<PAGE> 1
As filed with the Securities and Exchange Commission on February 11, 1998
Registration No. 22-22299
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
AMENDMENT NO. 1
FORM T-3
FOR APPLICATIONS FOR QUALIFICATION OF INDENTURES
UNDER THE TRUST INDENTURE ACT OF 1939
-------------
FIRST MERCHANTS ACCEPTANCE CORPORATION
(Name of applicant)
570 Lake Cook Road, Suite 126, Deerfield, Illinois 60015
(Address of principal executive offices)
SECURITIES TO BE ISSUED UNDER THE INDENTURE TO BE QUALIFIED
TITLE OF CLASS AMOUNT
Notes $44,000,000
Approximate date of issuance: March 4, 1998
William N. Plamondon
President and Chief Executive Officer
First Merchants Acceptance Corporation
570 Lake Cook Road, Suite 126
Deerfield, Illinois 60015
(Name and address of agent for service)
With copies to:
Laura Davis Jones, Esq. Mitchell L. Hollins, Esq.
Robert Brady, Esq. Robert E. Richards, Esq.
Young Conaway Stargatt & Taylor Sonnenschein Nath & Rosenthal
11th & Market Streets 8000 Sears Tower
Wilmington, Delaware 19801 Chicago, Illinois 60606
(302) 571-6600 (312) 876-8000
-------------
The applicant hereby amends this application for qualification on such
date or dates as may be necessary to delay its effectiveness until (i) the 20th
day after the filing of a further amendment which specifically states that it
shall supersede this amendment, or (ii) such date as the Commission, acting
pursuant to Section 307(c) of the Trust Indenture Act of 1939, as amended (the
"Act"), may determine upon the written request of the applicant.
================================================================================
<PAGE> 2
GENERAL
1. GENERAL INFORMATION. Furnish the following as to the applicant.
(a) Form of organization:
A Corporation.
(b) State or other sovereign power under the laws of which
organized:
Delaware.
2. SECURITIES ACT EXEMPTION APPLICABLE. State briefly the facts relied
upon by the applicant as a basis for the claim that registration of the
indenture securities under the Securities Act of 1933, as amended (the
"Securities Act"), is not required.
First Merchants Acceptance Corporation, a Delaware corporation
("FMAC"), and First Merchants Residential Credit Corporation, a Delaware
corporation and wholly-owned subsidiary of FMAC ("FMRCC" and, together with
FMAC, the "Debtors"), filed voluntary petitions for relief under Chapter 11 of
the United States Bankruptcy Code (the "Bankruptcy Code") on July 11, 1997 and
September 9, 1997, respectively. On December 22, 1997, the Debtors filed a
Joint Plan under Chapter 11 and related Joint Disclosure Statement in
connection with the solicitation of ballots with respect to the Plan with the
United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court"). The Bankruptcy Court approved the adequacy of Debtors' Second Amended
Joint Plan under Chapter 11 (the "Plan") and related Joint Disclosure Statement
(the "Disclosure Statement"), each of which is attached hereto as an exhibit.
Under the Plan, the remaining assets of the Debtors will vest in FMAC
(the "Company" or "Applicant") on the Effective Date (as defined in the Plan).
On the Effective Date, pursuant to the Plan, the Company will issue to certain
of the Debtors' existing unsecured creditors $44,000,000 in aggregate principal
amount of Notes (the "Notes") of the Company, to be issued under an Indenture
(the "Indenture"), to be executed between FMAC and IBJ Schroder Bank & Trust
Company (the "Trustee"). The Notes will bear interest at the applicable
federal rate for medium term obligations as of the Effective Date
(approximately 5.93% as of January 21, 1998). Ugly Duckling Corporation
("UDC"), a Delaware corporation and owner of 2.5% of the currently outstanding
common stock, par value $.01 per share (the "Common Stock"), of the Company,
will issue warrants to the Company for the benefit of Class 7A FMAC unsecured
creditors and Class 8A FMAC stockholders which will be allocated among them as
set forth in the Plan. The Company may, at its sole option, distribute the UDC
warrants to such beneficiaries or, alternatively, hold such warrants and later
sell or exercise them and distribute the proceeds or shares of UDC common stock
received to the beneficiaries. The UDC warrants and the UDC common stock for
which they may be exercised are being registered pursuant to the Securities
Act. UDC is also registering additional UDC common stock which may be issued
in the event UDC exercises its one-time option to issue such shares and to
receive a portion of
2
<PAGE> 3
the Company's share of cash to be received under the Excess Collections
Contribution Agreement (as defined in the Plan). Payments on the Notes shall
be made in such coin or currency of the United States that is legal tender for
public and private debts, in shares of UDC common stock in the event that UDC
exercises the option described above, in UDC warrants or in shares of UDC
common stock issuable upon exercise of the UDC warrants in accordance with the
terms of the Indenture. Upon the Effective Date, the Common Stock will be
cancelled and the Subclass 7A-1 and 7A-2 FMAC unsecured creditors will receive
43% and 57%, respectively, of the outstanding shares of new common stock, par
value $.01 per share (the "New Common Stock"), of the Company.
The issuance of the Notes will not be registered under the Securities
Act pursuant to the exemption from the registration requirements of the
Securities Act provided by Section 1145 of the Bankruptcy Code. Generally,
Section 1145 of the Bankruptcy Code exempts the offer or sale of securities
under a Chapter 11 plan from registration under the Securities Act and under
equivalent state securities and "blue sky" laws if the following requirements
are satisfied: (i) the securities are issued by the debtor or its successor
under a Chapter 11 plan of reorganization; (ii) the recipients of the
securities hold a claim against the debtor, an interest in the debtor or a
claim for an administrative expense against the debtor; and (iii) the
securities are issued entirely in exchange for the recipient's claim against or
interest in the debtor or are issued "principally" in such exchange and
"partly" for cash or property. The Company believes that the issuance of the
Notes under the Plan will satisfy such requirements of Section 1145 of the
Bankruptcy Code and, therefore, such issuance is exempt from the registration
requirements referred to above.
AFFILIATIONS
3. AFFILIATES. Furnish a list or diagram of all affiliates of the
applicant and indicate the respective percentages of voting securities or other
bases of control.
The following is a list of all affiliates of the Company as of January
21, 1998:
First Merchants Residential Credit Corporation
First Merchants Acceptance Corporation of Illinois
First Merchants Acceptance Corporation of Nevada
First Merchants Acceptance Corporation of New York
First Merchants Auto Receivables Corporation
First Merchants Auto Receivables Corporation II
First Merchants Capital Limited
First Merchants Credit Corporation
Each of these affiliates is a subsidiary of the Company, 100% of the
voting securities of which are owned directly by the Company.
The following affiliates will continue to be subsidiaries of the
Company, 100% of the voting securities of which will be owned directly by the
Company, as of the Effective Date:
First Merchants Auto Receivables Corporation
First Merchants Auto Receivables Corporation II
3
<PAGE> 4
MANAGEMENT AND CONTROL
4. DIRECTORS AND EXECUTIVE OFFICERS. List the names and complete mailing
addresses of all directors and executive officers of the applicant and all
persons chosen to become directors or executive officers. Indicate all offices
with the applicant held or to be held by each person named.
As of January 21, 1998:
<TABLE>
<CAPTION>
Name Address Office
- ---- ------- ------
<S> <C> <C>
William N. Plamondon 570 Lake Cook Road, Ste. 126 President and Chief Executive
Deerfield, Illinois 60015 Officer; Director
Howard Adamski 570 Lake Cook Road, Ste. 126 Vice President; Treasurer
Deerfield, Illinois 60015
John McEnery 570 Lake Cook Road, Ste. 126 Vice President-Human
Deerfield, Illinois 60015 Resources
Richard P. Vogelman 570 Lake Cook Road, Ste. 126 Vice President, Secretary and
Deerfield, Illinois 60015 General Counsel
John Gentry 570 Lake Cook Road, Ste. 126 Vice President-Operations
Deerfield, Illinois 60015
R. Lee Daniells 570 Lake Cook Road, St. 126 Vice President
Deerfield, Illinois 60015
Thomas A. Hiatt Middlewest Ventures II, L.P. Director
201 N. Illinois Street
Indianapolis, Indiana 46204
Marcy H. Shockey Middlewest Ventures II, L.P. Director
201 N. Illinois Street
Indianapolis, Indiana 46204
Solomon A. Weisgal Solomon A. Weisgal, Ltd. Director
120 S. Riverside Plaza, Ste. 1620
Chicago, Illinois 60606
Stowe W. Wyant 3935 Brinton Place Director
Charlotte, North Carolina 28226
</TABLE>
4
<PAGE> 5
As of the Effective Date:
<TABLE>
<CAPTION>
Name Address Office
- ---- ------- ------
<S> <C> <C>
Richard P. Vogelman 570 Lake Cook Road, Ste. 126 President and Chief
Deerfield, Illinois 60015 Executive Officer
Howard Adamski 570 Lake Cook Road, Ste. 126 Secretary; Director
Deerfield, Illinois 60015
Eric Grubulich 45 River Drive South, Apt. 411 Director
Jersey City, New Jersey 07310
Buck Jones c/o J.C. Bradford & Co. Director
330 Commerce Street
Nashville, Tennessee 37201
</TABLE>
5. PRINCIPAL OWNERS OF VOTING SECURITIES. Furnish the following
information as to each person owning 10 percent or more of the voting
securities of the applicant.
As of January 21, 1998:
<TABLE>
<CAPTION>
Name and Complete Title of Class Percentage of Voting
Mailing Address Owned Amount Owned Securities Owned
- ------------------- ------------- ------------ ------------------
<S> <C> <C> <C>
Middlewest Ventures II, L.P. Common Stock 878,533 13.6%
201 North Illinois St.
Indianapolis, Indiana 46204
</TABLE>
As of the Effective Date:
Under the Plan, the existing Common Stock will be cancelled and the
Company's New Common Stock will be issued to the Subclass 7A-1 and 7A-2 FMAC
unsecured creditors. The Company anticipates that there will be no persons
owning 10 percent or more of the New Common Stock or other voting securities of
the Company as of the Effective Date.
6. UNDERWRITERS. Give the name and complete mailing address of (a) each
person who, within three years prior to the date of filing the application,
acted as an underwriter of any securities of the obligor which were outstanding
on the date of filing the application, and (b) each proposed principal
underwriter of the securities proposed to be offered. As to each person
specified in (a), give the title of each class of securities underwritten.
(a) During three years prior to the date of the filing of this
Application, the following persons acted as underwriters of securities of the
Company which are currently outstanding:
5
<PAGE> 6
Common Stock (Initial Public Offering):
J.C. Bradford & Co.
330 Commerce Street
Nashville, TN 37201
Oppenheimer & Co., Inc.
Oppenheimer Tower, World Financial Center
New York, NY 10281
Common Stock (Secondary Offering):
J.C. Bradford & Co.
330 Commerce Street
Nashville, TN 37201
Montgomery Securities LLC
600 Montgomery Street
San Francisco, CA 94111
Salomon Brothers Inc
7 World Trade Center
New York, NY 10048
Subordinated Reset Notes Due 2005:
J.C. Bradford & Co.
330 Commerce Street
Nashville, TN 37201
Piper Jaffray Inc.
222 South 9th St.
Minneapolis, MN 55402
Subordinated Reset Notes Due 2006:
J.C. Bradford & Co.
330 Commerce Street
Nashville, TN 37201
Piper Jaffray Inc.
222 South 9th St.
Minneapolis, MN 55402
Stifel, Nicolaus & Company, Incorporated
500 North Broadway
St. Louis, MO 63102
Keefe, Bruyette & Woods, Inc.
Two World Trade Center
85th Floor
New York, NY 10048
6
<PAGE> 7
(b) None.
CAPITAL SECURITIES
7. CAPITALIZATION. (a) Furnish the following information as to each
authorized class of securities of the applicant.
As of January 21, 1998:
<TABLE>
<CAPTION>
Amount Amount
Title of Class Authorized Outstanding
- -------------- ---------- -----------
<S> <C> <C>
Common Stock, par value $.01 20,000,000 sh. 6,406,573 sh.
Non-Voting Common Stock, par value $.01 300,000 sh. 0 sh.
Preferred Stock, par value $100 500,000 sh. 0 sh.
Subordinated Reset Notes Due 2005 $14,375,000 $14,375,000
Subordinated Reset Notes Due 2006 $51,750,000 $51,750,000
</TABLE>
As of the Effective Date:
<TABLE>
<CAPTION>
Amount Amount
Title of Class Authorized Outstanding
- -------------- ---------- -----------
<S> <C> <C>
Common Stock, par value $.01 1,000,000 sh. 1,000,000 sh.
</TABLE>
(b) Give a brief outline of the voting rights of each class of voting
securities referred to in paragraph (a) above.
Each outstanding share of the Company's existing Common Stock and New
Common Stock has or will have, as applicable, one vote with respect to all
matters subject to common stockholder vote. The Company's Non-Voting Common
Stock does not entitle the holders thereof to voting rights. There is
currently no Preferred Stock designated or issued. Holders of the Common Stock
and New Common Stock do not, and will not, have cumulative voting rights or
preemptive rights. On the Effective Date, the Company's existing Common Stock
will be cancelled and holders thereof will be entitled to receive a percentage
of UDC warrants or proceeds from the UDC warrants. Subclass 7A-1 and 7A-2 FMAC
unsecured creditors will receive 43% and 57%, respectively, of the authorized
and issued New Common Stock of the Company.
Holders of the Subordinated Reset Notes due 2005 and the Subordinated
Reset Notes due 2006 do not have any voting rights by reason of ownership of
those securities.
7
<PAGE> 8
INDENTURE SECURITIES
8. ANALYSIS OF INDENTURE PROVISIONS. The Notes will be issued under the
Indenture, a copy of which is included as Exhibit T3C hereto. Capitalized
terms used in this Section 8 which are not otherwise defined below or elsewhere
in the Application have the respective meanings assigned to them in the
Indenture. The following summary of certain provisions of the Indenture does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all of the provisions of the Indenture, which provisions are
incorporated by reference as part of such analysis.
(A) EVENTS OF DEFAULT. The following are Events of Default under
the Indenture:
(1) Failure to make any payment of Principal of, or
Interest upon, any Note for a period of five (5) days or more after the same
shall become due and payable pursuant to and in accordance with the terms of
the Notes and the Indenture; or
(2) The occurrence of any default in the performance, or
any breach, of any covenant of the Company in the Indenture (other than a
default covered by subsections (1) and (3) through (7) hereof), which continues
for a period of not less than thirty (30) consecutive days after written notice
of such occurrence is given to the Company by the Trustee or holders of not
less than twenty-five percent (25%) in Principal amount of then Outstanding
Notes; or
(3) The occurrence of any material default in the
performance, or any material breach, of any covenant of the Company in the
Plan, which continues for a period of not less than thirty (30) consecutive
days after written notice of such occurrence is given to the Company by the
Trustee or holders of not less than twenty-five percent (25%) in Principal
amount of then Outstanding Notes; or
(4) The Company's Case is converted to a case under
Chapter 7 of Title 11 of the United States Code; or
(5) The Company files a voluntary petition under Chapter
11 U.S.C. Section 301; provided, however, that the continuation of the
Company's Case shall not be an Event of Default; or
(6) An order for relief is entered against the Company
under 11 U.S.C. Section 303(h); or
(7) A court of competent jurisdiction enters a final
non-appealable judgment, order or decree for payment of money against the
Company that does not violate or conflict with the terms of the Plan and that
results in a liability (after provision for any proceeds of any policy of
insurance applicable to such liability) in excess of $400,000.
If a Default occurs, the Trustee may, at its election and shall, upon
the written direction of holders of not less than twenty-five percent (25%) of
the aggregate Principal amount of the Outstanding Notes, by written notice to
the Company, declare the unpaid Principal amount of
8
<PAGE> 9
all of the Notes and all accrued Interest thereon to be immediately due and
payable in full, and such Principal and Interest shall thereupon become and be
immediately due and payable in full; provided, however, that, notwithstanding
the foregoing, holders of a majority in Principal amount of the Outstanding
Notes may by written notice to the Company and to the Trustee consent to a
waiver of such Default before any final judgment or decree for the payment of
the monies due is obtained.
If a Default occurs, the Trustee shall, within sixty (60) days after
the occurrence of such Default, give all Noteholders notice by mail of all
Defaults known to the Trustee, unless such Defaults shall have been cured or
waived before the giving of such notice; provided however, that except in the
case of Default in the payment of Payments on any of the Notes, the Trustee
shall be protected in withholding such notice if and so long as the board of
directors, board of trustees, executive committee, or a trust committee of
directors, trustees or Responsible Officers, of the Trustee in good faith
determines that the withholding of such notice is in the interests of the
Noteholders. Upon the occurrence of a Default, the Trustee may commence a suit
or suits in equity or an action or actions at law to protect and enforce its
rights and the rights of holders of the Outstanding Notes, whether for the
specific performance of any covenant or agreement contained in the Indenture or
for the enforcement of any other legal or equitable remedy.
(B) AUTHENTICATION AND DELIVERY; APPLICATION OF PROCEEDS.
The Notes will not be valid for any purpose unless there shall be
endorsed thereon an authentication certificate executed by the Trustee. The
signature of the authorized signatory of the Trustee on the authentication
certificate will be conclusive evidence that the Note has been authenticated
under the Indenture. The Trustee will authenticate Notes for original issue in
aggregate Principal amount of $44,000,000, all to be issued only in full
registered form without coupons under the Indenture. Whenever reference is
made in the Indenture to the authentication and delivery of the Notes by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
authenticating agent and a certificate of authentication executed on behalf of
the Trustee by an authenticating agent.
There will be no proceeds from the issuance of the Notes because the
Notes will be issued under the Plan in exchange for the discharge of certain
claims.
(C) RELEASE AND SUBSTITUTION OF PROPERTY SUBJECT TO THE LIEN OF
THE INDENTURE.
Not applicable.
(D) SATISFACTION AND DISCHARGE.
The Indenture will cease to be of further effect when (A) either (1)
all Notes theretofore authenticated and delivered (other than destroyed, lost
or stolen Notes that have been replaced or paid and Notes for whose payment
money was held in trust by the Company and thereafter discharged or repaid to
the Company) have been delivered to the Trustee for cancellation; or (2) with
respect to Notes that are not delivered to the Trustee for cancellation, the
Company has
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<PAGE> 10
deposited with the Trustee an amount sufficient to pay and discharge the entire
amount of unpaid Payments payable with respect to such Notes; and (B) the
Company has paid or caused to be paid all other sums payable by the Company
under the Indenture; and (C) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating that all
conditions relating to the satisfaction and discharge of the Indenture have
been complied with. In the event the Notes are discharged as aforesaid, the
Company will be relieved of its obligations under the Indenture, with certain
specified exceptions.
(E) EVIDENCE AS TO COMPLIANCE WITH CONDITIONS AND COVENANTS.
