
=========== =========
Contract Acquisition Discount:
Balance-beginning of period $ - $1,401,313
Amortized to interest income - (12,766)
Charge-offs, net - (923,767)
Other - (32,204)
----------- ---------
Balance-end of period $ - $ 432,576
=========== =========
Summary of Net Charge-offs:
Charge-offs - allowance for
credit losses $5,218,194 $ 290,332
Recoveries - allowance for
credit losses (331,650) (87,080)
---------- ---------
Charge-offs, net 4,886,544 203,252
Charge-offs - contract acquisition
discount - 923,767
---------- ---------
Total net charge-offs $4,886,544 $1,127,019
========== ==========
</TABLE>
3. Excess Servicing Receivable
Excess servicing receivable represents the Company's subordinated
interest in the First Merchants Grantor Trust 1996-1 (the
"Trust"), including excess servicing on the finance receivables
sold to the Trust. The excess servicing receivable is equal to
the present value of estimated future collections and recoveries
on the finance receivables sold to the Trust, less the present
value of required principal and interest payments to the
investors, base servicing fees payable to the Company at an
annual rate of 2.5% of finance receivables serviced and certain
other fees. The calculation of excess servicing includes
estimates of future credit losses and prepayment rates for the
remaining term of the finance receivables sold since these
factors impact the amount and timing of future collections and
recoveries on the pool of finance receivables. If future credit
losses and prepayment rates exceed the Company's estimates, the
excess servicing receivable will be adjusted through a charge to
operations. Favorable credit loss and prepayment experience
compared to the Company's estimates would result in additional
servicing fee income. The excess servicing receivable is
amortized using the interest method against realized excess
servicing fee income.
Excess servicing receivable consists of the following:
<TABLE>
<CAPTION>
March 31,
1996
----------
<S> <C>
Estimated future net cash flows before
allowance for credit losses $13,389,785
Allowance for credit losses (5,675,370)
------------
Estimated future net cash flows 7,714,415
Unamortized discount (1,441,991)
------------
Balance at March 31, 1996 $ 6,272,424
============
</TABLE>
4. Senior Revolving Credit Facility
The Company had a $205.0 million senior revolving credit facility
(the "Senior Revolving Credit Facility") with a group of nine
banks as of March 31, 1996. Borrowings under the Senior
Revolving Credit Facility are secured by certain assets of the
Company. The Company has the option to either borrow at LIBOR
plus 1.60% or at the reference prime rate. The average interest
rate on the Senior Revolving Credit Facility for the three months
ended March 31, 1996 and 1995 was 7.37% and 8.65%, respectively.
At March 31, 1996 and December 31, 1995 the interest rate on
these borrowings was 6.98% and 7.39%, respectively. The Senior
Revolving Credit Facility expires June 30, 1997.
5. Notes Payable - Securitized Pool
On November 17, 1995, the Company completed a $75,140,000 debt
financing consisting of 6.20% automobile receivable-backed notes,
Series 1995-A. The notes were issued by First Merchants Auto
Receivable Corporation, a wholly-owned special purpose subsidiary
of First Merchants Acceptance Corporation. The proceeds the
Company received were used to repay indebtedness under the Senior
Revolving Credit Facility. Principal and interest on the notes
are payable monthly from collections and recoveries on the pool
of finance receivables. Financial Security Assurance Inc. ("FSA")
issued a financial guaranty insurance policy for the benefit of
the noteholders.
The Company is required to establish and maintain cash reserve
and collection accounts with a trustee with respect to the
securitized pool of finance receivables. The amounts set aside
would be used to supplement certain shortfalls in payments, if
any, to investors. These balances are subject to an increase up
to a maximum amount as specified in the securitization indenture
and are invested in certain instruments as permitted by the trust
agreement. To the extent balances on deposit exceed specified
levels, distributions are made to the Company and, at the
termination of the transaction, any remaining amounts on deposit
are distributed to the Company. The indenture requires the
Company to maintain delinquency and credit loss covenants. The
Company was in compliance with these covenants at March 31, 1996.
6. Sale and Securitization of Finance Contracts
On March 12,1996, the Company completed a sale of finance
receivables to the Trust and the issuance of $55,761,186 of
automobile receivables-backed certificates of the Trust. The
proceeds the Company received were used to repay borrowings under
the Senior Revolving Credit Facility. The Company retained a
subordinated interest in the Trust. The certificates have a pass
through interest rate of 5.90%. FSA issued a financial guaranty
insurance policy for the benefit of the investors.
The Company recognized a gain on the sale of finance receivables
to the Trust. The gain represents the difference between the
sales proceeds, net of the transaction costs, and the Company's
carrying value of the receivables sold, plus the present value of
the excess servicing rights.
7. Common Stock Options
Stock option activity for the three months ended March 31, 1996
was as follows:
<TABLE>
<CAPTION>
Number of Exercise Price
Shares Range Per Share
---------- ---------------
<S> <C> <C>
Balance at
December 31, 1995 311,017 $0.04-12.25
Granted 180,650 $19.50
Cancelled (6,558) $4.40-18.75
--------
Balance at March 31, 1996 485,109
Options exercisable 193,684 $0.04-12.25
======== ===========
Options available for
future grant 97,350
========
</TABLE>
Statement of Financial Accounting Standards No.123, "Accounting
for Stock-based Compensation" ("SFAS 123" ), provides an
alternative method of accounting for stock-based compensation and
requires certain disclosures regarding the fair value of
stock-based compensation. The Company did not adopt the
alternative method of accounting for stock-based compensation
and, accordingly, the adoption of SFAS 123 will not have any
effect on the Company's financial position or results of
operations. The Company expects to expand its disclosure of
stock-based compensation plans to include proforma fair value
information for grants in 1996.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of the
financial condition of the Company at March 31, 1996 as compared
with December 31, 1995 and the results of operations for the
three months ended March 31, 1996 and 1995. The financial
information provided below has been rounded in order to
simplify its presentation. The ratios and percentages provided
below are calculated using the detailed financial information
contained in the unaudited interim consolidated financial
statements, the notes thereto and the financial data elsewhere in
this report.
General
The Company is a specialty finance company engaged in financing
the purchase of automobiles through the acquisition of
dealer-originated retail installment contracts ("finance
contracts"), collateralized by the underlying automobiles.
The Company has experienced significant annual growth in its
finance contract portfolio since it commenced operations in June
1991. The Company derives its revenues from its finance contract
portfolio and from the sale of finance receivables. Interest
earned on the finance contracts ("finance charges") represented
83.5% and 98.6% of the Company's total revenues for the three
months ended March 31, 1996 and 1995, respectively.
In order to adjust for credit risks and achieve an acceptable
rate of return, the Company typically purchases finance contracts
from dealers at a discount from the principal amounts of such
contracts. This discount is non-refundable to the dealer. The
discount is allocated to the allowance for credit losses.
Prior to 1995, a portion of the discount was being amortized into
interest income. Beginning in 1995, the remaining unamortized
contract acquisition discounts were used to absorb credit losses.
Results of Operations
The following table sets forth certain financial data relating to
the Company:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
-------- --------
(Dollars in thousands)
<S> <C> <C>
Average net finance
receivables-owned (1) $321,131 $109,748
Average net finance
receivables-serviced (1) 335,280 109,748
Average indebtedness (2) 219,722 74,520
Income from finance contract
portfolio 17,656 6,428
Interest expense 4,564 1,783
Net interest income 13,091 4,645
Gross portfolio yield (3) 22.0% 23.4%
Average cost of borrowed funds (2) 8.3% 9.6%
Net interest spread (4) 13.7% 13.8%
--------- --------
Net portfolio yield (3) 16.3% 16.9%
Total Dealer Service Centers 42 30
Total states served 35 20
<FN>
- -------------------
(1) Net finance receivables-owned represents those net finance
receivables that have been retained by the Company. Net
finance receivables serviced represents net finance
receivables sold and net finance receivables owned. Net
finance receivables owned and serviced represents the total
contractual payments due under finance contracts less the
related unearned finance charges on those contracts. Net
finance receivables owned and serviced have not been reduced
by unamortized contract acquisition discounts, unearned
ancillary income, unamortized contract acquisition costs and
the allowance for credit losses. Average net finance
receivables-owned and serviced are calculated based on the
month-end balances.
(2) Indebtedness includes the borrowings outstanding under the
senior revolving credit facility, notes payable-securitized
pool and subordinated notes. The average indebtedness is
based on the month-end balances. Average cost of borrowed
funds represents interest expense as a percentage of average
indebtedness.
(3) Gross portfolio yield represents income from finance
contract portfolio as a percentage of average finance
receivables-owned. Net portfolio yield represents net
interest income as a percentage of average finance
receivables-owned.
(4) Net interest spread represents the gross portfolio yield
less the average cost of borrowed funds.
</FN>
</TABLE>
Three Months Ended March 31, 1996 Compared to the Three Months
Ended March 31, 1995
Net Interest and Other Income
Income from finance contract portfolio increased $11.3 million,
or 174.7%, to $17.7 million in the three months ended March 31,
1996 from $6.4 million in the three months ended March 31, 1995.
The growth in income from finance contract portfolio resulted
from an increase in the number of finance contracts purchased by
Dealer Service Centers in operation at March 31, 1995 as well as
the purchase of finance contracts by new Dealer Service Centers
opened after March 31, 1995.
The Company purchased 12,576 finance contracts having an
aggregate initial principal amount of $135.8 million in the three
months ended March 31, 1996, increases of 177.1% and
193.5%,respectively, from the 4,539 finance contracts having an
aggregate initial principal amount of $46.3 million purchased in
the three months ended March 31, 1995. The Company operated 24
Dealer Service Centers that were open for the entire three months
ended March 31, 1996 and 1995. Finance contracts purchased by
these 24 Dealer Service Centers increased $40.5 million, or
89.5%, to $85.8 million in the three months ended March 31, 1996
from $45.3 million in the three months ended March 31, 1995.
Average finance receivables-owned increased $211.4 million, or
192.6%, to $321.1 million in the three months ended March 31,
1996 from $109.7 million in the three months ended March 31,
1995. Income from finance contract portfolio as a percentage of
average finance receivables ("gross portfolio yield") decreased
to 22.0% in the three months ended March 31, 1996 from 23.4% in
the three months ended March 31, 1995. The decrease in the gross
portfolio yield was primarily attributable to general competition
in the marketplace and the purchase of a higher percentage of
finance contracts covering later model automobiles, which
generally have a lower interest rate.
As part of the Company's growth strategy, the Company may
experience further reductions in its gross portfolio yield.
However, the increase in the Company's revenues attributable to
increases in volume of finance contracts purchased and future
gains resulting from sales of finance receivables is expected to
offset any decreases in total revenues attributable to the
decrease in the Company's portfolio yield.
Interest expense increased $2.8 million, or 156.0%, to $4.6
million in the three months ended March 31, 1996 from $1.8
million in the three months ended March 31, 1995. The increase
in interest expense resulted primarily from an increase in
borrowings under the senior revolving credit facility, (the
"Senior Revolving Credit Facility"), and proceeds from the
issuance of notes payable - securitized pool. Such increased
borrowings were used to fund the growth of the Company's finance
contract portfolio. Average indebtedness, including borrowings
under the Senior Revolving Credit Facility, notes
payable-securitized pool and subordinated debt, increased $145.2
million, or 194.9%, to $219.7 million in the three months ended
March 31, 1996 from $74.5 million in the three months ended March
31, 1995. Interest expense as a percentage of average
indebtedness ("average cost of borrowed funds") was 8.3% in the
three months ended March 31, 1996 compared to 9.6% in the three
months ended March 31, 1995.
The contractual interest rate charged on borrowings under the
Senior Revolving Credit Facility for the three months ended March
31, 1996 and 1995 averaged 7.37% and 8.65%, respectively. At
March 31, 1996, the weighted average interest rate charged under
the Senior Revolving Credit Facility was 6.98%. See "Liquidity
and Capital Resources."
Net interest income increased $8.5 million, to $13.1 million in
the three months ended March 31, 1996 from $4.6 million in the
three months ended March 31, 1995.
Provision for Credit Losses
A provision for credit losses of $3.5 million was charged against
earnings in the three months ended March 31, 1996, and no
provision for credit losses was charged against earnings in the
three months ended March 31, 1995. The provision for credit
losses was used to supplement the non-refundable discounts
collected from dealers which are used to absorb future credit
losses on such contracts. For the three months ended March 31,
1996 and 1995 discounts as a percentage of the principal amount
financed were 4.9% and 6.9%, respectively. The declining
discounts combined with a 193.5% increase in the initial
principal amount financed were factors in determining the
increase in the provision for credit losses. The Company expects
to continue recording provision for credit losses in light of
these declining discounts. See "Credit Loss Experience."
Gain On Sale Of Finance Receivables and Other Income
For the three months ended March 31, 1996, the Company recognized
a $3.0 million gain on sale of receivables resulting from the
sale of finance receivables to the First Merchants Grantor Trust
1996-1 (the "Trust") in March 1996 and the issuance to investors
of $55.8 million of automobile receivable-backed certificates of
the Trust. The Company's previous issuances of automobile
receivables-backed securities were structured as debt issuances
by a subsidiary of First Merchants Acceptance Corporation and
thus were accounted for as borrowings. Because the Company
intends to structure future issuances of automobile
receivables-backed securities in a manner which will result in
the recognition of both a gain on sale of receivables and
issuance of debt, the amount and timing of such future
transactions could impact the Company's net earnings in any given
financial reporting period. No gain on sale of finance
receivables was recorded for the three months ended March 31,
1995. See "Liquidity and Capital Resources."
Servicing fee income represents the Company's base servicing fee
on the finance receivables sold to the Trust. Servicing fee
income was $164,000 for the three months ended March 31, 1996.
No servicing fee income was recorded for the three months ended
March 31, 1995.
Operating Expenses
Operating expenses increased $5.0 million, or 182.7%, to $7.8
million in the three months ended March 31, 1996 from $2.8
million in the three months ended March 31, 1995. Although
operating expenses increased during the three months ended March
31, 1996, the Company's finance contract portfolio grew at a
faster rate than the rate of increase in operating expenses. As
a result, operating expenses as a percentage of average finance
receivables, serviced decreased to 9.3% in the three months ended
March 31, 1996 from 10.1% in the three months ended March 31,
1995.
Employee compensation and related costs, such as group insurance
and payroll taxes, represented 62.2% and 65.6% of total operating
expenses in the three months ended March 31, 1996 and 1995,
respectively. Employee compensation expense increased $3.1
million, or 168.2%, to $4.9 million in the three months ended
March 31, 1996 from $1.8 million in the three months ended March
31, 1995. Both employee compensation and total operating
expenses increased for three principal reasons: increases in
corporate headquarters office staff and management to provide
continuing support for and control over the Company's expanding
operations, increases in staff personnel for 13 additional Dealer
Service Centers opened after March 31, 1995, and additional
staffing for Dealer Service Centers in operation at March 31,
1995.
Income Taxes
Income taxes were recorded at an effective rate of 39.0% and
38.0% in the three months ended March 31, 1996 and 1995,
respectively.
Net Earnings
Net earnings increased $1.8 million, or 158.7%, to $3.0 million
in the three months ended March 31, 1996 from $1.2 million in the
three months ended March 31, 1995. The increase in net earnings
is directly attributable to the growth in the finance contract
portfolio and related factors discussed above.
Credit Loss Experience
The Company maintains an allowance for credit losses at a level
management believes adequate to absorb potential losses in the
owned finance contract portfolio. Management evaluates the
adequacy of the allowance for credit losses by reviewing credit
loss experience, delinquencies, the value of the underlying
collateral, the level of the finance contract portfolio and
general economic conditions and trends. An account is charged
off at the earliest of the time the account's collateral is
repossessed, the account is 91 or more days past due, or the
account is otherwise deemed to be uncollectible.
The allowance for credit losses is initially established through
an allocation of contract acquisition discounts based upon
management's estimate of credit losses. A provision for credit
losses is charged against earnings to supplement the contract
acquisition discounts allocated to the allowance for credit
losses.
The following table summarizes data relating to the Company's
charge-off experience and allowance for credit losses. The
charge-off experience includes estimated losses to be incurred
upon the sale of repossessed collateral.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
--------- --------
(Dollars in thousands)
<S> <C> <C>
Average net finance
receivables-serviced $335,280 $109,748
Net charge-offs 4,895 1,127
Net charge-offs as a percentage
of average net finance
receivables-serviced - last
three months (annualized) 5.8% 4.1%
<CAPTION>
March 31, December 31,
As of: 1996 1995
-------- -----------
(Dollars in thousands)
<S> <C> <C>
Net finance receivables-owned $297,704 $251,908
Allowance for credit losses 17,947 14,301
Allowance for credit losses as
a percentage of net finance
receivables 6.0% 5.7%
</TABLE>
Net finance recievables held for sale are not included above as
they are recorded at the lower of aggregate cost or market value.
Delinquency Experience
A payment is considered past due if the borrower fails to make
any full payment on or before the due date as specified by the
terms of the finance contract. The Company typically contacts
borrowers whose payments are not received by the due date within
two days after such due date. The following table summarizes the
Company's delinquency experience for accounts with payments 31 or
more days past due on both a number and dollar basis for its
serviced finance contract portfolio as of March 31, 1996 and
1995. The delinquency experience data exclude contracts where
the collateral has been repossessed.
<TABLE>
<CAPTION>
As of: March 31, December 31,
1996 1995
---------- ------------
Number of Number of
Dollars Contracts Dollars Contracts
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net finance
receivables-serviced(1) $388,532 41,094 $284,173 31,082
Past due accounts:
31 - 60 days(2) $ 6,597 723 $ 5,163 595
61 days or more(3) 3,650 454 2,021 251
--------------------------------------
Total $ 10,247 1,177 $ 7,184 846
======================================
Accounts with payments 31
or more days more past
due as a percentage of
total finance receivables
and number of
contracts-serviced(4) 2.6% 2.9% 2.5% 2.7%
=====================================
<FN>
____________________
(1) Includes finance receivables sold or held for sale, net
(2) Customers in this category have missed two consecutive
monthly payments.
(3) Customers in this category have missed three or more
consecutive monthly payments.
(4) Customers in this category have missed two or more
consecutive monthly payments.
</FN>
</TABLE>
Repossessed Collateral
The Company commences repossession procedures against the
underlying collateral when it determines that collection efforts
are likely to be unsuccessful. Repossession generally occurs
before a borrower misses more than two consecutive monthly
payments. In such cases, the net amount due under the finance
contract is reduced to the estimated fair value of the
collateral, less the cost of disposition, through a charge to the
allowance for credit losses. Repossessed collateral included 528
and 505 automobiles at March 31, 1996 and December 31,1995,
respectively. At March 31, 1996, the 528 automobiles had been
held as repossessed collateral for an average of 38 days.
Liquidity and Capital Resources
Since inception, the Company has funded its operations, the
regional dealer service center openings and finance contract
portfolio growth through the following: funds provided from
principal and interest payments received under finance contracts,
borrowings under the Senior Revolving Credit Facility, proceeds
from the issuance of subordinated debt and securitization of
finance receivables and from the sale of shares of common stock.
Net cash flows provided by operating activities were $0.9 million
and $3.0 million in the three months ended March 31, 1996 and
1995, respectively. The decreased cash flows from operating
activities primarily resulted from the increases in finance
contracts held for sale offset by increases in net earnings.
