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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
July 11, 1997
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Date of Report (Date of earliest event reported)
First Merchants Acceptance Corporation
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(Exact name of registrant as specified in its charter)
Delaware 0-24686 36-3759045
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
570 Lake Cook Road, Suite 126, Deerfield, Illinois 60015
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(Address of principal executive offices) (Zip Code)
(847) 948-9300
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(Registrant's telephone number)
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ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
On July 11, 1997, First Merchants Acceptance Corporation (the
"Registrant") filed a voluntary petition in the United States Bankruptcy Court
for the District of Delaware, Case No. 97-1500 (the "Bankruptcy Court") for
protection under Chapter 11 of the United States Bankruptcy Code. The
Registrant will continue to operate as a debtor-in-possession, with its
existing directors and officers, subject to the supervision and orders of the
Bankruptcy Court. As of the date of this report, no plan of reorganization has
been filed by the Registrant and no trustee has been appointed.
On July 11, 1997, the Registrant entered into a term sheet with Ugly
Duckling Corp. ("UDC") pursuant to which UDC agreed to provide the Registrant
with a debtor-in-possession financing facility of at least $10 million (the
"Facility"). Advances to the Registrant under the Facility are subject to
certain conditions, including, but not limited to, the execution of definitive
loan documents in form and substance acceptable to UDC in its sole and absolute
discretion. The Bankruptcy Court verbally approved the Facility on July 17,
1997; however, the Registrant has not received a written order as of the
date of this report. The interim approval allows the Registrant to use a $5
million line of credit under the Facility. It is anticipated that a final
hearing on the full $10 million line of credit under the Facility will be
scheduled for August, 1997.
On July 17, 1997, the Registrant announced that it had reached an
agreement in principle with its bank group and UDC which, among other things,
provides that (i) UDC will buy the bank group's position and (ii) the
Registrant will file a motion to approve releases of the Bank Group and UDC
which is anticipated to be set for an August, 1997 hearing.
ITEM 7. EXHIBITS.
Exhibit 99.1 Press release of the Registrant, dated July 11, 1997.
Exhibit 99.2 DIP Financing Term Sheet dated July 11, 1997.
Exhibit 99.3 Interim Order Authorizing Debtor-In-Possession
Financing and Certain Additional Relief dated July 14,
1997.
Exhibit 99.4 Form of Second Interim Order Authorizing Debtor-In-
Possession Financing and Certain Additional Relief.
Exhibit 99.5 Press release of the Registrant, dated July 17, 1997.
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST MERCHANTS ACCEPTANCE CORPORATION
/s/ Norman Smagley
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Norman Smagley
Dated: July 25, 1997 Senior Vice President and Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
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99.1 Press release of the Registrant dated July 11, 1997
99.2 DIP Financing Term Sheet dated July 11, 1997.
99.3 Interim Order Authorizing
Debtor-In-Possession Financing and Certain
Additional Relief dated July 14, 1997.
99.4 Form of Second Interim Order Authorizing
Debtor-In-Possession Financing and
Certain Additional Relief
99.5 Press release of the Registrant, dated July 17, 1997
<PAGE> 1
EXHIBIT 99.1
FIRST MERCHANTS SEEKS CHAPTER 11 PROTECTION
DEERFIELD, Ill. -- (BUSINESS WIRE) -- July 11, 1997 -- First Merchants
Acceptance Corp. (NASDAQ:FMACE) announced that it filed a petition today in the
United States Bankruptcy Court in Delaware for protection under Chapter 11 of
the Bankruptcy Code.
Earlier this week, First Merchants announced that it was in default under its
loan agreement with its bank group, as well as under the Indentures that govern
two series of subordinated notes which it issued. The company had also earlier
announced that the bank group had ceased honoring its checks, and indicated
that it might seek Bankruptcy Code protection.
The company has negotiated a debtor in possession financing facility with Ugly
Duckling Corp. which will be presented early next week for Bankruptcy Court
approval.
William Plamondon, First Merchants' president and CEO, stated that he was
"pleased with the new financing" because it "provides a meaningful opportunity
to reorganize, including the resumption of contract purchases." Plamondon is
part of a new management team brought in last April after the company dismissed
certain prior executive officers following the discovery of irregularities
involving unauthorized entries in its financial records.
First Merchants is a national specialty finance company, primarily engaged in
financing the purchase of used automobiles by consumers who have limited access
to traditional sources of credit. The company acquires dealer-originated
retail installment contracts from franchised and independent automobile dealers
and financial institutions in 37 states.
Safe Harbor Language
This press release contains various forward-looking statements and information
that are based on management's beliefs as well as assumptions made by and
information currently available to management, including statements regarding
future economic performance and financial condition, liquidity and capital
resources, and management's plans and objectives. Such statements are subject
to various risks and uncertainties which could cause actual results to vary
materially from those stated. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, expected
or projected. Such risks and uncertainties include the availability of
financing on terms and conditions acceptable to the company, the ability of the
company to securitize its finance contracts in the asset-backed securities
market on terms and conditions acceptable to the company and changes in the
quality or composition of the serviced finance contract receivable portfolio.
Certain of these as well as other risks and uncertainties are described in more
detail in the company's Annual Report on Form 10-K, as amended for the period
ended Dec. 31, 1996. The company undertakes no obligation to update any such
factor or to publicly announce the result of any revisions to any of the
forward looking statements contained herein to reflect future events or
developments.
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EXHIBIT 99.2
DIP FINANCING TERM SHEET
Lender: Ugly Duckling Corporation, a Delaware corporation.
Debtor/Borrower: First Merchants Acceptance Corporation, a Delaware
corporation.
DIP Facility:
Initial Advance: Lender will make a $5 million revolving line of credit
available to Borrower upon entry by the Court of an interim order in form and
substance acceptable to Lender, and pursuant to the terms and conditions of any
subsequent loan documents executed by the Borrower and Lender, which loan
documents shall and must be in a form and in substance acceptable to the Lender
in its sole and absolute discretion.
Subsequent Advances: Lender will increase the DIP Facility to a maximum
amount of $10 million, available to Borrower upon entry by the Court of a final
non-appealable order in form and substance acceptable to the Lender, and
pursuant to the terms and conditions of any subsequent loan documents executed
by the Borrower and Lender, which loan documents shall and must be in a form
and in substance acceptable to the Lender in its sole and absolute discretion.
The Lender, in its sole discretion, may increase the amount made available to
the Borrower under such DIP Facility as the Lender may deem necessary and/or
appropriate after further and additional due diligence, if any.
Advances under the Revolving Line: The Borrower may obtain advances
under the DIP Facility by making written request to the Lender. The Lender
will authorize such advances within three (3) business days of such written
request, but only to the extent that such request will not result in the total
amount outstanding under the revolving line of credit exceeding the maximum
amount allowed under the DIP Facility.
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Loan Maturity: The DIP Facility shall mature on the earlier of (a) the
date which is six (6) months from the date the Court enters its Order approving
and authorizing the DIP Facility, (b) the confirmation of a Chapter 11 Plan of
Reorganization, or (c) the conversion of the Borrower's Chapter 11 case to a
case under Chapter 7 of the Bankruptcy Code.