The Company is required to deliver to the Trustee, within thirty (30)
days after the end of each of its fiscal quarters, commencing June 30, 1998, an
Officer's Certificate stating whether or not, after a review of the activities
of the Company during such quarter under the supervision of the signing Officer
with a view to determining whether the Company has kept, performed and
fulfilled its obligations under the Indenture, the Company, to the best of such
signing Officer's knowledge, based on the review, has fulfilled all of its
obligations under the Indenture throughout the quarter, or, there has been a
default in the fulfillment of any such obligation, specifying each such default
known to such signing Officer and the nature and status thereof.
The Company is also required to file with the Trustee within fifteen
(15) days after the Company files the same with the Securities and Exchange
Commission (the "Commission"), copies of annual reports and information,
documents and other reports, which the Company is required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"); or, if the Company is not
required to file information, documents, or reports pursuant to either of such
sections, then the Company must file with the Trustee and the Commission
supplementary and periodic information, documents, and reports which may be
required to be filed with the Commission under Section 13 of the Exchange Act.
The Company is also required to file with the Trustee and the
Commission in accordance with the rules and regulations prescribed from time to
time by the Commission any additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants provided
in the Indenture as may be required by such rules and regulations including, in
the case of annual reports, if required by the Commission, certificates or
opinions of an independent public accountant as to compliance with any
conditions or covenants subject to verification by accountants. Certificates
or opinions of independent public accountants shall state that in making the
examination necessary for certification of such information, documents and
reports nothing has come to their attention that would lead them to believe
that the Company has violated certain provisions of the Indenture or, if any
such violation has occurred, specifying the nature and period of existence
thereof.
The Indenture provides that upon any request or application by the
Company to the Trustee to take any action under a provision of the Indenture,
the Company must furnish to the Trustee an Officers' Certificate stating that
all conditions precedent, if any, to such action provided for in the Indenture
relating to the proposed action have been complied with, and an Opinion of
Counsel stating that in the opinion of such counsel all conditions precedent,
if any,
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<PAGE> 11
to such action provided in the Indenture have been complied with. Any such
certificate or opinion must comply with the requirements of the Trust Indenture
Act of 1939 and the Indenture.
9. OTHER OBLIGORS. Give the name and complete mailing address of any
other person, other than the applicant, who is an obligor on the indenture
securities.
None.
CONTENTS OF APPLICATION FOR QUALIFICATION. This application for qualification
comprises:
(a) Pages numbered 1 to 12, consecutively. (1)
(b) The statement of eligibility and qualification of the trustee
under the indenture to be qualified. (2)
(c) The following exhibits in addition to those filed as part of
the statement of eligibility and qualification of the trustee:
Exhibit T3A Certificate of Incorporation
of the Company, dated
September 23, 1994. (3)
Exhibit T3B Bylaws of the Company. (2)
Exhibit T3C Form of Indenture to be
qualified for the Notes.
Exhibit T3D Not applicable.
Exhibit T3E.1 Debtors' Joint Disclosure
Statement dated February 9,
1998, and exhibits thereto.
(4)
Exhibit T3E.2 Debtors' Second Amended Joint
Plan under Chapter 11 dated
February 9, 1998, and
exhibits thereto.
Exhibit T3E.3 Notices of Entry of Order
and Order Approving Debtors'
Amended Joint Disclosure
Statement and of Plan
Confirmation Hearing dated
January 21, 1998.
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<PAGE> 12
Exhibit T3F See Exhibit T3C for cross
reference sheet showing the
location in the Indenture of
the provisions inserted
therein pursuant to Section
310 through 318(c),
inclusive, of the Act.
- ---------------------
(1) Pursuant to Rule 309(a) of Regulation S-T, requirements as to
sequential numbering shall not apply to this electronically
formatted document.
(2) Filed with Form T-3 on January 28, 1998.
(3) Incorporated by reference from Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-81070) filed
with the Securities and Exchange Commission.
(4) Exhibit 5 to Debtors' Joint Disclosure Statement dated January
21, 1998 is incorporated by reference from Ugly Duckling
Corporation's Registration Statement on Form S-1 (File No.
333-42973), as amended from time to time, filed with the
Securities and Exchange Commission.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Applicant, First Merchants Acceptance Corporation, a corporation organized and
existing under the laws of Delaware, has duly caused this Amendment to the
Application for Qualification of Indenture on Form T-3 (Registration No.
22-22299) to be signed on its behalf by the undersigned, thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the City
of Deerfield and State of Illinois, on the 9th day of February, 1998.
FIRST MERCHANTS ACCEPTANCE CORPORATION
/s/William N. Plamondon
------------------------------------------
By: William N. Plamondon
Its: President and Chief Executive Officer
Attest: /s/Richard P. Vogelman
----------------------------------
By: Richard P. Vogelman
Its: Vice President, Secretary
and General Counsel
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<PAGE> 13
EXHIBIT INDEX
Exhibit 3.1 Certificate of Incorporation
of the Company, dated
September 23, 1994. (3)
Exhibit 3.2 Bylaws of the Company. (2)
Exhibit 4.1 Form of Indenture to be
qualified for the Notes.
Exhibit 25 The statement of eligibility
and qualification of the
trustee under the indenture
to be qualified. (2)
Exhibit 99.1 Debtors' Joint Disclosure
Statement dated February 9,
1998, and exhibits thereto.
(4)
Exhibit 99.2 Debtors' Second Amended Joint
Plan under Chapter 11 dated
February 9, 1998, and
exhibits thereto.
Exhibit 99.3 Notices of Entry of Order
and Order Approving Debtors'
Amended Joint Disclosure
Statement and of Plan
Confirmation Hearing dated
January 21,1998.
Exhibit 99.4 See Exhibit 4.1 for cross
reference sheet showing the
location in the Indenture of
the provisions inserted
therein pursuant to Section
310 through 318(c),
inclusive, of the Act.
- ---------------------
(1) Pursuant to Rule 309(a) of Regulation S-T, requirements as to
sequential numbering shall not apply to this electronically
formatted document.
(2) Filed with Form T-3 on January 28, 1998.
(3) Incorporated by reference from Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-81070) filed
with the Securities and Exchange Commission.
(4) Exhibit 5 to Debtors' Joint Disclosure Statement dated January
21, 1998 is incorporated by reference from Ugly Duckling
Corporation's Registration Statement on Form S-1 (File No.
333-42973), as amended from time to time, filed with the
Securities and Exchange Commission.
<PAGE> 1
EXHIBIT T3C
FIRST MERCHANTS ACCEPTANCE CORPORATION
AND
IBJ SCHRODER BANK & TRUST COMPANY
---------------------------
INDENTURE
Dated as of March 4, 1998
---------------------------
$44,000,000
NOTES
================================================================================
<PAGE> 2
FIRST MERCHANTS ACCEPTANCE CORPORATION
NOTES
TIE-SHEET
of provisions of Trust Indenture Act of 1939 and the Indenture dated as of
March 4, 1998, between First Merchants Acceptance Corporation and IBJ Schroder
Bank & Trust Company, Trustee.
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT OF 1939
SECTION INDENTURE SECTION
- -------------------------------- -------------------
<S> <C>
310(a)(1)(2) . . . . . . . . . 8.1 and 8.12
(a)(3) . . . . . . . . . . . Not applicable
(a)(4) . . . . . . . . . . . Not applicable
(b) . . . . . . . . . . . . 8.8 and 8.9
(c) . . . . . . . . . . . . Not applicable
311(c) . . . . . . . . . . . . Not applicable
312(a) . . . . . . . . . . . . 4.1(A), (B)
(b) . . . . . . . . . . . . 4.1(C)
(c) . . . . . . . . . . . . 4.1(D)
313(a) . . . . . . . . . . . . 4.3
(b) . . . . . . . . . . . . Not applicable
(c) . . . . . . . . . . . . 4.3
(d) . . . . . . . . . . . . 4.3
314(a) . . . . . . . . . . . . 4.2(A) through (D)
(b) . . . . . . . . . . . . Not applicable
(c) . . . . . . . . . . . . 13.3
(d) . . . . . . . . . . . . Not applicable
(e) . . . . . . . . . . . . 13.3
315(a) . . . . . . . . . . . . 8.2(A)
(b) . . . . . . . . . . . . 5.2
(c) . . . . . . . . . . . . 8.2(B)
(d) . . . . . . . . . . . . 8.2(C)
(e) . . . . . . . . . . . . 5.12
316(a)(1) . . . . . . . . . . . 5.6 and 5.15
(a)(2) . . . . . . . . . . . Not applicable
(b) . . . . . . . . . . . . 5.11
317(a) . . . . . . . . . . . . 5.7 and 5.9
(b) . . . . . . . . . . . . 3.2(B), (C)
318(a) . . . . . . . . . . . . 13.6
(c) . . . . . . . . . . . . 13.6
- ----------------------------------------------------------------------
</TABLE>
This tie-sheet does not constitute a part of the Indenture.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 1.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
affected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Applicable Share, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Available Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Board of Directors or Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
business day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Certified Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Company Order and Company Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Daily Newspaper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
date of this Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Defaulted Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Executive Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Fair Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Federal Bankruptcy Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Global Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
main office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
maturity or mature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Note or Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Note Co-Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Note Register and Note Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Noteholder, holder of the Notes, Holder or holder . . . . . . . . . . . . . . . . . . . . . . . . . 14
Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Original Issue Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
paying agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
place of payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
predecessor Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Proportionate Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Pro-Rata Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Regular Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Responsible Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Special Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Stated Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
supplemental indenture or indenture supplemental hereto . . . . . . . . . . . . . . . . . . . . . . 17
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Trust Indenture Act or TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 2 ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.1 Designation, Amount and Issue of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.2 Form of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.3 Dates, Payments, and Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.4 Numbers and Legends on Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.5 Execution of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.6 Registration of Transfer of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.7 Exchange and Registration of Transfer of Notes . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.8 Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.9 Recognition of Registered Holders of Definitive Notes and Temporary Notes . . . . . . . . . 22
SECTION 2.10 Mutilated, Destroyed, Lost or Stolen Notes . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.11 Form and Authentication of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.12 Surrender and Cancellation of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 3 PARTICULAR COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.1 Will Punctually Pay the Payments on the Notes . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(A) Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(B) Appointment of Trustee as Paying Agent; Duty of
Paying Agent Other Than Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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(C) Duty of Company Acting as Paying Agent . . . . . . . . . . . . . . . . . . . . . . . 25
(D) Delivery to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(E) All Sums to be Held Subject to Section 13.2 . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.3 Compliance with the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.4 Will Keep, and Permit Examination of, Records and Books
of Account and Will Permit Visitation of Property . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.5 Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.6 Restrictions on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.7 Compliance Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.8 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 4 NOTEHOLDER LISTS AND REPORTS BY THE COMPANY
AND THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.1 Noteholder lists, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.2 Reports by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.3 Reports by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 5 REMEDIES OF TRUSTEE AND NOTEHOLDERS UPON DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 5.1 Definition of Default and Event of Default . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 5.2 Trustee to Give Noteholders Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 5.3 Declaration of Principal and Accrued Interest Due Upon
Default; Holders of Specified Percentage of Notes May
Waive Default Declaration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 5.4 Power of Trustee to Protect and Enforce Rights . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 5.5 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(A) Delay, Etc. Not a Waiver of Rights . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 5.6 Holders of Specified Percentage of Notes May Direct
Judicial Proceedings by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 5.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(A) Payment of Principal and Interest to Trustee Upon
Occurrence of Certain Defaults; Judgment May be
Taken by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(B) Enforcement of Rights by Trustee During Continuance
of an Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(C) Application of Moneys Collected by Trustee . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.8 Possession of Notes Unnecessary in Action by Trustee . . . . . . . . . . . . . . . . . . . 34
SECTION 5.9 Trustee May File Necessary Proofs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.10 Limitation Upon Right of Noteholders to Institute Certain Legal Proceedings . . . . . . . 35
SECTION 5.11 Right of Noteholder to Receive and Enforce Payment Note Impaired . . . . . . . . . . . . . 35
SECTION 5.12 Court May Require Undertaking to Pay Costs . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 5.13 Unenforceable Provision Inoperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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SECTION 5.14 If Enforcement Proceedings Abandoned, Status Quo is Established . . . . . . . . . . . . . . 36
SECTION 5.15 Noteholders May Waive Certain Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE 6 EVIDENCE OF RIGHTS OF NOTEHOLDERS
AND OWNERSHIP OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 6.1 Evidence of Ownership of Definitive Notes and Temporary
Notes Issued Hereunder in Registered Form . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 7 CONSOLIDATION, MERGER AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 7.1 Company May Merge, Consolidate, Etc., Upon Certain Terms . . . . . . . . . . . . . . . . . 37
SECTION 7.2 Successor Corporation to be Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 7.3 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 8 CONCERNING THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 8.1 Requirement of Corporate Trustee, Eligibility . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 8.2 Acceptance of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 8.3 Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.4 Trustee May Own Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.5 Trustee May Rely on Certificates, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.6 Money Held in Trust Not Required to be Segregated . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.7 Compensation, Reimbursement, Indemnity, Security . . . . . . . . . . . . . . . . . . . . . 42
SECTION 8.8 Conflict of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 8.9 Resignation, Removal, Appointment of Successor Trustee . . . . . . . . . . . . . . . . . . 48
SECTION 8.10 Acceptance by Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 8.11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(A) Notice, Etc. on Behalf of Company Delivered to
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(B) Cash, Securities, Etc. to be Held by Trustee . . . . . . . . . . . . . . . . . . . . 49
SECTION 8.12 Merger or Consolidation of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 8.13 Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE 9 DISCHARGE OF INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 9.1 Acknowledgment of Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 9.2 Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE 10 MEETING OF NOTEHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 10.1 Purposes for which Meetings May be Called . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 10.2 Call of Meeting by Trustee; Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.3 Call of Meetings by Trustee; Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.4 Meetings, Notice and Entitlement to be Present . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 10.5 Regulations May be Made by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 10.6 Manner of Voting at Meetings and Record to be Kept . . . . . . . . . . . . . . . . . . . . 55
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SECTION 10.7 Evidence of Action by Holders of Specified Percentage of
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 10.8 Exercise of Right of Trustee or Noteholders May Not be
Hindered or Delayed by Call of Meeting of Noteholders . . . . . . . . . . . . . . . . . . . 56
ARTICLE 11 SUPPLEMENTAL INDENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 11.1 Purposes for Which Supplemental Indentures May be
Executed by Company and Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 11.2 Modification of Indenture by Written Consent of
Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 11.3 Requirements for Execution; Duties and Immunities of
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 11.4 Supplemental Indentures Part of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 11.5 Notes Executed After Supplemental Indenture to be
Approved by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 11.6 Supplemental Indentures Required to Comply with Trust
Indenture Act of 1939 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE 12 IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 12.1 Immunity of Certain Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE 13 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 13.1 Benefits Restricted to Parties and to Holders of Notes . . . . . . . . . . . . . . . . . . 60
SECTION 13.2 Deposits for Notes Not Claimed for Specified Period to be
Returned to Company on Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 13.3 Formal Requirements of Certificates and Opinions Hereunder . . . . . . . . . . . . . . . . 60
SECTION 13.4 Evidence of Act of the Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 13.5 Parties to Include Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 13.6 In Event of Conflict with Trust Indenture Act of 1939,
Provisions Therein to Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 13.7 Request, Notices, Etc. to Trustee or Company . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 13.8 Manner of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 13.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 13.10 Payments Due on Days When Banks Closed . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 13.11 Backup Withholding Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 13.12 Titles of Articles and Sections of This Indenture Not Part Thereof . . . . . . . . . . . . 63
SECTION 13.13 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 13.14 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 13.15 Plan Provisions Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
-v-
<PAGE> 8
This INDENTURE, dated as of March 4, 1998, between FIRST MERCHANTS
ACCEPTANCE CORPORATION, a Delaware corporation as reorganized pursuant to the
Plan (as defined herein) (herein called the "Company") and IBJ SCHRODER BANK &
TRUST COMPANY, a banking corporation organized under the laws of the State of
New York, the mailing address of which is One State Street, New York, New York
10004 (herein, together with each successor as such trustee hereunder, called
the "Trustee").
WITNESSETH:
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the issue of its Notes (hereinafter sometimes called the "Notes") in
the aggregate Principal amount of up to $44,000,000 and, to provide the terms
and conditions upon which the Notes are to be authenticated, issued and
delivered, the Company has duly authorized the execution of this Indenture;
WHEREAS, the Notes and the Trustee's certificate of authentication to
be borne by the Notes are to be substantially in the following forms,
respectively:
[FORM OF FACE OF NOTES] CUSIP NO. 320816 AC 5
-----------
NO. FIRST MERCHANTS ACCEPTANCE CORPORATION
NOTE
First Merchants Acceptance Corporation, a corporation organized and
existing under the laws of the State of Delaware as reorganized pursuant to the
Plan (hereinafter called the "Company," which term shall include any successor
corporation as defined in the Indenture referred to on the reverse side
hereof), promises to pay to ____________________ or registered assigns, such
holder's Applicable Share of the Payments, to the extent not previously paid
pursuant to and in accordance with the terms of this Note and the Indenture, on
the date that is four years and eleven months after the Effective Date (the
"Stated Maturity"). Payments shall be made in such coin or currency of the
United States of America as at the time of payment is legal tender for public
and private debts, in Stock Option Shares (as defined in the Plan) with a value
equal to the Stock Option Value (as defined in the Plan), in UDC Warrants (as
defined in the Plan) with a value equal to the fair market value of the UDC
Warrants on the date of distribution of the UDC Warrants to the holders of the
Notes as determined by a national independent public accounting firm selected
by the Board of Directors of the Reorganized Company (the "Independent
Appraiser") or in shares of common stock of UDC issued or issuable upon
exercise of the UDC Warrants (the "UDC Warrant Shares") with a value equal to
Fair Market Value of the UDC Warrant Shares on the date of distribution of the
UDC Warrant Shares to the holders of the Notes. Interest shall accrue on the
unpaid Principal amount hereof from the Payment Date to which Interest has been
paid immediately preceding the date hereof (unless the date hereof is a Payment
Date to which Interest has been paid, in which case from the date hereof) or,
if no Interest has been paid on this Note from the Original Issue Date hereof,
from such Original Issue Date and shall be
<PAGE> 9
due and payable pursuant to and in accordance with the terms of this Note and
the Indenture. Installments of cash Payments shall be payable quarterly on the
last business day of March, June, September and December of the applicable
year, commencing June 30, 1998 (each, a "Payment Date"), until the earlier of
(a) such time as all of the Payments have been paid in full or (b) the Stated
Maturity. Each installment of cash Payments on all then Outstanding Notes
prior to the Stated Maturity shall be in an amount equal to the Available Cash,
if any, on the date that is ten business days prior to the date of such
installment and shall be applied first to the payment of Interest on all then
Outstanding Notes and then to the payment of Principal of all then Outstanding
Notes. Notwithstanding the foregoing, in the event that the Available Cash on
the date that is ten business days prior to the date of such installment is
less than $300,000, the Company may elect not to make a quarterly installment
of cash Payments to the holders of the Notes on the date that such installment
would otherwise be due, and the Company may elect not to make any future
quarterly installment of cash Payments to the holders of the Notes until
additional Available Cash is received by the Company which, when aggregated
with existing Available Cash, would equal or exceed $300,000 as of the date
that is ten business days prior to the date of such installment (the "De
Minimis Exception").