Net cash used in investing activities in the three months ended
March 31, 1996 and 1995 was $48.6 million and $31.9 million,
respectively and was primarily attributable to the finance
contract portfolio growth.
Net cash provided by financing activities was primarily used to
support finance contract portfolio growth. Financing activities
for the three months ended March 31, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
1996 1995
----------------------------
<S> <C> <C>
Proceeds from issuance of
subordinated debt, net $ - 13,800,000
Repayment of notes payable
- securitized pool (7,819,758) -
Cost paid in connection with
issuance of subordinated debt
and notes payable
- securitized pool - (270,000)
Net increase in borrowings
under senior revolving credit
facility 55,525,000 15,300,000
Other (24,083) -
----------- ----------
Net cash flows from
financing activities $47,681,159 28,830,000
=========== ==========
</TABLE>
On February 28, 1996, the Senior Revolving Credit Facility was
increased to $205.0 million with a group of nine banks. The
Senior Revolving Credit Facility expires June 30, 1997 and
borrowings are secured by certain assets of the Company. The
Company has options to borrow at either (i) the reference prime
rate or (ii) LIBOR plus 1.60% per annum for maturities of one,
two, three or six months. Also the Company is a party to an
interest rate protection agreement aggregating a notional amount
of $15.0 million, which limits the exposure to increases in
borrowing costs.
The Senior Revolving Credit Facility, the indenture relating to
the Subordinated Reset Notes due 2005, and the indenture relating
to the notes payable securitized pool contain several financial
and other covenants, including interest coverage requirements,
leverage tests, delinquency, credit losses tests, a dividend
prohibition and minimum net worth requirements. The Company
believes these covenants will not materially limit its business
or expansion strategy. The Company was in compliance with all
such covenants at March 31, 1996.
On March 4, 1996 the Company completed a $55.8 million asset
securitization through the sale of 5.90% automobile
receivables-backed Class A Certificates. The Company recorded a
$3.0 million gain on sale of net finance receivables in
the three months ended March 31, 1996. The certificates were
issued by First Merchants Grantor Trust 1996-1. Principal and
interest on the certificates are payable monthly commencing March
20, 1996 from collections and recoveries on the pool of finance
receivables. Financial Security Assurance Inc. ("FSA") issued a
financial guaranty insurance policy for the benefit of the
noteholders. Net proceeds from the sale and securitization of
finance receivables were used to repay indebtedness under the
Company's Senior Revolving Credit Facility.
Management believes that in order to meet its 1996 funding needs,
the Company will require additional capital resources to
supplement its expected cash flows from operations, the principal
payments on finance contracts, and anticipated borrowings under
its Senior Revolving Credit Facility. The Company is expecting
to complete a securitization of finance receivables in the second
quarter of 1996, and is exploring several other sources of
liquidity to satisfy its needs for additional capital resources.
The Company will make additional capital expenditures, none of
which is expected to be material, as it opens new Dealer Service
Centers and increases the number of employees.
Impact of Inflation and Changing Prices
Although the Company does not believe that inflation directly has
a material adverse effect on its financial condition or results
of operations, increases in the inflation rate generally are
associated with increased interest rates. Because the Company
borrows a portion of its funds on a floating rate basis and
purchases finance contracts bearing a fixed rate equal to the
maximum interest rate permitted by law, increased costs of
borrowed funds could have a material adverse impact on the
Company's profitability. Inflation also can affect the Company's
operating expenses.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities - Not Applicable
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders -
None
Item 5. Other Information - Not Applicable
Item 6. (a) Exhibits - See exhibit index following the
signature page.
(b) Reports on Form 8-K - On March 12, 1996 the
Company filed an 8-K regarding an $55.8 million
securitization.
The following items were reported:
Item 2. Acquisition or Disposition of
Assets
Item 7. Financial Statements and
Exhibits
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
FIRST MERCHANTS ACCEPTANCE CORPORATION
By: /s/ Mitchell C. Kahn
Its: President and Chief Executive
Officer
By: /s/ Thomas R. Ehmann
Its: Vice President and Chief Financial
Officer
Date: May 14, 1996
<PAGE>
INDEX OF EXHIBITS
Exhibit No. Description
10.1 Purchase Agreement, dated March 4, 1996, among First
Merchants Acceptance Corporation, First Merchants Auto
Receivable Corporation II and Salomon Brothers Inc.,
filed with the Commission as Exhibit 2 to the Company's
Form 8-K dated March 12, 1996, is incorporated herein
by reference.
10.2 Receivables Purchase Agreement, dated March 1, 1996,
among First Merchants Acceptance Corporation and First
Merchants Auto Receivable Corporation II, filed with
the Commission as Exhibit 3 to the Company's Form 8-K
dated March 12, 1996, is incorporated herein by
reference.
10.3 Pooling and Servicing Agreement, dated March 1, 1996,
among First Merchants Acceptance Corporation, as
servicer, First Merchants Acceptance Corporation II, as
depositor and Harris Trust and Savings Bank, as
Trustee and backup servicer filed with the Commission
as Exhibit 4 to the Company's Form 8-K dated March 12,
1996, is incorporated herein by reference.
10.4 Fourth Amended and Restated Loan and Security
Agreement, dated as of February 28, 1996, by and among
First Merchants Acceptance Corporation, LaSalle
National Bank, NBD Bank, Firstar Bank of Milwaukee,
N.A. , Harris Trust and Savings Bank, The Boatmen's
National Bank of St. Louis, First Bank, N.A.,
CoreStates Bank, N.A., Natwest Bank, N.A., Mellon Bank,
N.A. and LaSalle National Bank as agent (filed
herewith)
11. Statement Regarding Computation of Per Share Earnings
(filed herewith)
27. Financial Data Schedule (filed herewith)
<PAGE>
FOURTH AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Dated as of February 28, 1996
among
FIRST MERCHANTS ACCEPTANCE CORPORATION
and
LASALLE NATIONAL BANK,
NBD BANK,
FIRSTAR BANK MILWAUKEE, N.A.,
HARRIS TRUST AND SAVINGS BANK,
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS,
FIRST BANK, NATIONAL ASSOCIATION
CORESTATES BANK, N.A. AND
NATWEST BANK N.A.
MELLON BANK, N.A.
and
LASALLE NATIONAL BANK
AS AGENT
<PAGE>
TABLE OF CONTENTS
Section 1. Definitions
Section 2. Revolving Credit Facility
Section 3. Borrowing Procedures
Section 4. Payments and Prepayments
Section 5. Pro Rata Treatment
Section 6. Non-Receipt of Funds by the Agent
Section 7. Sharing of Payments, Etc.
Section 8. Revolving Credit Notes
Section 9. Interest
9.1 Rates
9.2 Renewals: Conversion and Continuation of
Revolving Loans
9.3 Indemnity
9.4 Change in Legality
9.5 Unavailability of Deposits or Inability to
Ascertain, or Inadequacy of Libor Rate
9.6 Increased Cost and Reduced Return
9.7 Discretion of Lenders as to Manner of Funding
Section 10. Fees, Deposit Accounts
Section 11. Books and Records
Section 12. Mandatory Prepayment
Section 13. Conditions to Loans
13.1 Initial Revolving Loan
(a) Consents
(b) Required Documents
13.2 Conditions to Revolving Loans
Section 14. Security for Obligations
Section 15. Agent's and Lender's Closing and Administrative Costs
and Expenses
Section 16. Representations and Warranties
(a) Organization of Borrower
(b) Due Authorization
(c) Validity of This Agreement
(d) Absence of Default
(e) Litigation
(f) Regulation U
(g) Employee Benefit Plans
(h) Good Title and Absence of Liens
(i) Licenses, Compliance with Laws
(j) Impairment of Contract Collateral
(k) Validity of Contracts
(l) Obligors' Duties to Make Payments
(m) Accuracy of Information
(n) Chief Executive Office
(o) Solvency
(p) Offices, FTC; Warranties
(q) Absence of Default
(r) Financial Information
(s) No Material Adverse Change
Section 17. Affirmative Covenants
(a) Financial Information
(b) Taxes
(c) Insurance
(d) Notice of Default, Litigation and
ERISA
(e) Performance of Obligations
(f) Books and Records, Audits
(g) Plans
(h) Performance of Contract Duties,
Defense of Collateral
(i) Provision for Reserves for Credit
Losses
(j) Possessory Perfection in Contract
Collateral
(k) Compliance with Laws
(l) Tennessee UCC
(m) Collateral Agent
(n) Required Reserve
Section 18. Negative Covenants
(a) Business Activities
(b) Liabilities
(c) Security Interests
(d) Investment
(e) Sale, Transfer or Encumbrance of
Assets
(f) Distributions, Issuance of Stock,
Management Fees
(g) Transactions with Affiliates
(h) Loan and Advances
(i) Consolidation, Merger, Sale or
Pledge of Assets
(j) Inconsistent Financing Statements.
(k) Modification of Contract Terms
(l) Capital Expenditures
(m) Leverage Ratio
(n) Delinquent Accounts
(o) Tangible Net Worth
(p) Interest Coverage Ratio
(q) Subordinated Indebtedness
(r) Modification of Certain Agreements
(s) Total Liabilities to Tangible
Equity Base
Section 19. Events of Default
Section 20. Remedies
Section 21. Agent
(a) Appointment
(b) Nature of Duties
(c) Rights, Exculpation, etc.
(d) Reliance
(e) Indemnification
(f) The Agent Individually
(g) Successor Agent; Resignation of
Agent
(h) Collateral Matters
Section 22. Relations Among Lenders
Section 23. Miscellaneous
Section 24. Participations
Section 25. Waiver and Amendment
Section 26. Accounting and Financial Determinations
Section 27. Right of Offset
Section 28. Computation and Payment of Liabilities
Section 29. Notices
Section 30. Costs and Expenses
Section 31. Severability, Choice of Law
Section 32. Successors and Assigns
Section 33. Taxes and Expenses Regarding the Collateral
Section 34. Waiver of Jury Trial
Section 35. Indemnity
Section 36. Section Headings
Section 37. Construction
Section 38. Restatement of Prior Agreements
Index to Exhibits
Exhibit A - Revolving Credit Notes
Exhibit B - Forms of Contracts
Exhibit C - Borrowing Base Certificate
Exhibit D - Quarterly Compliance Certificate
Exhibit E - Business Locations
Exhibit F - Agency Agreement
Exhibit G - Forms of Dealer Agreement
Exhibit H - Forms of Dealer Assignment
<PAGE>
FOURTH AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This Fourth Amended and Restated Loan and Security
Agreement dated as of February 28, 1996, by and among First
Merchants Acceptance Corporation, a Delaware corporation
(hereinafter referred to as "Borrower"), LaSalle National Bank
(hereinafter referred to as "LaSalle") NBD Bank (hereinafter
referred to as "NBD"), Firstar Bank Milwaukee, N.A. (hereinafter
referred to as "Firstar"), Harris Trust and Savings Bank
(hereinafter referred to as "Harris"), The Boatmen's National
Bank of St. Louis (hereinafter referred to as "Boatmen's"), First
Bank, National Association referred to as "First Bank")
CoreStates Bank, N.A. (hereinafter referred to as "CoreStates"),
NatWest Bank N.A. (hereinafter referred to as "NatWest") and
Mellon Bank, N.A. (hereinafter referred to as "Mellon"),
(LaSalle, NBD, Firstar, Harris, Boatmen's First Bank, CoreStates,
NatWest and Mellon are hereinafter referred to individually
as "Lender" and collectively as "Lenders" and LaSalle in its
separate capacity as agent for Lenders is hereinafter referred to
as "Agent").
W I T N E S S E T H:
WHEREAS, Borrower, LaSalle, NBD, Firstar, Harris,
Boatmen's, First Bank, Nat West and CoreStates are parties to a
Third Amended and Restated Loan and Security Agreement dated as
of April 28, 1995, as amended and supplemented from time to time
(collectively the "Prior Agreements");
WHEREAS, Borrower has requested that LaSalle, NBD,
Firstar, Harris, Boatmen's, First Bank, Corestates and NatWest
(i) increase the amount available to be borrowed by Borrower
under the revolving credit facility to $205,000,000, (ii) provide
for the addition of Mellon Bank, N.A., as a Lender thereunder,
(iii) make certain modifications in the terms thereof, and (iv)
in connection with the foregoing, amend and restate in their
entirety the Prior Agreements;
WHEREAS, the Lenders are willing to make the
accommodations requested by the Borrower and to amend and restate
the Prior Agreements in their entirety, effective on the date
hereof, upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the parties'
mutual agreements contained herein, the parties hereto agree as
follows:
Section 1. Definitions.
The following words and phrases, not otherwise
defined herein, when used as capitalized terms in this Agreement
shall have the following respective meanings (all words and
phrases which have been defined elsewhere herein having the
meanings there ascribed to them):
"Affected Branch" shall have the meaning provided in the
definition of "Eligible Receivable" set forth in this Section 1.
"Affiliates" of any Person means any other Person which controls
or is controlled by, or which is under common control with, that
Person.
"Agency Agreement" shall mean an Agency Agreement in the form of
Exhibit "F" hereto.
"Agent" shall have the meaning provided in the Preamble.
"Agreement" means this Fourth Amended and Restated Loan and
Security Agreement, any exhibits or schedules hereto, any
concurrent or subsequent rider to this Fourth Amended and
Restated Loan and Security Agreement and any extensions,
supplements, modifications or amendments to this Fourth Amended
and Restated Loan and Security Agreement.
"Applicable Lending Office" shall mean for Agent and each Lender
and for each Revolving Loan, the lending office of the Agent or
Lender designated for such Revolving Loan on the signature pages
hereof or such other office of such Lender as such Lender may
from time to time specify to the Agent and Borrower in writing as
the office by which its Revolving Loans are to be made and
maintained.
"Authorized Representative" means those officers or employees of
Borrower authorized by the Borrower to act with respect to this
Agreement, the Revolving Credit Notes, the Instruments, and for
all other necessary or appropriate purposes required to carry out
the purpose of this Agreement.
"Borrowing Base" means at any time the lesser of (a)
$205,000,000, or (b) 80% of the aggregate amount of all remaining
unpaid Eligible Receivables related to Contracts involving the
sale of automobiles and light trucks, less the Borrowing Base
Reserve Allowance. Notwithstanding the foregoing,in the event
Borrower modifies its current underwriting policy such that its
advances to Dealers for vehicles purchased by an Obligor from
such Dealers and financed by Borrower, as a percentage of the
wholesale value of such vehicles, varies materially from
Borrower's existing policy set forth in the Operations Manual
of the Borrower in the form previously distributed to the
Lenders, Lenders may, in their sole discretion, upon written
notice to Borrower by Agent, reduce the maximum percentage rate
of advance set forth in (b) above against any Eligible
Receivables arising out of Eligible Contracts purchased by
Borrower from such Dealers.
"Borrowing Base Certificate" shall mean a Borrowing Base
Certificate, duly executed by an Authorized Representative of
Borrower, substantially in the form of Exhibit C hereto.
"Borrowing Base Reserve Allowance" shall mean an amount equal to
the Required Reserve Percentage as of any date of determination
multiplied by the sum of Borrower's Net Receivables and
Securitized Portfolio, less Borrower's Consolidated Loss Reserves
as of such date, multiplied by the quotient of Borrower's Net
Receivables as of such date divided by the Borrower's Net
Receivables and Securitized Portfolios as of such date.
"Business Day" means (a) a day other than a Saturday, Sunday or
other day on which commercial banks are authorized or required to
close in the states in which the Applicable Lending Offices of
Lenders are located, and (b) relative to the making of Eurodollar
Loans, any day on which dealings in Dollars are carried on in the
interbank eurodollar market which also satisfies the criteria set
forth in (a) above.
"Bulk Purchase" shall mean the simultaneous purchase by the
Borrower of two (2) or more Contracts from a single Dealer,
financial institution or other Person.
"Capital Expenditures" means, for any period, the aggregate of
all expenditures (whether paid in cash or accrued as liabilities
and including capitalized lease obligations but exclusive of
operating leases) by Borrower during such period that are
required by generally accepted accounting principles to be
included in or reflected by the property, plant or equipment
or similar fixed asset accounts in the consolidated balance sheet
of Borrower and its subsidiaries.
"Cash Equivalent Investments" shall mean investments having a
stated maturity no greater than two years from the date of such
investment in (i) obligations of the United States government or
any agency thereof or obligations guaranteed by the United States
government, (ii) certificates of deposit of LaSalle or such
commercial banks having combined capital and surplus of at
least $200,000,000, or (iii) commercial paper or similar short
term instruments with a rating of at least "A-1" by Standard &
Poors Corporation and "Prime-1" by Moody's Investors Service,
Inc.
"Change in Control" means the occurrence of any one or more of
the following:
(A) the Borrower shall consolidate with or merge into any other
corporation or partnership (except in a transaction in which the
Borrower is the surviving entity and is not itself the subsidiary
of another entity), or (B) any person or group of persons acting
in concert who was not or were not a common stockholder or common
stockholders of the Borrower immediately prior to the
transaction (or the first of a series of transactions) shall
purchase or otherwise acquire in one or more transactions
beneficial ownership of forty percent (40%) or more of the common
stock of the Borrower outstanding on the date immediately prior
to the last such purchase or other acquisition; provided,
however, that such percentage shall be increased to fifty percent
(50%) on such date as the Borrower shall notify Agent in writing
that at least fifty percent (50%) of the outstanding common stock
of the Borrower has been registered under the Securities Act of
1933, as amended. For purposes of the proviso of this
definition, "outstanding common stock of the
Borrower" shall include all common stock of the Borrower issued
and outstanding on the date of such notice, any non-voting common
stock of the Borrower issued and outstanding on the date of such
notice, and all common stock of the Borrower which is issuable
upon exercise of all warrants or options exercisable within
sixty (60) days after the date of such notice.
"Collateral" shall have the meaning provided in Section 14.
"Collateral Agent" shall have the meaning provided in Section 14.
"Commitment" shall mean as to each Lender, the amount set forth
opposite its name on the signature pages hereto under the heading
"Commitment".
"Commitment Percentage" shall mean, as to any Lender, the
percentage which its Commitment bears to the Credit Commitment.
"Contract" means any and all installment sale agreements, chattel
paper or other deferred payment obligations and all documents,
instruments and agreements related thereto (hereinafter referred
to as a "Contract", and in the case of any such agreement
consisting of more than one document, instrument or other
writing, every such document, instrument or other writing
comprising any such agreement shall be deemed, collectively, to
be the respective "Contract"), now existing or owned or hereafter
arising or acquired by Borrower, together with all Related
Security and all payments and other proceeds arising therefrom.
"Credit Commitment" shall have the meaning provided in Section 2.
"Credit Termination Date" shall mean June 30, 1997.
"Default" means:
(a) any Event of Default or event of a nature
described in Section 19 which, with the lapse of time (or with
notice given to Borrower by Agent and the lapse of time)
specified in the description of such event, would constitute an
Event of Default; or
(b) any default by Borrower with respect to any
Indebtedness of the nature referred to in Section 18(b)(iii),
without regard to whether that default shall have continued
unremedied for a period of time sufficient to accelerate, or to
permit acceleration of that Indebtedness.
"Dealer" means a dealer that has sold a motor vehicle to an
Obligor pursuant to a Contract.