Collateral and 11 U.S.C. 364(c)(1) Superpriority Claim and Lien: As
security for repayment of extended credit under either the DIP Facilities, and
as a condition precedent to Lender making the DIP Facility available to the
Borrower, Borrower shall grant to Lender, and the Court must enter an Order,
pursuant to 11 U.S.C. Sections 364(c)(1) and (2), approving and
authorizing such grant: (a) a pledge on all First Merchants Auto Receivables
Corporation II stock, subject only to properly perfected, valid and enforceable
liens existing and perfected as of the date of the Court's Order, and (b) a
perfected lien and/or security interest in all of the Borrower's now owned or
hereafter acquired assets, including but not limited to any and all property of
the estate as that term is defined in 11 U.S.C. Section 541, accounts,
accounts receivable, chattel paper, contract rights, documents, equipment,
fixtures, inventory, general intangibles (including, without limitation, all
copyrights, deposit accounts, leasehold rights, patents, trade names and trade
names), real property, tax refunds to which the Borrower is, or may be
entitled, and any proceeds from any and all of the foregoing, subject only to
existing valid and enforceable liens (collectively the "Collateral"). Lender's
Collateral shall also consist of any and all assets (including assets as
described above) now owned or hereafter acquired by any affiliate or insider of
the Borrower which may be subsequently substantively consolidated with the
Borrower or the Borrower's estate. Lender agrees to a carve out from the
Collateral an amount not to exceed $350,000 for fees and expenses of Borrower's
professionals that were or are incurred by the Borrower.
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In addition to such perfected liens and security interests identified
above, and as a condition precedent to the Lender making the DIP Facility
available to the Borrower, the Borrower shall consent to the entry of an Order
by the Court, and the Court shall enter an Order, providing that any and all
amounts due and owing by the Borrower to the Lender pursuant to the DIP
Facility shall be deemed allowed superpriority administrative claims, pursuant
to 11 U.S.C. Section 364(c)(1), with priority over any and all other
administrative claims of the types described in 11 U.S.C. Sections 105,
326, 330, 331, 503(b), 507(a) and/or 507(b), subject only to (1) administrative
claims in an amount not to exceed an aggregate of $350,000, for fees and
expenses of Borrower's professionals that were or are incurred by the Borrower
or any statutorily created committee's in the Borrower's bankruptcy case,
and/or any expenses of members thereof, which administrative claims up to an
aggregate of $350,000 shall rank pari passu with Lender's administrative claim
and (2) fees of the United States Trustee related to the Borrower's bankruptcy
case. No other claims shall be granted priority superior to, or pari passu
with, the Lender's claims.
As a further condition precedent to the Lender making the DIP Facility
available to the Borrower, the Court must enter an Order providing that the
Lender's lien and security interest in the Borrower's assets, as described
above, and the Lender's superpriority claim against the Borrower and the
Borrower's bankruptcy estate, shall not be subject to (1) surcharge pursuant to
11 U.S.C. Section 506(c), or otherwise; (2) subordination pursuant to 11
U.S.C. Section 510, or otherwise; (3) setoff pursuant to 11 U.S.C. Section
553, or otherwise; or (4) any lien or security interest that is or may be
avoided and preserved for the benefit of the Borrower's bankruptcy estate
pursuant to 11 U.S.C. Section 551.
Interest Rate: Interest will accrue at the rate of 12% per annum on the
existing principal balance due and owing under the DIP Facility, until paid in
full.
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Default Interest Rate: In an Event of Default, interest will accrue at
the rate of 15% per annum on the then existing principal balance due and owing
under the DIP Facility, until paid in full.
Commitment Fees: Borrower shall pay to Lender a Commitment Fee in the
amount of $500,000.00 which shall be deemed earned in full, non-refundable, and
all due and payable upon the entry of an interim order approving and
authorizing the DIP Facility (the "Commitment Fee"). Lender agrees, however,
to forbear collection of the Commitment Fee until February 28th 1998. This
Commitment Fee will not be reserved against funds available under the DIP
Facility prior to the DIP Facility's due date. In the event the Lender either
acquires the assets of the Borrower or the Borrower's business on or before
February 28, 1998, the Lender waives the right to collect the Commitment Fee.
Attorneys' Fees: Borrower shall pay to Lender $50,000 immediately upon
the entry of an interim order approving and authorizing the DIP Facility, as an
initial retainer, for any and all legal fees and costs incurred by the Lender
in conducting its due diligence, document preparation and other necessary
investigations and analyses relating to the DIP Facility. To the extent the
Lender's fees and costs in conducting such due diligence exceed $50,000,
Borrower shall pay Lender such excess amount within thirty (30) days of the
Lender's written notice to Borrower.
Representation and Warranties: The Borrower will be required to make
certain representations and warranties regarding, among other things, its
current financial condition, and the value, nature, history and status of the
Borrower's assets and the assets of First Merchants Auto Receivables
Corporation II.
Definition of New Contracts: As used herein the term "New Contracts"
shall refer to any rights and/or interests purchased by the Lender from the
Borrower (and created and
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available for purchase by the Borrower following the entry of an interim order
approving and authorizing the DIP Facility) pursuant to a Contracts Purchase
Agreement between the Borrower and the Lender, which agreement shall and must
be in a form and in substance acceptable to the Lender in its sole and absolute
discretion, but which includes, without limitation, (i) accounts, (ii) accounts
receivable, (iii) chattel paper and purchase contracts, (iv) security interests
and any other interests in financed vehicles, (v) any and all other security,
warranties, guaranties and credit support with respect to the foregoing, (vi)
any proceeds of claims on any physical damage, credit life and credit accident
and health insurance policies or other insurance or certificates relating to
financed vehicles or to originators of the New Contracts, (vii) purchase
agreements, (viii) installment sales, contracts or agreements, (ix) refunds for
costs of extended service contracts with respect to financed vehicles, refunds
of unearned premiums with respect to credit life and credit accident and health
insurance policies or other insurance or certificates relating to financed
vehicles or originators of the New Contracts, and (x) the proceeds from any and
all of the foregoing.
Purchase of New Contracts: Lender shall have the sole and exclusive
option and ability, in its sole and absolute discretion, and consistent with
and pursuant to the terms and conditions of a Contracts Purchase Agreement
between the Borrower and the Lender which is acceptable in form and substance
to the Lender in its sole and absolute discretion, to purchase New Contracts
from the Borrower, not to exceed $20 million per month, at a price equal to the
amount paid by the Borrower in exchange for the New Contract(s). The Borrower
shall be required to execute any documents, including but not limited UCC-1
financing statements relating to the New Contracts, which are or may be
necessary to effectuate a true sale of the New Contracts to Lender, pursuant to
and consistent with the terms and conditions of a
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Contracts Purchase Agreement between the Borrower and the Lender which is
acceptable in form and substance to the Lender in its sole and absolute
discretion.
No Other Liens, Interests or Encumbrances On New Contracts: As a
condition precedent to the Lender making the DIP Facility available to the
Borrower, the Borrower must consent to the entry of an Order, and the Court
must enter an Order, providing that the sale, assignment and conveyance of the
New Contracts from the Borrower to the Lender shall be free and clear of any
and all liens, encumbrances and/or interests of any other entity, including but
not limited to any entity which claimed a lien, encumbrance or interest on
similar receivables owned by the Borrower prior to the entry of an order
approving and authorizing the DIP Facility. The entry of an order approving
and authorizing the DIP Facility shall be deemed a determination by the Court,
pursuant to 11 U.S.C. Sections 363 and 552, that no creditor or other
party in interest, other than the Borrower and the Lender, shall have any
right, title or interest to any of the New Contracts.
Buy-Back: Pursuant to the terms and conditions of a Contracts Purchase
Agreement between the Borrower and the Lender, which agreement shall and must
be in a form and in substance acceptable to the Lender in its sole and absolute
discretion, the Borrower shall be required to repurchase any New Contracts sold
to Lender, which become delinquent in any amount by more than 60 days (the
"Defaulted Contracts"), in an amount equal to the then existing balance due
under such New Contract. Upon written notice by the Lender to the Borrower of
such delinquency, Borrower shall repurchase the delinquent receivable(s) within
30 business days from such notice. Failure of the Borrower to buy back such
delinquent receivable in the time specified shall constitute a default as
defined herein. In the alternative, in the Lender's sole and exclusive
discretion, the repurchase price of the delinquent New Contract(s) may be
treated as an advance of new funds from the revolving line of credit, and added
to the
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then outstanding balance due under either the DIP Facility. In the event the
Lender elects to treat the repurchase price as an advance under the DIP
Facility, or Borrower fails or refuses to repurchase the New Contract(s) as
required, such advance shall be secured by the liens granted the Borrower and
entitled to the same priority as the remainder of the Lender's claim.