The Company will pay on each Payment Date to the person in whose name
this Note is registered at the close of business on the Regular Record Date
preceding such Payment Date such person's Applicable Share of the Payments, if
any are due and payable to such person's subclass pursuant to and in accordance
with the terms of this Note and the Indenture, unless the Company shall default
in the payment of Payments due on such Payment Date, in which case such
defaulted payments shall be paid to the person in whose name this Note is
registered at the close of business on a Special Record Date for the payment of
such defaulted payments established by notice to the registered holders of
Notes given by mail to said holders as their names and addresses appear in the
Note Register not less than ten (10) days preceding such Special Record Date.
The Payments, if any are due and payable pursuant to and in accordance with the
terms of this Note and the Indenture, shall be payable at the main office of
IBJ Schroder Bank & Trust Company, Trustee under the Indenture referred to on
the reverse side hereof, in New York; provided, however, that the Payments on
this Note may be payable, at the option of the Company, by wire transfer of
Federal funds or by check, Stock Option Shares (as defined in the Plan), UDC
Warrants (as defined in the Plan) or UDC Warrant Shares mailed to the person
entitled thereto as such person's address shall appear on the Note Register
(including the records of any Note Co-Registrar).
Reference is hereby made to the further provisions of this Note set
forth on the reverse side hereof, and such further provisions shall for all
purposes have the same effect as though fully set forth at this place.
This Note shall not be entitled to any benefit under the Indenture
referred to on the reverse side hereof, or be or become valid or obligatory for
any purpose, until the authentication certificate endorsed hereon shall have
been signed by IBJ Schroder Bank & Trust Company, Trustee under such Indenture,
or a successor trustee thereto under such Indenture.
-2-
<PAGE> 10
IN WITNESS WHEREOF, FIRST MERCHANTS ACCEPTANCE CORPORATION has caused
this Note to be signed in its name by its President and Chief Executive Officer
or one of its Vice Presidents by his signature or a facsimile thereof, and its
corporate seal to be affixed or printed or engraved hereon, or a facsimile
thereof, and attested by its Secretary or one of its Assistant Secretaries by
his signature or a facsimile thereof.
Dated: FIRST MERCHANTS ACCEPTANCE CORPORATION
By:
--------------------------------
Title:
-----------------------------
Seal:
Attest:
- ---------------------------
Title:
---------------------
-3-
<PAGE> 11
[FORM OF TRUSTEE'S AUTHENTICATION CERTIFICATE]
TRUSTEE'S AUTHENTICATION CERTIFICATE
This Note is one of the Notes described or provided for in the
Indenture referred to on the reverse side hereof.
IBJ Schroder Bank & Trust Company,
as Trustee
By:
-----------------------------
Authorized Officer
[FORM OF REVERSE OF NOTE]
FIRST MERCHANTS ACCEPTANCE CORPORATION
NOTE
This Note is one of a duly authorized issue of Notes of the Company
designated as its Notes (herein called the "Notes"), limited in aggregate
Principal amount of $44,000,000 (except for Notes authenticated and delivered
upon transfer of, or in exchange for or in lieu of other Notes), all issued and
to be issued only in fully registered form without coupons under an indenture
(herein, together with any indenture supplemental thereto, called the
"Indenture"), dated as of March 4, 1998, duly executed and delivered by First
Merchants Acceptance Corporation to IBJ Schroder Bank & Trust Company, Trustee
(the Trustee, together with its successors being herein called the "Trustee"),
to which Indenture (which is hereby made a part hereof and to all of which the
holder by acceptance hereof assents) reference is hereby made for a description
of the respective rights of and restrictions upon the Company and the holders
of the Notes, and the rights, limitations of rights, duties and immunities of
the Trustee in respect thereof.
As used herein, the following capitalized terms shall have the
following meanings:
"Applicable Share," with respect to the holder of a Note, means (i)
with respect to an Allowed Subclass 7A-1 Claim (as defined in the Plan) held by
such holder, or in the event of a transfer of a Note, held by a predecessor
holder, the sum of such holder's Pro-Rata Share and the number obtained by
multiplying such holder's Proportionate Share by a fraction, the numerator of
which is the aggregate additional Principal as of the Effective Date allocated
to the Allowed Subclass 7A-1 Claims in an amount equal to the Additional Equity
Value (as defined in the Plan) and the denominator of which is $44,000,000 and
(ii) with respect to an Allowed Subclass 7A-2 Claim (as defined in the Plan)
held by such holder, or in the event of a transfer of a Note, held by a
predecessor holder, such holder's Pro-Rata Share minus the number obtained by
multiplying such holder's Proportionate Share by a fraction, the
-4-
<PAGE> 12
numerator of which is the aggregate additional Principal as of the Effective
Date allocated to the Allowed Subclass 7A-1 Claims in an amount equal to the
Additional Equity Value and the denominator of which is $44,000,000.
"Available Cash" shall mean cash available to the Company after
satisfaction of senior obligations under the Plan, obligations to Class 8A
Interestholders, if any, under the Plan and post-confirmation expenses
(including any reserve deemed reasonable by the board of directors for the
Company for anticipated post-confirmation expenses) in accordance with the
Plan.
"Effective Date" shall have the meaning set forth in the Plan.
"Fair Market Value" per share of UDC Warrant Share on any date shall
mean, except as hereinafter provided, the average closing price of the common
stock of UDC for the ten consecutive business days immediately preceding the
third business day prior to such date as reported on the Nasdaq National Market
("Nasdaq") or, if such common stock is not traded on Nasdaq, then as
reported on the principal domestic stock exchange on which such stock is then
listed or admitted to trading, or, if such common stock is neither listed or
admitted to trading on any domestic stock exchange nor traded on Nasdaq, then
as reported in the over-the-counter market, as furnished by the National
Quotation Bureau, Inc., or, if such firm at the time is not engaged in the
business of reporting such prices, as furnished by any similar firm then
engaged in such business as selected by the Reorganized Company, or if there is
no such firm, as furnished by any member of the National Association of
Securities Dealers, Inc. selected by the Reorganized Company. If at any time
such common stock is neither listed on any domestic exchange, nor traded on
Nasdaq, nor otherwise quoted in the domestic over-the-counter market, then the
Fair Market Value shall be the fair market value per share of such common stock
on the date of distribution of the UDC Warrant Shares to the holders of the
Notes as determined by an Independent Appraiser selected by the Reorganized
Company.
"Interest," with respect to a Note, means interest on the unpaid
Principal of such Note, compounded quarterly from the Effective Date until such
time, if any, that the Principal has been paid or duly provided for, at the
applicable federal rate for medium term obligations as of the Effective Date.
"Payments" means, collectively, payments of Interest and payments of
Principal on all of the Outstanding Notes.
"Plan" means that certain Second Amended Joint Plan under Chapter 11 of
the United States Bankruptcy Code of the predecessor of the Company as
confirmed by the United States District Court for the District of Delaware.
"Principal," with respect to a Note on the Effective Date, shall be an
amount equal to the holder of such Note's Applicable Share of $44,000,000. The
original Principal
-5-
<PAGE> 13
amount of a Note shall be reduced by Payments by the Company to the holder of
the Note, or, in the event of a transfer of a Note, to any predecessor holder,
which Payments are allocated by the Company to Principal in accordance with the
terms of this Note and the Indenture. The Principal of all Outstanding Notes
shall be equal to $44,000,000 on the Effective Date.
"Proportionate Share" means, with respect to the holder of a Note, the
proportion that an Allowed Subclass 7A-1 Claim under and as defined in the Plan
held by such holder or, in the event of a transfer of a Note, held by a
predecessor holder, or an Allowed Subclass 7A-2 Claim under and as defined in
the Plan held by such holder or, in the event of a transfer of a Note, held by
a predecessor holder, as applicable, bears to the aggregate amount of all
Allowed Subclass 7A-1 Claims or all Allowed Subclass 7A-2 Claims, as applicable
(including any applicable Contested Claim Reserve, as defined in the Plan).
"Pro-Rata Share" means, with respect to the holder of a Note, the
proportion that an Allowed Subclass 7A-1 Claim under and as defined in the Plan
held by such holder or, in the event of a transfer of a Note, held by a
predecessor holder, or an Allowed Subclass 7A-2 Claim under and as defined in
the Plan held by such holder or, in the event of a transfer of a Note, held by
a predecessor holder, bears to the aggregate amount of all Allowed Subclass
7A-1 Claims and Allowed Subclass 7A-2 Claims (including any Contested Claim
Reserve, as defined in the Plan).
If the Company shall deposit with the Trustee in trust funds
sufficient to pay the entire amount of Payments with respect to the Notes and
shall comply with the other provisions of the Indenture in respect thereof,
then from and after said date, such Notes shall no longer be entitled to any
benefit under the Indenture and, as respects the Company's liability thereon,
such Notes shall be deemed to have been paid.
To the extent permitted by, and as provided in, the Indenture, the
Company may, by entering into an indenture or indentures supplemental to the
Indenture, modify, alter, add to or eliminate in any manner any provisions of
the Indenture, or the rights of the Noteholders or the rights and obligations
of the Company, upon the consent, as in the Indenture provided, of the holders
of not less than a majority in Principal amount of the Notes then Outstanding.
Notwithstanding the foregoing, no supplemental indenture shall, without the
consent of the holder of each Outstanding Note affected thereby, change the
Stated Maturity of any Note, reduce the Payments of any Note, if any are due
and payable pursuant to and in accordance with the terms of this Note and the
Indenture, reduce the percentage of the aggregate Principal amount of
Outstanding Notes the consent of the holders of which is required for any
supplemental indenture or for any waiver of compliance with certain provisions
of the Indenture, or modify any of the provisions of the Indenture relating to
the foregoing, all except as provided in the Indenture.
-6-
<PAGE> 14
As provided for and subject to the provisions of the Indenture, if an
Event of Default shall have occurred and be continuing, the Principal of and
all Interest accrued on all the Outstanding Notes may be declared, and upon
such declaration shall become, immediately due and payable in the manner, with
the effect and subject to the conditions provided in the Indenture. The
Indenture provides that such declaration and its consequence may be waived by
the holders of a majority in Principal amount of the Notes then Outstanding.
The holder of this Note shall not have any right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee
or for any other remedy thereunder, unless such holder previously shall have
delivered to the Trustee written notice that one or more Events of Default has
occurred and is continuing, the holders of not less than twenty-five percent
(25%) in Principal amount of the then Outstanding Notes shall have requested
the Trustee in writing to institute such proceeding, one or more Noteholders
shall have offered to the Trustee adequate security and indemnity, satisfactory
to it, against the costs, expenses and liabilities to be incurred thereby, the
Trustee shall have refused or neglected to act on such notification, request
and offer of indemnity for at least sixty (60) days and no direction
inconsistent with such notification shall have been given to the Trustee by
holders of not less than a majority in Principal amount of the Outstanding
Notes.
The Notes are issuable as registered Notes without coupons. Subject
to the provisions of the Indenture, the transfer of this Note is registrable by
the registered holder hereof, in person or by his attorney duly authorized in
writing, at the main office of IBJ Schroder Bank & Trust Company in New York,
New York, on books of the Company to be kept for that purpose at said office,
upon surrender and cancellation of this Note duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the Company and the
Trustee, and thereupon a new fully registered Note of the same series will be
issued to the transferee or transferees in exchange therefor with a Principal
amount equal to the unpaid Principal amount of the Note so exchanged; and this
Note, with or without others of the same series, may in like manner be
exchanged for one or more new fully registered Notes of the same series of
other authorized denominations with an aggregate Principal amount equal to the
unpaid Principal amount of the Note so exchanged; all as provided in the
Indenture. No service charge shall be made for any such transfer, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge or expense that may be imposed in relation thereto.
Prior to due presentment for registration of transfer, the Company,
the Trustee or any agent of the Company or the Trustee may deem and treat the
person in whose name this Note shall be registered at any given time upon the
Note Register as the absolute owner of this Note for the purpose of receiving
any Payments on this Note, if any are due and payable pursuant to and in
accordance with the terms of this Note and the Indenture, and for all other
purposes whether or not this Note be overdue; and neither the Company nor the
Trustee, nor any agent of the Company or the Trustee shall be bound by any
notice to the contrary.
No recourse under any obligation, covenant or agreement contained in
the Indenture or in any Note, or because of the creation of the contingent
indebtedness represented hereby,
-7-
<PAGE> 15
shall be had against any incorporator, any past, present or future stockholder,
or any officer or director of the Company or any successor corporation, as such
under any rule of law, statute or constitution.
In any case where the date fixed for the payment of Principal or
Interest on any of the Notes shall not be a business day, then the payment of
such Principal or Interest need not be made on such date, but may be made on
the next succeeding business day with the same force and effect as if made on
the date fixed for such payment, and no Interest shall accrue for the period
from and after such date.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
- ------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
- ------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint _______________________ agent to transfer this Security
on the books of the Company. The agent may substitute another to act for him.
Date: Your Signature:
---------------------- ------------------------------
Signature Guarantee:
-------------------------------------------------------
(Signature must be guaranteed by a participant in a
recognized signature guarantee medallion program)
- -----------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
[END OF FORM OF NOTES]
-8-
<PAGE> 16
WHEREAS, this Indenture is subject to the provisions of the Trust
Indenture Act of 1939, as amended, that are required to be part of this
Indenture and shall, to the extent applicable, be governed by such provisions;
WHEREAS, all acts and things necessary to make the Notes, when
executed by the Company and authenticated and delivered by the Trustee, as in
this Indenture provided, and issued, the valid, binding and legal obligations
of the Company, and to constitute these presents a valid agreement according to
its terms, have been done and performed, and the execution of this Indenture
and the issue hereunder of the Notes have in all respects been duly authorized;
NOW THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the Notes
are, and are to be, authenticated, issued and delivered, and in consideration
of the premises, of the acceptance of the Notes by the holders thereof and of
the sum of one dollar duly paid to it by the Trustee at the execution of these
presents, the receipt whereof is hereby acknowledged, the Company covenants and
agrees with the Trustee for the equal and proportionate benefit of the
respective holders from time to time of the Notes, as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 The terms defined in this Article 1 shall (except as
herein otherwise expressly provided) for all purposes of this Indenture, have
the respective meanings specified in this Article and include the plural as
well as the singular. Any term defined in the Trust Indenture Act of 1939,
either directly or by reference therein, and not defined in this Indenture,
unless the context otherwise specifies or requires, shall have the meaning
assigned to such term therein as in force on the date of this Indenture.
"Act" when used with respect to any Noteholder has the meaning
specified in Section 13.4.
"affected" has the meaning specified in Section 11.2.
"Affiliate" means any person which directly or indirectly controls, is
controlled by, or is under direct or indirect common control with, the Company.
A person shall be deemed to control a corporation, partnership or other entity,
for the purpose of this definition, if such person possesses, directly or
indirectly, the power or direct or cause the direction of the management and
policies of such corporation, partnership or other entity, whether through the
ownership of voting securities, by contract, or otherwise.
-9-
<PAGE> 17
"Applicable Share," with respect to the holder of a Note, means (i)
with respect to an Allowed Subclass 7A-1 Claim (as defined in the Plan) held by
such holder, or in the event of a transfer of a Note, held by a predecessor
holder, the sum of such holder's Pro-Rata Share and the number obtained by
multiplying such holder's Proportionate Share by a fraction, the numerator of
which is the aggregate additional Principal as of the Effective Date allocated
to the Allowed Subclass 7A-1 Claims in an amount equal to the Additional Equity
Value (as defined in the Plan) and the denominator of which is $44,000,000 and
(ii) with respect to an Allowed Subclass 7A-2 Claim (as defined in the Plan)
held by such holder, or in the event of a transfer of a Note, held by a
predecessor holder, such holder's Pro-Rata Share minus the number obtained by
multiplying such holder's Proportionate Share by a fraction, the numerator of
which is the aggregate additional Principal as of the Effective Date allocated
to the Allowed Subclass 7A-1 Claims in an amount equal to the Additional Equity
Value (as defined in the Plan) and the denominator of which is $44,000,000.
"Authenticating Agent" means the agent of the Trustee which at the
time shall be appointed and acting pursuant to Section 8.13.
"Available Cash" shall mean cash available to the Company after
satisfaction of senior obligations under the Plan, obligations to Class 8A
Interestholders, if any, under the Plan and post-confirmation expenses
(including any reserve deemed reasonable by the board of directors for the
Company for anticipated post-confirmation expenses) in accordance with the
Plan.
"Board of Directors" or "Board" means the Board of Directors of the
Company or any committee of such Board of Directors, however designated,
authorized to exercise the powers of such Board of Directors in respect of the
matters in question.
"business day" means any day which is not a Saturday, Sunday or other
day on which national banks having their principal office in the State of
Illinois are authorized or obligated by law or required by executive order to
close.
"capital stock" includes any and all shares, interests, participations
or other equivalents (however designated) of corporate stock of any
corporation.
"Certified Resolution" means a copy of a resolution or resolutions
certified, by the Secretary or an Assistant Secretary of the corporation
referred to, as having been duly adopted by the Board of Directors of such
corporation or any committee of such Board of Directors, however designated,
authorized to exercise the powers of such Board of Directors in respect of the
matters in question and to be in full force and effect on the date of such
certification.
"common stock" means any capital stock of a corporation which is not
preferred as to the payment of dividends or the distribution of assets on any
voluntary or involuntary
-10-
<PAGE> 18
liquidation over shares of any other class of capital stock of such
corporation, including, without limitation, in the case of the Company, its
Common Stock, par value $.01 per share.
"Company" means and includes First Merchants Acceptance Corporation, a
Delaware corporation as reorganized pursuant to the Plan, until any successor
corporation shall have become such pursuant to the applicable provisions of
this Indenture, and thereafter "Company" shall mean such successor corporation.
"Company Order" and "Company Request" mean, respectively, a written
order or request signed in the name of the Company by its President and Chief
Executive Officer or any Vice President and its Secretary or Assistant
Secretary and delivered to the Trustee.
"corporation" means and includes corporations, associations, companies
and business trusts.
"Daily Newspaper" means a newspaper in the English language of general
circulation in New York, New York and customarily published on each business
day of the year, whether or not such newspaper is published on Saturdays,
Sundays and legal holidays.
"date of this Indenture" means March 4, 1998.
"day" means a calendar day.
"Default" has the meaning specified in Section 5.2.
"Defaulted Payment" shall have the meaning set forth in Section 2.3.
"Depositary" means with respect to Notes issuable in whole or in part
in the form of one or more Global Notes, The Depositary Trust Company or any
other clearing agency registered under the Securities Exchange Act of 1934, as
amended, that is subsequently designated to act as Depositary for the Notes.
"Effective Date" shall have the meaning set forth in the Plan.