"Dealer Agreement" means an agreement between the Borrower and a
Dealer that governs the sale or assignment of Contracts from such
Dealer to the Borrower, including any provisions for assignment
(whether without recourse, with recourse, with a repurchase
obligation by the Dealer or with a guaranty by such dealer)
contained in such Contracts and Related Security with respect
thereto.
"Dealer Assignment" means a written assignment of a Contract by a
Dealer to the Borrower.
"Dollar(s)" and the sign "$" shall mean lawful money of the
United States of America.
"EBIT" means, with respect to the Borrower and its subsidiaries
on a consolidated basis for any applicable measurement period,
the sum of (a) Net Income, plus (b) income taxes, plus (c)
Interest Expense, plus (d) amortization of unearned compensation
attributable to stock options.
"Eligible Contract" at any time means each Contract originated by
a Dealer and acquired by the Borrower from a Dealer, whether or
not pursuant to a Dealer Agreement, including all Related
Security under such Contract, which complies with the
representations, warranties and covenants contained in this
Agreement and with respect to which each of the following
requirements is then met:
(a) the Contract has been fully performed by
Borrower and the Dealer party thereto;
(b) the payments under the Contract are not more
than 60 days contractually past due (without deferment) nor is
the Obligor otherwise in default under the terms of the Contract;
(c) the Contract is an installment sale agreement
or other deferred payment obligation providing for the retention
of a first lien or security interest in the underlying personal
property or a mortgage lien on real property to secure payment of
the obligation evidenced thereby;
(d) Borrower is the lawful owner of the Contract
and all amounts payable thereunder, and Borrower has a first and
valid lien and security interest, free and clear of all Security
Interests, in the related personal property;
(e) the Contract is in one of the forms attached as
Exhibit B hereto, or is otherwise in full compliance with all
applicable statutes, rules and regulations, except where such
non-compliance is immaterial and would not invalidate the
Contract or Lenders' rights to enforce full performance of same
by the related Obligor, and is assignable to Agent and Lenders;
(f) neither that Contract nor any agreement in
connection therewith, imposes any obligation upon Borrower or any
other Person, which, if not performed, would give rise to any
right of offset, counterclaim or other defense on the part of the
related Obligor to any amount payable by it under the Contract;
(g) as of the time of inception of the Contract,
and as of the time of determination of eligibility, all of the
following shall be true:
(1) the related Obligor has full power and
capacity to enter into the Contract and perform his obligations
thereunder, and
(2) the Contract has been duly executed and
delivered by the related Obligor and is a legal, valid, binding
and enforceable obligation of that Obligor;
(h) no sum due or to become due under that Contract
from the related Obligor is subject to any then existing offset,
counterclaim or other defense on the part of that Obligor;
(i) if the Contract involves the sale of personal
property, the related item of personal property is, by the terms
of that Contract, made available to the related Obligor for use
principally within the United States of America;
(j) the related Obligor or any Affiliate thereof
shall not have failed to perform fully any obligation to be
performed by it, under that Contract or under any other agreement
in connection therewith for more than 60 days after such
obligation is to be performed, under the terms of that Con-
tract;
(k) if the Contract involves the sale of a motor
vehicle, the motor vehicle has not been repossessed from the
Obligor;
(l) the related Obligor is not the subject of a
proceeding under any provision of any federal or state bankruptcy
or insolvency law or proceeding, unless the related Obligor has
reaffirmed such Contract in accordance with applicable law;
(m) the Contract involves the sale of a motor
vehicle such as an automobile or light truck; and
(n) payments under the Contract have not been
deferred more than three (3) times over the life of the Contract
or more than two (2) times in the immediately preceding twelve
(12) months.
"Eligible Receivable" means with respect to any Eligible Contract
at any time, all of the contractual payments (less unearned
finance charges, Unamortized Loss Reserves, unearned discounts,
unearned ancillary income and points, if any, otherwise
attributable to such Eligible Contract) unconditionally
required by the terms of the respective Eligible Contract to be
paid by the related Obligor without any claim of any right of
setoff, defense, or right of counterclaim against the Borrower,
Agent or Lenders. Notwithstanding the foregoing, if for any
three (3) or more branch office locations of Borrower
concurrently as of the end of any month, the ratio of Gross
Receivables over sixty (60) days contractually delinquent, plus
accounts for which collateral has been repossessed and not sold
for each such branch individually to the total Gross Receivables
of each such branch individually exceeds five percent (5%)
(hereinafter referred to individually as an "Affected Branch" and
collectively as the "Affected Branches"), all contractual
payments which are greater than thirty (30) days contractually
past due for each such Affected Branch shall immediately be
rendered ineligible hereunder until such time as said ratio is
reduced to five percent (5%) or less for not more than two (2)
branch office locations of Borrower.
"Eurodollar Loan" shall mean any Revolving Loan with respect to
which the Borrower shall have selected an interest rate based on
the Libor Rate in accordance with the provisions of Section 3(a)
of this Agreement; provided, however, that there shall not be in
excess of five (5) Eurodollar Loans outstanding at any one time.
"Event of Default" shall have the meaning provided in Section 19.
"Existing Securitization Transaction" shall mean the
Securitization Transaction entered into among Borrower, FMARC,
Harris Trust and Savings Bank, as Trustee and the Security
Insurer, as evidenced by the Insurance Agreement, Sale and
Servicing Agreement, Trust Indenture, Purchase Agreement and all
documents related thereto.
"Fiscal Year" means the twelve month accounting period of
Borrower commencing January 1 and ending December 31 of each
calendar year.
"FMARC" means First Merchants Auto Receivables Corporation, a
Delaware corporation, a wholly owned subsidiary of Borrower.
"Gross Receivables" means with respect to any Contract at any
time, all of the contractual payments unconditionally required by
the terms of the respective Contract to be paid by the related
Obligor without any claims of any right of setoff, defense, or
right of counterclaim against the Borrower, Agent or Lenders.
"Hedging Obligations" means, with respect to any Person, all
liabilities of such Person under interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements,
and all other agreements or arrangements designed to protect such
Person against fluctuations in interest rates or currency
exchange rates.
"Indenture" shall mean the Indenture dated as of January 1, 1995,
between Borrower and LaSalle National Bank, as trustee.
"Illegality" shall have the meaning set forth in Section 9.4 of
this Agreement.
"Initial Revolving Loan" shall have the meaning provided in
Section 13.1.
"Insurance Agreement" means the Insurance and Indemnity Agreement
among Borrower, FMARC and Security Insurer dated as of November
17, 1995.
"Instrument" means any document or writing under which any
obligation is evidenced, assumed or undertaken, or any right to
any Security Interest is granted or perfected in favor of
Lenders; "Instrument executed pursuant hereto" and similar terms
means all notes and each other instrument executed and delivered
to Agent or Lenders by Borrower pursuant hereto.
"Intangible Assets" means, without limitation, all organization
costs, goodwill, franchises, licenses, covenants not to compete,
patents, trademarks, servicemarks, and any other assets
classified as intangibles in accordance with generally accepted
accounting principles.
"Interest Coverage Ratio" means, as of the close of any month,
the ratio, on a consolidated basis for Borrower and its
subsidiaries, computed for such month of (a) EBIT for such period
to (b) Interest Expense for such period.
"Interest Expense" means, as of the close of any month in each
Fiscal Year, the aggregate interest expense of the Borrower and
its subsidiaries on a consolidated basis for such month on all
Liabilities, including all commissions, discounts and other fees
and charges, capitalized interest, net costs under Hedging
Obligations and the portion of any interest expense payable with
respect to capitalized lease obligations, but excluding any
interest in respect of debt issuance cost (to the extent being
amortized as a non-cash charge).
"Interest Period" shall mean: (i) as to any Eurodollar Loan, the
period commencing on the date of such Eurodollar Loan and ending
on the numerically corresponding day (or, if there is no
numerically corresponding day, on the last day) in the calendar
month that is 1, 2, 3 or 6 months thereafter, as the Borrower may
elect, and (ii) as to any Prime Rate Loan, the period commencing
on the date of such Prime Rate Loan and ending on the earlier of
(A) the last calendar day of each month, and (B) the expiration
or earlier termination of this Agreement; provided, however, that
(i) if any Interest Period would end on a day that shall not be a
Business Day, such interest Period shall be extended to the next
succeeding Business Day unless, with respect to Eurodollar Loans
only, such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on
the immediately preceding Business Day, (ii) no Interest Period
with respect to any Revolving Loan shall end later than the
expiration of the term of this Agreement, and (iii) interest
shall accrue from and including the first day of an Interest
Period to and including the last day of such Interest Period.
"Investment" means, when used with respect to Borrower, any loan
or advance made by it to any other Person (including, without
limitation, any contingent obligation) in respect of any capital
stock, Liabilities, obligation or liability of any other Person
and any other investment made by Borrower (however acquired) in
stock or other ownership interests in any other Person,
including, without limitation, any investment made in exchange
for the issuance of shares of stock of Borrower. The outstanding
amount of any Investment shall be considered to be the original
amount thereof less returns of principal or capital thereof (and
without adjustment by reason of the financial condition of such
Person), or, in the case of Liabilities of Borrower in respect of
any Liabilities, obligation or liability of any other Person, the
amount (subject to any limitation contained in the Instrument
creating such Liabilities of Borrower) of such other Liabilities,
obligation or liability.
"Lender(s)" shall have the meaning provided in the Preamble.
"Leverage Ratio" shall mean the ratio, on a consolidated basis
for Borrower and its subsidiaries, of Liabilities (exclusive of
Subordinated Indebtedness and any Liabilities incurred on a
non-recourse basis) to the sum of Stockholders' Equity, plus
Subordinated Indebtedness, minus Intangible Assets.
"Liabilities" of any Person means at any time all amounts which,
in accordance with generally accepted accounting principles,
would be included in determining liabilities as shown on the
liability side of a balance sheet of that Person as of the date
in question.
"Libor Rate" shall mean, with respect to any Eurodollar Loan for
any Interest Period, the interest rate per annum equal to the
quotient obtained by dividing (x) the rate of interest determined
by Agent to be the average (rounded upward to the nearest whole
multiple of one-eighth of one percent (1/8%) per annum, if such
average is not such a multiple) of the rate per annum at which
deposits in U.S. dollars are generally offered in the London
Interbank Market at 11:00 A.M. London time, two (2) Business Days
before the first day of such Interest Period, for a period equal
to such Interest Period and in the amount of the applicable
Eurodollar Loan, by (y) the difference between one hundred
percent (100%) and any applicable reserve requirements (rounded
upward to the nearest whole multiple of one hundredth (1/100) of
one percent (1%) per annum), including, without limitation, any
statutory maximum requirement for Lenders to hold reserves for
"Eurocurrency Liabilities" under Regulation D of the Board of
Governors of the Federal Reserve System (or any
similar reserves under any successor regulation or regulations).
"Loss Reserves" means all dealer and loan loss reserves
maintained by the Borrower, including, without limitation, all
allowances for credit losses, dealer reserves, and deferred
income allocated to reserves for credit losses.
"Majority Lenders" shall mean, at any time while no Obligations
are outstanding, Lenders having at least 67% of the aggregate
amount of the Commitments and, at any time while Obligations are
outstanding, Lenders holding at least 67% of the outstanding
aggregate principal amount of the Obligations.
"Maximum Rate" shall have the meaning set forth in Section
9.1(d).
"Net Income" means, for any month, an amount equal to the net
income of the Borrower and its subsidiaries on a consolidated
basis during such month, determined in accordance with generally
accepted accounting principles, minus income attributable to
minority interests in other Persons, minus (or plus) the amount
of all extraordinary gains (or losses) included in the
determination of such net income, subject in each case to
year-end adjustments.
"Net Receivables" shall mean the sum of all contractual payments
due under Contracts, plus accrued interest receivable, less
unearned finance charges and unearned ancillary income
attributable to any Contract; plus unamortized contract
acquisition costs, as certified by an Authorized Officer
of the Borrower for each month or quarter of Borrower's Fiscal
Year and annually by the independent certified public accountants
which prepared the audited financial statements for such Fiscal
Year delivered pursuant to Section 17(a)(iii).
"Noteholders" shall have the meaning ascribed thereto in the
Indenture.
"Notes" shall have the meaning ascribed thereto in the Indenture.
"Obligations" shall mean the Revolving Loans and all interest
payable with respect thereto, together with all other amounts
which Borrower may from time to time be obligated to pay to Agent
or Lenders howsoever evidenced and however arising, whether
pursuant to any Revolving Loan, this Agreement or any
other agreement, understanding, or relationship by and between
the Agent or Lenders, by themselves or in connection with any
other party, with the Borrower, or arising out of any other cause
whatsoever, whether liquidated, contingent, stated, unstated,
direct or indirect, primary or secondary, voluntary or
involuntary, determinable or indeterminable, due or not due, or
otherwise whether heretofore, now, or hereafter created, owing,
incurred, made, due or payable, between the Agent or Lenders and
the Borrower.
"Obligor" shall mean the Person obligated for the payment of
principal or other money under any Contract; and "Related
Obligor" shall, when used with respect to any Contract, mean the
Person so obligated thereunder.
"Off Balance Sheet Securitized Portfolio" shall mean all
Contracts sold or contributed to a SPE in connection with a
Securitization Transaction which Contracts would not thereafter
be reflected on the consolidated balance sheet of Borrower and
its subsidiaries in accordance with generally accepted accounting
principles.
"Organizational Documents" means, as to any Person the articles
of incorporation, or any other organizational agreement or
document which forms the basis for the legal existence of the
Person and provides for the rules or its operation and the rights
and obligations of its members, partners, shareholders, or
directors.
"Payoff Amount" means with respect to any Contract an amount not
less than the aggregate sum advanced by Lenders against such
Contract under this Agreement.
"Permitted Investments" shall mean investments in (i) obligations
of the United States government or any agency thereof or
obligations guaranteed by the United States government having a
stated maturity no greater than six (6) months from the date of
such investment, (ii) certificates of deposit of a Lender having
a stated maturity no greater than twelve months from the date of
such investment, (iii) money market or negotiable order of
withdrawal accounts of a Lender, or (iv) commercial paper or
similar short-term investments with a rating of at least "A-1" by
Standard & Poors Corporation and "Prime-1" by Moody's Investor
Services, Inc.
"Permitted Liens" shall have the meaning provided in Section
18(c).
"Permitted Noteholder Payments" shall mean Permitted Payments as
defined in Section 16.2 of the Indenture.
"Permitted Securitization Transaction" shall mean the Existing
Securitization Transaction and any Securitization Transaction
hereafter entered into by Borrower with the written consent of
Agent and Lenders.
"Person" shall mean any natural person, partnership, corporation,
firm, association, government, governmental agency or any other
entity, whether acting in an individual, fiduciary or other
capacity.
"Prime Rate" means the variable rate of interest, per annum, from
time to time announced by LaSalle as its prime (or equivalent)
rate and changing as and when changes therein are announced.
Such rate is one of LaSalle's index rates and merely serves as a
basis upon which effective rates of interest are calculated for
loans making reference thereto and may not be the lowest or
best rate at which LaSalle calculates interest or extends credit.
"Prime Rate Loan" shall mean any Revolving Loan with respect to
which Borrower shall have selected an interest rate based upon
the Prime Rate in accordance with the provisions of Section 3(a)
of this Agreement.
"Prior Agreements" shall have the meaning provided in the
Preamble.
"Public Offering" means a firm commitment public registration and
sale of common equity securities of Borrower under the U.S.
Securities Act of 1933, as amended, on any registration form
(other than for the registration of securities to be offered and
sold pursuant to (1) an employee benefit plan, (2) a dividend or
interest reinvestment plan, (3) other similar plans, or (4)
reclassification of securities, mergers, consolidations and
acquisitions of assets on Form S-4 or any successor thereto).
"Purchase Agreement" means the Purchase Agreement among the
Borrower, FMARC and Solomon Brothers, Inc., dated as of November
10, 1995.
"Quarterly Compliance Certificate" means a compliance certificate
duly executed by the Authorized Representative of Borrower,
substantially in the form of Exhibit D attached hereto.
"Quarterly Payment Date" means the last day of each December,
March, June and September, or if any such day is not a Business
Day, the next succeeding Business Day.
"Rate" shall have the meaning set forth in Section 9.1(a) of this
Agreement.
"Regulatory Action" shall have the meaning set forth in Section
9.4 of this Agreement.
"Related Security" shall mean, with respect to a Contract:
(a) all of the Borrower's interest with respect to
such Contract under the (i) Dealer Agreement pursuant to
which such Contract was acquired, and/or (ii) the Dealer
Assignment from the Dealer from whom the Contract was acquired;
(b) all motor vehicles underlying such Contract;
and
(c) all collateral and security agreements and
property purported to be subject thereto held as
security for such Contract, including all guaranties,
indemnities, warranties, insurance proceeds and premium refunds
and underwritings and property of whatever character at any time
held as security for such Contract.
"Required Reserve Percentage" shall mean an amount equal to (i)
one hundred five percent (105%) of the quotient of Borrower's
actual net charge-offs for the six (6) month period prior to any
date of determination divided by the average Net Receivables and
Securitized Portfolio for such prior six (6) month period.
"Reserve for Credit Losses" shall mean the sum of non-refundable
discounts negotiated by the Borrower at the time the Borrower
acquired Contracts, less any amortization thereof, plus
additional provisions recorded in arriving at Net Income, less
charge offs, which aggregate amount consists of the amounts
calculated in a manner consistent with the lines "allowance for
credit losses" and "unamortized contract acquisition discount"
set forth in the audited financial statements and footnotes of
the Borrower dated May 31, 1994, as certified by an authorized
officer of the Borrower for each month or quarter of Borrower's
Fiscal Year and annually by the independent certified public
accountants which prepared the audited financial statements for
such Fiscal Year delivered pursuant to Section 17(a)(iii).
"Revolving Credit Notes" shall have the meaning provided in
Section 8.
"Revolving Loans" shall have the meaning provided in Section 2.
"Sale and Servicing Agreement" means the Sale and Servicing
Agreement among Borrower, FMARC and Harris Trust and Savings
Bank, as backup servicer dated as of November 17, 1995.
"Securitization Transaction" means collectively, (a) Borrower's
sale, assignment, pledge or contribution of some or all of the
Contracts and related rights to a SPE as part of a securitization
of some or all of the Contracts and (b) the payment to Lenders of
any Payoff Amount associated therewith.
"Securitization Transaction Documents" means all agreements,
instruments and documents executed and delivered in connection
with a Permitted Securitization Transaction.
"Securitized Portfolio" means all Contracts sold or contributed
to a SPE in connection with a Permitted Securitization
Transaction exclusive of the Off Balance Sheet Securitized
Portfolio.
"Security Instrument" means any security agreement, amendment or
supplement thereto, financing statement, continuation statement,
chattel mortgage, chattel mortgage note, assignment or collateral
assignment, pledge agreement or other agreement providing for,
evidencing or perfecting any Security Interest.
"Security Insurer" means Financial Services Assurance, Inc., a
monoline insurance company organized under the laws of the state
of New York or such other insurance company providing insurance
in connection with a Permitted Securitization Transaction.
"Security Interest" means any lien, encumbrance or security
interest of any kind whatsoever, whether arising under a Security
Instrument or as a matter of law, judicial process, or otherwise.
"SPE" means a special purpose entity including, without
limitation, a wholly owned subsidiary of Borrower or trust,
established in connection with a Permitted Securitization
Transaction.
"Stockholders' Equity" means, without duplication, the
stockholders' equity of the Borrower, as included in and
calculated in a manner consistent with, "stockholders' equity" as
set forth in the audited balance sheet of Borrower dated May 31,
1994.