Servicing Agent: Borrower shall be the servicing agent for all New
Contracts and shall receive a servicing fee of 3% of the purchase price of the
New Contracts pursuant to the terms and conditions of a Servicing Agreement
between Borrower and Lender containing standard and customary terms for similar
servicing agreements. Lender shall have the right, in its sole and exclusive
discretion, to remove the Borrower as the serving agent, and appoint a
replacement Servicing Agent of its choice in the event of a default by Borrower
under the terms of the DIP Facility (or any documents or agreements related
thereto), the New Contract Purchase Agreement or the Servicing Agreement.
Events of Default: Any one of the following, non-exclusive, events shall
be considered an event of default, and shall entitle Lender to exercise any and
all rights and remedies available to it under the terms of this Term Sheet, any
Order(s) approving the DIP Facility, any loan documents or related documents
approved by or contemplated in any Order approving the DIP Facility, and/or
applicable state or federal law:
(1) any interim or final order entered by the Court approving the DIP
Facility is vacated or otherwise materially modified, without the prior express
written consent of the Lender,
(2) the Borrower's bankruptcy case is converted to Chapter 7,
(3) a Chapter 11 Trustee or Chapter 11 Examiner with expanded
management-type powers is appointed in the Borrower's bankruptcy case,
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(4) confirmation of a Chapter 11 plan without repayment of any and all
sums due the Lender under the DIP Facility (including any Commitment Fee or
Attorneys' Fees which may be then owed) in full on the Effective Date of the
plan,
(5) the entry of an order granting any entity other than the Lender a
post-petition lien priming Lender's collateral,
(6) the Borrower's failure to pay when due and owing, or when declared due
and owing, any portion of the outstanding balance, or monthly payments required
under, the DIP Facility,
(7) the Borrower's failure to keep, perform or observe any material term,
provision, condition, covenant or agreement contained in any and all agreements
related thereto,
(8) if any third party obtains from the Court relief from the automatic
stay under the Bankruptcy Code to permit such party to attach, seize, levy upon
or obtain possession of or interest in Lender's collateral,
(9) or if any material misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement or report made to Lender
by Borrower or any officer, employee, agent or director of the Borrower, or if
any such warranty or representation is withdrawn.
Lender's Rights and Remedies upon an Event of Default. Upon the
occurrence, and during the continuation, of an Event of Default, the Lender
shall provide Borrower with written notice of such event(s) of default. If the
Borrower fails to cure such event(s) of default within 20 days after delivery
of such written notice, the Lender may, at its sole and absolute discretion,
without further notice of its election and without demand or further order of
the Court, do any one or more of the following, all of which are authorized and
consented to by the Borrower:
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(a) Declare all obligations and amounts outstanding under the DIP Facility
to be immediately due and payable;
(b) Cease advancing money or extending credit to or for the benefit of the
Borrower under the Order(s) approving the DIP Facility, under any loan
documents relating to the DIP Facility, or under any other agreement between
the Lender and the Borrower;
(c) Cease purchasing any New Contracts from the Borrower under the New
Contract Purchase Agreement, or otherwise;
(d) Terminate any and/or all agreements between the Lender and the
Borrower, but without affecting the Lender's rights, security interests and/or
priority claims approved and authorized by the Court;
(e) Direct the collateral agent, Harris Trust and Savings Bank, to
foreclose upon, and/or notice and conduct the private or public sale of the
Borrower's stock interests in First Merchants Auto Receivables Corporation II
for the benefit of the Lender;
(f) Seek appointment of a Chapter 11 Trustee to take control over the
Borrower's assets and business operations;
(g) Seek conversion of the Borrower's bankruptcy case to Chapter 7 of the
Bankruptcy Code, or to seek dismissal of the Borrower's bankruptcy case;
(h) Obtain relief from the automatic stay of 11 U.S.C. Section 362(a),
without further order of the Court, to exercise any and all applicable
non-bankruptcy rights and remedies in and to its collateral;
Lender's rights and remedies under any agreement between the Borrower and
Lender shall be cumulative, and Lender shall have all other rights and remedies
as provided under the Bankruptcy Code, by law, or in equity. No exercise by
Lender of one right or remedy shall be deemed an election, and no waiver by
Lender of any Event of Default shall be deemed a
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continuing waiver. No delay by Lender in exercising its rights and remedies
shall constitute a waiver, election or acquiescence by it.
Documentation: Borrower and Lender will use their best efforts to draft
and finalize definitive documentation for the DIP Facility (including the
Credit Agreement, Security Agreement, Stock Pledge Agreement, Contracts
Purchase Agreement and the Servicing Agreement) by Monday July 14, 1997.
AGREED AS TO FORM AND SUBSTANCE this 11th day of July, 1997.
FIRST MERCHANTS ACCEPTANCE CORPORATION
By: /s/ William Plamondon
---------------------------------------
William Plamondon
Co-President/Co-Chief Executive Officer
UGLY DUCKLING CORPORATION, a Delaware
corporation
By: /s/ Ernest Garcia
---------------------------------------
Ernest Garcia
Chairman of the Board/Chief
Executive Officer
<PAGE> 1
EXHIBIT 99.3
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re ) Chapter 11
)
FIRST MERCHANTS ACCEPTANCE ) Case No. 97 - 1500 (JJF)
CORPORATION, )
)
Debtor. )
INTERIM(1) ORDER AUTHORIZING DEBTOR IN POSSESSION
FINANCING; (2) GRANTING LIENS AND SUPERPRIORITY
ADMINISTRATIVE CLAIMS; AND (3) MODIFYING THE AUTOMATIC STAY
-----------------------------------------------------------
THIS CAUSE coming to be heard upon the motion ("Motion") of First
Merchants Acceptance Corporation, debtor and debtor in possession herein
(hereinafter referred to as the "Debtor") for entry of an interim order
authorizing the Debtor to obtain debtor in possession financing and related
relief at a hearing on July 14, 1997; due and adequate notice of that Motion
having been provided to secured parties of record and the office of the United
States Trustee for the District of Delaware; the Court having reviewed said
Motion and the proposed form of this order; the Court having heard the
argument, testimony and offers of proof proffered by the parties present; the
Court having considered the offer of the Bank Group (as defined herein) to
provide $2,500,000.00 financing to pay operating expenses until the Court can
consider the relief requested in the Motion on July 17, 1997 and UDC's (as
defined herein) offer to provide preliminary financing on the terms offered by
the Bank Group; and the Court being fully advised in the Premises;
<PAGE> 2
THE COURT HEREBY FINDS:
BACKGROUND
----------
A. The Debtor commenced this case on July 11, 1997 (the "Petition
Date"), by filing a voluntary petition for reorganization under Title 11 of
Chapter 11 of United States Code (the "Bankruptcy Code").
B. Pursuant to Sections 1107 and 1108 of the Bankruptcy Code, the Debtor
is operating its business and managing its assets as a debtor-in-possession.
No examiner or trustee has been appointed in this case, and no official
committee of unsecured creditors has been appointed.