"Event of Default" means any act or occurrence of the character
specified in Section 5.1.
"Executive Officer" means, with respect to any corporation, the
Chairman of the Board, the Vice Chairman of the Board, the President, the
Executive Vice President, any other Vice President or the Treasurer of such
corporation.
"Fair Market Value" per share of a UDC Warrant Share on any date shall
mean, except as hereinafter provided, the average closing price of the common
stock of UDC for the ten consecutive business days immediately preceding the
third business day prior to such
-11-
<PAGE> 19
date as reported on the Nasdaq National Market ("Nasdaq") or, if such common
stock is not traded on Nasdaq, then as reported on the principal domestic stock
exchange on which such stock is then listed or admitted to trading, or, if such
common stock is neither listed or admitted to trading on any domestic stock
exchange nor traded on Nasdaq, then as reported in the over-the-counter market,
as furnished by the National Quotation Bureau, Inc., or, if such firm at the
time is not engaged in the business of reporting such prices, as furnished by
any similar firm then engaged in such business as selected by the Reorganized
Company, or if there is no such firm, as furnished by any member of the
National Association of Securities Dealers, Inc. selected by the Reorganized
Company. If at any time such common stock is neither listed on any domestic
exchange, nor traded on Nasdaq, nor otherwise quoted in the domestic
over-the-counter market, then the Fair Market Value shall be the fair market
value per share of such common stock on the date of distribution of the UDC
Warrant Shares to the holders of the Notes as determined by an Independent
Appraiser selected by the Reorganized Company.
"Federal Bankruptcy Code" means Title I of the Bankruptcy Reform Act
of 1978, as amended, and codified at Title 11 of the United States Code and the
Federal Rules of Bankruptcy Procedure as in effect as of the date hereof or as
hereafter amended.
"Global Note" means a Note that evidences all or part of the Notes and
bears the legend set forth in Section 2.2.
"Indebtedness" means (i) any liability of any person (a) for borrowed
money, (b) evidenced by a note, debenture or similar instrument (including a
purchase money obligation) given in connection with the acquisition of any
property or assets (other than inventory or similar property acquired in the
ordinary course of business), including securities, or (c) for the payment of
money relating to a capitalized lease obligation; provided, however, that
Indebtedness shall not include any liability, the payment or performance of
which is secured by a security interest in any property or asset, if recourse
by the obligee under such liability upon the non-payment or non-performance
thereof is limited to realization pursuant to such security interest upon such
property or asset; (ii) any guarantee by any person of, or any commitment
relating to, any liability of others described in the preceding clause (i); and
(iii) any amendment, renewal, extension or refunding of any liability referred
to in clause (i) and (ii) above.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest," with respect to a Note, means interest on the unpaid
Principal of such Note, compounded quarterly from the Effective Date until such
time, if any, that the Principal has been paid or duly provided for, at the
applicable federal rate for medium term obligations as of the Effective Date.
-12-
<PAGE> 20
"Lien" means any mortgage, lien, pledge, charge or other security
interest or encumbrance of any kind.
"main office" with reference to the Trustee shall mean the principal
corporate trust office of the Trustee, which office is, on the date of this
Indenture, located at One State Street, New York, New York 10004.
"maturity" or "mature," when used with respect to any Note, means the
date that is four years and eleven months after the Effective Date or such
earlier date on which the Principal of the Note becomes due and payable by
declaration of acceleration.
"Note" or "Notes" mean one or more of the notes comprising the
Company's issue of Notes issued, authenticated and delivered under this
Indenture.
"Note Co-Registrar" has the meaning specified in Section 2.6.
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 2.6.
"Noteholder," "holder of the Notes," "Holder" or "holder" or other
similar terms mean any person in whose name, as of any particular date, a Note
is registered on the Note Register.
"Officers' Certificate" means a certificate signed by the President or
a Vice President and the Secretary or an Assistant Secretary of the Company,
and delivered to the Trustee. Each such certificate, to the extent required,
shall comply with the provisions of Section 13.3 hereof.
"Opinion of Counsel" means an opinion in writing signed by legal
counsel, who may be an employee of or counsel to the Company and who shall be
reasonably satisfactory to the Trustee. Each such opinion shall include the
statements provided for in Section 13.3 if and to the extent required by the
provisions of such Section.
"Original Issue Date" with respect to any Note (or portion thereof)
means the earlier of (A) the date of such Note or (B) the date of any Note (or
portion thereof) for which such Note was issued (directly or indirectly) on
registration of transfer, exchange or substitution.
"Outstanding" means, as of the date of determination, all Notes which
theretofore shall have been authenticated and delivered by the Trustee under
this Indenture, except (A) Notes theretofore canceled by the Trustee or
delivered to the Trustee for cancellation, (B) Notes or portions thereof for
the payment of which money in the necessary amount shall have been deposited
with the Trustee or any paying agent in trust for the holders of the Notes, and
(C) Notes in exchange or substitution for or in lieu of which other Notes have
been authenticated and delivered under any of the provisions of this Indenture.
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Notwithstanding the foregoing provision of this paragraph, Notes in exchange or
substitution for or in lieu of which other Notes have been authenticated and
delivered under Section 2.10 hereof and which have not been surrendered to the
Trustee for cancellation or the payment of which shall not have been duly
provided for, shall be deemed to be Outstanding. In determining whether the
Noteholders of the requisite Principal amount of Notes Outstanding have given
any request, demand, authorization, direction, notice, consent or waiver
hereunder, Notes owned by the Company or any other obligor upon the Notes or
any Affiliate of the Company, including any Subsidiary, or such other obligor
shall be disregarded and deemed not Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Notes which
the Trustee knows to be so owned shall be disregarded. Notes so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Notes and that the pledgee is not the Company or any other
obligor upon the Notes or any Affiliate of the Company or a Subsidiary or such
other obligor.
"paying agent" means any person authorized by the Company to pay the
Payments on any Notes on behalf of the Company.
"Payment Date" shall have the meaning set forth in Section 2.3 of the
Indenture.
"Payments" means, collectively, payments of Interest and payments of
Principal on all of the Outstanding Notes.
"person" means any individual, partnership, corporation, trust,
unincorporated association, joint venture, government or any department or
agency thereof, or any other entity.
"place of payment" means such place as designated in Section 2.3
hereof.
"Plan" means that certain Second Amended Joint Plan under Chapter 11 of
the United States Bankruptcy Code of the predecessor to the Company as
confirmed by the United States District Court for the District of Delaware.
"predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 2.10 in lieu of a lost, destroyed or
stolen Note shall be deemed to evidence the same debt as the lost, destroyed or
stolen Note.
"Principal," with respect to a Note on the Effective Date, shall be an
amount equal to the holder of such Notes's Applicable Share of $44,000,000.
The original Principal amount of a Note shall be reduced by Payments by the
Company to the holder of the Note or, in the event of a transfer of the Note,
to any predecessor holder, which Payments are
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allocated by the Company to Principal in accordance with the terms of the Notes
and this Indenture. The Principal of all Outstanding Notes shall be equal to
$44,000,000 on the Effective Date.
"Proceeding" means any suit in equity, action at law or other legal,
equitable, administrative or similar proceeding.
"Proportionate Share" means, with respect to the holder of a Note, the
proportion that an Allowed Subclass 7A-1 Claim under and as defined in the Plan
held by such holder, or, in the event of a transfer of a Note, held by a
predecessor holder, or an Allowed Subclass 7A-2 Claim under and as defined in
the Plan held by such holder, or, in the event of a transfer of a Note, held by
a predecessor holder, as applicable, bears to the aggregate amount of all
Allowed Subclass 7A-1 Claims or all Allowed Subclass 7A-2 Claims, as applicable
(including any applicable Contested Claim Reserve, as defined in the Plan).
"Pro-Rata Share" means, with respect to the holder of a Note, the
proportion that an Allowed Subclass 7A-1 Claim under and as defined in the Plan
held by such holder, or, in the event of a transfer of a Note, held by a
predecessor holder, or an Allowed Subclass 7A-2 Claim under and as defined in
the Plan held by such holder, or, in the event of a transfer of a Note, held by
a predecessor holder, bears to the aggregate amount of all Allowed Subclass
7A-1 Claims and Allowed Subclass 7A-2 Claims (including any Contested Claim
Reserve, as defined in the Plan).
"Regular Record Date" has the meaning specified in Section 2.3.
"Responsible Officers" of the Trustee means the Chairman of the Board
of Directors, every Vice Chairman of the Board of Directors, the President, the
Chairman or any Vice Chairman of the Executive Committee of the Board, the
Chairman of the Trust Committee, every Vice President, every Assistant Vice
President, the Cashier, every Assistant Cashier, the Secretary, every Assistant
Secretary, the Treasurer, every Assistant Treasurer, every Trust Officer, every
Assistant Trust Officer, the Controller, every Assistant Controller, and every
other officer and assistant officer of the Trustee customarily performing
functions similar to those performed by the persons who at the time shall be
any such officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such corporate trust matter is referred
because of his knowledge and familiarity with a particular subject.
"Special Record Date" for the payment of any Defaulted Payment means a
date fixed by the Trustee pursuant to Section 2.3.
"Stated Maturity," when used with respect to any Note, means the date
that is four years and eleven months after the Effective Date.
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"Subsidiary" means any corporation more than fifty percent (50%) of
whose shares of stock having general voting power under ordinary circumstances
to elect a majority of the board of directors of such corporation irrespective
of whether or not at the time stock of any other class or classes shall or
might have voting power by reason of the happening of any contingency, is owned
or controlled directly or indirectly by the Company.
"supplemental indenture" or "indenture supplemental hereto" mean any
indenture hereafter duly authorized and entered into in accordance with the
provisions of this Indenture.
"Trustee" means IBJ Schroder Bank & Trust Company, and, subject to the
provisions of the Indenture, shall also include any successor trustee.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939,
as in force at the date of which this instrument was executed.
All accounting terms used in this Indenture shall have the meanings
assigned to them in accordance with generally accepted accounting principles
and practices employed at the time by the Company.
ARTICLE 2
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF NOTES
SECTION 2.1 DESIGNATION, AMOUNT AND ISSUE OF NOTES. The Notes
shall be designated as set forth in the form of Note hereinabove recited.
Notes in the aggregate principal amount of up to $44,000,000 (and as otherwise
provided in Sections 2.8, 2.10 or 11.5), upon the execution of this Indenture,
or from time to time within 90 days thereafter, may be executed by the Company
and delivered to the Trustee for authentication, and the Trustee shall
thereupon authenticate and deliver said Notes to or upon the written order of
the Company, signed by its President or any Vice President, without any further
action by the Company hereunder. The Notes may be represented by one or more
Global Notes registered in the name of the Depositary.
SECTION 2.2 FORM OF NOTES. The Notes and the Trustee's
certificate of authentication to be borne by the Notes shall be substantially
in the form as in this Indenture hereinabove recited. Any of the Notes may
have imprinted thereon such legends or endorsements as the officers executing
the same may approve (execution thereof to be conclusive evidence of such
approval) and as are not inconsistent with the provisions of this Indenture, or
as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Notes may be listed or any Depositary, or to conform to usage. Each Global
Note authenticated and delivered hereunder shall bear a legend in substantially
the following form:
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THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY
OR A NOMINEE THEREOF. THIS NOTE MAY NOT BE EXCHANGED IN WHOLE OR IN
PART FOR A NOTE REGISTERED, AND NO TRANSFER OF THIS NOTE IN WHOLE OR
IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH
DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE.
SECTION 2.3 DATES, PAYMENTS, AND RECORD DATES. The Notes shall
be issuable as registered Notes without coupons and shall be numbered,
lettered, or otherwise distinguished in such manner or in accordance with such
plan as the officers of the Company executing the same may determine with the
approval of the Trustee.
The Notes shall be dated the date of authentication thereof by the
Trustee. The Company shall pay Payments, to the extent not previously paid
pursuant to and in accordance with the terms of the Notes and this Indenture,
on the Stated Maturity. Interest shall accrue on the unpaid Principal amount
of the Notes from the Payment Date to which Interest has been paid immediately
preceding the date of such Note (unless the date of such Note is a Payment Date
to which Interest has been paid, in which case from the date of such Note) or,
if no Interest has been paid on the Notes from the Original Issue Date of such
Note, from such Original Issue Date and shall be due and payable pursuant to
and in accordance with the terms of the Notes and this Indenture. Installments
of cash Payments shall be payable quarterly on the last business day of March,
June, September and December of the applicable year, commencing June 30, 1998
(each, a "Payment Date"), until the earlier of (a) such time as all of the
Payments have been paid in full or (b) the Stated Maturity. Each installment
of cash Payments on all of the then Outstanding Notes prior to the Stated
Maturity shall be in an amount equal to the Available Cash, if any, on the date
that is ten business days prior to the date of such installment and shall be
applied first to the payment of Interest on all of the then Outstanding Notes
and then to the payment of Principal of all of the then Outstanding Notes.
Notwithstanding the foregoing, in the event that the Available Cash on
the date that is ten business days prior to the date of such installment is
less than $300,000, the Company may elect not to make a quarterly installment
of cash Payments to the holders of the Notes on the date that such installment
would otherwise be due, and the Company may elect not to make any future
quarterly installment of cash Payments to the holders of the Notes until
additional Available Cash is received by the Company which, when aggregated
with existing Available Cash, would equal or exceed $300,000 as of the date
that is ten business days prior to the date of such installment (the "De
Minimis Exception").
The Company will pay on each Payment Date to each person in whose name
a Note is registered at the close of business on the Regular Record Date
preceding such Payment Date such person's Applicable Share of the Payments, if
any are due and payable to such
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person's subclass pursuant to and in accordance with the terms of the Notes and
this Indenture. The term "Regular Record Date" with respect to a regular
Payment Date for the Notes shall mean the close of business on the seventh day
of the month (whether or not a business day) in which such Payment Date occurs.
Any Payment on any Note which is payable pursuant to and in accordance with the
terms of the Notes and this Indenture, but is not punctually paid or duly
provided for, on any Payment Date (herein called "Defaulted Payment") shall
forthwith cease to be payable to the registered holder on the relevant Regular
Record Date by virtue of having been such holder; and such Defaulted Payment
may be paid by the Company, at its election in each case, as provided in clause
(A) or clause (B) below:
(A) The Company may elect to make payment of any
Defaulted Payment to the persons in whose names the Notes (or their
respective predecessor Notes) are registered at the close of business
on a special record date (the "Special Record Date") for the payment
of such Defaulted Payment, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the amount
of Defaulted Payment proposed to be paid on each Note and the date of
the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Payment or shall make
arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in
trust for the benefit of the persons entitled to such Defaulted
Payment as in this clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Payment which
shall be not more than twenty (20) nor less than ten (10) days prior
to the date of the proposed payment and not less than thirty-five (35)
days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted
Payment and the Special Record Date therefor to be mailed, first class
postage prepaid, to each Noteholder at his address as it appears in
the Note Register, not less than ten (10) days prior to such Special
Record Date. The Trustee may, in its discretion, in the name and at
the expense of the Company, cause a similar notice to be published at
least once in a Daily Newspaper in each place of payment, but such
publication shall not be a condition precedent to the establishment of
such Special Record Date. Notice of the proposed payment of such
Defaulted Payment and the Special Record Date therefor having been
mailed as aforesaid, such Defaulted Payment shall be paid to the
persons in whose names the Notes (or their respective predecessor
Notes) are registered on such Special Record Date and shall no longer
be payable pursuant to the following clause (B).
(B) The Company may make payment of any Defaulted Payment
in any other lawful manner if, after notice given by the Company to
the Trustee of the proposed payment pursuant to this clause, such
payment shall be deemed practicable by the Trustee.
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Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon transfer of or in exchange for or in lieu
of any other Note shall carry the rights to Payments accrued and unpaid, and to
accrue, which were carried by such other Note.
The Payments on the Notes shall be paid at the office or agency of the
Company which shall be located at the main office of the Trustee (the "place of
payment") in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts, in Stock Option Shares (as defined in the Plan) with a value equal to
the Stock Option Value (as defined in the Plan), in UDC Warrants (as defined in
the Plan) with a value equal to the fair market value of the UDC Warrants on
the date of distribution of the UDC Warrants to the holders of the Notes as
determined by a national independent public accounting firm selected by the
Board of Directors of the Reorganized Company (the "Independent Appraiser") or
in shares of common stock of UDC issued or issuable upon exercise of the UDC
Warrants (the "UDC Warrant Shares") with a value equal to the Fair Market Value
of the UDC Warrant Shares on the date of distribution of the UDC Warrant Shares
to the holders of the Notes; provided, however, that Payments on any Notes may
be payable, at the option of the Company, by wire transfer of Federal funds or
by check, Stock Option Shares (as defined in the Plan), UDC Warrants (as defined
in the Plan) or UDC Warrant Shares mailed to the person entitled thereto as
such person's address shall appear on the Note Register.
SECTION 2.4 NUMBERS AND LEGENDS ON NOTES. Notes may bear such
numbers, letters or other marks of identification or designation, may be
endorsed with or have incorporated in the text thereof such legends or recitals
with respect to transferability or in respect of the Note or Notes for which
they are exchangeable, and may contain such provisions, specifications and
descriptive words, not inconsistent with the provisions of this Indenture, as
may be determined by the Company or as may be required to comply with any law
or with any rule or regulation made pursuant thereto.
SECTION 2.5 EXECUTION OF NOTES. Each Note shall be signed in the
name and on behalf of the Company by one of its officers. The signature of an
officer of the Company may, if permitted by law, be in the form of a facsimile
signature and may be imprinted or otherwise reproduced on the Notes. In case
any officer of the Company who shall have signed, or whose facsimile signature
shall be borne by, any of the Notes shall cease to be such officer of the
Company before the Notes so executed shall be actually authenticated and
delivered by the Trustee, such Notes shall nevertheless bind the Company and
may be authenticated and delivered as though the person whose signature appears
on such Notes had not ceased to be such officer of the Company.
SECTION 2.6 REGISTRATION OF TRANSFER OF NOTES. The Company shall
keep or cause to be kept at the main office of the Trustee books for the
registration of transfer of Notes issued hereunder (herein sometimes referred
to as the "Note Register") and upon
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presentation for such purpose at such office the Company will register or cause
to be registered the transfer therein, under such reasonable regulations as it
may prescribe, of such Notes. The Trustee is hereby appointed "Note Registrar"
for the purpose of registering Notes and transfers of Notes as herein provided.
The Company may appoint one or more "Note Co-Registrars" for such purpose as
the Board of Directors may determine where Notes may be presented or
surrendered for registration, registration of transfer or exchange and such
books, at all reasonable times, shall be open for inspection by the Trustee.
SECTION 2.7 EXCHANGE AND REGISTRATION OF TRANSFER OF NOTES.