"Subordinated Indebtedness" means any obligations of Borrower to
any Person subordinated to the repayment of the Obligations by
written agreement in form and content acceptable to Lenders.
"Tangible Net Worth" shall mean the sum of Stockholders' Equity,
plus Subordinated Indebtedness, minus Intangible Assets.
"Total Liabilities to Tangible Equity Base" means, as of any
measurement date, the ratio, on a consolidated basis for Borrower
and its subsidiaries, of Liabilities to the sum of Stockholder's
Equity, minus Intangible Assets.
"Trust Indenture" means that certain Trust Indenture between
FMARC and Harris Trust and Savings Bank, as Trustee dated as of
November 17, 1995.
"Unamortized Loss Reserves" means all Loss Reserves arising from
dealer holdbacks and deferred income allocated to reserves for
credit losses, less the amortized and deemed to be earned portion
of nonrefundable Loss Reserves maintained by the Borrower
consisting of allowances for credit losses and
deferred income allocated to reserves for credit losses, which
for purposes of this Agreement, shall be amortized by Borrower
based upon an amortization (utilizing the sum of the years digits
method) of said portion of the Loss Reserves over the average
term of the Contracts acquired by Borrower, all as reflected on
the Borrowing Base Certificates delivered to Agent.
Unless otherwise defined herein, terms or phrases
defined in the Uniform Commercial Code as in effect on the date
hereof in the State of Illinois are used herein as therein
defined.
Unless otherwise specified, all accounting terms used
herein or in any other loan document related hereto shall be
interpreted, all accounting determinations and computations
hereunder or thereunder shall be made, and all financial
statements required to be delivered hereunder or thereunder shall
be prepared in accordance with, generally accepted accounting
principles applied in preparation of the financial statements
referred to in Section 16(r). Notwithstanding the foregoing, any
calculation of the amount of Liabilities shall be based upon the
principal amount thereof outstanding, without taking into account
the value of any equity securities issued in connection
therewith.
Section 2. Revolving Credit Facility.
(a) Subject to the terms and conditions of this
Agreement, each of the Lenders severally and not jointly agrees
to make such loans and advances (individually each a "Revolving
Loan" and collectively the "Revolving Loans") to Borrower from
time to time until, but not including, the Credit Termination
Date, as the Borrower may from time to time request, in the
amount of each Lenders' Commitment Percentage of the Revolving
Loans requested by Borrower, up to, but not in excess of an
aggregate sum of $205,000,000 ("Credit Commitment"), and, in the
case of each Lender, up to but not exceeding each Lender's
Commitment Percentage of the Credit Commitment, provided,
however, that Lenders shall not make or be required to make any
Revolving Loan if, after giving effect thereto, the aggregate
outstanding principal amount of all Revolving Loans would exceed
the Borrowing Base. The Credit Commitment will terminate, and
Lenders will be relieved from their commitment to make Revolving
Loans, on the earliest to occur of the following: (a) the Credit
Termination Date; (b) an Event of Default (except that the
Credit Commitment may be reinstated at the sole and absolute
discretion of the Lenders upon the cure of any Event of Default);
or (c) upon the date specified in a written request of the
Borrower to the Lenders given no less than 90 days prior to the
Borrower's requested termination date.
Prior to the termination of Lenders' Commitments as
herein provided, Borrower may from time to time borrow, prepay
and reborrow amounts under Revolving Loans pursuant to the
Lenders' Commitments and subject to and in accordance with the
other terms, provisions, and conditions of this Agreement.
Section 3. Borrowing Procedures.
(a) Agent shall have received, on or before 10:00
a.m. Chicago time, on the day a Revolving Loan is to be made, if
a Prime Rate Loan, or three (3) Business Days prior to the date a
Revolving Loan is to be made, if a Eurodollar Loan, (i) an oral
request from Borrower for a Revolving Loan in a specific amount
(and a request in writing, which shall be delivered to Agent
on the same Business Day, together with a Borrowing Base
Certificate reflecting then current, true and complete
information regarding the Collateral, executed by an Authorized
Representative of Borrower), (ii) designation whether the
Revolving Loan is to be a Eurodollar Loan or a Prime
Rate Loan, and if such Revolving Loan is to be a Eurodollar Loan,
the Interest Period or Interest Periods with respect thereto, and
(iii) copies of all other documents which the Borrower is
required to deliver to Agent hereunder. If such request for a
Revolving Loan is received by Agent orally before 10:00
a.m. Chicago time on the day a Prime Rate Loan is to be made or
orally before 10:00 a.m. Chicago time three (3) Business Days
prior to the date a Eurodollar Loan is to be made, subject to the
other terms and conditions of this Agreement, Agent will make
such Revolving Loan on the applicable day on which such Revolving
Loan is to be funded hereunder, subject to any delays beyond
Agent's reasonable control, provided that Agent shall not be
liable for any damages or liabilities for the failure to so make
any Revolving Loan on the day requested unless such failure was
due to Agent's wilful misconduct. If no election as to the type
of Revolving Loan is specified in any such notice by Borrower,
then such Revolving Loan shall be a Prime Rate Loan. If no
Interest Period is specified with respect to a Eurodollar Loan in
such notice, then Borrower shall be deemed to have selected an
Interest period of one month's duration. Each request for a
Prime Rate Loan shall be in a minimum amount of $50,000.
Notwithstanding anything contained in this Agreement to the
contrary, Borrower may not have more than five (5) Eurodollar
Loans outstanding at any one time, and each request for a
Eurodollar Loan shall be in a minimum amount of $5,000,000 and
minimum increments of $1,000,000. Borrower shall provide Agent,
upon request, with any other information with respect to the
Eligible Contracts and Eligible Receivables as Lenders or Agent
may reasonably request in connection with any proposed borrowing.
(b) Upon receipt by Agent of a notice from Borrower
of a request for a Prime Rate Loan or Eurodollar Loan, Agent
shall promptly, but not later than 12:00 p.m. Chicago time on the
date of receipt, notify Lenders of the amount, term and
proportionate share of such Prime Rate Loan or Eurodollar Loan to
be funded by each Lender. Two (2) Business Days prior to the
date specified for funding of such Eurodollar Loan in the notice
from Borrower provided under (a) above, Agent shall notify
Lenders and Borrower of the Libor Rate in effect for such
Eurodollar Loan. Each Lender shall make available its
proportionate share of any Prime Rate Loan or Eurodollar Loan, by
federal funds wire transfer to Agent at Agent's Applicable
Lending Office, in immediately available funds, by not later than
2:00 p.m. Chicago time, on the date specified for a Prime Rate
Loan or Eurodollar Loan hereunder in the notice provided in (a)
above. The amount of any Revolving Loan shall, subject to the
terms of this Agreement, be made available to Borrower by
depositing same, in immediately available funds, in an account of
Borrower, as designated by Borrower, maintained at Agent's
Applicable Lending Office, or by wiring the same, in immediately
available funds, to any account specified by Borrower in its
notice of borrowing.
(c) In the event that any payment due hereunder
from a Lender is due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day.
(d) The failure of any Lender to make any Revolving
Loan to be made by it on any date specified therefor shall not
relieve any other Lender of its obligation to make its Revolving
Loan on such date, but neither the Agent nor any Lender shall be
responsible for the failure of any other Lender to make a
Revolving Loan.
Section 4. Payments and Prepayments.
(a) Borrower shall make each payment in respect of
the principal of and interest on the Revolving Loans and any
other payments due under this Agreement not later than 10:00 a.m.
Chicago time on the day when due, in Dollars, to the Agent for
the account of each Lender at the Agent's Applicable Lending
office in Chicago, Illinois in immediately available funds. The
outstanding principal balance of each Eurodollar Loan shall
mature and be due and payable on the last day of the Interest
Period applicable to such Eurodollar Loan.
(b) Any Lender for whose account any such payment
is to be made may (but shall not be obligated to) debit the
amount of any such payment which is not made by such time to any
ordinary deposit account of Borrower with such Lender and shall
give notice thereof to the Agent and Borrower, provided the
failure to give such notice does not affect the validity of such
debit.
Borrower shall, at the time of making such payment
under this Agreement or any Revolving Credit Note, specify to the
Agent the Revolving Loans or other amounts payable by Borrower
hereunder to which such payment is to be applied (and in the
event that it fails to so specify, or if an Event of Default has
occurred and is continuing, the Agent shall distribute such
payment to the Lenders in such manner as Agent may determine to
be appropriate, subject to Section 5 hereof).
(d) Each payment received by the Agent under this
Agreement or any Revolving Credit Note for account of a Lender
shall be paid promptly to such Lender on the same Business Day of
receipt by Agent if received by 10:00 a.m. Chicago time, or
otherwise on the next successive Business Day, in the type of
funds received, for account of Lender at such Lender's Applicable
Lending office for the Revolving Loan or other obligation in
respect of which such payment is made, net of any amounts which
are due and owing to Agent by Lender at the time of such
distribution by Agent.
(e) Any prepayment of the Obligations by Borrower
shall be without premium or penalty other than the payment of
damages and fees as provided in Sections 9.3 and 10 of this
Agreement.
Section 5. Pro Rata Treatment.
Except to the extent otherwise provided herein: (i)
each borrowing from the Lenders shall be made from the Lenders,
and each payment of any fee under Sections 10(b) hereof shall be
made for the account of the Lenders, pro rata according to their
respective Commitment Percentage; (ii) each payment of principal
of Revolving Loans by Borrower shall be made for account of the
Lenders pro rata in accordance with the respective unpaid
principal amounts of the Revolving Loans held by the Lenders; and
(iii) each payment interest on the Revolving Loans by Borrower
shall be made for account of the Lenders pro rata in accordance
with the amounts of interest due and payable to the respective
Lenders.
Section 6. Non-Receipt of Funds by the Agent.
Unless the Agent shall have been notified by a Lender
or Borrower (the "Payor") prior to the date on which the Payor is
scheduled to make payment to the Agent of (in the case of a
Lender) the proceeds of a Revolving Loan to be made by it
hereunder or (in the case of Borrower) a payment to the Agent for
the account of one or more of the Lenders hereunder (such payment
being herein called the "Required Payment"), which notice shall
be effective upon receipt, that the Payor does not intend to make
the Required Payment to the Agent, the Agent may assume that the
Required Payment has been or will be made and may, in reliance
upon such assumption (but shall not be required to), make the
amount thereof available to the intended recipient(s) on such
date and, if the Payor does not in fact make the Required Payment
to the Agent, the recipient(s) of such Payment shall, on demand,
repay to the Agent the amount so made available together with
interest thereon in respect of each day during the period
commencing on the date such amount was so made available by the
Agent until the date the Agent recovers such amount at a rate per
annum equal to the Default Rate for such period in the case of
Borrower and the federal funds rate in the case of a Lender and,
if such recipient(s) shall fail promptly to make such payment,
the Agent shall be entitled to recover such amount, on demand,
from the Payor, together with interest as aforesaid.
Notwithstanding the foregoing to the contrary, the Agent shall
not charge the Lenders, and the Lenders shall not be responsible
to pay the Agent, any interest described in this Section 6 to the
extent such interest has otherwise been paid by Borrower to the
Agent.
Section 7. Sharing of Payments, Etc.
(a) Borrower agrees that, in addition to (and
without limitation of) any right of set-off, bankers' lien or
counterclaim a Lender might otherwise have, each Lender shall be
entitled, at its option, to offset balances held by it for the
account of Borrower at any of its offices, against any principal
of or interest on any of such Lender's Revolving Loans or any
other amount payable to such Lender hereunder, which is not paid
when due subject to any applicable grace periods (regardless of
whether such balances are then due to Borrower), in which case it
shall promptly notify Borrower and the Agent thereof, provided
that such Lender's failure shall not affect the validity thereof.
(b) If any Lender (i) shall obtain payment of any
principal of or interest on any Revolving Loan made by it to
Borrower under this Agreement through the exercise of any right
of set-off, banker's lien or counterclaim or similar right or
otherwise, and, as a result of such payment, such Lender shall
have received a greater percentage of the Liabilities with
respect to the Revolving Loans then due hereunder by Borrower to
such Lender than the percentage of the Obligations received by
any other Lenders, or (ii) such Lender's percentage of the
outstanding Obligations relating to Revolving Loans is less than
the Lender's pro rata share of such Obligations, it shall
promptly purchase from such other Lenders participations in (or,
if and to the extent specified by such Lender, direct interests
in) the Revolving Loans made by such other Lenders (or in
interest due thereon or other Obligations with respect to the
Revolving Loans due to such Lenders, as the case may be) in such
amounts, and make such other adjustments from time to time as
shall be equitable, to the end that (x) each Lender shall have
made advances of Obligations relating to Revolving Loans
according to its pro rata share of its Commitment of such
Obligations, and (y) all the Lenders shall share the benefit of
such excess payment (net of any expenses which may be incurred by
such Lender in obtaining or preserving such excess payment) pro
rata in accordance with the unpaid Obligations with respect to
the Revolving Loans due to each of the Lenders. To such end all
the Lenders shall make appropriate adjustments among themselves
(by the resale of participations sold or otherwise) if such
payment is rescinded or must otherwise be restored.
(c) Borrower agrees that any Lender so purchasing a
participation (or direct interest) in the Obligations with
respect to the Revolving Loans due to other Lenders (or in
interest due thereon, as the case may be) may exercise all rights
of set-off, bankers' lien, counterclaim or similar rights with
respect to such participation as fully as if such Lender were a
direct holder of Revolving Loans in the amount of such
participation.
(d) Nothing contained herein shall require any
Lender to exercise any such right or shall affect the right of
any Lender to exercise, and retain the benefits of exercising,
any such right with respect to any other indebtedness or
obligation of Borrower. If, under any applicable bankruptcy,
insolvency or other similar law, any Lender receives a secured
claim in lieu of a payment or set-off to which this Section 7
applies, such Lender shall, to the extent practicable, exercise
its rights in respect of such secured claim in a manner
consistent with the rights of the Lenders entitled under this
Section 7 to share in the benefits of any recovery on such
secured claim.
Section 8. Revolving Credit Notes.
The Revolving Loans shall be evidenced by Revolving
Credit Notes executed by Borrower dated the date of this
Agreement and substantially in the form of Exhibit A attached
hereto and forming a part hereof. Subject to the provisions of
this Agreement, the Obligations shall be subject to principal
repayment in whole upon the Credit Termination Date, in part to
the extent that the unpaid amount of the Obligations outstanding
exceeds the Borrowing Base, and shall be repaid in whole, upon
demand of the Agent, in accordance with Section 19 upon the
occurrence of an Event of Default.
Section 9. Interest.
9.1 Rates.
(a) All obligations owed by Borrower to Lenders
(except for Eurodollar Loans and those Obligations evidenced by a
note other than a Revolving Credit Note, or by any other
agreement which specifically provides for a rate of interest
different from that provided for herein) shall bear interest, on
the unpaid principal balance thereof, at a rate per annum
(computed on the basis of the actual number of days elapsed over
a 360-day year) (the "Rate") equal to the Prime Rate, payable
monthly in arrears on the first day of each month.
(b) Subject to the provisions of Section 9 of this
Agreement, each Eurodollar Loan shall bear interest on the unpaid
principal balance thereof, at a rate per annum (computed on the
basis of the actual number of days elapsed over a 360-day year)
equal to the Libor Rate for the Interest Period in effect for
such Revolving Loan, plus 1.60%. Interest on Eurodollar Loans
for 1, 2 and 3-month Interest Periods shall be payable in arrears
on the last day of the applicable Interest Period. Interest on
Eurodollar Loans for a 6-month Interest Period shall be payable
in arrears on the 90th day following funding of such Eurodollar
Loan by Lender and on the last day of such Interest Period.
(c) All Obligations owed by Borrower to Lenders
shall bear interest, from and after written notice by Agent to
Borrower of the occurrence of an Event of Default by Borrower
under this Agreement and for so long as an Event of Default shall
be continuing, and without constituting a waiver of any such
Event of Default, on the unpaid principal balance thereof, at a
rate per annum equal to two (2) percentage points above the Rate
("Default Rate"). All interest chargeable under this Agreement
shall be computed on the basis of a 360-day year for actual days
elapsed.
(d) In addition to calculations of the Rate as
provided above, in the event that the Prime Rate announced is,
from time to time hereafter, changed, adjustment in the Rate
shall be made on the effective date of such change in the Prime
Rate. The Rate, as adjusted, shall apply to all Obligations
(except as provided above with respect to Eurodollar Loans) owed
on the date following the date on which the adjustment is made
and shall apply to all Obligations owed during succeeding months
until the Prime Rate is adjusted again. Agent shall use
reasonable efforts to notify Borrower of each change in the Prime
Rate as soon as practicable, but Borrower's obligation to pay all
interest at the Rate and Default Rate as provided in this
Agreement shall not be affected by, nor shall Agent have any
liability for, any failure to so notify Borrower. In no event
shall the Rate, Libor Rate, or the Default Rate exceed the
highest applicable rate permitted by law ("Maximum Rate"). If,
in any month, the Rate, Libor Rate, or the Default Rate absent
such limitation, would have exceeded the Maximum Rate, then the
Rate, Libor Rate, or the Default Rate for that month shall be the
Maximum Rate, and if in future months, the Rate, Libor Rate, or
the Default Rate would otherwise be less than the Maximum Rate,
then to the extent permitted by applicable law, the Rate, Libor
Rate, or the Default Rate shall remain at the Maximum Rate until
such time as the amount of interest paid hereunder equals the
amount of interest which would have been paid if the same had not
been limited by the Maximum Rate. Except as provided in (b)
above, all interest payable by Borrower shall be due and payable
on the first Business Day of each calendar month during the term
of this Agreement and Agent may, at its option, charge such
interest to Borrower's account with Agent, which amounts shall
thereupon constitute Obligations hereunder and shall thereafter
accrue interest as provided for in this Agreement.
9.2 Renewals: Conversion and Continuation of Revolving
Loans.
(a) Upon maturity of any Eurodollar Loan, the
Borrower may renew all or any part of any Eurodollar Loan to it
from Lenders with a Revolving Loan of the same or a different
type from Lenders, subject to the conditions and limitations set
forth herein and elsewhere in this Agreement.
Any Eurodollar Loan or part thereof so renewed shall be deemed to
be repaid in accordance with Section 4 with the proceeds of a new
borrowing hereunder and the proceeds of the new Revolving Loan,
to the extent such proceeds do not exceed the principal amount of
the Eurodollar Loan being renewed, shall not be paid by Lenders
to Borrower.
(b) The Borrower shall have the right at any time,
upon notice to Agent given in the manner and at the times
specified in this Agreement with respect to the Revolving Loans
into which conversion or continuation is to be made, to convert
its Eurodollar Loans into Prime Rate Loans, to convert its Prime
Rate Loans into Eurodollar Loans (specifying the Interest Period
to be applicable thereto), to convert the Interest Period
applicable to any of its Eurodollar Loans to another permissible
Interest Period, and to continue any of its Eurodollar Loans into
a subsequent Interest Period of any permissible duration, subject
to the terms and conditions of this Agreement, including, without
limitation Section 3 hereof, and to the following:
(i) each conversion shall be effected by Agent
by applying the proceeds of the new Prime Rate Loan or Eurodollar
Loan, as the case may be, to the Eurodollar Loan (or portion
thereof) being converted; accrued interest on a Revolving Loan
(or portion thereof) being converted or continued shall be paid
by the Borrower at the time of conversion or continuation; and
(ii) if any Eurodollar Loan is converted at
any time other than the end of an Interest Period applicable
thereto, the Borrower shall make such payments associated
therewith as are required pursuant to Section 9.3 at the time
such Eurodollar Loan shall be converted to a Prime Rate Loan.