C. The Debtor has represented to the Court the following:
1. LaSalle National Bank ("LaSalle") acts as agent for the Debtor's
bank group (the "Bank Group"). LaSalle as agent asserts a lien on all of the
Debtor's assets, including (i) all installment sale agreements and related
security; (ii) all personal property or Debtor's interest therein which is
subject to any installment sale agreement; (iii) accounts, accounts receivable,
contract rights, general intangibles, 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 or products of any of the foregoing; and
(iv) all policies of insurance or otherwise with respect to any damage,
destruction or loss of any of the foregoing, as set forth in the following
documents:
a. Fourth Amended and Restated Loan and Security Agreement, dated
as of February 28, 1996, among LaSalle, the Debtor and the
members of the Bank Group, as amended by a First Amendment dated
as of May 1, 1996 and a Second Amendment dated as of December
26, 1996
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<PAGE> 3
b. Retail Lockbox Mail Service Agreement, dated as of December 3,
1996, by and between LaSalle and the Debtor
c. the Intercreditor Agreement, dated as of June 9, 1997, between
the Debtor and LaSalle, as agent on behalf of itself and the
other secured lenders under the Fourth Amended and Restated Loan
and Security Agreement dated February 28, 1996 among the
Borrower, the secured lenders identified therein and the agent
identified therein
Debtor's prepetition accounts receivable are deposited into a lockbox account
at LaSalle. LaSalle as agent has executed releases from time to time in
connection with (i) accounts receivables being sold as part of securitization
transactions, (ii) accounts receivables being sold pursuant to whole loan sales
to Greenwich Capital Financial Products, Inc. ("Greenwich"), and (iii) the
stock of First Merchants Auto Receivables Corporation ("FMARC") and First
Merchants Auto Receivables Corporation II ("FMARC II") as part of the
securitization transactions. LaSalle as agent has executed an Intercreditor
Agreement with Greenwich giving Greenwich a first priority interest in the
accounts which the Bank Group has declared ineligible and which Debtor has in
turn pledged to Greenwich in support of Greenwich's revolving loan facility to
the Debtor. Since the Debtor does not propose at this time to use funds held
or receipts coming into LaSalle's lockbox to pay post-petition expenses, there
are no cash collateral usage issues with respect to LaSalle at this time.
Debtor and LaSalle reserve all of their rights as to any proposed application
by LaSalle of such funds.
2. Greenwich, either directly or through a collateral agent, asserts
a security interest in certain accounts receivable of Debtor which are
ineligible under the Bank Group's loan documents, a second priority stock
pledge on the stock of FMARC II and certain other Collateral, as defined and
set forth in the following documents:
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<PAGE> 4
a. the Credit Agreement, dated as of June 9, 1997, between the
Debtor and Greenwich
b. the Note, dated June 9, 1997, made by the Debtor to the order
of Greenwich
c. the Servicing Agreement, dated as of June 9, 1997, between
Greenwich and the Debtor (as borrower and servicer thereunder)
and Harris Trust and Savings Bank, as Paying Agent and Backup
Servicer thereunder
d. the Stock Pledge Agreement, dated as of June 9, 1997, among the
Debtor, Greenwich and Harris, as Collateral Agent thereunder
relating to the pledged FMARC II stock
e. the Intercreditor Agreement, dated as of June 9, 1997, between
Financial Security Assurance Inc. ("FSA") and Greenwich
f. the Supplement Number 1, dated as of June 9, 1997, to the Stock
Pledge Agreement between FSA and the Debtor
g. the Pledged Receivables Security Agreement, dated as of June 9,
1997, made by the Debtor in favor of Greenwich
Since the Debtor does not propose at this time to use receipts from
accounts pledged to Greenwich or to sell the FMARC II stock, there are no cash
collateral usage issues with respect to Greenwich at this time. Debtor will
track receipts from the accounts pledged to Greenwich. Debtor reserves all of
its rights as to any proposed application by Greenwich of such funds.
3. FSA is party to a Stock Pledge Agreement, dated as of March 1,
1996, with the Debtor under which it asserts a first priority pledge of the
stock of FMARC II, to secure certain contingent obligations of the Debtor to
FSA. As noted above, there is an Intercreditor Agreement with Greenwich
related to the FMARC II stock pledge. Since the Debtor does not propose to
sell the stock of FMARC II at this time, there are no cash collateral usage
issues at this point with respect to FSA.
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<PAGE> 5
4. The Debtor is party to certain equipment leases which it is
reviewing to determine whether they are financing or true leases. Since the
Debtor does not propose to sell the applicable equipment at this time, there
are no cash collateral issues at this point with respect to such leases to the
extent they are found to be financing leases.
5. The Debtor is reviewing and evaluating these claims, security
interests and liens and reserves its rights, defenses and objections with
respect thereto. These creditors may assert that all or a portion of the
Debtor's cash and cash equivalents (the "Cash") constitute cash collateral
subject to their respective asserted liens.
NEED FOR DIP FINANCING
----------------------
D. For the interim 3 day period to be covered by this interim Order
(through and including July 17, 1997 at 11:00 a.m.), the Debtor needs a $2.5
million line of credit for critical postpetition operating expenses such as
payroll and the other necessary postpetition operation expenses as noted in the
Budget attached hereto as Exhibit A and as more specifically defined herein.
E. Unless the Debtor obtains immediate Court authorization for DIP
Financing pursuant to Section 364(c) of the Bankruptcy Code, the Debtor and
its business will suffer immediate, continuing and irreparable harm, because it
will not be able to meet its operating expenses for the business and preserve
the value of its assets. Absent the financing, the Debtor's business will be
destroyed and a liquidation will become necessary. Continued operation of the
Debtor as a going concern protects the interests of all parties in interest.
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<PAGE> 6
DIP FACILITY
------------
F. The Debtor has extensively negotiated an emergency DIP financing
facility in the amount of $2,500,000.00 (the "Emergency DIP Facility") with
Ugly Duckling Corporation ("UDC") which will enable the Debtor to pay certain
post-petition operating and Chapter 11 expenses, as more specifically defined
herein. The collateral securing Emergency DIP Facility, the relative priority
of UDC's claims, and terms of the Interim and Final Financing agreed upon by
the Debtor and UDC are set forth in the Term Sheet attached to the Motion as
Exhibit B. The interest rate for the Emergency DIP Facility shall be 10 1/2%.
THE COURT MAKES THE FOLLOWING CONCLUSIONS OF LAW:
(i) Due Notice. The notice given by the Debtor of the Motion as
described in the Debtor's certificate of service constitutes notice appropriate
under the circumstances of this case and complies with Bankruptcy Rules 102(1),
2002 and 4001(c)(1).
(ii) Jurisdiction. The Court has jurisdiction over this case pursuant
to 28 U.S.C. Section 1334. This matter is a "core" proceeding pursuant to,
without limitation, 28 U.S.C. Section 157(b)(2)(A), (D), (M) and (O). Venue is
proper in this Court under 28 U.S.C. Section 1408.
(iii) Best Interests. The entry of this Order is necessary to avoid
irreparable injury to this estate and is therefore in the best interests of the
Debtor and all stakeholders and is authorized under the Bankruptcy Code.
(iv) Good Faith. The DIP financing facility has been negotiated in good
faith and at arms length among the Debtor and UDC with all parties represented
by counsel. Loans to be extended pursuant to the DIP financing facility will
be extended in good faith and entitled to the protections of Section 364(e) of
the Bankruptcy Code.
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<PAGE> 7
(v) Compliance with Bankruptcy Rules. The conclusions of law and
findings of fact set forth herein comply with the requirements of Bankruptcy
fact which also constitute conclusions of law (or vice versa) are hereby deemed
to be included in both sections of Rule 7052, applicable herein by reason of
Bankruptcy Rule 9014.
WHEREFORE, IT IS HEREBY ORDERED, ADJUDGED AND DECREED:
1. Approval of Motion. The oral motion of the Debtor to obtain the
Emergency DIP Facility is hereby granted and approved in all respects.
2. Incorporation. The paragraphs contained in the preamble to this
Order are incorporated by this reference.