Whenever any Note shall be surrendered to the Company at an office or agency
referred to in Section 3.2, for registration of transfer or exchange, duly
endorsed or accompanied by a proper written instrument or instruments of
assignment and transfer thereof or for exchange in form satisfactory to the
Company and the Trustee, or any Note Registrar or Note Co-Registrar, duly
executed by the holder thereof or his attorney duly authorized in writing, the
Company shall execute, and the Trustee shall authenticate and deliver, in
exchange therefor, a Note or Notes in the name of the designated transferee, as
the case may require, with a Principal amount equal to the unpaid Principal
amount of the Note so exchanged and of such authorized denomination or
denominations as may be requested. All Notes issued upon any registration of
transfer or exchange of Notes shall be the valid obligations of the Company,
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
The Company, at its option, may require the payment of a sum
sufficient to reimburse it for any stamp tax or other governmental charge or
expense that may be imposed in connection with any exchange or transfer of
Notes other than exchanges pursuant to Section 2.8 or Section 11.5 not
involving any transfer. No service charge will be made for any such
transaction.
Upon delivery by any Note Co-Registrar of a Note in exchange for a
Note surrendered to it in accordance with the provisions of this Indenture, the
Note so delivered shall for all purposes of this Indenture be deemed to be duly
registered in the Note Register; provided, however, that in making any
determination as to the identity of persons who are holders, the Trustee shall,
subject to the provisions of Section 8.2, be fully protected in relying on the
Note Register kept at the main office of the Trustee.
Notwithstanding any other provision in this Indenture, no Global Note
may be exchanged in whole or in part for Notes registered, and no transfer of a
Global Note in whole or in part may be registered, in the name of any person
other than the Depositary for such Global Note or a nominee thereof unless (A)
such Depositary (i) has notified the Company that it is unwilling or unable to
continue as Depositary for such Global Note or (ii) has ceased to be a clearing
agency registered under the Securities Exchange Act of 1934, as amended, or (B)
there shall have occurred and be continuing an Event of Default with respect to
such Global Note.
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Subject to the immediately preceding paragraph, any exchange of a
Global Note for other Notes may be made in whole or in part, and all Notes
issued in exchange for a Global Note or any portion thereof shall be registered
in such names as the Depositary for such Global Notes shall direct.
Every Note authenticated and delivered upon registration of transfer
of, or in exchange for or in lieu of, a Global Note or any portion thereof,
whether pursuant to this Section, Section 2.8, 2.10 or 11.5 or otherwise, shall
be authenticated and delivered in the form of, and shall be, a Global Note,
unless such Note is registered in the name of a person other than the
Depositary for such Global Note or a nominee thereof.
SECTION 2.8 TEMPORARY NOTES. Pending the preparation of
definitive Notes the Company may execute and, upon Company Order, the Trustee
shall authenticate and deliver temporary Notes which may be printed,
lithographed, typewritten, mimeographed or otherwise reproduced. Temporary
Notes shall be issuable in any authorized denomination, and substantially of
the tenor of the definitive Notes in lieu of which they are issued, but with
such omissions, insertions and variations as may be appropriate for temporary
Notes, all as may be determined by the officers of the Company executing such
Notes as evidenced by their execution of such Notes. Every such temporary Note
shall be authenticated by the Trustee upon the same conditions and in
substantially the same manner, and with the same effect, as the definitive
Notes. If temporary Notes are issued, without unreasonable delay, the Company
will execute and deliver to the Trustee definitive Notes and thereupon any and
all temporary Notes may be surrendered in exchange therefor, at the offices
referred to in Section 3.2, and the Trustee shall authenticate and deliver in
exchange for such temporary Notes definitive Notes of authorized denominations
with an aggregate Principal amount equal to the aggregate unpaid Principal
amount of the temporary Notes so exchanged. Such exchange shall be made by the
Company at its own expense and without any charge therefor. Until so
exchanged, the temporary Notes shall in all respects be entitled to the same
benefits under this Indenture as definitive Notes authenticated and delivered
hereunder.
SECTION 2.9 RECOGNITION OF REGISTERED HOLDERS OF DEFINITIVE NOTES
AND TEMPORARY NOTES. The Company, the Trustee or any agent of the Company or
the Trustee may deem and treat (A) the registered holder of any temporary Note,
and (B) the registered holder of any definitive Note, as the absolute owner of
such Note in accordance with Section 6.1.
SECTION 2.10 MUTILATED, DESTROYED, LOST OR STOLEN NOTES. In case
any Note shall become mutilated or be destroyed, lost or stolen, then upon the
satisfaction of the conditions hereinafter set forth in this Section 2.10 the
Company (A) shall, in the case of any mutilated Note, and (B) shall, in the
case of any destroyed, lost or stolen Note, in the absence of notice to the
Company or the Trustee that such Note has been acquired by a bona fide
purchaser, execute, and upon the written request of the Company, the Trustee
shall authenticate and deliver, a new Note bearing a number not
contemporaneously outstanding with a Principal amount equal to the unpaid
Principal amount of the mutilated Note or the
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Note so destroyed, lost or stolen in exchange (or in lieu of, as applicable)
and substitution for such Note; provided, however, that if any such mutilated,
destroyed, lost or stolen Note shall have become or shall be about to become
due and payable, the Company may instead of issuing a substituted Note, pay
such Note without requiring the surrender thereof, except that such mutilated
Note shall be surrendered. The applicant for such substituted Note shall
furnish to the Company and to the Trustee evidence satisfactory to them, in
their discretion, of the ownership of and the destruction, loss or theft of
such Note and shall furnish to the Company and to the Trustee and any Note
Registrar such security or indemnity as may be required by them to save each of
them harmless, and, if required, shall reimburse the Company for all expenses
(including any tax or other governmental charge and the fees and expenses of
the Trustee) in connection with the preparation, authentication and delivery of
such substituted Note, and shall comply with such other reasonable regulations
as the Company, the Trustee, or either of them, may prescribe.
Every new Note issued pursuant to this Section 2.10 in lieu of any
destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled
to all the benefits of this Indenture equally and proportionally with any and
all other Notes duly issued hereunder.
The provisions of this Section 2.10 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.11 FORM AND AUTHENTICATION OF NOTES. Subject to the
qualifications hereinbefore set forth, the Notes shall be substantially of the
tenor and effect set forth in the recitals hereto, and no Notes shall be
entitled to the benefit hereof, or shall be or become valid or obligatory for
any purpose unless there shall be endorsed thereon an authentication
certificate, substantially in the form set forth in the recitals hereto,
executed by the Trustee; and such certificate on any Note issued by the Company
shall be conclusive evidence and the only competent evidence that it has been
duly authenticated and delivered hereunder.
SECTION 2.12 SURRENDER AND CANCELLATION OF NOTES. All Notes
surrendered for payment, transfer or exchange shall, if surrendered to any
person other than the Trustee, be delivered to the Trustee and, if not already
canceled, shall be promptly canceled by it. The Company may at any time
deliver to the Trustee for cancellation any Notes previously authenticated and
delivered hereunder, which the Company may have acquired in any manner
whatsoever, and all Notes so delivered shall be promptly canceled by the
Trustee. No Notes shall be authenticated in lieu of or in exchange for any
Notes canceled as provided in this Section 2.12, except as expressly permitted
by this Indenture.
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ARTICLE 3
PARTICULAR COVENANTS OF THE COMPANY
Anything in this Indenture or in any Note to the contrary
notwithstanding, the Company, expressly for the equal and ratable benefit of
the original and future holders of the Notes, covenants and agrees as follows:
SECTION 3.1 WILL PUNCTUALLY PAY THE PAYMENTS ON THE NOTES. The
Company will duly and punctually pay, or cause to be paid, installments of the
Payments on each Payment Date to the extent of the Available Cash, if any, of
the Company as of such date, subject to the De Minimis Exception, pursuant to
and in accordance with the terms of the Notes and this Indenture.
SECTION 3.2
(A) OFFICE OR AGENCY. The main office of the Trustee
shall serve as the place where Notes may be presented or surrendered
for payment, where Notes may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the
Company in respect of the Notes and this Indenture may be served. The
Company hereby appoints the Trustee its agent to receive all such
presentations, surrenders, notices and demands, and the Trustee agrees
to promptly forward all such presentations, surrenders, notices and
demands to the Company at the address set forth in Section 13.7
hereof.
(B) APPOINTMENT OF TRUSTEE AS PAYING AGENT; DUTY OF
PAYING AGENT OTHER THAN TRUSTEE. The Company hereby appoints the
Trustee as paying agent and the Company covenants that, if it shall
appoint a paying agent other than the Trustee, it will cause such
paying agent to execute and deliver to the Trustee an instrument in
which such paying agent shall agree with the Trustee, subject to the
provisions of this Section 3.2,
(1) that such paying agent shall hold all sums held
by it as such agent for the payment of the Payments on any of
the Notes in trust for the benefit of the holders of such
Notes or the Trustee;
(2) that such paying agent shall give the Trustee
notice of any Default of the Company in making any Payments on
the Notes, if any are due and payable pursuant to and in
accordance with the terms of the Notes and this Indenture; and
(3) at any time during the continuance of any such
Default, upon the written request of the Trustee, forthwith to
pay to the Trustee all sums so held in trust by such paying
agent.
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(C) DUTY OF COMPANY ACTING AS PAYING AGENT. The Company
covenants and agrees that, if it should at any time act as its own
paying agent, it will, on or before each due date of Payments on the
Notes, if any are due and payable pursuant to and in accordance with
the terms of the Notes and this Indenture, set aside and segregate and
hold in trust for the benefit of the holders of the Notes a sum
sufficient to pay such Payments so becoming due until such sums shall
be paid to such holders or otherwise disposed of as herein provided
and will notify the Trustee of its action or of any failure to take
such action.
Whenever the Company shall have one or more paying agents, it
will, prior to each due date of the Payments on any Notes, if any are
due and payable pursuant to and in accordance with the terms of the
Notes and this Indenture, deposit with one or more paying agents a sum
sufficient to pay the Payments, so becoming due, such sum to be held
in trust for the benefit of the holders of Notes entitled to such
Payments, and (unless such paying agent is the Trustee) the Company
will promptly notify the Trustee of its action or failure so to act.
(D) DELIVERY TO TRUSTEE. Anything in this Section 3.2 to
the contrary notwithstanding, the Company may at any time, for the
purposes of obtaining the satisfaction and discharge of this Indenture
or for any other reason, pay, or by Company Order direct any paying
agent to pay, to the Trustee all sums held in trust by the Company or
any paying agent as required by this Section 3.2, such sums to be held
by the Trustee upon the trusts contained in this Indenture. Upon such
payment by any paying agent to the Trustee, such paying agent shall be
released from all further liability with respect to such money.
(E) ALL SUMS TO BE HELD SUBJECT TO SECTION 13.2.
Anything in this Section 3.2 to the contrary notwithstanding, the
holding of sums in trust as provided in this Section 3.2 is subject to
the provisions of Section 13.2 hereof.
SECTION 3.3 COMPLIANCE WITH THE PLAN. The Company will observe,
perform and discharge in accordance with their terms all of the material
covenants, conditions and obligations which are imposed on it by the Plan. The
Company will notify the Trustee of any breach of the covenants contained in
this Section 3.3 within ten (10) days after the Company has knowledge of such
breach.
SECTION 3.4 WILL KEEP, AND PERMIT EXAMINATION OF, RECORDS AND
BOOKS OF ACCOUNT AND WILL PERMIT VISITATION OF PROPERTY. The Company will (A)
keep proper records and books of account in accordance with generally accepted
accounting principles consistently applied, reflecting all financial
transactions of the Company and each Subsidiary, and (B) permit or cause to
permit the Trustee, personally or by its agents, accountants and attorneys, to
visit or inspect any of the properties, examine the records and books of
account and discuss the affairs, finances and accounts, of the Company and each
Subsidiary, with the officers of the Company and Subsidiaries at such
reasonable times as may be requested by
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the Trustee. The Trustee shall be under no duty to make any such visit,
inspection or examination.
The Company covenants that books of record and account will be kept in
which full, true and correct entries will be made of all dealings or
transactions of, or in relation to, the properties, business and affairs of the
Company.
SECTION 3.5 PAYMENT OF TAXES AND OTHER CLAIMS. The Company will
pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (i) all taxes, assessments and governmental charges levied
or imposed upon the Company or any Subsidiary or upon the income, profits or
property of the Company or any Subsidiary, and (ii) all lawful claims for
labor, materials and supplies which, if unpaid, might by law become a lien upon
the property of the Company or any Subsidiary; provided, however, that the
Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and the Company shall have set aside on its books adequate reserves
with respect thereto (segregated to the extent required by generally accepted
accounting principles).
SECTION 3.6 RESTRICTIONS ON INDEBTEDNESS. The Company covenants
that it will not, nor will it permit any Subsidiary to, incur, create, assume
or otherwise become liable with respect to any Indebtedness other than
Indebtedness contemplated by the Plan (including Indebtedness incurred pursuant
to the DIP Financing and Overadvance Facility, as defined in the Plan).
SECTION 3.7 COMPLIANCE NOTICES. The Company will deliver to the
Trustee, within thirty (30) days after the end of each of its fiscal quarters,
commencing with the quarter ending June 30, 1998, an Officer's Certificate
stating that
(1) review of the activities of the Company during such
quarter and of performance under this Indenture has been made under
his supervision; and
(2) to the best of his knowledge, based on such review,
the Company has fulfilled all its obligations under this Indenture
throughout the quarter, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known
to him and the nature and status thereof.
SECTION 3.8 CORPORATE EXISTENCE. Until the first to occur of (a)
such time as all of the Payments have been paid in full, or (b) the Stated
Maturity, the Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence and the
rights (charter and statutory) and franchises of the Company; provided,
however, that the Company shall not be required to preserve any such right or
franchise if the Company shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Subsidiaries considered as a whole and
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that the loss thereof is not disadvantageous in any material respect to the
holders of the Notes.
ARTICLE 4
NOTEHOLDER LISTS AND REPORTS BY THE COMPANY
AND THE TRUSTEE
SECTION 4.1 NOTEHOLDER LISTS, ETC.
(A) The Company will furnish or cause to be furnished to
the Trustee, quarterly, not more than fifteen (15) days after each
Regular Record Date a list, in such form as the Trustee may reasonably
require, of the names and addresses of the holders of Notes as of such
Regular Record Date, and at such other times, as the Trustee may
request in writing, within thirty (30) days after receipt by the
Company of any such request, a list of similar form and content as of
a date not more than fifteen (15) days prior to the time such list is
furnished; provided, however, that so long as the Trustee is the sole
Note Registrar, no such list shall be required to be furnished.
(B) The Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the holders of
Notes received by the Trustee in its capacity as Note Registrar
contained in the most recent list furnished to it as provided in
subdivision (A) of this Section 4.1. The Trustee may destroy any list
furnished to it as provided in subdivision (A) of this Section 4.1,
upon receipt of a new list so furnished.
(C) In case three or more holders of Notes or one or more
holders of not less than twenty-five percent (25%) of the aggregate
Principal amount of all then Outstanding Notes (hereinafter called
"Applicants") apply in writing to the Trustee, and furnish to the
Trustee reasonable proof that each such Applicant has owned a Note for
a period of at least six (6) months preceding the date of such
application, and such application states the Applicants' desire to
communicate with other holders of Notes with respect to their rights
under this Indenture or under the Notes, and is accompanied by a copy
of the form of proxy or other communication which such Applicants
propose to transmit, then the Trustee shall, within five (5) business
days after the receipt of such application, at its election, either
(1) afford to such Applicants access to the
information preserved at the time by the Trustee in accordance
with the provisions of subdivision (B) of this Section 4.1; or
(2) inform such Applicants as to the approximate
number of holders of Notes whose names and addresses appear in
the information preserved at
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the time by the Trustee, in accordance with the provisions of
subdivision (B) of this Section 4.1, and as to the approximate
cost of mailing to such Noteholders the form of proxy or other
communication, if any, specified in such application.
If the Trustee shall elect not to afford to such Applicants access to
such information, the Trustee shall, upon the written request of such
Applicants, mail to each Noteholder whose name and address appears in
the information preserved at the time by the Trustee in accordance
with the provisions of subdivision (B) of this Section 4.1, a copy of
the form of proxy or other communication which is specified in such
request, with reasonable promptness after a tender to the Trustee of
the material to be mailed and of payment or provision for the payment
of the reasonable expenses of mailing, unless within five (5) days
after such tender the Trustee shall mail to such Applicants and file
with the Securities and Exchange Commission together with a copy of
the material to be mailed, a written statement to the effect that, in
the opinion of the Trustee, such mailing would be contrary to the best
interests of the holders of Notes, or would be in violation of
applicable law. Such written statement shall specify the basis of
such opinion. If said Commission, after opportunity for a hearing
upon the objections specified in the written statement so filed, shall
enter an order refusing to sustain any of such objections or if, after
the entry of an order sustaining one (1) or more of such objections,
said Commission shall find, after notice and opportunity for a
hearing, that all the objections so sustained have been met and shall
enter an order so declaring, the Trustee shall mail copies of such
material to all such Noteholders with reasonable promptness after the
entry of such order and the renewal of such tender; otherwise the
Trustee shall be relieved of any obligation or duty to such Applicants
respecting their application.
(D) Every holder of the Notes, by receiving and holding
the same, agrees with the Company and the Trustee that neither the
Company nor the Trustee, nor any paying agent shall be held
accountable by reason of the disclosure of any such information as to
the names and addresses of the holders of Notes in accordance with the
provisions of subdivision (C) of this Section 4.1, regardless of the
source from which such information was derived, and that the Trustee
shall not be held accountable by reason of mailing any material
pursuant to a request made under said subdivision (C).
SECTION 4.2 REPORTS BY COMPANY. The Company covenants and
agrees:
(A) To file with the Trustee within fifteen (15) days
after the Company files the same with the Securities and Exchange
Commission, copies of the annual reports and of the information,
documents, and other reports (or copies of such portions of any of the
foregoing as such Commission may from time to time by rules and
regulations prescribe) which the Company may be required to file with
such Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of
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1934; or, if the Company is not required to file information,
documents, or reports pursuant to either of such Sections, then the
Company will file with the Trustee and the Securities and Exchange
Commission, in accordance with rules and regulations prescribed from
time to time by said Commission, such of the supplementary and
periodic information, documents, and reports which may be required
pursuant to Section 13 of the Securities Exchange Act of 1934 as may
be prescribed from time to time in such rules and regulations;
(B) To file with the Trustee and the Securities and
Exchange Commission, in accordance with the rules and regulations
prescribed from time to time by said Commission, such additional
information, documents and reports with respect to compliance by the
Company with the conditions and covenants provided for in this
Indenture as may be required from time to time by such rules and
regulations, including, in the case of annual reports, if required by
such rules and regulations, certificates or opinions of independent
public accountants, conforming to the requirements, if any, of Section
13.3 hereof, as to compliance with conditions or covenants, compliance
with which is subject to verification by accountants;
(C) To transmit to the holders of the Notes, in the
manner and to the extent provided in subsection (c) of section 313 of
the TIA, such summaries of any information, documents, and reports
required to be filed by the Company pursuant to subdivision (A) or
subdivision (B) as may be required by the rules and regulations
promulgated by the Securities and Exchange Commission; and
(D) To furnish to the Trustee with or as a part of each
annual report and each other document or report filed with the Trustee
pursuant to subdivision (A), (B) or (C) of this Section 4.2, an
Officers' Certificate stating that in the opinion of each of the
signers such annual report or other document or report complies with
the requirements of such subdivision (A) or subdivision (B).