The interest Period applicable to any
Eurodollar Loan resulting from a conversion or continuation shall
be specified by the Borrower in the notice of conversion or
continuation delivered pursuant to this Section 9.2 provided,
however, that, if no such Interest Period shall be specified, the
Borrower shall be deemed to have selected an Interest Period of
one month's duration.
9.3 Indemnity.
The Borrower shall indemnify Agent and Lenders
against any loss, fee, claim, damage, liability or expense which
Agent or Lenders may sustain or incur as a consequence of (i) any
failure by the Borrower to fulfill on the date of any borrowing
hereunder the applicable conditions set forth in this Agreement,
(ii) any failure by the Borrower to borrow hereunder after notice
of borrowing pursuant to this Agreement has been given, (iii) any
payment, prepayment or conversion of a Eurodollar Loan required
by any other provision of this Agreement or otherwise made on a
date other than the last day of the applicable Interest Period,
(iv) any Regulatory Action (as defined in Section 9.4 below), (v)
or the occurrence of any Event of Default, including, but not
limited to, any loss or reasonable expense sustained or incurred
or to be sustained or incurred in liquidating or employing
deposits from third parties acquired to effect or maintain such
Revolving Loan or any part thereof as a Eurodollar Loan. Such
loss or reasonable expense shall include, without limitation, an
amount equal to (1) the excess, if any, as reasonably determined
by Agent of its cost of obtaining the funds for the Eurodollar
Loan being paid, prepaid or converted or not borrowed (based on
the Libor Rate applicable thereto) for the period from the date
of such payment, prepayment or conversion or failure to borrow to
the last day of the Interest Period for such Eurodollar Loan (or,
in the case of a failure to borrow, the Interest Period for such
Eurodollar Loan which would have commenced on the date of such
failure to borrow) over the amount of interest (as reasonably
determined by Agent) that could be realized by Agent in
re-employing during such period the funds so paid, prepaid or
converted or not borrowed, or (2) any loss of yield or cost due
to a Regulatory Action. A certificate of Agent setting forth any
amount or amounts which Agent is entitled to receive pursuant to
this Section 9.3 shall be conclusive absent manifest error.
9.4 Change in Legality.
(a) Notwithstanding anything to the contrary herein
contained, if any change in any law or regulation or in the
interpretation thereof by any governmental authority charged with
the administration or interpretation thereof shall make it
unlawful for any Lender or Agent to make or maintain any
Eurodollar Loan or to give effect to its obligations as
contemplated hereby (an "Illegality"), or if Agent or Majority
Lenders determine that maintenance of Eurodollar Loans would
cause Lenders to implement or modify any reserve, special deposit
or assessment or other requirement, or impose any other condition
on Lenders affecting the Revolving Loans (each of the foregoing
circumstances called a "Regulatory Action"), then, by written
notice to the Borrower, Agent shall:
(i) declare that Eurodollar Loans will not
thereafter be made by Lenders hereunder, whereupon the Borrower
shall be prohibited from requesting Eurodollar Loans from Agent
hereunder unless such declaration is subsequently withdrawn;
provided, however, that if after the date of any such declaration
there shall occur any change in law or regulation or in the
interpretation thereof by any government authority charged with
the administration or interpretation thereof that shall eliminate
such Illegality, Agent shall as promptly as reasonably
practicable notify the Borrower and each of the Lenders of such
occurrence and withdraw such declaration;
(ii) require that all outstanding Eurodollar
Loans made by it be converted to Prime Rate Loans, in which event
(1) all such Eurodollar Loans shall be automatically converted to
Prime Rate Loans as of the effective date of such notice as
provided in paragraph (b) below and (2) all payments and
prepayments of principal which would otherwise have been applied
to repay the converted Eurodollar Loans shall instead be applied
to repay the Prime Rate Loans resulting from the conversion of
such Eurodollar Loans; and
(iii) require fulfillment of the indemnity
provisions of Section 9.3 hereof.
(b) For purposes of this Section 9.4, a notice to
the Borrower by Agent pursuant to paragraph (a)(ii)(1) above
shall be effective, if lawful, on the last day of the then
current Interest Period; in all other cases, such notice shall be
effective on the date of receipt by the Borrower.
9.5 Unavailability of Deposits or Inability to Ascertain,
or Inadequacy of Libor Rate
If on or prior to the first day of any Interest
Period for any Borrowing of Eurodollar Loans:
(a) the Agent advises the Borrower that deposits in
United States Dollars (in the applicable amounts) are not being
offered to it in the off-shore U.S. Dollar interbank market for
such Interest Period, or
(b) the Majority Lenders advise the Agent that the
Libor Rate as determined by the Agent will not adequately and
fairly reflect the cost to such Lenders of funding their
Eurodollar Loans for such Interest Period,
then the Agent shall forthwith give notice thereof to
the Borrower and the Lenders, whereupon until the Agent notifies
the Borrower that the circumstances giving rise to such
suspension no longer exist, the obligations of the Lenders to
make Eurodollar Loans shall be suspended without liability to
Agent or Lenders.
9.6 Increased Cost and Reduced Return. (a) If on or after
the date hereof, the adoption of any applicable law, rule or
regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any
Lender (or its Lending Office) with any request or directive
(whether or not having the force of law) of any such authority,
central bank or comparable agency:
(i) shall subject any Lender (or its
applicable Lending Office) to any tax, duty or other charge with
respect to its Eurodollar Loans, its Revolving Credit Note or its
obligation to make Eurodollar Loans, or shall change the basis of
taxation of payments to any Lender (or its Applicable Lending
Office) of the principal of or interest on its Eurodollar Loans
or any other amounts due under this Agreement in respect of its
Eurodollar Loans or its obligation to make Eurodollar Loans
(except for changes in the rate of tax on the overall net income
of such Lender or its Applicable Lending Office imposed by the
jurisdiction in which such Lender's principal executive office or
Applicable Lending Office is located); or
(ii) shall impose, modify or deem applicable
any reserve, special deposit or similar requirement (including,
without limitation, any such requirement imposed by the Board of
Governors of the Federal Reserve System, against assets of,
deposits with or for the account of, or credit extended by, any
Lender (or its Applicable Lending Office) or shall impose on any
Lender (or its Applicable Lending Office) or on the interbank
market any other condition affecting its Eurodollar Loans, its
Revolving Credit Note or its obligation to make Eurodollar Loans;
and the result of any of the foregoing is to increase the cost to
such Lender (or its Applicable Lending Office) of making or
maintaining any Eurodollar Loan, or to reduce the amount of any
sum received or receivable by such Lender (or its Applicable
Lending Office) under this Agreement or under its Revolving
Credit Note with respect thereto, by an amount deemed reasonably
and in good faith by such Lender to be material, then, within
fifteen (15) days after demand by such Lender (with a copy to the
Agent), the Borrower shall be obligated to pay such Lender such
additional amount or amounts as will compensate such Lender for
such increased cost or reduction (computed commencing on the
effective date of any event mentioned herein). Each Lender
agrees to use its best efforts to give the Borrower and Agent
notice of the occurrence of any event mentioned herein.
9.7 Discretion of Lenders as to Manner of Funding.
Notwithstanding any other provision of this
Agreement, each Lender shall be entitled to fund and maintain its
funding of all or any part of its Revolving Loans in any manner
it sees fit, it being understood, however, that for the purposes
of this Agreement all determinations hereunder shall be made as
if each Lender had actually funded and maintained each Eurodollar
Loan through the purchase of deposits in the interbank market
having a maturity corresponding to such Eurodollar Loan's
Interest Period and bearing an interest rate equal to the Libor
Rate for such Interest Period.
Section 10. Fees, Deposit Accounts
(a) Borrower shall maintain with Agent, all of
Borrower's primary operating deposit and disbursement accounts.
Borrower may, as required by its business needs, maintain deposit
and disbursement accounts in other financial institutions in
locations not conveniently serviced by Agent; provided however
Borrower shall cause all deposits in such accounts, to the extent
not required for immediate disbursement, to be concentrated in
its accounts with Agent. Borrower shall maintain sufficient
demand deposit balances in its deposit accounts to cover the
costs of all services provided by Agent to Borrower in connection
with Borrower's accounts with Agent. In the event Borrower fails
to maintain demand deposit balances sufficient to generate
earnings credits to cover the cost of all services provided by
Agent to Borrower in connection with the accounts, Agent shall be
permitted to debit Borrower's deposit accounts for customary
costs associated with such services. All such fees and costs
shall accrue solely to the benefit of Agent and no Lender shall
have an interest therein.
(b) Borrower shall pay to Agent an unused line fee
for the ratable benefit of Lenders as provided hereunder of
.3125% per annum (computed on the basis of a year of 360 days for
the actual number of days elapsed) of the amount by which the
Credit Commitment exceeds the average daily amount of the
Revolving Loans, payable quarterly in arrears, on the first day
of each calendar quarter, commencing April 1, 1996.
Section 11. Books and Records.
The books and records of the Agent shall be prima
facie evidence of the amount of Borrower's Obligations from time
to time outstanding and the dates and amounts of disbursements
and payments with respect to each Revolving Loan.
Section 12. Mandatory Prepayment.
If at any time, the aggregate outstanding principal
amount of all Obligations exceeds the Borrowing Base, Borrower
shall make a principal prepayment, in whole, or in part at least
equal to the amount of the excess of the Obligations outstanding
over the Borrowing Base.
Section 13. Conditions to Loans.
13.1 Initial Revolving Loan. The making of the first
Revolving Loan under this Agreement (the "Initial Revolving
Loan") shall be subject, in addition to all other terms and
conditions of this Agreement, to the satisfaction of the
following conditions precedent at the times specified:
(a) Consents. All consents, approvals and
authorizations required in connection with the execution,
delivery or performance of this Agreement, shall have been
obtained by the Borrower, and Borrower shall not have incurred or
become subject to any liability as a result thereof.
(b) Required Documents. There shall have been
delivered to Lenders the following documents in form and
substance satisfactory to Lenders, and there shall have been
consummated or satisfied all of the transactions or conditions
contemplated by each such document:
(i) Agreement; Note. Multiple copies of this
Agreement as requested by Lenders and one copy of each Lender's
Revolving Credit Note conforming to the requirements hereof all
duly executed by the Borrower.
(ii) Legal Opinion. The legal opinion of
Borrower's counsel in form and substance satisfactory to Lenders
and their counsel.
(iii) UCC. Evidence of the proper filing of
UCC-1 financing statements, perfecting a first lien (except as
otherwise provided herein) and security interest in favor of
Agent, as agent for the Lenders, in the Collateral.
(iv) Officer's Certificate. A certificate
executed by the Chief Executive Officer of Borrower, stating that
to the best knowledge of such officer after diligent inquiry and
investigation (A) no Default or Event of Default has occurred and
is continuing, (B) no litigation, investigation or proceeding, or
injunction, writ or restraining order of the type described in
Section 17(d) hereof is pending or threatened, and (C) each of
the conditions precedent to the consummation of the Revolving
Loans contemplated hereby has been met or satisfied.
(v) Insurance Policies and Endorsements.
Copies of policies of insurance required hereby together with
lender's loss payable endorsements on Agent's required form, duly
executed.
(vi) Articles and Bylaws. A copy of (A)
Borrower's Amended and Restated Certificate of Incorporation,
certified by the Secretary of State of Delaware as of a date not
more than 20 days prior to the date hereof, and (B) copies of the
amended and restated bylaws, and any amendments thereto, of
Borrower certified by the corporate secretary.
(vii) Good Standing Certificates. Good
Standing Certificates for Borrower in Delaware and in each other
state in which Borrower has an office, keeps Collateral, or
otherwise where the failure of Borrower to be qualified to
transact business as a foreign corporation would have a material
adverse impact on Borrower.
(viii) Board Resolutions. Certified copies of
resolutions of the board of directors of Borrower authorizing the
execution and delivery of and the consummation of the
transactions contemplated by this Agreement, and all other
Instruments.
(ix) Incumbency Certificates. Incumbency
certificates with respect to the officers of Borrower executing
this Agreement, the Instruments and the Revolving Credit Notes.
(x) Borrowing Base Certificate. A Borrowing
Base Certificate reflecting information regarding the Collateral
as of the date of the requested Initial Revolving Loan,
accompanied by such copies or such documents, schedules,
computations and certificates as reasonably requested by Agent as
specified in Section 3 of this Agreement.
(xi) Subordination Agreements. Subordination
agreements, if any, in form and substance satisfactory to
Lenders, with respect to any Liabilities of Borrower (other than
trade payables in the normal course of business).
(xii) Agency Agreement. An Agency Agreement
establishing an Authorized Representative at each of Borrower's
business locations as Agent's and Lenders' agent to perfect
Agent's and Lenders' lien on Collateral coming into Borrower's
possession.
(xiii) Accountants' Letter. A letter to
Borrower's independent certified public accountants advising them
of Agent's and Lenders' reliance on future financial statements
in accordance with Section 17(a) hereof.
(xiv) Fees, Costs and Expenses. Each Lender
shall have received all fees, costs and expenses due and payable
pursuant to Sections 10 and 15 of this Agreement.
(xv) Consents. Evidence of all consents
required to consummate the transactions contemplated by this
Agreement.
13.2 Conditions to Revolving Loans. Subject to the terms
of this Agreement, the making of each Revolving Loan shall be
subject to the satisfaction of the following conditions
precedent:
(a) No Event of Default shall have occurred and be
continuing;
(b) Agent shall have received a Borrowing Base
Certificate reflecting then current information regarding the
Collateral accompanied by such copies of such documents,
schedules, computations, and calculations as reasonably requested
by Agent as specified in Section 3 of this Agreement; and
(c) All representations and warranties of Borrower
shall be true and correct as of the date of the making of the
request for a Revolving Loan as if made on such date.
Section 14. Security for Obligations.
To secure payment when due (at maturity, by
acceleration, or otherwise) of Borrower's Obligations, Borrower
hereby grants to Agent, as agent for Lenders, a continuing first
priority lien and security interest in and to all assets of the
Borrower now existing or owned or hereafter arising or acquired,
including (a) all of Borrower's right, title and interest in and
to any and all Contracts, all Related Security and all monies or
rights to monies due and payable thereunder or with respect
thereto; (b) all personal property or Borrower's interest therein
which from time to time is subject to any Contract or is
otherwise now owned or hereafter acquired by Borrower (or a
security interest therein held by Borrower), together with all
attachments, accessories, replacements, substitutions,
accessions, products and proceeds thereto, therefor, or thereof;
(c) all of Borrower's now owned or existing or hereafter arising
or acquired accounts, accounts receivable, contract rights,
general intangibles (including without limitation, license
rights, insurance proceeds, royalties, choses in action, patents,
trademarks, trade names, and tax refunds), chattel paper, deposit
accounts, records, customer lists, instruments, documents, notes,
computer software, firmware, disks and tapes representing any of
the foregoing, inventory, machinery, equipment or fixtures and
all proceeds and products of any of the foregoing; and (d) all
policies of insurance with respect to any of the foregoing and
all rights to receive payments or proceeds under any such
policies of insurance or otherwise with respect to any damage,
destruction or loss of any of the foregoing (all of which
property above described in this Section is herein referred to
collec- tively as "Collateral").
Borrower will pay all filing, recording, search and
other expenses incurred by Agent with respect to perfection of
Agent's security interest under this Agreement and the
confirmation of the priority of Agent's security interest in the
Collateral. Borrower will execute and deliver such financing
statements and further documents and instruments, and do such
further acts and things as Agent may reasonably request in order
to fully effect the purposes of this Agreement and Agent's rights
and Security Interest in the Collateral. Notwithstanding
anything to the contrary contained herein, absent the occurrence
of an Event of Default by Borrower, Borrower shall not be
required to deliver to Agent physical possession of the Contracts
or record assignments of underlying liens, title documents or
mortgages securing the obligations of a related Obligor under a
Contract; provided, however, Borrower shall affix a legend to all
Contracts as follows: "First Merchants Acceptance Corporation
("FMAC") has collaterally assigned its rights in this Retail
Installment Contract to LaSalle National Bank ("LaSalle") as
agent for itself and certain other senior lenders. The interest
of LaSalle shall terminate upon FMAC's full payment of all
amounts due to LaSalle." Agent shall appoint an Authorized
Representative acceptable to Agent for each business location of
Borrower to act as Agent's agent for purposes of perfecting
Agent's lien on the Collateral in Borrower's possession
("Collateral Agent") and Borrower agrees to fully cooperate with
such designated agent.
The Borrower hereby expressly agrees that, anything
herein to the contrary notwithstanding, it shall observe and
perform all of the conditions and obligations to be observed and
performed by the Borrower under each Contract agreement, interest
or obligation constituting Collateral hereunder, all in
accordance with and pursuant to the terms and provisions thereof.
The exercise by the Agent of any of the rights assigned hereunder
shall not release the Borrower from any of its duties or
obligations under any such Contract, agreement, interest or
obligation. The Agent shall not have any duty, responsibility,
obligation or liability under any such Contract, agreement,
interest or obligation by reason of or arising out of the
assignment thereof to the Agent or the granting to the Agent of a
Security Interest therein or the receipt by the Agent of any
payment relating to any such Contract, agreement, interest or
obligation pursuant hereto, nor shall the Agent be required or
obligated by virtue of the grant of the Security Interest to the
Agent in any manner to perform or fulfill any of the obligations
of the Borrower thereunder or pursuant thereto, or to make any
payment, or to make any inquiry as to the nature or sufficiency
of any payment received by it or the sufficiency of any
performance of any party under any such Contract, agreement,
interest or obligation, or to present or file any claim, or to
take any action to collect or enforce any performance or the
payment of any amounts which may have been assigned to it, in
which it may have been granted a Security Interest or to which it
may be entitled at any time or times.
Section 15. Agent's and Lender's Closing and Administrative Costs
and Expenses.
(a) Borrower shall pay Agent for all expenses and
fees paid or incurred in connection with the documentation,
negotiation, closing, administration, and enforcement of this
Agreement and Borrower's Obligations, including, without
limitation, search fees and expenses, certification costs,
expedited mail charges, filing and recording fees and the
reasonable fees and expenses of the Agent's attorneys and
paralegals, whether such fees and expenses are incurred prior to
or after the date hereof.
(b) Borrower shall further reimburse Agent and
Lenders, on written demand, for all costs, fees and expenses
incurred by Agent or Lenders, or their agents or employees with
respect to any collateral or other audits performed in the
administration of this Agreement. Absent the occurrence of an
Event of Default, Borrower's Obligation to reimburse Agent and
Lenders under this Section 15(b) shall be limited to costs, fees
and expenses for the two (2) agreed upon procedures examinations
per calendar year by Ernst & Young (or other certified public
accountants satisfactory to the Lenders), as set forth in Section
17(a)(x) of this Agreement.
Section Representations and Warranties.