3. Interim Financing. The Debtor is authorized and permitted to (1)
borrow $2,500,000.00 and use such funds to pay postpetition operating expenses
as provided in the Budget, and only those prepetition obligations authorized by
"Order Authorizing Debtor to Pay Prepetition Employee Compensation
Obligations"; provided, however, that notwithstanding anything herein or in the
Budget, the Debtor shall not use any funds under the Emergency DIP Facility to
pay (i) prepetition amounts due to Alitel; (ii) amounts listed in the Budget as
"Swaps, Rate Caps"; or (iii) professional fees to Sonnenschein, Nath &
Rosenthal; (2) to execute and enter into a credit agreement and such other
documentation requested by UDC to effectuate the terms of the Emergency DIP
Financing; (3) to grant and provide UDC with the perfected security interests
and liens in the Collateral (as defined in the Term Sheet); and (4) to execute,
deliver, perform and do all acts that may be required to carry out the
intentions of the parties as set forth in the Emergency DIP Financing,
including, but not limited to, granting security interests and liens and
repaying the obligations set forth therein. The Interest rate shall be 10 1/2%.
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<PAGE> 8
4. Takeout of Emergency DIP Facility. If the Interim DIP Facility
as contemplated under the Term Sheet attached to the Motion (the "Interim DIP
Facility") shall be approved, the Debtor shall borrow such sums under the
Interim DIP Facility necessary to Pay, in full, all sums (1) loaned by UDC to
the Debtor pursuant to this order and (2) the fees and costs of UDC as set
forth in the Term Sheet.
5. Grant of Security Interests. As security for all obligations
due and owing UDC by the Debtor, and pursuant to 11 U.S.C. section 364(c)(3),
UDC is hereby granted (effective from and after the entry of this Order without
the necessity of the execution by the Debtor of security agreements) a valid
and perfected lien and security interest in and to (1) the stock of FMARC II,
subject to, and junior to, only the valid, properly perfected and enforceable
liens and interests in existence and perfected as of the date of entry of this
order ("Prior Liens"); and (2) any other assets, or property (whether real or
personal), of the Debtor whether now owned or hereafter acquired subject to,
and junior to only Prior Liens. UDC's Collateral shall also consist of any and
all assets (including assets as described above) now owned or hereafter
acquired by any affiliate or insider of the Borrower that may be subsequently
substantively consolidated with the Borrower or the Borrower's estate, subject
to, and junior to Prior Liens. Harris Bank and Trust ("Harris Bank"), the
entity currently in possession of the FMARC II stock, shall be deemed UDC's
collateral agent with respect to UDC's lien on the stock, UDC's interest in
such stock to be deemed automatically perfected by virtue of this Order.
The security interests and liens granted to UDC hereunder shall not be
(1) subject to any lien or security interest that is avoided and preserved for
the benefit of the Debtor's estate under Bankruptcy Code section 551; (2)
surcharged; or (3) subordinated to or made pari passu with any other lien or
security interest under Bankruptcy Code
- 8 -
<PAGE> 9
section 364(d) or otherwise. To the extent that any applicable non-bankruptcy
law otherwise would restrict the granting, scope, enforceability, attachment,
or perfection of the security interests and liens authorized or created hereby,
or otherwise would impose filing, possession or registration requirements with
respect thereto, such law is hereby preempted to the maximum extent permitted
by the United States Constitution, the Bankruptcy Code, otherwise applicable
federal law, and the judicial power of the Bankruptcy Court (provided UDC may
still take such steps as it wishes to create, evidence, or perfect its security
interests and liens under otherwise applicable non-bankruptcy law without
waiving the benefits of this provision of this Order and Debtor is authorized
and directed to execute, deliver, and perform, and do all acts that may be
required by UDC in order to create, evidence, or perfect such security
interests and liens under otherwise applicable non-bankruptcy law).
6. Grant of Superpriority. Pursuant to Bankruptcy Code section
364(c)(1), and in addition to the liens and security interests granted hereby,
all of the Debtor's obligations owing UDC shall be hereby deemed to constitute
allowed administrative claims with priority over all other administrative claims
of the types described in Bankruptcy Code sections 105, 326, 330, 331, 503(b),
507(a) and 507(b); subject only to (1) administrative claims, up to an
aggregate amount of $350,000 for fees and expenses owed to retained
professionals that were incurred by the Debtor or any statutory creditor's
committee appointed in the captioned case and the expenses of members thereof,
in each case to the extent that they are allowed pursuant to Bankruptcy Code
section 330, which administrative claims, up to $350,000 shall rank pari passu
with the administrative claims of UDC and (2) fees of the United States
Trustee's Office payable pursuant to 28 U.S.C. section 1930(a)(6). Except as
set forth above, absent UDC's express
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<PAGE> 10
consent, no other claim shall be granted priority superior or pari passu with
that of the claim of UDC so long as Debtor has any obligation owing to UDC.
7. Subsequent Modification, Stay or Vacation. If any or all of
the provisions of this Order are hereafter modified, vacated or stayed by
subsequent order of this Court or any other court, such stay, modification or
vacation shall not affect: the validity of any obligation, debt or claim
incurred or any priority, security interest or lien in connection with the DIP
Facility pursuant to this Order and such obligation, debt or claim shall be
governed in all respects by the original provisions of this Order or the terms
and conditions for the use of any cash collateral.
8. Binding Obligation. The financing agreements entered into
pursuant to this order, and the terms of this order, shall be binding upon UDC
and the Debtor and their respective successors and assigns (including any
representative hereinafter appointed for the estate of the Debtor) and shall
inure to the benefit of UDC and the Debtor and (except with respect to any
trustee hereafter appointed for the estate of the Debtor in thes proceedings
under Chapter 7 or 11 of the Bankruptcy Code) their respective successors and
assigns.
9. Relief From Stay. The automatic stay created by Bankruptcy
Code section 362 is hereby modified, vacated and annulled to the extent
necessary to permit UDC to perform in accordance with, and to exercise its
rights pursuant to and granted by, the financing documents to be drafted and
executed consistent with the Term Sheet and this Order, including, without
limitation, any right to take steps under otherwise applicable non-bankruptcy
law to create, evidence, or perfect liens against property of the estate of the
Debtor, including, without limitation, the right to exercise, upon occurrence
of an event of default (subject to the service of any required notice of
default and the
- 10 -
<PAGE> 11
running of any period for curing default, all as defined and provided for in
the Term Sheet and any subsequent financing documents) all rights and remedies
provided for in the financing documents or available at law (including state
law) or in equity.
10. Greenwich. The Debtor does not seek to use Cash in which
Greenwich asserts an interest, but will segregate such funds. Debtor will
track receipts from accounts pledged to Greenwich.
11. Lockbox: Cash Held by Bank Group. For the duration of this
Order, neither LaSalle nor any member of the Bank Group nor Greenwich shall
have any increased rights in funds currently held or hereinafter received by
them relating to the Debtor or its accounts receivable by virtue of LaSalle or
any other member of the Bank Group or Greenwith receiving or holding such
amounts.
12. Insurance. The Debtor shall maintain adequate and appropriate
insurance on its assets consistent with past practice.
13. Reports. The Debtor will provide UDC, LaSalle, FSA and
Greenwich with copies of its (i) monthly operating report and (ii) filings with
the Securities and Exchange Commission.
14. Retention of Jurisdiction. This Court hereby retains exclusive
jurisdiction over the subject matter of this Order to resolve any dispute in
connection with the rights and duties specified hereunder.
15. Binding in Plan. The rights, powers, remedies, privileges,
security interests, liens, and priorities of UDC provided for herein and in the
financing agreements shall not be modified or abridged by Debtor in a plan of
reorganization unless UDC shall have consented to such plan of reorganization.