Each certificate furnished to the Trustee pursuant to the provisions
of this Section 4.2 shall conform to the requirements of Section 13.3 hereof.
SECTION 4.3 REPORTS BY TRUSTEE. The Trustee shall transmit to
the Noteholders as provided in TIA Section 313(c), if required thereunder,
within sixty (60) days after May 15, 1999 and each May 15 thereafter, a brief
report as provided in TIA Section 313(a). A copy of each such report shall, at
the time of such transmission to the Noteholders, be filed by the Trustee with
the Securities and Exchange Commission.
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ARTICLE 5
REMEDIES OF TRUSTEE AND NOTEHOLDERS UPON DEFAULT
SECTION 5.1 DEFINITION OF DEFAULT AND EVENT OF DEFAULT. The
following events are hereby defined for all purposes of this Indenture (except
where the term is otherwise defined for specific purposes) as "Events of
Default" (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(A) Failure to make any payment of Principal of or
Interest upon any Note for a period of five (5) days or more after the
same shall become due and payable pursuant to and in accordance with
the terms of the Notes and this Indenture; or
(B) The occurrence of any default in the performance, or
any breach, of any covenant of the Company in this Indenture (other
than a default that is covered by any other subsection of this Section
5.1), which continues for a period of not less than thirty (30)
consecutive days after written notice of such occurrence is given to
the Company by the Trustee or holders of not less than twenty-five
percent (25%) in Principal amount of all then Outstanding Notes; or
(C) The occurrence of any material default in the
performance, or any material breach, of any covenant of the Company in
the Plan, which continues for a period of not less than thirty (30)
consecutive days after written notice of such occurrence is given to
the Company by the Trustee or holders of not less than twenty-five
percent (25%) in Principal amount of all then Outstanding Notes; or
(D) The Company's Case (as defined in the Plan) shall be
converted to a case under Chapter 7 of Title 11 of the United States
Code; or
(E) The Company shall file a voluntary petition under 11
U.S.C. Section 301; provided however, that the continuation of the
Company's Case (as defined in the Plan) shall not be an Event of
Default under this subsection; or
(F) An order for relief shall be entered against the
Company under 11 U.S.C. Section 303(h); or
(G) A court having jurisdiction in the premises shall
have entered a final non-appealable judgment, order or decree for
payment of money against the Company that does not violate or conflict
with the terms of the Plan and that results in a liability (after
provision for any proceeds of any policy of insurance applicable to
such liability) in excess of $400,000.
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SECTION 5.2 TRUSTEE TO GIVE NOTEHOLDERS NOTICE OF DEFAULTS. The
Trustee shall, within sixty (60) days after the occurrence of any event that
with the giving of notice, the passage of time or both would constitute an
Event of Default (a "Default"), give by mail to (i) all Noteholders, as their
names and addresses appear in the Note Register, (ii) to such holders of the
Notes as have, within the two (2) years preceding the mailing of notice, filed
their names and addresses with the Trustee for that purpose and (iii) to such
holders of the Notes whose names and addresses are provided the Trustee in
accordance with Section 312 of the TIA, notice of all Defaults known to the
Trustee, unless such Defaults shall have been cured or waived before the giving
of such notice; provided, however, that except in the case of Default in the
payment of Payments on any of the Notes, if any are due and payable pursuant to
and in accordance with the terms of the Notes and this Indenture, the Trustee
shall be protected in withholding such notice if and so long as the board of
directors, board of trustees, executive committee, or a trust committee of
directors, trustees or Responsible Officers, of the Trustee in good faith
determines that the withholding of such notice is in the interests of the
Noteholders.
SECTION 5.3 DECLARATION OF PRINCIPAL AND ACCRUED INTEREST DUE
UPON DEFAULT; HOLDERS OF SPECIFIED PERCENTAGE OF NOTES MAY WAIVE DEFAULT
DECLARATION. In the event that an Event of Default has occurred, then the
Trustee may, at its election, and shall, upon the written direction of the
holders of not less than twenty-five percent (25%) of the aggregate Principal
amount of the Outstanding Notes, by written notice to the Company, declare the
entire unpaid Principal amount of all of the Notes and all accrued Interest
thereon to be immediately due and payable in full, and such Principal and
Interest shall thereupon become and be immediately due and payable in full.
Notwithstanding the foregoing, any acceleration of the Notes pursuant to this
Section 5.3 shall be subject to the right of the holders of not less than a
majority in Principal amount of all Outstanding Notes, by written notice to the
Company and to the Trustee, thereafter to consent to a waiver of such past
Default before any final judgment or decree for the payment of the moneys due
shall have been obtained or entered as hereinafter provided and if before such
judgment or decree all covenants with respect to which Default shall have been
made shall be fully performed or made good to the reasonable satisfaction of
the Trustee, and all arrears of Interest at the Interest rate per annum
applicable to the Notes and the Principal of all Outstanding Notes which shall
have become due otherwise than by acceleration under this Section 5.3 and all
sums paid or advanced by the Trustee hereunder and the reasonable compensation,
disbursements, expenses and advances of the Trustee, its agents and attorneys,
except the Principal of any Notes not then due by their terms and except
Interest accrued on such Notes since the last Payment Date, shall be paid, or
the amount thereof shall be paid to the Trustee for the benefit of those
entitled thereto; in which event, such Default and its consequences shall
thereupon be deemed to have been cured and such declaration of the maturity of
the Notes shall be void and of no further effect, but no such cure shall extend
to or affect any subsequent Default or impair any right consequent thereon.
SECTION 5.4 POWER OF TRUSTEE TO PROTECT AND ENFORCE RIGHTS. Upon
the occurrence of one or more Events of Default and the acceleration of the
indebtedness
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evidenced by the Notes, the Trustee by such officer or agent as it may appoint
in its discretion, with or without entry, may proceed to protect and enforce
its rights and the rights of holders of the Outstanding Notes by a suit or
suits in equity or an action or actions at law, whether for the specific
performance of any covenant or agreement contained herein, or in aid of the
execution of any power herein granted, or for the enforcement of any other
appropriate legal or equitable remedy, as the Trustee shall deem most effectual
to protect and enforce any of its rights or duties and the rights of holders of
the Outstanding Notes.
Upon the written request of the holders of a majority in Principal
amount of the then Outstanding Notes, in case an Event of Default shall have
occurred and the indebtedness evidenced by the Notes shall be accelerated as
aforesaid, subject to Sections 8.2 and 8.5, it shall be the duty of the Trustee
upon being indemnified as provided in Section 5.10, to exercise such one or
more of the remedies available for the protection and enforcement of its rights
and the rights of the Noteholders (including the taking of appropriate judicial
proceedings by action, suit or otherwise) as the Trustee shall deem best.
SECTION 5.5 REMEDIES CUMULATIVE. No remedy herein conferred upon
or reserved to the Trustee or the Noteholders is intended to be exclusive of
any other right or remedy, but each and every such right or remedy shall be
cumulative, and shall be in addition to every other remedy given hereunder as
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.
(A) DELAY, ETC. NOT A WAIVER OF RIGHTS. No delay or
omission to exercise any right or power accruing upon any Event of
Default shall impair any such right or power or shall be construed to
be a waiver of any such Event of Default or an acquiescence therein;
and every such right and power may be exercised from time to time and
as often as may be deemed expedient.
(B) WAIVER OF DEFAULT NOT TO EXTEND TO SUBSEQUENT
DEFAULTS. No waiver of any Event of Default whether by the Trustee or
by the Noteholders, shall extend to or shall affect any subsequent
Event of Default or shall impair any rights or remedies consequent
thereon.
SECTION 5.6 HOLDERS OF SPECIFIED PERCENTAGE OF NOTES MAY DIRECT
JUDICIAL PROCEEDINGS BY TRUSTEE. The holders of not less than a majority in
Principal amount of the Notes at the time Outstanding hereunder may direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any power conferred upon the Trustee; provided,
however, that such direction shall not be otherwise than in accordance with the
provisions of law and this Indenture and the Trustee may take any other action
deemed proper by them, or either of them, which is not inconsistent with such
direction.
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SECTION 5.7
(A) PAYMENT OF PRINCIPAL AND INTEREST TO TRUSTEE UPON
OCCURRENCE OF CERTAIN DEFAULTS; JUDGMENT MAY BE TAKEN BY TRUSTEE. The
Company covenants that if an Event of Default specified in
subdivisions (A) or (B) of Section 5.1 shall occur, then upon demand
of the Trustee, the Company will pay to the Trustee, for the benefit
of the holders of the Notes, the whole amount that then shall have
become due and payable on all such Notes for Principal and Interest,
and, in addition thereto, such further amount as shall be sufficient
to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements, and advances of the
Trustee, its agents and counsel.
In case the Company shall fail to pay the same forthwith upon
such demand, the Trustee, in its name and as trustee of an express
trust, may institute a judicial proceeding for the collection of the
sums so due and unpaid, and may prosecute such proceeding to judgment
or final decree, and may enforce the same against the Company or any
other obligor upon the Notes and collect the moneys adjudged or
decreed to be payable in the manner provided by law out of the
property of the Company or any other obligor upon the Notes, wherever
situated.
(B) ENFORCEMENT OF RIGHTS BY TRUSTEE DURING CONTINUANCE
OF AN EVENT OF DEFAULT. If an Event of Default occurs and is
continuing, the Trustee, may in the exercise of discretion proceed to
protect and enforce its rights and the rights of the Noteholders by
such appropriate judicial proceedings as deemed most effectual to
protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid
of the exercise of any power granted herein, or to enforce any other
proper remedy.
(C) APPLICATION OF MONEYS COLLECTED BY TRUSTEE. Any
moneys collected by the Trustee under this Section 5.7 shall be
applied by the Trustee:
FIRST. To the payment of the costs and expenses reasonably
incurred (including any sums due the Trustee) in the proceedings
resulting in the collection of such moneys.
SECOND. To the payment of the amounts then due and unpaid
upon the Outstanding Notes for Interest on the Outstanding Notes, and
in case such proceeds shall be insufficient to pay in full the amounts
so due and unpaid, then to the payment thereof ratably, according to
the aggregate of such Interest, without preference or priority as to
any Outstanding Note over any other Outstanding Note or of any
installment of Interest over any other installment of Interest.
THIRD. To the payment of the amounts then due and unpaid upon
the Outstanding Notes for Principal on the Outstanding Notes, and in
case such proceeds
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shall be insufficient to pay in full the amounts so due and unpaid,
then to the payment thereof ratably, according to the aggregate of
such Principal, without preference or priority as to any Outstanding
Note over any other Outstanding Note or of any installment of
Principal over any other installment of Principal, upon presentation
of such Notes and their surrender if fully paid, or for proper
notation if only partially paid.
SECTION 5.8 POSSESSION OF NOTES UNNECESSARY IN ACTION BY TRUSTEE.
All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Trustee, without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee, shall be brought in its name as
trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the holders of the Outstanding Notes in respect of which
such judgment has been recovered.
SECTION 5.9 TRUSTEE MAY FILE NECESSARY PROOFS. The Trustee
(irrespective of whether the Principal of the Notes shall then be due and
payable as therein expressed and irrespective of whether the Trustee shall have
made any demand for such payment) may file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee, and of the Noteholders allowed in any judicial
proceedings relative to the Company or its creditors or property. In case of
any receivership, insolvency, bankruptcy, reorganization or other similar
proceedings affecting the Company or its property, the Trustee (irrespective of
whether the Principal of the Notes shall then be due and payable and
irrespective of whether the Trustee shall have made any demand for such
payment) shall be entitled and empowered either in its name or as trustee of an
express trust or as attorney in fact for the holders of the Notes, or in any
one or more of such capacities, to file a proof of claim for the whole amount
of unpaid Principal and Interest and to file such other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel) and of the Noteholders
allowed in any such proceedings and to collect and receive any moneys or other
property payable or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator (or other similar
official) in any such judicial proceeding is hereby authorized by each
Noteholder to make such payments to the Trustee, and in the event that the
Trustee shall consent to the making of such payments directly to the
Noteholders, to pay to the Trustee, any amount due the Trustee, for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and any other amounts due the Trustee, under Section
8.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Noteholder any plan
of reorganization, arrangement, adjustment or composition affecting the Notes
or the rights of any holder
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thereof, or to authorize the Trustee to vote in respect of the claim of any
Noteholder in any such proceeding.
SECTION 5.10 LIMITATION UPON RIGHT OF NOTEHOLDERS TO INSTITUTE
CERTAIN LEGAL PROCEEDINGS. No Noteholder shall have any right to institute any
suit, action or proceeding in equity or at law for the foreclosure of this
Indenture, or for the execution of any trust hereunder, including the
appointment of a receiver or trustee, or for any other remedy hereunder,
including without limitation the institution of nonjudicial foreclosure
proceedings, unless (A) such holder previously shall have delivered to the
Trustee written notice that one or more Events of Default, which Events of
Default shall be specified in such notice, has occurred and is continuing, and
(B) the holders of not less than twenty-five percent (25%) in Principal amount
of the then Outstanding Notes shall have requested the Trustee in writing and
shall have afforded to it reasonable opportunity either to proceed to exercise
the powers hereinbefore granted, or to institute such action, suit or
proceeding in its own name, and (C) one or more Noteholders shall have offered
to the Trustee adequate security and indemnity, satisfactory to it, against the
costs, expenses and liabilities to be incurred therein or thereby and the
Trustee shall have refused or neglected to act on such notification, request
and offer of indemnity for at least sixty (60) days and no direction
inconsistent with such notification shall have been given to the Trustee by
holders of not less than a majority in Principal amount of the Outstanding
Notes; and such notification, request and offer of indemnity are hereby
declared, in every such case, at the option of the Trustee, to be conditions
precedent to the exercise of the powers and trusts of this Indenture and to any
action or cause of action for foreclosure or for any other remedy hereunder; it
being understood and intended that no Noteholder shall have any right in any
manner whatsoever by his action to affect, disturb or prejudice the rights of
any other holder, or obtain or seek to obtain priority or preference over any
other holder, or to enforce any right hereunder, except in the manner herein
provided to the extent permitted by law, and that all proceedings at law or in
equity shall be instituted, had or maintained in the manner herein provided,
and for the equal and ratable benefit of all holders of the Outstanding Notes.
SECTION 5.11 RIGHT OF NOTEHOLDER TO RECEIVE AND ENFORCE PAYMENT
NOTE IMPAIRED. Notwithstanding any other provision of this Indenture, the
right of any holder of any Note to receive Payments on such Note, on or after
such amounts have become due and payable pursuant to and in accordance with the
terms of the Notes and this Indenture, or to institute suit for the enforcement
of any such payment on or after such amounts have become due and payable
pursuant to and in accordance with the terms of the Notes and this Indenture,
shall not be impaired or affected without the consent of such holder, except
that no Noteholder may institute any such suit if and to the extent that the
institution or prosecution thereof or the entry of judgment therein would,
under applicable law, result in the surrender, impairment, waiver, or loss
under this Indenture upon any property subject hereto.
SECTION 5.12 COURT MAY REQUIRE UNDERTAKING TO PAY COSTS. All
parties to this Indenture agree, and each holder of any Note by his acceptance
thereof shall be deemed
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to have agreed, that any court may in its discretion require, in any suit for
the enforcement of any right or remedy under this Indenture or in any suit
against the Trustee, for any action taken or omitted by it, the filing by any
party litigant in such suit of any undertaking to pay the costs of such suit,
and that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such
party litigant; but to the extent permitted by law the provisions of this
Section 5.12 shall not apply to any suit instituted by the Trustee, to any suit
instituted by any Noteholder or group of Noteholders holding in the aggregate
more than ten percent (10%) in aggregate Principal amount of the Outstanding
Notes, or to any suit instituted by any Noteholder for the enforcement of the
payment of Payments on any Note on or after such amounts have become due and
payable pursuant to and in accordance with the terms of the Notes and this
Indenture.
SECTION 5.13 UNENFORCEABLE PROVISION INOPERATIVE. To the extent
that any provision of this Article 5 may be invalid or unenforceable under any
applicable law, such provision shall be deemed inoperative and inapplicable and
shall not be included in the terms of this Indenture.
SECTION 5.14 IF ENFORCEMENT PROCEEDINGS ABANDONED, STATUS QUO IS
ESTABLISHED. In case the Trustee or any Noteholder shall have proceeded to
enforce any right or remedy under this Indenture, and such proceedings shall
have been discontinued or abandoned for any reason, or shall have been
determined adversely to the Trustee or to such Noteholder, then and in every
such case the Company, the Trustee and the Noteholders, subject to any
determination in such proceedings, shall be restored severally and respectively
to their former positions and rights hereunder, and thereafter all rights,
remedies and powers of the Trustee and Noteholders shall continue as if no such
proceedings had been instituted.
SECTION 5.15 NOTEHOLDERS MAY WAIVE CERTAIN DEFAULTS. The holders
of not less than a majority of the aggregate Principal amount of the then
Outstanding Notes may on behalf of the holders of all the Notes waive any past
Default hereunder and its consequences, except a Default:
(A) in the payment of the Payments on any Note, if any
are due and payable pursuant to and in accordance with the terms of
the Notes and this Indenture, or
(B) in respect of a covenant or provision hereof which
under Article 11 cannot be modified or amended without the consent of
the holder of each Outstanding Note affected.
Upon any such Waiver, such Default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
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ARTICLE 6
EVIDENCE OF RIGHTS OF NOTEHOLDERS
AND OWNERSHIP OF NOTES
SECTION 6.1 EVIDENCE OF OWNERSHIP OF DEFINITIVE NOTES AND
TEMPORARY NOTES ISSUED HEREUNDER IN REGISTERED FORM. Prior to due presentment
for registration of transfer of any Note, the Company, the Trustee, any Note
Registrar, or any agent of the Company or the Trustee may deem and treat the
person in whose name any note shall be registered at any given time upon the
Note Register as the absolute owner of such Note for the purpose of receiving
any payment of, or on account of, the Payments on such Note, if any are due and
payable pursuant to and in accordance with the terms of the Notes and this
Indenture, and for all other purposes whether or not such Note be overdue; and
neither the Company nor the Trustee, nor any agent of the Company or the
Trustee shall be bound by any notice to the contrary. All such payments made
in accordance with the provisions of this Section 6.1 shall be valid, and, to
the extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for moneys payable upon any such Note.