To induce Lenders to enter into this Agreement and to
make loans and advances hereunder, Borrower represents and
warrants to Lenders as follows which representations and
warranties shall be true from the time of Borrower's execution of
this Agreement until all Obligations have been repaid in full:
(a) Organization of Borrower. Borrower is a
corporation validly organized and existing and in good standing
under the laws of the State of Delaware, and is and will be duly
qualified to do business and in good standing as a foreign
corporation in each jurisdiction where the nature of its business
or property require it to be qualified, except where the absence
of such qualification would not materially adversely affect the
financial condition, operations or business of Borrower or
materially impair the ability of Borrower to perform any of its
obligations under this Agreement or any Instrument executed
pursuant hereto. Borrower has full corporate power and authority
to own its property and conduct its business substantially as
presently conducted by it. Borrower has full corporate power and
authority to enter into and to perform its obligations under this
Agreement and each Instrument executed pursuant hereto and to
obtain loans and advances hereunder.
(b) Due Authorization. The execution and delivery
by Borrower of this Agreement and each Instrument executed
pursuant hereto and the performance by Borrower of its
obligations hereunder and thereunder have been duly authorized by
all necessary corporate action, do not require Borrower to obtain
any approval or consent of any governmental agency or authority,
do not and will not conflict with, result in any violation of, or
constitute any default under, any provision of the Organizational
Documents of Borrower or any agreement or other Instrument
binding upon or applicable to it (other than any agreement or
other Instrument with respect to which a waiver has been
obtained), or any present law or governmental regulation or court
decree or order applicable to it and will not result in or
require the creation or imposition of any Security Interest in
any of its properties pursuant to the provisions of any present
agreement or other Instrument binding upon or applicable to it
other than under this Agreement.
(c) Validity of This Agreement. This Agreement is,
and each Instrument executed pursuant hereto will, on the due
execution and delivery thereof, be the legal, valid and binding
obligation of Borrower enforceable in accordance with its terms,
except as may be limited by bankruptcy and moratorium laws and
all other similar laws affecting the rights of creditors
generally and the application of general principles of equity and
to the extent that specific performance and other equitable
remedies may be granted or denied in a court's discretion.
(d) Absence of Default. Borrower is not in default
in the payment of any Indebtedness or under any law or
governmental regulation or court decrees or order.
(e) Litigation. No litigation, arbitration or
governmental investigation or proceeding is pending or, to the
knowledge of Borrower, threatened against Borrower or any of its
properties which, if adversely determined, would materially
adversely affect the financial condition, operations or business
of Borrower or impair the ability of Borrower to perform any of
its obligations under this Agreement or any Instrument executed
pursuant hereto.
(f) Regulation U. Borrower is not engaged
principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or
carrying margin stock, and none of the assets of Borrower consist
of margin stock. Terms to which meanings are ascribed in
Regulation U of the Board of Governors of the Federal Reserve
System or any regulations substituted therefor, as from time to
time in effect, are used in this subsection with such meanings.
(g) Employee Benefit Plans. Each employee benefit
plan ("Plan") now or hereafter maintained by Borrower will comply
in all material respects with all applicable requirements of law
and regulations; no "Reportable Event", such term being used
herein with the meaning ascribed to it in the Employee Retirement
Income Security Act of 1974, as amended (herein called "ERISA"),
will have occurred with respect to any Plan; and Borrower will
not have withdrawn from any Plan or initiated steps to do so, and
no steps will have been taken to terminate any Plan.
(h) Good Title and Absence of Liens. Borrower is,
and covenants to remain, the owner of its assets, free and clear
of all liens, encumbrances and security interests, except for
Permitted Liens.
(i) Licenses, Compliance with Laws. Borrower has
or prior to the Initial Revolving Loan will have been issued all
required material federal, state and local licenses, certificates
or permits relating to Borrower and its facilities, businesses,
assets, property, leaseholds and equipment and is in substantial
compliance with all applicable federal, state and local laws,
rules and regulations the failure to comply with would be
reasonably likely to have a material adverse effect on the
financial condition, operations, assets, business, properties or
prospects of the Borrower.
(j) Impairment of Contract Collateral. Borrower
has no knowledge of any material default as to any Eligible
Contract by any party, nor of anything which would impair the
value of any Eligible Contract.
(k) Validity of Contracts. To the best knowledge
of Borrower after reasonable inquiry, each Eligible Contract (i)
is free of any dispute, counterclaim, offset or defense
(including, without limitation, the material breach of (w) any
warranty by the Dealer of the goods covered by such Contract or
(x) any service contract, extended service warranty or like
agreement by such Dealer) of the Obligor or such other person or
entity as may have guaranteed or secured the obligations of the
Obligor (except for (y) the insolvency of such Obligor or such
other person or entity as may have guaranteed or secured the
obligations of the Obligor and (z) the right of an Obligor to
receive a rebate of any unearned finance charge in the event of
payment in full prior to maturity); (ii) does not contravene any
laws, rules or regulations applicable thereto and no party
thereto has at any time violated any such laws, rules or
regulations with respect thereto; (iii) is free and clear of all
adverse claims, except for (x) the interest of the Obligor in the
goods sold pursuant to such Contract, (y) the security interests
created in favor of such Dealer and the Borrower, and (z)
mechanics' or similar statutory liens subordinate to such
security interests resulting from actions of the Obligor; (iv)
grants to the respective Dealer and assigns to the Borrower a
valid, enforceable and perfected first priority security interest
in and to such Contract and such Related Security which is free
and clear of any adverse claims subject to the exceptions stated
in clause (iii) above; (v) no effective financing statement, lien
notation on any certificate of title or other instrument similar
in effect covering all or any part of such Contract or Related
Security, which would give the Person filing, named on or
entitled to the benefit of such statement or instrument priority
senior to or pari passu with the Borrower, is on file in any
recording office or is otherwise effective except such as may be
filed in favor of the Dealer or the Borrower and collaterally
assigned to the Agent in accordance with this Agreement; (vi)
requires the Borrower to be named as loss payee or beneficiary
(as may be applicable) under any insurance policy with respect to
such Contract, and entitles the Borrower to the benefits of such
insurance policy; (vii) if such Contract and Related Security
with respect thereto relate to a motor vehicle, including any
equipment sold and financed in connection therewith, such motor
vehicle, including any equipment sold and financed in connection
therewith, is to the extent required under applicable law duly
registered and licensed and is the subject of a certificate of
title issued in the name of the Obligor which indicates a
security interest therein held by the Borrower, in the
appropriate form and in compliance with all appropriate
procedures as may be necessary under applicable law to cause a
perfected and first priority security interest to exist in favor
of the Borrower to secure the obligations of such Obligor under
such Contract; (viii) if purchased from a Dealer from which the
Borrower has purchased five (5) or more Contracts, was validly
assigned to the Borrower by a Dealer in connection with a Dealer
Agreement in substantially the form of one of the forms set forth
in Exhibit G and Dealer Assignment in substantially one of the
forms of assignment contained in Exhibit H or appearing at the
bottom of the second page of each of the forms of Contract
contained in Exhibit B (x) constituting a legal, valid and
binding obligation of such Dealer enforceable against such Dealer
in accordance with its terms, (y) pursuant to which the Borrower
has taken all action necessary so as to perfect a valid,
enforceable first priority security interest therein in favor of
the Borrower under the Uniform Commercial Code as adopted in the
applicable state, free and clear of all adverse claims, and (z)
pursuant to which the Borrower is in physical possession of such
Contract and all writings comprising such Related Security; and
(ix) each of the representations and warranties from the Dealer
to the Borrower with respect to such Contract under the Dealer
Assignment related thereto are true and correct, excluding,
however, the warranty that (x) all statements respecting such
Obligor and other Persons contained in or accompanying such
Obligor's application for credit in connection with such
Contract, are true and correct, and (y) the Dealer has complied
and will comply with all requirements of applicable law with
respect to all insurance (other than credit life, disability,
accident and health insurance) for which a charge is shown in
such Contract, including the furnishing to the Obligor of
policies, certificates or statements of such insurance, and all
such insurance was, at the time that such Obligor took possession
of the Goods, and remains in full force and effect.
(l) Obligors' Duties to Make Payments. Each
Eligible Contract shall impose upon the related Obligor
thereunder a duty to make all periodic payments set forth
therein, which duty shall be absolute and unconditional, and to
the best knowledge of Borrower shall not be, nor be claimed to
be, subject to any setoffs, claims, defenses or rights of
counterclaim against Agent or Lenders.
(m) Accuracy of Information. All written
information heretofore or contemporaneously furnished by or on
behalf of Borrower to Agent or Lenders for purposes of or in
connection with this Agreement and such other such written
information hereafter furnished by or on behalf of Borrower to
Agent or Lenders will be, true and accurate in every material
respect on the date as of which such information is dated or
certified and when taken in its entirety is not incomplete by
omitting to state any material fact necessary to make such
information not misleading.
(n) Chief Executive Office. The chief executive
office and principal place of business of the Borrower is located
at 570 Lake Cook Road, Suite 126, Deerfield, Illinois 60015.
Except as set forth on Exhibit E hereto, Borrower has no other
places of business. The Borrower will not change its chief
executive office and principal place of business or open any
additional places of business within the United States of America
without fifteen (15) days prior written notice to Agent and will
not open any additional places of business outside the United
States of America, except for offices located in Canada which
Agent has received thirty (30) days prior written notice from
Borrower. Borrower will take all steps required to perfect and
maintain perfected a first and senior lien and security interest
in favor of Agent on the Collateral, including Collateral located
in Canada.
(o) Solvency. Immediately prior to the issuance of
the Revolving Credit Notes and after giving effect thereto, the
value of Borrower's assets including equity is greater than the
amount required to pay its total liabilities, and Borrower is
able to pay its debts as they mature. Borrower will maintain
such solvent financial condition, giving effect to the
Obligations, as long as Borrower is obligated to Lenders under
this Agreement or in any other manner whatsoever. Borrower has
sufficient capital to carry on its business and transactions as
now conducted.
(p) Offices, FTC; Warranties. The Borrower agrees
that it will operate each of its offices as a licensed location
in any jurisdiction requiring such license in conformity with all
such licensing and other laws applicable to the purchase of
Contracts, including Motor Vehicle Retail Installment Sales Acts,
Sales Finance Agency Acts, or any other law regulating the
business of acquiring Contracts from Dealers. To the extent the
Borrower does not have a license for each location, it will
immediately procure a license or advise the Lenders of the reason
that it is exempt from such licensing requirement or that no such
licensing requirement exists in the jurisdiction of such
location.
The Borrower is familiar with the Federal Trade
Commission's used car rule and has ensured that, to it best
knowledge after due inquiry, its Dealers are in compliance with
such rule.
Each Contract has been originated by a Dealer
pursuant to an agreement that is enforceable in accordance with
its terms against such Dealer; and, with respect to any Dealer
from which the Borrower has purchased five or more Contracts,
such agreement is a Dealer Agreement. To the extent that the
Borrower allows Dealers to finance so-called "extended warranty
plans," the Borrower will (i) ensure that such plans are in
substantial compliance with all applicable consumer credit laws,
including any and all special insurance laws relating thereto and
(ii) ensure that such plans are underwritten by (x) a major
automobile manufacturer, or an Affiliate thereof, or (y) a
reputable and financially sound insurance company.
(q) Absence of Default. The Borrower is not in
default with respect to any Liabilities.
(r) Financial Information. Each of (a) the audited
balance sheet of the Borrower as at May 31, 1995, and the related
audited statements of earnings and cash flow of the Borrower for
the Fiscal Year then ended and (b) the unaudited balance sheet of
the Borrower as at November 30, 1995, and the related unaudited
statements of earnings and cash flow of the Borrower for the
fiscal quarter then ended, together with applicable footnotes and
subject to year-end adjustment, copies of each of which have been
furnished to the Agent and each Lender, have been prepared in
accordance with generally accepted accounting principles
consistently applied, and present fairly in the consolidated
financial condition of the Borrower as at the dates thereof and
the results of their operations for the periods then ended.
(s) No Material Adverse Change. Since November 30,
1995, there has been no material adverse change in the financial
condition, operations, assets, business, properties or prospects
of the Borrower.
Section 17. Affirmative Covenants.
Borrower covenants and agrees with Lenders that,
until all of the Obligations shall have been paid and performed
in full:
(a) Financial Information. Borrower will furnish,
or will cause to be furnished, to Agent and Lenders copies of the
following financial statements, reports and information, all of
which shall be prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods
involved and shall present fairly the financial condition of
Borrower as at the dates thereof and the results of its
operations for the periods then ended.
(i) promptly when available and in any event
within 45 days after the close of each fiscal quarter of each
Fiscal Year, a Quarterly Compliance Certificate substantially in
the form of Exhibit D to this Agreement;
(ii) promptly when available and in any event
within forty- five (45) days after the close of each fiscal
quarter, consolidated and consolidating balance sheets as of the
close of such quarter and consolidated and consolidating
statements of income and cash flow for such quarter and for the
period commencing at the end of the previous Fiscal Year and
ending with the close of such quarter, and comparisons of such
consolidated balance sheets and statements of income against the
projections previously provided to Lenders, all in such form as
will be acceptable to Lenders, certified by the Authorized
Representative as having been prepared as specified in (a) above,
subject to the absence of footnotes and year-end adjustments;
(iii) promptly when available and in any event
within 90 days after the close of each Fiscal Year, audited
consolidated and Borrower prepared consolidating financial
statements consisting of at least consolidated and consolidating
balance sheets at the close of that Fiscal Year and statements of
income and cash flow for that Fiscal Year, together with an
unqualified opinion and report of Deloitte & Touche or such other
independent public accountants of recognized standing selected by
Borrower and acceptable to Lenders (which acceptance shall not be
unreasonably withheld); and a written statement of those
accountants that they have examined such provisions of this
Agreement as are appropriate to the normal scope of their audit
and have not become aware, in the normal scope of their audit, of
any default in the performance by Borrower of any obligations to
be performed by it pursuant to this Agreement, except such, if
any, as may be disclosed in such statement.
(iv) promptly upon receipt thereof, copies of
all detailed financial and management reports submitted to
Borrower by independent public accountants in connection with any
audit or review by such accountants of the books and records of
Borrower (including, without limitation, in the normal scope of
any audit or review for purposes of certifying any annual or
interim financial statements of Borrower);
(v) quarterly, a Loss Reserve summary report
based upon end of quarter balances, including separate
information with respect to Contracts in the Securitized
Portfolio and Off Balance Sheet Securitized Portfolio, together
with a static pool charge off analysis substantially in the form
of Exhibit I hereto covering both the Contracts owned by Borrower
and Contracts in the Securitized Portfolio and Off Balance Sheet
Securitized Portfolio, both of which shall be delivered to Agent
within forty-five (45) days of the end of each fiscal quarter of
Borrower;
(vi) monthly, a summary aging of all Contracts
(including a separate aging for all Contracts in the Securitized
Portfolio and Off Balance Sheet Securitized Portfolio) as of the
end of such calendar month, together with a Borrowing Base
Certificate and required supporting reconciliations and schedules
(made as of the last day of each respective month), both of which
shall be delivered to Agent not later than the 15th day of the
next succeeding month;
(vii) promptly when available, and in any
event not later than thirty (30) days after the commencement of
each Fiscal Year, annual projections, by month, of revenue,
expenses, and income consisting of at least projections of income
statement items and balance sheet presentation for the next
Fiscal Year containing such information and in form reasonably
acceptable to Agent and Lenders;
(viii) quarterly, financial performance
reports for each location of Borrower, reflecting actual versus
projected performance in profit, volume, yield, Loss Reserves
(including average dealer holdbacks for such quarter), and
ancillary service penetration, together with trend reports
covering each location of Borrower, reflecting account activity,
volume, delinquency, repossessions and chargeoffs, both of which
shall be in form reasonably acceptable to Agent and Lenders and
delivered to Agent within 45 days of the end of each fiscal
quarter of Borrower;
(ix) promptly after the sending or filing
thereof, copies of all reports which the Borrower sends to any of
its securityholders, and all reports and registration statements
which the Borrower files with the U.S. Securities and Exchange
Commission or any national securities exchange;
(x) as soon as available and in any event
within 60 days after each February 28 and August 31, a report
from Ernst & Young (or other independent certified accountants
satisfactory to the Lenders), the reasonable fees and expenses of
which will be agreed to annually by the Borrower and the Lenders
and the cost of which shall be the sole responsibility of the
Borrower, describing, in a form and level of detail reasonably
acceptable to the Lenders matters relating to the Collateral and
such other matters as the Lenders may reasonably request;
promptly after the effectiveness thereof, any
material amendment, supplement or other modification of (i) the
Operations Manual of the Borrower from the form thereof
previously distributed to the Lenders, or (ii) the Borrower's
accounting policies regarding its Contracts; and
(xii) such other information with respect to
the financial condition and operations of Borrower as Agent or
Lenders may from time to time reasonably request.
(b) Taxes. All assessments and taxes, whether
real, personal or otherwise, due or payable by, or imposed,
levied or assessed against, Borrower or any of its property
(exclusive of any tax or assessment against real property leased
by Borrower), have been paid, and shall hereafter be paid in
full, before delinquency, and to the best of Borrower's
knowledge, all assessments and taxes due or payable by, or
imposed, levied or assessed against any real property leased by
Borrower have been paid, and shall hereafter be paid in full,
before delinquency. Borrower shall make due and timely payment
or deposit of all federal, state and local taxes, assessments or
contributions required of it by law. Nothing herein contained
shall preclude Borrower from contesting, in good faith and by
appropriate proceedings, the imposition of any assessments or
taxes and to withhold payment of such contested amounts pending
the resolution of such proceedings provided that Borrower
maintains adequate reserves therefore and the failure to pay such
taxes or assessments will not result in the imposition of a lien
not permitted hereunder.
(c) Insurance. Borrower will maintain or cause to
be maintained with responsible insurance companies insurance with
respect to the Collateral, its properties and business, including
personal or real property which secures the obligations of a
related Obligor under any Eligible Contract, against such
casualties and contingencies and of such types and in such
amounts as is customary in the case of similar businesses, and
will furnish to Agent prior to the Initial Revolving Loan and
upon request by Agent, at reasonable intervals thereafter, a
certificate of an Authorized Officer, as well as independent
evidence of such coverage, setting forth the nature and extent of
all insurance policies maintained by Borrower or Obligors in
accordance with this subsection; which insurance policies (other
than policies maintained by Obligors as required by the
Contracts) shall, by endorsement, name Agent as lender's loss
payee to the extent of Agent's interest therein; provided, that
the policies will not be invalidated as against Agent because of
any violation of a condition or warranty of the policy or
application therefor by Borrower (other than a failure to pay
premiums at the inception thereof); and provided that the
policies may be materially altered or cancelled by the insurer
only after 30 days' prior written notice to Agent. After the
occurrence of an Event of Default, Borrower hereby appoints Agent
as attorney for Borrower to prove and adjust any losses and to
endorse any loss drafts in connection with such policies.
Borrower hereby assigns to Agent all sums which may become
payable under such insurance, including returned premiums and
dividends as additional security hereunder; and Borrower shall
give immediate written notice to Agent and to the insurers of any
significant loss or damage to the Collateral and shall promptly
file proofs of loss with such insurers.
(d) Notice of Default, Litigation and ERISA.