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<PAGE> 12
16. Further Interim Hearing. A further interim hearing on the Interim
DIP Facility is set for July 17, 1997 at 11:00 am.
17. This Order is effective as of July 14, 1997.
Dated: Wilmington, Delaware
July 15, 1997
/s/ Joseph J. Famor Jr.
------------------------------------
United States District Judge
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<PAGE> 1
EXHIBIT 99.4
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re ) Chapter 11
)
FIRST MERCHANTS ACCEPTANCE ) Case No. 97 - 1500 (JJF)
CORPORATION, )
)
Debtor. )
SECOND INTERIM ORDER (1) AUTHORIZING DEBTOR IN POSSESSION
FINANCING; (2) GRANTING LIENS AND SUPERPRIORITY
ADMINISTRATIVE CLAIMS; (3) MODIFYING THE
AUTOMATIC STAY (4) SPECIFYING USE OF CASH COLLATERAL
AND (5) GRANTING ADEQUATE PROTECTION THEREFOR
PURSUANT TO SECTIONS 361 AND 363 OF THE BANKRUPTCY CODE
-------------------------------------------------------
THIS CAUSE coming to be heard upon the motion ("Motion") of First
Merchants Acceptance Corporation, debtor and debtor in possession herein
(hereinafter referred to as the "Debtor"), for entry of an interim order (this
"Interim Order") authorizing the Debtor to obtain debtor in possession
financing and related relief at a hearing on July 17, 1997; this Court having
entered, effective as of July 14, 1997, an interim order permitting the Debtor
to borrow, on an emergency basis pending an interim hearing on the Motion, the
sum of $2.5 million(the "Emergency DIP Facility") from Ugly Duckling
Corporation ("UDC"), the Debtor having provided due and adequate notice of that
Motion to secured parties of record and the office of the United States Trustee
for the District of Delaware; the Court having reviewed the Motion and the
proposed form of this Interim Order; the Court having heard the argument and
offers of proof proffered by the parties present; no parties in interest having
objected and LaSalle National Bank ("LaSalle"), as agent for the Bank Group,
having consented; and the Court being fully advised in the Premises;
<PAGE> 2
THE COURT HEREBY FINDS:
BACKGROUND
----------
A. The Debtor commenced this case on July 11, 1997 (the "Petition
Date"), by filing a voluntary petition for reorganization under Title 11 of
Chapter 11 of United States Code (the "Bankruptcy Code").
B. Pursuant to Sections 1107 and 1108 of the Bankruptcy Code, the
Debtor is operating its business and managing its assets as a
debtor-in-possession. No examiner or trustee has been appointed in this case,
and no official committee of unsecured creditors has been appointed.
C. LaSalle acts as an agent for the Debtor's bank group (the "Bank
Group"). The Debtor and LaSalle, as agent, stipulate, agree and confirm that
LaSalle's lien on all of the Debtor's assets, including, but not limited to (i)
all installment sale agreements and related security; (ii) all personal property
or Debtor's interest therein; (iii) accounts, accounts receivable, contract
rights, general intangibles, 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 or products of any of the foregoing; (iv) all of the
Debtor's stock in First Merchants Auto Receivables Corporation ("FMARCI") and
First Merchants Auto Receivables Corporation II ("FMARCII") (although the
Debtor disputes that such lien on the FMARCII stock was not validly perfected)
and (v) all policies of insurance or otherwise which respect to any damage,
destruction or loss of any of the foregoing, as set forth in the following
documents:
1. Fourth Amended and Restated Loan and Security Agreement, dated
as of February 28, 1996, among LaSalle, the Debtor and the
members of the Bank Group, as amended by a First Amendment
dated as of May 1, 1996,
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<PAGE> 3
and a Second Amendment dated as of December 26, 1996, and a
forbearance agreement dated May 8, 1997, as amended.
2. Retail Lockbox Mail Service Agreement, dated as of December 3,
1996, by and between LaSalle and the Debtor
3. the Intercreditor Agreement, dated as of June 9, 1997, between
the Debtor and LaSalle, as agent on behalf of itself and the
other secured lenders under the Fourth Amended and Restated
Loan and Security Agreement dated February 28, 1996 among the
Borrower, the secured lenders identified therein and the agent
identified therein
are valid, attached, perfected first priority liens, security interests, and
encumbrances (except that the Debtor does not stipulate that LaSalle has a
perfected lien on the stock of FMARC II and the Debtor asserts that LaSalle's
security interest in certain assets is subordinate to prior liens as
specifically described below). The Debtor stipulates that the Bank Group
Members have all the rights of a holder in due course as that term is used in
the Uniform Commercial Code. Debtor's prepetition accounts receivable are
deposited into a lockbox account at LaSalle. LaSalle as agent has executed
releases from time to time in connection with (i) accounts receivable being sold
as part of securitization transactions, (ii) accounts receivables being sold
pursuant to whole loan sales to Greenwich Capital Financial Products, Inc.
("Greeenwich") as part of the securitization transactions and (iii) the stock
of FMARC I and FMARC II. The Debtor confirms that such releases are valid and
effective, except that subsequent to the original release of the lien on the
stock of FMARC I, the Debtor granted LaSalle, as agent, a new lien on such
stock. LaSalle, as agent, has executed an Intercreditor Agreeement with
Greenwich giving Greenwich a first priority interest in the accounts which the
Bank Group has declared ineligible (the "Greenwich Collateral") and which
Debtor has in turn pledged to Greenwich in support of Greenwich's revolving
loan facility to the Debtor. Pursuant to the terms hereof, the Debtor proposes
to pay over to LaSalle, as adequate protection, all
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<PAGE> 4
proceeds received from and after the Petition Date through the Strike Date (as
defined in that certain Term Sheet between LaSalle and UDC) from the Bank
Group's collateral, including, but not limited to, repossessions of automobiles
and collections from any of the Debtor's installment sales agreements, but
excluding any servicing fees that the Debtor receives from servicing the FSA
collateral. In additon, the Debtor agrees to apply to the Court pursuant to
Bankruptcy Rule 9019 for release of any claims the estate may possess against
Bank Group as further adequate protection. Finally, the Debtor agrees to
establish blocked depository accounts at Nashville, Tennessee and Denver,
Colorado. LaSalle, with the Debtor's direction as to application, shall apply
such monies against its prepetition claim and expenses and fees as agreed by
LaSalle and UDC and acknowledged by the Debtor in that certain Term Sheet
executed between such parties.
D. Greenwich, either directly or through a collateral agent,
asserts a security interest in certain accounts receivable of Debtor which are
ineligible under the Bank Group's loan documents, a second priority stock
pledge on the stock of FMARC II and certain other Collateral, as defined and
as set forth in the following documents:
1. the Credit Agreement, dated as of June 9, 1997, between the
Debtor and Greenwich
2. the Note, dated June 9, 1997, made by the Debtor to the order
of Greenwich
3. the Servicing Agreement, dated as of June 9, 1997, between
Greenwich and the Debtor (as borrower and servicer thereunder)
and Harris Trust and Savings Bank, as Paying Agent and Backup
Servicer thereunder
4. the Stock Pledge Agreement, dated as of June 9, 1997, among the
Debtor, Greenwich and Harris, as Collateral Agent thereunder
relating to the pledged FMARC II stock
5. the Intercreditor Agreement, dated as of June 9, 1997, between
Financial Security Assurance Inc. ("FSA") and Greenwich
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<PAGE> 5
6. the Supplement Number 1, dated as of June 9, 1997, to the Stock
Pledge Agreement between FSA and the Debtor
7. the Pledged Receivables Security Agreement, dated as of June 9,
1997, made by the Debtor in favor of Greenwich
Since the Debtor does not propose at this time to use receipts from accounts
pledged to Greenwich or to sell the FMARC II stock, there are no cash
collateral usage issues with respect to Greenwich at this time.