ARTICLE 7
CONSOLIDATION, MERGER AND SALE
SECTION 7.1 COMPANY MAY MERGE, CONSOLIDATE, ETC., UPON CERTAIN
TERMS. The Company covenants that it will not merge or consolidate with any
other corporation or, other than as part of a loan securitization or sale
entered into in the ordinary course of its business, sell or convey all or
substantially all of its assets to any person, firm or corporation, unless (i)
either the Company shall be the continuing or surviving corporation, or the
successor corporation (if other than the Company) shall be a corporation
organized under the laws of the United States of America or any State thereof
and shall expressly assume the due and punctual payment of the Payments on all
the Notes, if any are due and payable pursuant to and in accordance with the
terms of the Notes and this Indenture, according to their tenor, and the due
and punctual performance and observance of all of the covenants and conditions
of this Indenture to be performed by the Company, by supplemental indenture
satisfactory to the Trustee, executed and delivered to the Trustee by such
corporation, and (ii) the Company or such successor corporation, as the case
may be, shall not, immediately after such merger or consolidation, or such sale
or conveyance, be in default in the performance of any such covenant or
condition.
SECTION 7.2 SUCCESSOR CORPORATION TO BE SUBSTITUTED. In case of
any such consolidation, merger, sale or conveyance, and upon any such
assumption by the successor corporation, such successor corporation shall
succeed to and be substituted for the Company, with the same effect as if it
had been named herein as the Company, and the Company shall thereupon be
released from all obligations hereunder and under the Notes and the Company as
the predecessor corporation may thereupon or at any time thereafter be
dissolved, wound
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up or liquidated. Such successor corporation thereupon may cause to be signed,
and may issue either in its own name or in the name of the Company any or all
of the Notes issuable hereunder which theretofore shall not have been signed by
the Company and delivered to the Trustee; and, upon the order of such successor
corporation instead of the Company and subject to all the terms, conditions and
limitations in this Indenture prescribed, the Trustee shall authenticate and
shall deliver any Notes which previously shall have been signed and delivered
by the officers of the Company to the Trustee for authentication, and any Notes
which such successor corporation thereafter shall cause to be signed and
delivered to the Trustee for that purpose.
In case of any such consolidation, merger, sale or conveyance such
changes in phraseology and form (but not in substance) may be made in the Notes
thereafter to be issued as may be appropriate.
SECTION 7.3 OPINION OF COUNSEL. The Trustee, subject to TIA
Section 315(a), (c) and (d) and to Section 8.5, may receive an Opinion of
Counsel as conclusive evidence that any such consolidation, merger, sale or
conveyance and any such assumption complies with the provisions of this Article
7.
ARTICLE 8
CONCERNING THE TRUSTEE
SECTION 8.1 REQUIREMENT OF CORPORATE TRUSTEE, ELIGIBILITY. There
shall at all times be a Trustee hereunder which shall be a banking corporation
organized and doing business under the laws of the United States of America or
of any State, authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least $60,000,000 subject to
supervision or examination by Federal or State authority, or any affiliate of
such a banking corporation, which also is a corporation organized and doing
business under the laws of the United States of America or of any State,
authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $10,000,000 subject to supervision or
examination by Federal or State authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purposes of
this Section 8.1 the combined capital and surplus of the Trustee shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 8.1, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article 8.
SECTION 8.2 ACCEPTANCE OF TRUST. The Trustee accepts the trusts
hereby created upon the terms and conditions in this Indenture specified, to
all of which the Company and the holders of Outstanding Notes by their
acceptance thereof agree:
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(A) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties
and only such duties as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be
read into this Indenture against the Trustee, and;
(2) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to it, and
conforming to the requirements of this Indenture; but in the
case of any such certificates or opinions which by any
provision hereof are specifically required to be furnished to
the Trustee, the Trustee shall be under a duty to examine the
same to determine whether or not they conform to the
requirements of this Indenture.
(B) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and
skill in their exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
(C) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except
that
(1) this subdivision shall not be construed to limit
the effect of subdivision (A) of this Section;
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it
shall be proved that the Trustee was negligent in ascertaining
pertinent facts;
(3) the Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the holders of not less than
a majority in Principal amount of the Notes at the time
Outstanding relating to the time, method, and place of
conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the
Trustee under this Indenture;
(4) none of the provisions contained in this
Indenture shall require the Trustee to expend or risk its own
funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise
of any of its rights or powers, if there is reasonable ground
for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably
assured to it; and
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(5) the permissive right of the Trustee to do things
enumerated in this Indenture shall not be construed as a duty,
and the Trustee shall not be answerable for other than its
negligence or willful default.
(D) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject
to the provisions of this Section.
(E) The Trustee shall not be required to take notice or
be deemed to have notice of any Event of Default hereunder except
failure by the Company to cause to be made any of the payments to the
Trustee required to be made to the Trustee by any provision hereof or
failure by the Company to file with the Trustee any document required
by this Indenture to be so filed subsequent to the issuance of the
Notes, unless the Trustee shall be specifically notified in writing of
such Default by the Company or by the holders of at least twenty- five
percent (25%) in aggregate Principal amount of Outstanding Notes, and
all notices or other instruments required by this Indenture to be
delivered to the Trustee must, in order to be effective, be delivered
at the main office of the Trustee, and in the absence of such notice
so delivered the Trustee may conclusively assume there is no Event of
Default except as aforesaid.
SECTION 8.3 DISCLAIMER. The recitals contained herein and in the
Notes (except as contained in the Trustee's certificate of authentication)
shall be taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Notes issued hereunder. The Trustee shall be under no responsibility or duty
with respect to the disposition of any Notes authenticated and delivered
hereunder or the application or use of the proceeds thereof or the application
or use of any moneys paid to the Company under any of the provisions hereof.
SECTION 8.4 TRUSTEE MAY OWN NOTES. The Trustee, the paying
agent, the Note Registrar or any Note Co- Registrar or other agent of the
Company or of the Trustee may become the owner or pledgee of Notes and, subject
to Sections 8.9 and 8.10, if operative, may otherwise deal with the Company
with the same rights it would have if it were not a Trustee, paying agent, Note
Registrar, Note Co-Registrar or other agent of the Company or of the Trustee.
SECTION 8.5 TRUSTEE MAY RELY ON CERTIFICATES, ETC. To the extent
permitted by Section 8.2 hereof:
(A) The Trustee may rely and shall be protected in acting
upon any resolution, certificate, opinion, notice, request, consent,
order, appraisal, report, Note or other paper or document believed by
it to be genuine and to have been signed or presented by the proper
party or parties;
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(B) The Trustee may consult with counsel, who may be
counsel to the Company, and the written advice of such counsel or any
Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered by it hereunder
in good faith and in reliance thereon;
(C) Any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or Company
Order and any resolution of the Board of Directors may be sufficiently
evidenced by a Certified Resolution;
(D) Whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith, rely upon an Officers' Certificate;
(E) The Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the
request or direction of any of the holders pursuant to this Indenture,
unless such holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities
which might be incurred, as the case may be, in compliance with such
request or direction;
(F) The Trustee shall not be bound to make any
investigation into the facts or matters stated in any such document
set forth in Section 8.5(A), but the Trustee, in its exercise of
discretion, may make such further inquiry or investigation into such
facts or matters as may seem necessary, and, if the Trustee shall
determine to make such further inquiry or investigation, the Trustee
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(G) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care hereunder; and
(H) The Trustee shall not be required to give any
debenture or surety in respect of the execution of the said trusts and
powers or otherwise in respect of the premises.
SECTION 8.6 MONEY HELD IN TRUST NOT REQUIRED TO BE SEGREGATED.
Subject to the provisions of Section 13.2 hereof, all moneys received by the
Trustee hereunder or in respect of the Notes shall, until used or applied as
herein provided, be held in trust for the purposes for which they were
received, but need not be segregated from other funds except to the extent
required by law.
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Any interest allowed on or income or other return arising from any
such moneys shall be paid from time to time to the Company upon Company Order
in accordance with the provisions hereof; provided, however, that no such
interest, income or return shall be paid to the Company during any period
during which an Event of Default has occurred and is continuing.
SECTION 8.7 COMPENSATION, REIMBURSEMENT, INDEMNITY, SECURITY.
The Company covenants and agrees to pay to the Trustee from time to time, and
the Trustee shall be entitled to receive, reasonable compensation for all
services rendered by it in the execution of the trusts hereby created and in
the exercise and performance of all services rendered hereunder, which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust, and except as otherwise
expressly provided herein, the Company will upon request of the Trustee
reimburse the Trustee for all reasonable advances made or incurred by the
Trustee in accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its agents and
counsel, except any such expense or disbursement as may be attributable to
negligence or bad faith). The Company also covenants and agrees to indemnify
the Trustee for, and to hold it harmless against, any loss, liability or
expense incurred without negligence or bad faith on the part of the Trustee
arising out of or in connection with the acceptance or administration of this
trust, including, without limitation, all costs and expenses incurred in
defending against any claim or liability in connection with the exercise or
performance of any of the powers or duties hereunder.
If, and to the extent that the Trustee and its counsel and other
agents do not receive compensation for services rendered, reimbursements of its
advances, expenses and disbursements, or indemnity, as herein provided, as the
result of allowances made in any reorganization, bankruptcy, receivership,
liquidation or other proceeding or by any plan of reorganization or
readjustment of obligations of the Company or the Trustee shall be entitled, in
priority to the holders of the Notes, to be paid from the proceeds of any
distributions of any securities, dividends or other disbursements which would
otherwise be made to the holders of Notes in any such proceeding or proceedings
and the Trustee is hereby constituted and appointed, irrevocably, the attorney
in fact for the holders of the Notes and each of them to collect and receive,
in their name, place and stead, such distributions, dividends or other
disbursements, to deduct therefrom the amounts due to the Trustee, its counsel
and other agents on account of services rendered, advances, expenses, and
disbursements made or incurred, or indemnity, and to pay and distribute the
balance, pro rata, to the holders of the Notes.
SECTION 8.8 CONFLICT OF INTEREST.
(A) If the Trustee has or shall acquire any conflicting
interest, as defined in this Section 8.8, the Trustee shall within
ninety (90) days after ascertaining that there is such conflicting
interest, either eliminate such conflicting interest or resign in the
manner and with the effect hereinafter specified in this Article 8.
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(B) In the event that the Trustee shall fail to comply
with the provisions of the preceding subdivision (A) of this Section
8.8, the Trustee shall within ten (10) days after the expiration of
such ninety (90) day period transmit notice of such failure to the
Noteholders, in the manner and to the extent provided in Section 4.3.
(C) For the purposes of this Section, the Trustee shall
be deemed to have a conflicting interest if there is an Event of
Default (as defined in Section 5.1 but exclusive of any grace period
or notice requirement) and:
(1) the Trustee is trustee under another indenture
under which any other securities, or certificates of interest
or participation in any other securities, of the Company are
outstanding or is trustee for more than one (1) outstanding
series of securities under a single indenture of the Company
unless such other indenture is a collateral trust indenture
under which the only collateral consists of Notes issued under
this Indenture; provided, however, that there shall be
excluded from the operation of this clause (1) any indenture
under which other securities, or certificates of interest or
participation in other securities, of the Company are
outstanding, if the Company shall have sustained the burden or
proving, on application to the Securities and Exchange
Commission and after opportunity for hearing thereon, that
trusteeship under this Indenture and such other indenture is
not so likely to involve a material conflict of interest as to
make it necessary in the public interest or for the protection
of investors to disqualify the Trustee from acting as such
under this Indenture or such other indenture or indentures;
(2) the Trustee or any of the directors or executive
officers of the Trustee is an underwriter for the Company;
(3) the Trustee directly or indirectly controls or
is directly or indirectly controlled by or is under direct or
indirect common control with an underwriter for the Company;
(4) the Trustee or any of the directors or executive
officers of the Trustee is a director, officer, employee,
appointee or representative of the Company, or of an
underwriter (other than the Trustee) for the Company who is
currently engaged in the business of underwriting, except that
(a) one (1) individual may be a director or an executive
officer, or both, of the Trustee and a director or an
executive officer, or both, of the Company, but may not be at
the same time an executive officer of the Trustee and the
Company; (b) if and so long as the number of directors of any
Trustee in office is more than nine (9), one (1) additional
individual may be a director or an executive officer, or both,
of such Trustee and a director of the Company; and (c) the
Trustee may be designated by the Company or by an underwriter
for the Company to act in the capacity of transfer agent,
registrar, custodian, paying
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agent, fiscal agent, escrow agent or depositary or in any
other similar capacity or, subject to the provisions of
paragraph (1) of this subdivision (C), to act as trustee,
whether under an indenture or otherwise;
(5) ten percent (10%) or more of the voting
securities of the Trustee is beneficially owned either by the
Company or by any director, or executive officer thereof, or
twenty percent (20%) or more of such voting securities is
beneficially owned, collectively, by any two (2) or more of
such persons; or ten percent (10%) or more of the voting
securities of the Trustee is beneficially owned either by an
underwriter for the Company or by any director or executive
officer thereof, or is beneficially owned, collectively, by
any two (2) or more such persons;
(6) the Trustee is the beneficial owner of or holds
as collateral security for an obligation which is in default
(as hereinafter in this subdivision (C) of this Section 8.8
defined), (a) five percent (5%) or more of the voting
securities or ten percent (10%) or more of any other class of
security of the Company, not including the Notes issued under
this Indenture and securities issued under any other indenture
under which the Trustee is also trustee, or (b) ten percent
(10%) or more of any class of security of an underwriter for
the Company;
(7) the Trustee is the beneficial owner of, or holds
as collateral security for an obligation which is in default
(as hereinafter in this subdivision (C) of this Section 8.8
defined), five percent (5%) or more of the voting securities
of any person who, to the knowledge of the Trustee owns ten
percent (10%) or more of the voting securities of, or controls
directly or indirectly or is under direct or indirect common
control with, the Company;
(8) the Trustee is the beneficial owner of or holds
as collateral security for an obligation which is in default
(as hereinafter in this subdivision (C) of this Section 8.8
defined), ten percent (10%) or more of any class of security
of any person who, to the knowledge of the Trustee owns fifty
percent (50%) or more of the voting securities of the Company;
(9) The Trustee owns on January 1 in any calendar
year in the capacity of executor, administrator, testamentary
or inter vivos trustee, guardian, committee or conservator, or
in any other similar capacity, an aggregate of twenty-five
percent (25%) or more of the voting securities or of any class
of security, of any person, the beneficial ownership of a
specified percentage of which would have constituted a
conflicting interest under clause (6), (7) or (8) of this
subdivision (C). As to any such securities of which the
Trustee acquired ownership through becoming executor,
administrator or testamentary trustee of an estate which
included it, the provisions of the preceding sentence shall
not apply for a period of two (2)
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years from the date of such acquisition, to the extent that
such securities included in such estate do not exceed
twenty-five percent (25%) of such voting securities or
twenty-five percent (25%) of any such class of security.
Promptly after January 1, in each calendar year, the Trustee
shall make a check of its or his holdings of such securities
in any of the above-mentioned capacities as of January 1. If
the Company fails to make payment in full of the Payments upon
the Notes if, when and as the same becomes due and payable
pursuant to and in accordance with the terms of the Notes and
this Indenture, and such failure continues for thirty (30)
days thereafter, the Trustee shall make a prompt check of its
holdings of such securities in any of the above-mentioned
capacities as of the date of the expiration of such thirty-day
period and after such date, notwithstanding the foregoing
provisions of this clause (9), all such securities so held by
the Trustee with sole or joint control over such securities
vested in it or him, shall, but only so long as such failure
shall continue, be considered as though beneficially owned by
the Trustee for the purposes of clauses (6), (7) and (8) of
this subdivision (C); or
(10) the Trustee shall be or become a creditor of the
Company (except under the circumstances described under
paragraphs (1), (3), (4), (5) or (6) of Section 311(b) of the
TIA).
The specifications of percentages in clauses (5) to (9), inclusive, of
this subdivision (C) shall not be construed as indicating that the ownership of
such percentages of the securities of a person is or is not necessary or
sufficient to constitute direct or indirect control for the purposes of clause
(3) or (7) of this subdivision (C).
For the purposes of clauses (6), (7), (8) and (9) of this subdivision
(C) only, (a) the terms "security" and "securities" shall include only such
securities as are generally known as corporate securities, but shall not
include any note or other evidence of indebtedness issued to evidence an
obligation to repay moneys lent to a person by one or more banks, trust
companies or banking firms or any certificate of interest or participation in
any such note or evidence of indebtedness, (b) an obligation shall be deemed to
be in default when a default in payment of principal shall have continued for
thirty (30) days or more and shall not have been cured; and (c) the Trustee
shall not be deemed to be the owner or holder of (i) any security which it
holds as collateral security (as trustee or otherwise) for an obligation which
is not in default as above defined, or (ii) any security which it holds as
collateral security under this Indenture, irrespective of any Default
hereunder, or (iii) any security which it holds as agent for collection, or as
custodian, escrow agent or depositary, or in any similar representative
capacity.
(D) The percentages of voting securities and other securities
specified in this Section 8.8 shall be calculated in accordance with
the following provisions:
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(1) A specified percentage of the voting securities
of the Trustee, the Company or any other person referred to in
this Section 8.8 (each of whom is referred to as a "person" in
this subdivision (D)) means such amount of the outstanding
voting securities of such person as entitles the holder or
holders thereof to cast such specified percentage of the
aggregate vote which the holders of all the outstanding voting
securities of such person are entitled to cast in the
direction or management of the affairs of such person.
(2) A specified percentage of a class of securities
of a person means such percentage of the aggregate amount of
securities of the class outstanding.
(3) The term "amount," when used in regard to
securities, means the principal amount if relating to
evidences of indebtedness, the number of shares if relating to
capital shares, and the number of units if relating to any
other kind of security.
(4) The term "outstanding" means issued and not held
by or for the account of the issuer. The following securities
shall not be deemed outstanding within the meaning of this
definition:
(a) securities of an issuer held in a sinking
fund relating to securities of the issuer of the same
class;
(b) securities of an issuer held in a sinking
fund relating to another class of securities of the
issuer, if the obligation evidenced by such other
class of securities is not in default as to principal
or interest or otherwise;
(c) securities pledged by the issuer thereof
as security for an obligation of the issuer not in
default as to principal or interest or otherwise; or
(d) securities held in escrow if placed in
escrow by the issuer thereof;
provided, however, that any voting securities of an issuer shall be deemed
outstanding if any person other than the issuer is entitled to exercise the
voting rights thereof.
(5) A Security shall be deemed to be of the same class as
another security if both securities confer upon the holder or holders
thereof substantially the same rights and privileges; provided,
however, that, in the case of secured evidences of indebtedness, all
of which are issued under a single indenture, differences in the
interest rates or maturity dates of various series thereof shall not
be deemed sufficient to constitute such series different classes; and
provided, further, that, in the case of
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unsecured evidences of indebtedness, differences in the interest rates
or maturity dates thereof shall not be deemed sufficient to constitute
them securities of different classes, whether or not they are issued
under a single indenture.