Borrower will immediately give written notice to Agent of:
(i) the occurrence of any Default or Event of
Default;
(ii) any litigation, arbitration or
governmental in- vestigation or proceeding not previously
disclosed in writing by Borrower to Agent and Lenders which has
been instituted or, to the knowledge of Borrower, is threatened
against Borrower or any of its properties which, if adversely
determined, would materially adversely affect the financial
condition, operation or business of Borrower or impair the
ability of Borrower to perform any of its obligations under this
Agreement or any Instrument executed pursuant hereto; and
(iii) the occurrence of any Reportable Event
under, or the institution of steps by Borrower to withdraw from,
or the institution of any steps to terminate, any Plan.
(e) Performance of Obligations. Borrower will
perform promptly and faithfully all of its obligations under the
Revolving Credit Notes and each other Instrument executed
pursuant hereto.
(f) Books and Records, Audits. Borrower will in
all material respects keep books and records reflecting all of
its business affairs and transactions in accordance with
generally accepted accounting principles and permit Agent and
Lenders (or any of their employees or agents) at reasonable times
and intervals, to visit all of its offices, conduct examinations
and audits of Borrower's books and records and the Collateral,
discuss Borrower's financial matters with Borrower's officers and
independent accountants (and hereby authorizes such independent
accountants to discuss Borrower's financial matters with Agent
and Lenders and their representatives) and examine any of its
other corporate records. Such books and records shall be
maintained at Borrower's principal place of business set forth
herein.
(g) Plans. Borrower will maintain each employee
benefit plan, if any, in compliance in all material respects with
all requirements of the Plan and any applicable laws and
regulations.
(h) Performance of Contract Duties, Defense of
Collateral. Borrower warrants that it has performed and
covenants and agrees that it will continue to perform in all
material respects its duties and obligations under each Contract.
Borrower covenants to defend the Collateral from any liens,
claims, encumbrances and security interests other than Permitted
Liens.
(i) Provision for Reserves for Credit Losses.
Borrower shall maintain on a consolidated basis, Reserves for
Credit Losses as a percentage of the sum of Net Receivables and
Securitized Portfolio in an amount of not less than four and one
half percent (4.50%) of the sum of Net Receivables and
Securitized Portfolio.
(j) Possessory Perfection in Contract Collateral.
Upon request by Agent after the occurrence of an Event of
Default, Borrower will deliver to Agent with respect to each item
of Collateral which constitutes a Contract, the single, signed
counterpart which constitutes the original thereof of each
document of which each such Contract is comprised, together with
all related instruments, including, without limitation, vehicle
titles, duly assigned to Agent. Borrower covenants that Borrower
will prominently stamp or mark each original Contract with the
legend set forth in Section 14 above.
(k) Compliance with Laws. Borrower shall comply
fully with all material statutes, rules and regulations
applicable to Borrower and its business, including without
limitation, all applicable statutes, rules and regulations
relating to Borrower's business as a consumer finance company.
(l) Tennessee UCC. Borrower shall, so long as it
shall have an office or offices in Tennessee, maintain a validly
filed UCC financing statement with the State of Tennessee which
lists as "maximum principal indebtedness for Tennessee recording
tax purposes" an amount which equals or exceeds the Revolving
Loan amount generated by Borrower's Tennessee offices and
Borrower shall pay all recording taxes required with respect to
such UCC financing statement. In the event Borrower shall now or
hereafter have an office in any other jurisdiction which requires
the payment of any tax or fee in connection with the perfection
of Agent's lien on the Collateral or the Obligations, Borrower
shall pay all fees or taxes required thereby.
(m) Collateral Agent. Borrower shall make
available an Authorized Representative at all times to serve as
Collateral Agent in accordance with Section 14 of this Agreement.
(n) Required Reserve. Until the Notes are repaid
in full, Borrower shall maintain on deposit with a Lender, a sum
equal to one quarterly interest payment due under the Indenture
calculated as if the "Default Rate" (as defined in the Indenture)
were in effect, which deposit may be invested in Permitted
Investments; provided, however, if such Permitted Investment is
in the form of an obligation of the United States government or
any agency thereof or an obligation guaranteed by the United
States government, such Permitted Investment may be on deposit
with a Person other than a Lender, so long as such Person has no
lien or right of offset against such Permitted Investment and
Borrower advises Agent in writing of the type, amount, maturity
and location of such Permitted Investment. Borrower shall
utilize such monies solely for the purpose of making the next
quarterly payment of interest due under the Notes subsequent to
the occurrence of an Event of Default under this Agreement or the
Indenture.
Section 18. Negative Covenants.
Borrower covenants and agrees with Lenders that until
all of the Obligations shall have been paid and performed in
full:
(a) Business Activities. Except for related
specialized consumer lending businesses as to which Agent has
received written notice no less than thirty (30) days prior to
Borrower's commencement thereof, consisting of home equity
lending, direct consumer auto lending and direct consumer
lending, Borrower will not engage in any business which would
represent any substantial change from Borrower's existing
business.
(b) Liabilities. Borrower will not create, incur,
assume or suffer to exist or otherwise become or be liable in
respect of any Liabilities without the prior written consent of
Lenders other than:
(i) Liabilities in respect of the Revolving
Credit Notes and other Obligations;
(ii) Liabilities in respect of taxes,
assessments, governmental charges or levies and claims of any
kind to the extent that payment thereof shall not at the time be
required to be made in accordance with the provisions of Section
17(b);
(iii) Subordinated Indebtedness due to
Noteholders up to the aggregate principal sum of $14,375,000,
plus all fees and expenses payable by Borrower under the
Indenture;
(iv) Liabilities incurred in connection with
Capital Expenditures permitted under this Agreement;
(v) Liabilities to trade creditors, dealers,
employees or other Persons in the ordinary course of Borrower's
business; or
(vi) Liabilities incurred in connection with a
Permitted Securitization Transaction.
(c) Security Interests. Borrower will not create,
incur, assume, or suffer to exist any Security Interest upon any
of its property or assets, whether now owned or hereafter
acquired, except:
(i) the Security Interest granted by this
Agreement;
(ii) inchoate liens for taxes, assessments or
other governmental charges or levies not at the time delinquent;
(iii) judgment liens junior and subordinate to
the Security Interest of this Agreement, which have been in
existence less than 30 days after the entry thereof or with
respect to which execution has been stayed;
(iv) other liens on specific equipment in
connection with the financing of Capital Expenditures permitted
hereunder; and
(v) the sale of Contracts and related property
in connection with a Permitted Securitization Transaction.
All of the foregoing are hereinafter referred to as "Permitted
Liens".
(d) Investment. Borrower will not, without the
prior written consent of Lenders make, incur, assume or suffer to
exist any Investment in any other Person, except Cash Equivalent
Investments and in connection with the Existing Securitization
Transaction.
(e) Sale, Transfer or Encumbrance of Assets.
Borrower will not without the prior written consent of Lenders,
sell, lease, pledge, encumber, grant a security interest in
(other than (i) to Agent, or (ii) Permitted Liens), or otherwise
dispose of, move, relocate, or transfer, whether by sale or
otherwise, any of Borrower's assets, except for the movement of
assets in the ordinary course of business to locations disclosed
in advance to Agent and where Borrower has executed and tendered
to Agent appropriate UCC-1 financing statements for filing or
taken other steps required to enable Agent to perfect its lien
and the sale of Contracts and related Property in connection with
a Permitted Securitization Transaction.
(f) Distributions, Issuance of Stock, Management
Fees. Borrower will not purchase, redeem or retire any of its
capital stock of any class, or any options or warrants whether
now or hereafter outstanding (other than (i) redemption of shares
held by employees upon their death or disability where the
funding of such redemption is provided to the extent required in
excess of the sum of $100,000, by the proceeds of life or
disability insurance, or (ii) other redemptions, and in either
such case where such redemption would not cause an Event of
Default), pay any management fees, pay any dividends or
distributions in cash, stock or other securities or property or,
issue any stock or other securities; provided that the Borrower
may (1) redeem shares held by Mitchell C. Kahn and Brian Hausmann
upon their respective deaths to the extent that (x) in the case
of Mr. Kahn, the purchase price therefor up to $2,000,000 is
funded by the proceeds of life insurance and the purchase price
therefor in excess of $2,000,000 is in the form of a promissory
note subordinated to the Obligations on terms (including as to
term, amortization, interest rate, acceleration, covenants and
subordination provisions) satisfactory to the Lenders in their
reasonable discretion (such a subordinated note being a
"Redemption Note"), and (y) in the case of Mr. Hausmann, the
purchase price therefor up to $750,000 is funded by the proceeds
of life insurance and the purchase price therefor in excess of
$750,000 is in the form of a Redemption Note, or (2) pay
dividends or distributions in any Fiscal year up to the lesser of
$4,000,000 or twenty-five percent (25%) of Net Income.
(g) Transactions with Affiliates. Borrower shall
not enter into any transaction with, any Affiliate, except in the
ordinary course of business and upon fair and reasonable terms
which are no less favorable to Borrower than would obtain in a
comparable arm's length transaction with a Person not an
Affiliate and except in connection with a Permitted
Securitization Transaction.
(h) Loan and Advances. Borrower will not make any
loans to any Person; guarantee any debt or other obligation of
any other Person; or advance to any employee, customer or other
Person any funds other than (i) loans in the ordinary course of
Borrower's business as a finance company, or (ii) existing and
future loans to members of Borrower's senior management for the
purchase of capital stock of Borrower up to an aggregate
principal sum of $250,000, (iii) other loans and advances and
miscellaneous investments which do not exceed $150,000 in the
aggregate during the term of this Agreement, or (iv) obligations
incurred by Borrower in connection with a Permitted
Securitization Transaction.
(i) Consolidation, Merger, Sale or Pledge of
Assets. Except for the sale of Contracts and related property in
connection with a Permitted Securitization Transaction, Borrower
will not, without the prior written consent of Lenders,
consolidate with, combine with, acquire or merge into or with any
other Person, suffer or permit a Change in Control, or purchase
or otherwise acquire any other Person or all or substantially all
of the assets of any Person (or any division thereof) or sell,
transfer, lease, mortgage or otherwise pledge or dispose of all
or any substantial part of its assets to any Person; provided,
however, Borrower may make Bulk Purchases of Contracts for an
aggregate purchase price not exceeding $500,000 per year so long
as the Contracts being purchased were underwritten substantially
in accordance with the underwriting policy, procedure and
standards set forth in Borrower's existing Operations Manual in
the form previously provided to Lenders.
(j) Inconsistent Financing Statements. Borrower
will not file, nor allow to remain on file, and unreleased, any
financing statement or other document which perfects or purports
to perfect any Security Interest in favor of any other Person
which is inconsistent with subsection (c) of this Section.
(k) Modification of Contract Terms. Borrower will
not modify the terms of any Contract which is at that time
reflected in the Borrowing Base so as to render a Contract not
otherwise eligible into an Eligible Contract, without the prior
written consent of Lenders.
(l) Capital Expenditures. Borrower shall not make
Capital Expenditures which, in the aggregate, exceed the sum of
$2,000,000 in any Fiscal Year.
(m) Leverage Ratio. Borrower shall not permit its
Leverage Ratio to exceed 3.50 to 1.0.
(n) Delinquent Accounts. Borrower will not suffer
or permit the sum of aggregate Net Receivables (which for
purposes of this covenant shall include Net Receivables under all
Contracts in the Securitized Portfolio and Off Balance Sheet
Securitized Portfolio) with payments more than sixty (60) days
contractually past due to exceed three and one-quarter percent
(3.25%) of Borrower's Net Receivables, Securitized Portfolio and
Off Balance Sheet Securitized Portfolio.
(o) Tangible Net Worth. Borrower shall not permit
its consolidated Tangible Net Worth at any time to be less than
$92,000,000, plus a sum equal to fifty percent (50%) of
Borrower's cumulative Net Income (with no reduction for losses)
earned from and after January 1, 1996.
(p) Interest Coverage Ratio. Borrower shall not
permit its Interest Coverage Ratio for the twelve (12) month
period ending as of the last day of each fiscal quarter to be
less than 1.50 to 1.0.
(q) Subordinated Indebtedness. Borrower shall not
make any payment on any Subordinated Indebtedness if a Default or
an Event of Default exists or if such payment would create a
Default or an Event of Default.
(r) Modification of Certain Agreements. Borrower
shall not consent to or enter into any amendment, supplement or
other modification of (a) any term, provision or agreement
contained in the Indenture, the Securitization Transaction
Documents or any agreement governing or relating to any other
material Liabilities, if such amendment, supplement or other
modification would be materially adverse to Lenders, in their
sole judgment; or (b) any material term or provision (i)
contained in the Operations Manual of the Borrower from the form
previously distributed to the Lenders, or (ii) of the Borrower's
accounting policies regarding its Contracts.
(s) Total Liabilities to Tangible Equity Base.
Borrower shall not permit its Total Liabilities to Tangible
Equity Base to exceed 6.0 to 1.0 at any time.
Section 19. Events of Default.
The occurrence of any of the following shall
constitute an Event of Default hereunder:
(a) Borrower defaults in the payment or prepayment
when due of any of the Liabilities, including without limitation,
any principal of the Revolving Credit Notes or any interest
thereon, or of any fee hereunder;
(b) Borrower defaults in the due performance and
observance of any covenant or agreement contained in Section 18
of this Agreement herein, and fails to cure same within fourteen
(14) days of notice by Agent to Borrower;
(c) Borrower defaults in the due performance and
observance of any warranty, representation, covenant or agreement
contained herein, other than as specified in (a) or (b) above, or
in any Instrument, document or agreement executed pursuant
hereto, and fails to cure same within 14 days of notice by Agent
to Borrower, unless such breach is not capable of being cured
within 14 days and Borrower is diligently pursuing a cure by
appropriate means and effects such cure within 45 days of notice
by Agent to Borrower of such breach.
(d) an "Event of Default" (as defined in the
Indenture) shall occur under the terms of the Indenture, or
Borrower or any of its subsidiaries shall be in default of any
term, covenant, obligation or condition under the Securitization
Transaction Documents which has not been cured within the time
provided therein, if any;
(e) any default shall occur under the terms
applicable to (i) any Liabilities of Borrower representing any
borrowing or financing and the holder or holders, or an agent for
such holder or holders thereof, shall then have accelerated any
payment or the performance of any obligation due under, such
Liabilities, or (ii) any Liabilities of Borrower under any other
material agreement (which is not being contested by Borrower in
good faith by appropriate proceedings) with respect to any
purchase or lease by Borrower of goods or services, and the
holder or holders, or an agent for such holder or holders
thereof, shall then have accelerated any payment or the
performance of any obligations due under, such Liabilities;
(f) Borrower shall become insolvent or generally
fail to pay, or admit in writing its inability to pay debts as
they become due; or Borrower shall apply for, consent to, or
acquiesce in, the appointment of a trustee, receiver, or other
custodian for Borrower or any of its property, or make a general
assignment for the benefit of creditors; or, in the absence of
such application, consent or acquiescence, a trustee, receiver or
other custodian shall be appointed for Borrower or for a
substantial part of its property and not be discharged within 30
days; or any bankruptcy, reorganization, debt arrangement, or
other case or proceeding under any bankruptcy or insolvency law,
or any dissolution or liquidation proceeding shall be commenced
against or in respect of Borrower as a debtor and, if not
commenced by Borrower, be consented to or acquiesced in by
Borrower or remain for 30 days undismissed; or Borrower shall
take any action to authorize, or in furtherance of, any of the
foregoing;
(g) Any representation or warranty made by the
Borrower herein, in any Instrument, or in any certificate or
financial or other statement heretofore, or hereafter furnished
by or on behalf of the Borrower, shall prove to be in any
material respect false or misleading; provided, however,
Borrower's failure to fully achieve its financial projections or
operating plans shall not, in and of itself, deem any
representation or warranty made in connection therewith, false or
misleading;
(h) Borrower shall suspend the transaction of
business or is enjoined, restrained or in any way prevented by
court order from continuing to conduct all or any material part
of its business affairs; or
(i) Any Change in Control shall occur without the
prior written consent of the Majority Lenders.
Section 20. Remedies.
Upon the occurrence of an Event of Default described
in Section 19(f) hereunder, the Commitments shall automatically
terminate and the Obligations shall automatically be and become
immediately due and payable, without notice or demand. Upon the
occurrence of any Event of Default hereunder, Agent may, and
shall, at the direction of the Majority Lenders, exercise any or
all of the following remedies, in addition to those granted to
Agent and Lenders under applicable law or the Uniform Commercial
Code of Illinois and all other applicable jurisdictions where
Collateral is located, which rights and remedies will be
cumulative and not exclusive:
(a) In the case of an Event of Default other than
an Event of Default described in Section 19(f) of this Agreement,
immediately, without notice to the Borrower, declare all or any
part of the outstanding amount of the Revolving Credit Notes and
any Obligations to be due and payable, whereupon the full unpaid
amount of the Revolving Credit Notes and any and all other
Obligations shall be and become immediately due and payable.
(b) Cease making Revolving Loans under this
Agreement and terminate this Agreement as to any future
liabilities or obligations of Agent and Lenders, but without
affecting Agent's and Lenders' rights or Borrower's Obligations.
(c) Agent may exercise all rights and remedies
under each Contract, lease, security agreement and other contract
included among the Collateral as are afforded to the secured
party thereunder or which are otherwise afforded to Borrower
thereunder; Agent may, subject to the rights of Obligors, recover
possession of any tangible personal property under any Contract,
and require that same be assembled and delivered to a specific
location; and Agent shall be entitled to a decree of specific
performance to enforce the rights set forth in this subsection
(c).
(d) Agent may notify each Obligor party to a
Contract that the Contract has been assigned to Agent, that all
payments are to be forwarded to Agent without set off or
diminution of any kind, and that all correspondence is thereafter
to be sent directly to the Agent. Furthermore Agent is
authorized and directed by Borrower to collect and receive any
and all revenues and other cash and noncash proceeds which
constitute part of, or are derived from, the Collateral.
(e) Agent may sell all or any part of the
Collateral, free from any and all claims of Borrower, in one lot
and as an entirety, or in separate lots, at public or private
sale, for cash or credit, in its discretion. Upon any such
public sale, Agent may bid for the property offered for sale or
any part thereof and the proceeds of such sale, net of costs,
shall be applied to any Obligations secured hereby as provided
hereinafter. Any such sale shall be held or conducted in a
commercially reasonable manner and at such place and at such time
as Agent may specify, or as may be required by law. Without
limiting the generality of the foregoing, Borrower expressly
agrees in any such event that Agent, without demand of
performance or other demand or notice of any kind (except the
notice specified herein of time and place of public or private
sale) to or upon Borrower or any other person (all and each of
which demands and/or notices are hereby expressly waived), may
forthwith collect, receive, appropriate and realize upon the
Collateral or any part thereof. If any notification of intended
disposition of any of the Collateral is required by law, such
notification shall be deemed reasonable and properly given in
accordance with Section 29 hereof five (5) days before such
disposition.
At the request of Agent, Borrower shall promptly execute and
deliver to Agent such instruments of title and other documents as
Agent shall deem necessary or advisable to enable Agent to obtain
possession of any portion or all of the Collateral, or to
transfer the title to any portion or all of the Collateral, to
any purchaser (including, without limitation, Agent) in
connection with any sale.
Agent shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization and sale, after
deducting all reasonable costs and expenses of every kind
incurred therein or incidental to the care, safekeeping or
otherwise of any or all of the Collateral or in any way relating
to the rights of Agent hereunder, including reasonable attorney's
fees and legal expenses, to the payment in whole or in part of
the Obligations hereunder, in such order as Agent may elect, and
only after so applying such net proceeds, after payment in full
of the Obligations hereunder, shall apply the surplus, if any, to
Borrower or whomsoever may be lawfully entitled to receive the
same. Borrower hereby waives presentment, demand and protest (to
the extent permitted by applicable law) of any kind in connection
with this Agreement or any Collateral.