E. FSA is party to a Stock Pledge Agreement, dated as of March 1,
1996, with the Debtor under which it asserts a first priority pledge of the
stock of FMARC II, to secure certain contingent obligations of the Debtor to
FSA. As noted above, there is an Intercreditor Agreement with Greenwich
related to the FMARC II stock pledge. Since FSA does not propose to sell the
stock of FMARC II at this time, there are no cash collateral issues at this
point with respect to FSA.
F. The Debtor is party to certain equipment leases which it is
reviewing to determine whether they are financing or true leases. Since the
Debtor does not propose to sell the applicable equipment at this time, there
are no cash collateral issues at this point with respect to such leases to the
extent they are found to be financing leases.
G. Except as expressly set forth herein, the Debtor is reviewing
and evaluating these claims, security interests and liens and reserve its
rights, defenses and objections with respect thereto. These creditors may
assert that all or a portion of the Debtor's cash and cash equivalents (the
"Cash") consititute cash collateral subject to their respective asserted liens.
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<PAGE> 6
NEED FOR DIP FINANCING
----------------------
H. For the interim period to be covered by this interim Order, the
Debtor needs a $5 million line of credit for the following: (1) to retire the
Emergency DIP Facility or (2) critical operating expenses including, but
not limited to, payroll and the expenses as noted in the Budget attached hereto
as Exhibit A. Notwithstanding the above, the Debtor agrees not to expend any
funds for the origination or purchase of any installment sales agreements or
other consumer paper for the period covered by this interim Order.
I. Unless the Debtor obtains immediate Court authorization for DIP
Financing pursuant to Section 364(c) of the Bankruptcy Code, the Debtor and its
business will suffer immediate, continuing and irreparable harm, because it
will not be able to meet its operating expenses for the business and preserve
the value of its assets. Absent the financing, the Debtor's business will be
destroyed and a liquidation will become necessary. Continued operation of the
Debtor as a going concern protects the interests of all parties in interest.
DIP FACILITY
------------
J. The Debtor has extensively negotiated a DIP financing facility
(the "DIP Facility") with Ugly Duckling Corporation ("UDC") which will enable
the Debtor to pay post-petition operating and Chapter 11 expenses. The
material terms of the DIP Facility are set forth in the Term Sheet attached
hereto as Exhibit B.
K. The Debtor is unable to obtain unsecured credit allowable under
section 503(b)(1) of the Bankruptcy Code.
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<PAGE> 7
THE COURT MAKES THE FOLLOWING CONCLUSIONS OF LAW:
(i) Due Notice. The notice given by the Debtor constitutes notice
appropriate under the circumstances of this case and complies with Bankruptcy
Rules 102(1), 2002 and 4001(c)(1).
(ii) Jurisdiction. The Court has jurisdiction over this case
pursuant to 28 U.S.C. section 1334. This matter is a "core" proceeding pursuant
to, without limitation, 28 U.S.C. section 157(b)(2)(A),(D),(M) and (O). Venue
is proper in this Court under 28 U.S.C. section 1408.
(iii) Best Interests. The entry of this Interim Order is necessary
to avoid irreparable injury to this estate and is therefore in the best
interests of the Debtor and all stakeholders and is authorized under the
Bankruptcy Code.
(iv) Good Faith. The DIP financing facility has been negotiated in
good faith and at arms length among the Debtor and UDC with all parties
represented by counsel. Loans to be extended pursuant to the DIP financing
facility will be extended in good faith and entitled to the protections of
Section 364(e) of the Bankruptcy Code.
(v) Compliance with Bankruptcy Rules. The conclusions of law and
findings of fact set forth herein comply with the requirements of the Bankruptcy
Code. Such findings of fact also constitute conclusions of law (or vice versa)
and are hereby deemed to be included in this Interim Order consistent with
Bankruptcy Rule 7052, applicable herein by reason of Bankruptcy Rule 9014.
(vi) Consumer Installment Contracts. Notwithstanding anything in
the Motion to the contrary, nothing in this Interim Order shall permit the
Debtor to sell its consumer installment contracts without further order of the
Court.
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<PAGE> 8
WHEREFORE, IT IS HEREBY ORDERED, ADJUDGED AND DECREED:
1. Approval of Motion. Except as modified by this Interim Order, the
Motion is hereby granted and approved.
2. Incorporation. The paragraphs contained in the preamble to this
Interim Order are incorporated herein by this reference.
3. Interim Financing. The Debtor is authorized and permitted to (1)
make interim borrowings under the DIP Facility provided that at no point prior
to the final hearing shall the outstanding principal balance exceed $5 million
pursuant to the terms set forth in Paragraph J hereof; (2) to negotiate,
execute, deliver and perform a credit agreement and such other documentation
requested by UDC consistent with the terms of the financing as set forth in
Exhibit B; (3) to grant and provide UDC with the perfected security interests
and liens in the Collateral (as defined in the Term Sheet); (4) retire the
Emergency DIP Facility; and (5) to execute, deliver, perform and do all acts
that may be required to carry out the intentions of the parties as set forth in
the Term Sheet, including, but not limited to, granting security interests and
liens and repaying the obligations set forth therein.
4. Grant of Security Interests. As security for all obligations due and
owing UDC by the Debtor, and pursuant to 11 U.S.C. Section 364(c)(3), UDC is
hereby granted (effective from and after the entry of this Interim Order
without the necessity of the execution by the Debtor of security agreements) a
valid and perfected lien and security interest in and subject to , and junior
to, only the valid, properly perfected and enforceable liens and interest in
existence and perfected (the "Prior Liens") as of the date of entry of this
Interim Order in: (1) the stock of FMARC II; and (2) any other assets, or
property (whether real or personal), of the Debtor whether now owned or
hereafter acquired as
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<PAGE> 9
further defined in the Term Sheet. Lender's Collateral shall also consist of
any and all assets (including assets as described above) now owned or hereafter
acquired by any affiliate of the Borrower which may be subsequently
substantively consolidated with the Borrower or the Borrower's estate subject
to, and junior to Prior Liens as of the date of the entry of the order for
consolidation. Harris Bank and Trust ("Harris Bank"), the entity currently
in possession of the FMARC II stock, shall be deemed UDC's collateral agent
with respect to UDC's lien on the stock, UDC's interest in such stock to be
deemed automatically perfected by virtue of this Interim Order.
The security interests and liens granted to UDC hereunder shall not be (1)
subject to any lien or security interest that is avoided and preserved for the
benefit of the Debtor's estate under Bankruptcy Code section 551; (2)
surcharged; or (3) subordinated to or made pari passu with any other lien or
security interest under Bankruptcy Code section 364(d) or otherwise. To the
extent that any applicable non-bankruptcy law otherwise would restrict the
granting, scope, enforceability, attachment, or perfection of the security
interests and liens authorized or created hereby, or otherwise would impose
filing, possession or registration requirements with respect thereto, such law
is hereby preempted to the maximum extent permitted by the United States
Constitution, the Bankruptcy Code, otherwise applicable federal law, and the
judicial power of the Bankruptcy Court (provided UDC may still take such steps
as it wishes to create, evidence, or perfect its security interests and liens
under otherwise applicable non-bankruptcy law without waiving the benefits of
this Interim Oder and Debtor is authorized and directed to execute, deliver,
and perform, and do all acts that may be required by UDC in order to create,
evidence, or perfect such security interests and liens under otherwise
applicable non-bankruptcy law).