Section 21. Agent.
(a) Appointment. Each Lender hereby designates and
appoints LaSalle as Agent of such Lender under this Agreement,
and each Lender hereby irrevocably authorizes Agent to take such
action on its behalf under the provisions of this Agreement and
to exercise such powers as are set forth herein, together with
such other powers as are incidental thereto. Agent agrees to act
as such on the express conditions contained in this Section 21.
The provisions of this Section 21 are solely for the
benefit of Agent and Lenders, and Borrower shall not have the
right to rely on or enforce any of the provisions hereof. In
performing its functions and duties under this Agreement, Agent
shall act solely as agent of the Lenders and does not assume and
shall not be deemed to have assumed any obligation toward or
relationship of agency or trust with or for Borrower.
(b) Nature of Duties. Agent shall not have any
duties or responsibilities except those expressly set forth in
this Agreement. The duties of Agent shall be mechanical and
administrative in nature.
Agent shall not have by reason of this Agreement a fiduciary
relationship in respect of any Lender. Nothing in this
Agreement, expressed or implied, is intended to or shall be
construed to impose upon Agent any obligation in respect of this
Agreement except as expressly set forth herein. Each Lender
shall make its own independent investigation of the financial
condition and affairs of Borrower in connection with the making
and the continuance of the Revolving Loans hereunder and shall
make its own appraisal of the creditworthiness of Borrower, and
Agent shall not have any duty or responsibility, either initially
or on a continuing basis, to provide any Lender with any credit
or other information with respect thereto, whether coming into
its possession before the date of this Agreement or at any time
or times thereafter, except for documents delivered to Agent
pursuant to this Agreement by or on behalf of the Borrower. If
Agent seeks the consent or approval of the Majority Lenders to
the taking or refraining from taking any action hereunder, Agent
shall send notice thereof to each Lender. Agent shall promptly
notify each Lender at any time that the Majority Lenders have
instructed Agent to act or refrain from acting pursuant hereto.
(c) Rights, Exculpation, etc. Neither Agent, any
Affiliate of Agent, nor any of their respective officers,
directors, employees, agents, attorneys or consultants, shall be
liable to any Lender for any action taken or omitted by them
hereunder, or in connection herewith, except that Agent shall be
obligated for its gross negligence or willful misconduct in the
performance of its express obligations hereunder. Agent shall
not be liable for any apportionment or distribution of payments
made by it in the absence of willful misconduct or gross
negligence pursuant to Section 4, and if any such apportionment
or distribution is subsequently determined to have been made in
error the sole recourse of any Person to whom payment was due,
but not made, shall be to recover from the recipients of such
payments any payment in excess of the amount to which they are
determined to have been entitled.
Agent shall not be responsible to any Lender for any recitals,
statements, representations or warranties herein or for the
enforceability, collectibility, or sufficiency of this Agreement,
or any of the transactions contemplated hereby and thereby, or
for the financial condition of Borrower. Agent shall not be
required to make any inquiry concerning either the performance or
observance of any of the terms, provisions or conditions of this
Agreement or the financial condition of Borrower, or the
existence or possible existence of any Event of Default or
Default, provided, however, that the foregoing shall not release
Agent from its obligations under this Agreement. Agent may at
any time request instructions or indemnification from Lenders
with respect to any actions or approvals which by the terms of
this Agreement Agent is permitted or required to take or to
grant, and if such instructions or indemnification are promptly
requested, Agent shall be absolutely entitled to refrain from
taking any action or to withhold any approval and shall not be
under any liability whatsoever to any Person for refraining from
any action or withholding any approval under this Agreement until
it shall have received such instructions or indemnification (to
Agent's satisfaction) from the Lenders. Without limiting the
foregoing, no Lender shall have any right of action whatsoever
against Agent as a result of Agent acting or refraining from
acting under this Agreement in accordance with the instructions
of the Majority Lenders.
(d) Reliance. Agent shall be entitled to rely upon
any written notices, statements, certificates, orders or other
documents or any telephone message believed by it in good faith
to be genuine and correct and to have been signed, sent or made
by the proper Person, and with respect to all matters pertaining
to this Agreement and its duties hereunder or thereunder, upon
advice of legal counsel (including counsel for Borrower),
independent public accountants and other experts selected by it.
(e) Indemnification. To the extent that Agent is
not reimbursed and indemnified by Borrower, Lenders will
reimburse and indemnify Agent, upon demand, for and against any
and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of
any kind or nature whatsoever which may be imposed on, incurred
by, or asserted against it in any way relating to or arising out
of this Agreement or any action taken or omitted by Agent under
this Agreement, in proportion to each Lender's ratable shares of
the Commitments; provided that no Lender shall be liable for any
portion of such liabilities, obligations losses, damages,
penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from Agent's gross negligence or willful
misconduct. The obligations of Lenders under this Section 21(e)
shall survive the payment in full of all Obligations and the
termination of this Agreement.
(f) The Agent Individually. With respect to its
pro rata share of the Commitments hereunder and the Revolving
Loans made by it, Agent shall have and may exercise the same
rights and powers hereunder and is subject to the same
obligations and liabilities as and to the extent set forth herein
for any other Lender. The terms "Lender" or "Lenders" or any
similar terms shall include Agent in its individual capacity as a
Lender or one of the Lenders. Except as provided herein, Agent
in its individual capacity may accept deposits from and generally
engage in any kind of banking, trust or other business with
Borrower as if it were not acting as Agent pursuant hereto.
(g) Successor Agent; Resignation of Agent. (1)
Agent may resign from the performance of all its functions and
duties hereunder at any time by giving at least thirty (30)
Business Days' prior written notice to Lenders and Borrower.
Such resignation shall take effect upon the acceptance by a
successor Agent of appointment pursuant to clauses (2) and (3)
below or as otherwise provided below.
(2) Upon any such notice of resignation by Agent,
the Majority Lenders shall appoint a successor Agent who shall be
reasonably satisfactory to Borrower.
(3) If a successor Agent shall not have been so
appointed within said thirty (30) Business Day period, the
retiring Agent, with the consent of Borrower (which may not be
withheld unreasonably), shall then appoint a successor Agent who
shall serve as Agent until such time, if any, as the Majority
Lenders, with the consent of Borrower, appoint a successor Agent
as provided above.
(4) Upon the appointment of a successor Agent, the
term "Agent" shall, for all purposes of this Agreement,
thereafter mean such successor.
(h) Collateral Matters.
Agent is hereby authorized on behalf of all of
Lenders, without the necessity of any notice to or further
consent from any Lender, from time to time prior to a Default, to
take any action with respect to any Collateral which may be
necessary to perfect and maintain perfected the security interest
in and liens upon the Collateral granted pursuant to this
Agreement.
Section 22. Relations Among Lenders.
(a) Except for loans and advances set forth in
Section 2 of this Agreement, depository and cash management
services provided by LaSalle to Borrower and Hedging Obligations
of Borrower to a Lender which are subordinated to the Obligations
in form and substance acceptable to the Majority Lenders, no
Lender shall make any loan, advance or other extension of credit
or financial accommodations to Borrower without the prior written
consent of the Majority Lenders.
(b) Each Lender agrees that it will not take any
action, nor institute any actions or proceedings, against
Borrower or any other obligor hereunder or with respect to any
Collateral, without the prior written consent of the Majority
Lenders.
Section 23. Miscellaneous.
Concerning the Collateral and the Collateral
Documents. Each Lender agrees that any action taken by Agent or
the Majority Lenders in accordance with the provisions of this
Agreement, and the exercise by Agent or the Lenders of the powers
set forth herein or therein, together with such other powers as
are reasonably incidental thereto, shall be authorized and
binding upon all of the Lenders.
Section 24. Participations.
Each Lender may sell participations to one or more
banks or other entities in or to all or a portion of its rights
and obligations under this Agreement (including, without
limitation, all or a portion of its Commitments and the Revolving
Loans owing to it); provided, however, that (i) such Lender's
obligations under this Agreement (including, without limitation,
its Commitment to Borrower hereunder) shall remain unchanged,
(ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii)
Borrower, Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and with
regard to any and all payments to be made under this Agreement
and (iv) the holder of any such participation shall not be
entitled to voting rights under this Agreement. No Lender may,
without the consent of all Lenders and the Borrower, make an
assignment of its rights or obligations under this Agreement;
provided that Borrower shall not unreasonably withhold its
consent to any proposed assignment.
Section 25. Waiver and Amendment.
(a) Agent's or Lenders' failure, at any time or
times hereafter, to require strict performance by Borrower of any
provision of this Agreement or the Revolving Credit Notes shall
not waive, affect or diminish any right of Agent or Lenders
thereafter to demand strict compliance and performance therewith.
Any suspension or waiver by Agent or Lenders of a Default or
Event of Default by Borrower under this Agreement or the
Revolving Credit Notes shall not suspend, waive or affect any
other Default or Event of Default by Borrower under this
Agreement or the Revolving Credit Notes, whether the same is
prior or subsequent thereto and whether of the same or of a
different kind or character.
(b) No amendment or modification of any provision of
this Agreement or the Revolving Credit Notes shall be effective
without the written agreement of the Majority Lenders and
Borrower, and no termination or waiver of any provision of this
Agreement, or consent to any departure by Borrower therefrom,
shall in any event be effective without the written concurrence
of the Majority Lenders, which the Majority Lenders shall have
the right to grant or withhold at their sole discretion.
(c) Notwithstanding the provisions of Section
25(b), any amendment relating (i) to any increase of the
Commitments of any Lender, of the total of the Commitments or of
the principal amount of the Revolving Loans, (ii) to any change
in the final maturity of the Revolving Loans, (iii) to the
reduction of interest rates applicable to the Revolving Loans or
fees payable under this Agreement, (iv) to the definition of
"Borrowing Base" or "Majority Lenders", (v) to the provisions
contained in this Section 25(c), (vi) to the release of
Collateral, (vii) to any provision contained in Sections 17 and
18 of this Agreement, or (viii) to any Event of Default involving
the payment of money or the performance of any material
obligation by Borrower under this Agreement, shall be effective
only if evidenced by a writing signed by or on behalf of all
Lenders. No amendment, modification termination or waiver of any
provision of Section 21 or any other provision referring to Agent
shall be effective without the written concurrence of Agent.
Agent may, but shall have no obligation to, with the concurrence
of any Lender, execute amendments, modifications, waivers or
consents on behalf of such Lender.
Section 26. Accounting and Financial Determinations.
Where the character or amount of any asset or
liability or item of income or expense is required to be
determined under this Agreement, each such determination or
calculation shall, to the extent applicable and except as
otherwise specified in this Agreement, be made in accordance with
generally accepted accounting principles applied on a basis
consistent with the audited financial statements of Borrower
referred to in Section 17 hereof.
Section 27. Right of Offset.
Subject to the terms of this Agreement, in addition
to, and without limitation of, any rights of Agent and Lenders
under applicable law or otherwise, Agent and Lenders may, when
any Event of Default shall have occurred and be continuing and
without notice or demand of any kind, appropriate and apply
toward payment of any Obligations (whether or not then due), any
amounts, properties, balances, credits, deposit accounts or other
monies of Borrower in the possession or control of Agent or
Lenders for any purpose, other than segregated deposits
designated for the payment of taxes or other designated trust
funds or funds on deposit pursuant to Section 17(o) of this
Agreement during any period in which any sum due under the Notes
is outstanding.
Section 28. Computation and Payment of Liabilities.
Whenever any payment to be made shall otherwise be
due on a day which is not a Business Day, that payment shall be
made on the next succeeding Business Day, and that extension of
time shall be included in computing interest, if any, in
connection with such payment.
Section 29. Notices.
Except as otherwise expressly provided, all notices
and other communications to any party pursuant to this Agreement
or any Instrument executed pursuant hereto shall be in writing or
by telex or facsimile addressed, delivered or transmitted to it
at its address or number set forth below its signature hereto or
to such other address or number as it shall designate in a notice
to the other party. Any notice if mailed properly addressed
shall be deemed given on the third Business Day after mailing
postage prepaid or on the second Business Day when sent by
overnight delivery service which provides at least upon request a
receipt for delivery; any notice to any party having a telex or
facsimile number for the receipt at its address for notice
hereunder of messages by transmission by telex or facsimile shall
be deemed given when transmitted by telex or facsimile
transmitted to such party at such telex or facsimile number.
Section 30. Costs and Expenses.
Borrower agrees to reimburse Agent and Lenders upon
demand for all costs, fees and expenses (including reasonable
attorneys' fees and legal expenses) incurred by Agent or Lenders
hereunder or in connection herewith in enforcing the Obligations
of Borrower hereunder or under the Revolving Credit Notes or any
other Instrument executed pursuant hereto. The obligations of
Borrower under this Section shall survive any termination of this
Agreement.
Section 31. Severability, Choice of Law.
Any provision of this Agreement or any instrument
executed pursuant hereto which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of any such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement or any
such Instrument or affecting the validity or enforceability of
that provision in any other jurisdiction. This Agreement and all
terms and provisions hereof shall be construed and interpreted in
accordance with and governed by the laws of the State of Illinois
without regard to the choice of law rules thereof except as to
perfection of any Security Interest which shall be controlled by
the laws of the relevant jurisdiction. Borrower, to further
induce the Lenders to enter into this Agreement agrees that,
subject to the Lenders' election, all actions, suits or
proceedings regarding the interpretation or enforcement of this
Agreement or any Instrument shall be litigated only in courts
having situs in Cook County, Illinois, and consents to
jurisdiction of any such court having subject matter jurisdiction
over the matter of such litigation, action, or proceeding and
hereby irrevocably appoints Prentice-Hall Corporation Systems,
Inc., whose address is 33 North LaSalle Street, Chicago, Illinois
60602 or such other person whom Lenders may designate in writing
to Borrower as agent for the personal service of process.
Borrower agrees that service of such process shall constitute
personal service upon Borrower, upon forwarding of notice to
Borrower of such service in accordance with the provisions of
Section 29 hereof.
Section 32. Successors and Assigns.
This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective
successors and assigns, except that Borrower may not assign or
transfer its rights hereunder without the prior written consent
of Lenders. Lenders reserve the right, subject to the terms of
Section 24 of this Agreement, to assign or grant participations
in all or any part of, or any interest in, their rights and
benefits hereunder and under the Revolving Credit Notes or any
other Instrument executed pursuant hereto and may, in connection
therewith, disclose all documents and information which they may
have relating to Borrower or its business, this Agreement, the
Revolving Credit Notes and any other such Instrument.
Section 33. Taxes and Expenses Regarding the Collateral.
If Borrower fails to pay promptly when due to any
other person or entity, monies which Borrower is required to pay
by reason of any provision in this Agreement, Agent or Lenders
may, but need not, pay the same and charge such Borrower's
account therefor, and Borrower shall promptly reimburse Agent and
Lenders. All such sums shall become additional Obligations owing
to Lenders, shall bear interest at the interest rate then
applicable under this Agreement, and shall be secured by the
Collateral. Any payments made by Agent or Lenders shall not
constitute an agreement by Agent or Lenders to make similar
payments in the future, or a waiver by Agent or Lenders of any
default under this Agreement. Agent or Lenders need not inquire
as to, or contest the validity of, any such expense, tax,
security interest, encumbrance or lien. The receipt of the usual
official governmental or court notice for the payment of the
foregoing shall be conclusive evidence that the same was validly
due and owing, and the receipt of any other notice with respect
to all other such monies due hereunder shall be prima facie
evidence that the same was validly due and owing.
Section 34. Waiver of Jury Trial.
BORROWER AND LENDERS EACH WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR
ANY TRANSACTION HEREUNDER.
Section 35. Indemnity.
Borrower shall indemnify and hold harmless Agent and
Lenders and their directors, officers, agents, counsel and
employees ("Indemnified Persons") from and against all losses,
claims, damages, costs, expenses and liabilities ("Losses")
incurred by any of them arising principally out of or relating to
this Agreement, any Contract, or any other transaction
contemplated hereby or thereby other than arising out of any
intercreditor relationship between Lenders and any Participant or
holder of Subordinated Indebtedness and except for any such
losses caused by the gross negligence or willful misconduct of
such Indemnified Persons, and shall reimburse Agent and Lenders
and each other Indemnified Person for any expenses (including the
fees and disbursements of legal counsel) incurred in connection
with the investigation of, preparation for or defense of any
actual or threatened claim, action or proceeding arising
therefrom (including any such costs of responding to discovery
requests or subpoenas), regardless of whether Agent, Lenders or
other Indemnified Person is a party thereto.
Section 36. Section Headings.
Section headings and numbers have been set forth
herein for convenience only and shall be without substantive
meaning or content of any kind whatsoever. Unless the contrary
is compelled by the context, everything contained in each section
applies equally to this entire Agreement.
Section 37. Construction.
Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Agent,
Lenders or Borrower, whether under any rule of construction or
otherwise. On the contrary, this Agreement has been reviewed by
all parties and shall be construed and interpreted according to
the ordinary meaning of the words used so as to fairly accomplish
the purposes and intentions of the parties hereto.
Section 38. Restatement of Prior Agreements.
This Agreement constitutes a renewal and extension
and an amendment and restatement of, and a replacement and
substitute for the Prior Agreements. The Obligations under the
Prior Agreements are continuing indebtedness and nothing in this
Agreement shall be deemed to constitute payment, settlement or
novation of the corresponding Obligations of Borrower under the
Prior Agreements, or to release or otherwise affect any lien or
security interest securing such Obligations or any rights of
Lenders against Borrower, or any guarantor, surety, or other
party primarily or secondarily liable for such Obligations. Upon
execution of this Agreement by the parties, this Agreement shall
amend and supersede and is substituted for the Prior Agreements
in their entirety.
<PAGE>
Exhibit 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
Three Months Ended March 31
1996 1995
-----------------------------
Average number of common shares
outstanding 6,525,519 4,141,824
Common equivalent shares
outstanding:
Warrants - 269,152
Stock options 207,084 41,873
--------- ---------
Total common and common equivalent
shares outstanding 6,732,603 4,452,850
========= =========
Net earnings $ 3,022,038 $ 1,168,028
========= =========
Net earnings per share $ 0.45 0.26
========= =========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The information included in this Financial Data Schedule shall
not be deemed to be filed with the Securities and Exchange
Commission and is qualified in its entirety by reference to the
financial and other information included elsewhere in this
Quarterly Report on Form 10-Q.
</LEGEND>
<CIK> 0000926296
<NAME> FIRST MERCHANTS ACCEPTANCE CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 113,213
<SECURITIES> 0
<RECEIVABLES> 297,703,658
<ALLOWANCES> (17,947,136)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,066,209
<DEPRECIATION> 687,486
<TOTAL-ASSETS> 337,618,049
<CURRENT-LIABILITIES> 0
<BONDS> 13,924,583
0
0
<COMMON> 65,255
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 337,618,049
<SALES> 0
<TOTAL-REVENUES> 20,825,612
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,807,196
<LOSS-PROVISION> 3,500,000
<INTEREST-EXPENSE> 4,564,378
<INCOME-PRETAX> 4,954,038
<INCOME-TAX> 1,932,000
<INCOME-CONTINUING> 3,022,038
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,022,038
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