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<PAGE> 10
5. Grant of Superpriority. Pursuant to Bankruptcy Code section
346(c)(1), and in addition to the liens and security interests granted hereby,
all of the Debtor's obligations owing UDC (including, but not limited to, the
Debtor's obligation to repurchase the Defaulted contracts set forth in the Term
Sheet and subsequent credit agreement) shall be hereby deemed to constitute
allowed administrative claims with priority over all other administrative
claims of the types described in Bankruptcy Code sections 105, 326, 330, 331,
503(b) 507(a) and 507(b); subject only to (1) administrative claims, up to an
aggregate amount of $350,000 for fees and expenses owed to professionals that
were incurred by the Debtor or any statutory creditor's committee appointed in
the captioned case and the expenses of members thereof, in each case to the
extent that they are allowed pursuant to Bankruptcy Code section 330, which
administative claims, up to $350,000 shall rank pari passu with the
administrative claims of UDC and (2) fees of the United States Trustee's Office
payable pursuant to 28 U.S.C. Section 1930. Except as set forth above, absent
UDC's express consent, no other claim shall be granted priority superior or
pari passu with that of the claim of UDC so long as Debtor has any obligation
owing to UDC.
6. Subsequent Modification, Stay or Vacation. If any or all of the
provisions of this Interim Order are hereafter modified, vacated or stayed by
subsequent order of this Court or any other court, such stay, modification or
vacation shall not affect: the validity of any obligation, debt or claim
incurred or any priority, security interest or lien in connection with the DIP
Facility pursuant to this Interim Order and such obligation, debt or claim
shall be governed in all respects by the original provisions of this Interim
Order or the terms and conditions for the use of any cash collateral.
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<PAGE> 11
7. Binding Obligation. The financing agreements entered into pursuant
to this Interim Order, and the terms of this Interim Order, shall be binding
upon UDC and the Debtor and their respective successors and assigns (including
any representative hereinafter appointed for the estate of the Debtor) and
shall inure to the benefit of UDC and the Debtor and (except with respect to
any trustee hereafter appointed for the estate of the Debtor in these
proceedings under Chapter 7 or 11 of the Bankruptcy Code) their respective
successors and assigns.
8. Relief From Stay. The automatic stay created by Bankruptcy Code
section 362 is hereby modified, vacated and annulled to the extent necessary to
permit UDC to perform in accordance with, and to exercise its rights pursuant
to and granted by, the financing documents to be drafted and executed
consistent with the Term Sheet and this Interim Order, including, without
limitation, any right to take steps under otherwise applicable non-bankruptcy
law to create, evidence, or perfect liens against property of the estate of the
Debtor, including, without limitation, the right to exercise, upon occurrence of
an event of default (subject to the service of any required notice of default
and the running of any period for curing default, all as defined and provided
for in the Term Sheet and any subsequent financing documents) all rights and
remedies provided for in the financing documents or available at law (including
state law) or in equity.
9. Adequate Protection of Existing Accounts Receivable. As and for
adequate protection, pursuant to Sections 361 and 363 of the Bankruptcy Code,
of the Bank Group's and interest in the Debtor's Cash; and for the use thereof
by the Debtor, Debtor shall pay over to LaSalle all proceeds from the Bank
Group's collateral, excluding any serving fees, from such collateral as
adequate protection. LaSalle shall apply such monies against LaSalle's
prepetition claims and postpetition fees and
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expenses as agreed by the Debtor, LaSalle and UDC in that certain Term Sheet
executed between such parties.
10. Greenwich. The Debtor does not seek to use Cash in which Greenwich
asserts an interest, but will segregate such funds. Debtor will track
identifiable receipts from the accounts pledged to Greenwich and segregate any
such receipts. Debtor reserves all of its rights as to any proposed
application by Greenwich of such funds.
11. Lockbox; Cash Held by Bank Group. For the duration of this Interim
Order, Neither LaSalle nor any member of the Bank Group nor Greenwich shall
have any increased rights in funds currently held or hereinafter received by
them relating to the Debtor or its accounts receivable by virtue of LaSalle or
any other member of the Bank Group or Greenwich receiving or holding such
amounts, nor for the duration of this Interim Order shall they apply such
amounts towards obligations they assert may be owed to any of them without
further order of this Court. The Debtor may establish a new bank account not
with any member of the Bank Group to receive proceeds from postpetition
accounts receivables.
12. Insurance. The Debtor shall maintain adequate and appropriate
insurance on its assets consistent with past practice, including but not
limited to naming UDC, the Bank Group, FSA and Greenwich as the loss payees
where appropriate.
13. Reports. The Debtor will provide UDC, LaSalle, FSA and Greenwich
with copies of its (i) monthly operating report and (ii) filings with the
Securities and Exchange Commission. The Debtor shall also provide to UDC (1)
if requested, copies of the Receivables; (2) all financial information
requested by UDC relating to the performance and payment history of borrowers
under the Receivables; and (3) such other documentation reasonably requested by
UDC or LaSalle.
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14. Retention of Jurisdiction. This Court hereby retains exclusive
jurisdiction over the subject matter of this Interim Order to resolve any
dispute in connection with the rights and duties specified hereunder.
15. Binding In Plan. The rights, powers, remedies, privileges, security
interests, liens, and priorities of UDC provided for herein and in the financing
agreements shall not be modified or abridged by Debtor in a plan of
reorganization unless UDC shall have consented to such plan of reorganization.
16. Final Hearing. A final hearing on the DIP Facility is set for
August __, 1997 at __:__ _m. The Debtor shall file with the Court and serve on
all secured creditors, the U.S. Trustee and its unsecured creditors a copy of
this Interim Order by no later than July __, 1997.
17. Objections. Any objections to entry of the final DIP Facility or
the proposed budget must be in writing and filed with the Court and served on
(i) Debtor's counsel (Laura Davis Jones, Young Conaway Stargatt & Taylor,
Rodney Square North, 11th Floor, Wilmington, Delaware 19899); (ii) counsel to
UDC (Christopher H. Bayley, Snell & Wilmer, L.L.P., One Arizona Center, 400 E.
Van Buren Phoenix, AZ 85004-0001 and Todd V. Jones, Snell & Wilmer, L.L.P.,
1500 NorWest Tower, One South
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<PAGE> 14
Church Ave., Tucson, AZ 85731; and (iii) the Office of the United States
Trustee for the District of Delaware, 601 Walnut Street, Curtis Center, Suite
950 West, Philadelphia, Pennsylvania 19106, Attention: John D. McLaughlin,
Esq. so as to be actually received no later than 4:00 p.m. Wilmington, Delaware
time on July __, 1997.
Dated: Wilmington, Delaware
July __, 1997
--------------------------------------
United States District Judge
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EXHIBIT 99.5
For Immediate Release
July 17, 1997
FIRST MERCHANTS OBTAINS INTERIM FINANCING; SETTLEMENT WITH
BANK GROUP ANNOUNCED
_________________________________________________________________
Deerfield, IL (July 17, 1997) - First Merchants Acceptance Corporation
(NASDAQ-FMACE) announced that a debtor-in-possession financing facility from
Ugly Duckling Corporation ("UDC") was approved today by the Delaware Federal
court where its Chapter 11 case is pending. The interim approval allows the
Company to use a $5 million line of credit. A final hearing on the full $10
million line of credit from UDC will be scheduled for August, 1997. The
Company filed for protection under Chapter 11 of the United States Bankruptcy
Code on July 11, 1997.
At the hearing, there was also an announcement that UDC, the Company and
the Company's Bank Group had reached an agreement in principle which, among
other things, provides that UDC will buy the Bank Group's position and that the
Company will file a motion to approve releases of the Bank Group and UDC which
is anticipated to be set for an August, 1997 hearing.
First Merchants is a national specialty finance company, primarily engaged
in financing the purchase of used automobiles by consumers who have limited
access to traditional sources of credit. The Company acquires
dealer-originated retail installment contracts from franchised and independent
automobile dealers and financial institutions in 37 states.
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