(E) For the purposes of this Section 8.8, unless
otherwise provided:
(1) The term "underwriter" when used with reference
to the Company means every person, who, within three (3) years
prior to the time as of which the determination is made, has
purchased from the Company with a view to, or has offered or
has sold for the Company in connection with, the distribution
of any security of the Company outstanding at such time, or
has participated or has had a direct or indirect participation
in any such undertaking, or has participated or has had a
participation in the direct or indirect underwriting of any
such undertaking, but such term shall not include a person
whose interest was limited to a commission from an underwriter
or dealer not in excess of the usual and customary
distributors' or sellers' commission.
(2) The term "director" means any director of a
corporation, or any individual performing similar functions
with respect to any organization whether incorporated or
unincorporated.
(3) The term "person" means an individual, a
corporation, a partnership, an association, a joint-stock
company, a trust, an unincorporated organization, or a
government or political subdivision thereof. As used in this
clause, the term "trust" shall include only a trust where the
interest or interests of the beneficiary or beneficiaries are
evidenced by a security.
(4) The term "voting security" means any security
presently entitling the owner or holder thereof to vote in the
direction or management of the affairs of a person, or any
security issued under or pursuant to any trust, agreement or
arrangement whereby a trustee or trustees or agent or agents
for the owner or holder of such security are presently
entitled to vote in the direction or management of the affairs
of a person.
(5) The term "Company" means any obligor upon the
Notes.
(6) The term "executive officer" means the
president, every vice president, every trust officer, the
cashier, the secretary, and the treasurer of a corporation,
and any individual customarily performing similar functions
with respect to any organization whether incorporated or
unincorporated, but shall not include the chairman of the
board of directors.
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SECTION 8.9 RESIGNATION, REMOVAL, APPOINTMENT OF SUCCESSOR
TRUSTEE.
(A) No resignation or removal of the Trustee, and no
appointment of a successor Trustee pursuant to this Article 8 shall
become effective until the acceptance of appointment by the successor
Trustee under this Section 8.9 and Section 8.10.
(B) The Trustee may resign at any time by giving written
notice thereof to the Company. If an instrument of acceptance by a
successor Trustee shall not have been delivered to the Trustee within
thirty (30) days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction of
the appointment of a successor Trustee.
(C) The Trustee may be removed at any time by Act of the
holders of a majority in Principal amount of the Outstanding Notes,
delivered to the Trustee and to the Company.
(D) If at any time:
(1) the Trustee shall fail to comply with Section
8.8 after written request therefor by the Company or by any
Noteholder who has been a bona fide holder of a Note for at
least six (6) months, or
(2) the Trustee shall cease to be eligible under
Section 8.1 and shall fail to resign after written request
therefor by the Company or by any such Noteholder, or
(3) the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent or a receiver of the
Trustee or of its property shall be appointed or any public
officer shall take charge or control of the Trustee or of its
property or affairs for the propose of rehabilitation,
conservation or liquidation,
then, in any such case, (a) the Company by a Certified Resolution may remove
the Trustee or (b) subject to Section 5.11, any Noteholder who has been a bona
fide holder of a Note for at least six (6) months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(E) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of the
Trustee for any cause, the Company, by a Certified Resolution, shall
promptly appoint a successor Trustee. If, within one (1) year after
such resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee shall be appointed by Act of the holders
of a majority in Principal amount of the Outstanding Notes delivered
to the Company and the retiring
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Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment, become the successor Trustee and
supersede the successor Trustee appointed by the Company. If no
successor Trustee shall have been so appointed by the Company or the
Noteholders and accepted appointment in the manner hereinafter
provided, any Noteholder who has been a bona fide holder of a Note for
at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(F) The Company shall give notice of each resignation and
each removal of a Trustee and each appointment of a successor Trustee
by mailing written notice of such event by first-class mail, postage
prepaid, to the holders of Notes in the manner and to the extent
provided in Section 4.3. Each notice shall include the name of the
successor Trustee and address of the main office of the successor
Trustee.
SECTION 8.10 ACCEPTANCE BY SUCCESSOR TRUSTEE. Every successor
Trustee appointed hereunder shall execute, acknowledge and deliver to the
Company and to the retiring Trustee an instrument accepting such appointment,
and thereupon the resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee; but, on request of the Company or the respective
successor Trustee, the respective retiring Trustee shall, upon payment of its
charges, execute and deliver an instrument transferring to such respective
successor Trustee all the rights, powers and trusts of the retiring respective
Trustee, and shall duly assign, transfer and deliver to such respective
successor Trustee all property and money held by such respective retiring
Trustee hereunder, subject nevertheless to its lien, if any, provided for in
Section 8.7. Upon request of any such respective successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article 8 to the extent operative.
SECTION 8.11
(A) Notice, Etc. on Behalf of Company Delivered to
Trustee. Except as herein expressly provided to the contrary, any
notice, request, or other writing by or on behalf of the Company
delivered to the Trustee shall be deemed to have been delivered to the
Trustee hereunder as effectually as if delivered to each of them.
(B) Cash, Securities, Etc. to be Held by Trustee.
Notwithstanding anything herein contained to the contrary, all cash
collected by, or payable to, the Trustee pursuant to this Indenture
shall be paid to and deposited with, and all stocks,
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debentures and other obligations or securities shall be held by, the
Trustee, except as otherwise required by law.
Whenever any moneys, debentures, shares of stock or other obligations
are, under any provisions of this Indenture, paid or delivered to or deposited
with the Trustee, the same shall be deemed for all purposes hereunder to be
part of the security for the Notes issued hereunder, but nothing contained in
this Section 8.11 shall be deemed to affect or impair any power or right
conferred by any provision of this Indenture upon the Trustee to apply,
disburse or otherwise act or deal with respect to any moneys, debentures,
shares of stock or other obligations received or held by it as aforesaid.
SECTION 8.12 MERGER OR CONSOLIDATION OF TRUSTEE. Any corporation
into which the Trustee may be merged or with which it may be consolidated or
any corporation resulting from any merger, conversion, or consolidation to
which the Trustee shall be a party, or any corporation succeeding to all or
substantially all the corporate trust business of the Trustee shall be the
successor of the Trustee hereunder provided such corporation shall be otherwise
qualified and eligible under this Article 8, to the extent operative, without
the execution or filing of any paper or the performance of any further act on
the part of any other parties hereto, anything herein to the contrary
notwithstanding. In case any of the Notes shall have been authenticated, but
not delivered, by the Trustee then in office, any such successor to the Trustee
by merger, conversion or consolidation may adopt such authentication and
deliver the said Notes so authenticated with the same effect as if such
successor Trustee had itself authenticated such Notes.
SECTION 8.13 AUTHENTICATING AGENT. As long as any of the Notes
remain Outstanding, upon a Company Order there shall be an authenticating agent
appointed by the Trustee for such period as the Company shall elect, to act on
behalf of the Trustee and subject to its direction in connection with the
authentication of the Notes as set forth in this Indenture. Such
authenticating agent shall at all times be a banking corporation organized and
doing business under the laws of the United States or any State, authorized
under such laws to exercise corporate trust powers, having a combined capital
and surplus of at least $60,000,000 subject to supervision or examination by
Federal or State authority, or an affiliate of such banking corporation, which
is also a corporation organized and doing business under the laws of the United
States or of any State, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $10,000,000 subject
to supervision or examination by Federal or State authority. If such
corporation publishes reports of condition at least annually, pursuant to law
or to the requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section 8.13 the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published.
Whenever reference is made in this Indenture to the authentication and
delivery of Notes by the Trustee or the Trustee's certificate of
authentication, such reference shall be
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deemed to include authentication and delivery on behalf of the Trustee by an
authenticating agent and a certificate of authentication executed on behalf of
the Trustee by an authenticating agent.
Any corporation in which any authenticating agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which any authenticating agent
shall be a party, or any corporation succeeding to the corporate agency
business of any authenticating agent, shall continue to be the authenticating
agent without the execution or filing of any paper or any further act on the
part of the Trustee or the authenticating agent.
Any authenticating agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at
any time terminate the agency of any authenticating agent by giving written
notice of termination to such authenticating agent and to the Company. Upon
receiving such a notice of resignation or upon such a termination, or in case
at any time any authenticating agent shall cease to be eligible in accordance
with the provisions of this Section 8.13, the Trustee promptly shall appoint a
successor authenticating agent, shall give written notice of such appointment
to the Company and shall mail notice of such appointment to all holders of
Notes as the names and addresses of such holders appear on the Note Register.
Any successor authenticating agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers, duties and responsibilities of
its predecessor hereunder. No successor authenticating agent shall be
appointed unless eligible under the provisions of this Section 8.13.
The Trustee agrees to pay to the authenticating agent from time to
time reasonable compensation for its services, and the Trustee shall be
entitled to be reimbursed for such payments from the Company subject to the
provisions of Section 8.7. The provisions of Section 6.1, 8.3 and 8.4 shall be
applicable to any authenticating agent.
ARTICLE 9
DISCHARGE OF INDENTURE
SECTION 9.1 ACKNOWLEDGMENT OF DISCHARGE. This Indenture shall
cease to be of further effect (except as to any rights of registration of
transfer or exchange of Notes herein expressly provided for and the rights to
receive payments of Interest thereon pursuant to and in accordance with the
terms of the Notes and this Indenture), and the Trustee, on demand of and at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction, cancellation and discharge of this Indenture, when
(A) either
(1) all Notes theretofore authenticated and
delivered other than (a) Notes which have been destroyed, lost
or stolen and which have been
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replaced or paid as provided in Section 2.10, and (b) Notes
for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such
trust, as provided in Section 13.2 have been delivered to the
Trustee for cancellation; or
(2) with respect to all such Notes not theretofore
delivered to the Trustee for cancellation, the Company has
deposited or caused to be deposited with the Trustee, as trust
funds in trust for the purpose, an amount sufficient to pay
and discharge the entire amount of unpaid Payments payable
with respect to such Notes;
(B) The Company has paid or caused to be paid all other
sums payable hereunder by the Company; and
(C) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture the
obligations of the Company to the Trustee under Section 8.7 shall survive.
SECTION 9.2 MONEY HELD IN TRUST. All money deposited with the
Trustee pursuant to Section 9.1 shall be held in trust and applied by it, in
accordance with the provisions of the Notes and this Indenture, to the payment,
either directly or through any paying agent (including the Company acting as
its own paying agent), as the trustee may determine, to the persons entitled
thereto, of the principal and interest for whose payment such money has been
deposited with the Trustee; but such money need not be segregated from other
funds except to the extent required by law. The Trustee shall give notice in
the name and at the expense of the Company of the immediate availability of the
money deposited with the Trustee pursuant to Section 9.1 to the persons
entitled to such money.
ARTICLE 10
MEETING OF NOTEHOLDERS
SECTION 10.1 PURPOSES FOR WHICH MEETINGS MAY BE CALLED. A meeting
of the Noteholders may be called at any time and from time to time pursuant to
the provisions of this Article 10 for any of the following purposes:
(A) To give any notice to the Company or to the Trustee,
or to give any directions to the Trustee, or to consent to the waiving
of any Event of Default hereunder and its consequences, or to take any
other action authorized to be taken by the Noteholders pursuant to any
of the provisions of Article 2;
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(B) To remove the Trustee and appoint a successor trustee
pursuant to any of the provisions of Article 8;
(C) to consent to the execution of an indenture or
indentures supplemental hereto pursuant to the provisions of Article
11; or
(D) To take any other action authorized to be taken by or
on behalf of Noteholders of any specified aggregate Principal amount
of the Notes under any other provisions of this Indenture, or
authorized or permitted by law.
SECTION 10.2 CALL OF MEETING BY TRUSTEE; GENERALLY. Meeting of
Noteholders may be held at such place or places and at such time or times in
any place of payment as the Trustee or, in case of its failure to act, the
Company or the Noteholders calling the meeting, shall from time to time
determine.
SECTION 10.3 CALL OF MEETINGS BY TRUSTEE; NOTICE. The Trustee may
at any time call a meeting of the Noteholders to take any action specified in
Section 10.1, to be held at such time and at such place designated in Section
10.2 as the Trustee shall determine. Notice of every meeting of the
Noteholders, setting forth the time and place of such meeting and in general
terms the action proposed to be taken at such meeting, and specifying each
series of Notes which would be affected by the proposed action, shall be mailed
by the Trustee at the expense of the Company, first class postage prepaid, to
the Noteholders at their last addresses as they shall appear upon the Note
Register, not less than twenty (20) nor more than one hundred twenty (120) days
prior to the date fixed for the meeting. Any defect in said notice shall not,
however, in any way impair or affect the validity of any such meeting.
The Trustee may in its discretion determine, subject to the meaning of
the term "affected" as set forth in Section 11.2, whether or not Notices of any
particular series would be affected by action proposed to be taken at a meeting
and any such determination shall be conclusive upon the holders of Notes of
such series and all other series. Subject to the provisions of Section 8.2,
the Trustee shall not be liable for any such determination made in good faith.
Any meeting of the Noteholders shall be valid without notice if
Noteholders, holding all Notes then Outstanding, which would be affected by the
action proposed to be undertaken, are present in person or by proxy or have
waived notice before or after the meeting by Noteholders, and if the Company
and the Trustee are either present by duly authorized representatives or have,
before or after the meeting, waived notice.
In case at any time the Company, pursuant to a Certified Resolution,
or Noteholders holding at least ten percent (10%) in aggregate Principal amount
of the Notes then Outstanding, which would be affected by the action proposed
to be undertaken, shall have requested the Trustee to call a meeting of the
Noteholders to take any action authorized by
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Section 10.1, by written request setting forth in reasonable detail the action
proposed to be taken at the meeting, and the Trustee shall not have mailed the
notice of such meeting within twenty (20) days after receipt of such request,
then the Company or Noteholders holding the amount above specified may
determine the time and the place for such meeting and may call such meeting for
such purpose by giving notice thereof in the manner provided in this Section
10.3.
SECTION 10.4 MEETINGS, NOTICE AND ENTITLEMENT TO BE PRESENT. Only
Noteholders holding Notes, which would be affected by the action proposed to be
undertaken, and persons appointed by an instrument in writing as proxy for such
a Noteholder by such a Noteholder are entitled to notice of and to vote at any
meeting of the Noteholders. The only persons who shall be entitled to be
present or to speak at any meeting of the Noteholders shall be the persons
entitled to vote at such meeting and their counsel, any representatives of the
Trustee and its counsel, and any representatives of the Company and its
counsel.
SECTION 10.5 REGULATIONS MAY BE MADE BY TRUSTEE. Notwithstanding
any other provisions of this Indenture, the Trustee may make such reasonable
regulations as it may deem advisable for any meeting of the Noteholders, in
regard to proof of the holding of Notes and of the appointment of proxies, and
in regard to the appointment and duties of inspectors of votes, the submission
and examination of proxies, certificates and other evidence of the right to
vote, and such other matters concerning the conduct of the meeting as it shall
deem appropriate.
Such regulations (A) may provide for the closing of the Note Register
for such period as the Trustee may deem necessary or (B) may fix a record and
time for determining the record Noteholders of the Notes entitled to vote at
such meeting. All Noteholders seeking to attend or vote at a meeting in person
or by proxy must, if required by any authorized representative of the Trustee
or the Company or by any other Noteholder, produce the Notes claimed to be
owned or represented at such meeting, and every one seeking to attend or vote
shall, if required as aforesaid, produce such further proof of Note ownership
or personal identity as shall be satisfactory to the authorized representative
of the Trustee, or if none be present then to the inspectors of votes
hereinafter provided for.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by the Noteholders as provided in Section 10.3, in which case the
Company or the Noteholders calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting may be elected by vote of Noteholders holding a
majority in Principal amount of the Notes represented at the meeting and
entitled to vote.
At any meeting each Noteholder or proxy shall be entitled to one vote
for each $1,000 Principal amount of Notes then Outstanding owned by such
Noteholder or represented
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by such proxy; provided, however, that no vote shall be cast or counted at any
meeting in respect of any Notes challenged as not Outstanding and ruled by the
temporary or permanent chairman of the meeting to be not Outstanding. The
temporary or permanent chairman of the meeting shall have no right to vote
other than by virtue of Notes held by him or instruments in writing as
aforesaid duly designating him as the person to vote on behalf of other
Noteholders.
At any meeting of Noteholders, the presence of persons holding or
representing Notes in an aggregate Principal amount sufficient under the
appropriate provision of this Indenture to take action upon the business for
the transaction of which such meeting was called shall constitute a quorum.
Any meeting of holders duly called pursuant to Section 10.3 may be adjourned
from time to time by vote of the holders (or proxies for the holders) of a
majority in aggregate Principal amount of the Notes represented at the meeting
and entitled to vote, whether or not a quorum shall be present; and the meeting
may be held as so adjourned without further notice.
SECTION 10.6 MANNER OF VOTING AT MEETINGS AND RECORD TO BE KEPT.
The vote upon any resolution submitted to any meeting of the Noteholders shall
be by written ballots on which shall be subscribed the signatures of the
Noteholders or of their representatives by proxy and the Principal amount of
the Notes voted by the ballot. The temporary or permanent chairman of the
meeting shall appoint two (2) inspectors of votes, who shall count all votes
cast at the meeting for or against any resolution and who shall make and file
with the secretary of the meeting their verified written reports in duplicate
of all votes cast at the meeting. A record at least in duplicate of the
proceedings of each meeting of the Noteholders shall be prepared by the
secretary of the meeting and there shall be attached to said record the
original reports of the inspectors of votes on any vote by ballot taken thereat
and affidavits by one (1) or more persons having knowledge of the facts setting
forth a copy of the notice of the meeting and showing that said notice was
mailed as provided in Section 10.3. The record shall be signed and verified by
the affidavits of the permanent chairman and secretary of the meeting and one
copy thereof shall be delivered to the Company and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting.
Any record so signed and verified shall be conclusive evidence of
the matters therein stated.
SECTION 10.7 EVIDENCE OF ACTION BY HOLDERS OF SPECIFIED PERCENTAGE
OF NOTES. Whenever in this Indenture it is provided that the holders of a
specified percentage in aggregate Principal amount of the Notes of any series
may take any action (including the making of any demand or request, the giving
of any notice, consent, or waiver or the taking of any other action) the fact
that at the time of taking any such action the holders of such specified
percentage have joined therein may be evidenced (A) by any instrument or any
number of instruments of similar tenor executed by holders in person or by
agent or proxy appointed in writing, or (B) by the record of the holders of
Notes voting in favor thereof at
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any meeting of holders duly called and held in accordance with the provisions
of this Article 10, or (C) by a combination of such instrument or instruments
and any such record of such a meeting of holders.
SECTION 10.8 EXERCISE OF RIGHT OF TRUSTEE OR NOTEHOLDERS MAY NOT
BE HINDERED OR DELAYED BY CALL OF MEETING OF NOTEHOLDERS. Nothing in this
Article 10 contained shall be deemed or construed to authorize or permit, by
reason of any call of a meeting of the Noteholders or any rights expressly or
impliedly conferred hereunder to make such call, any hindrance or delay in the
exercise of any right or rights conferred upon or reserved to the Trustee or to
the Noteholders under any of the provisions of this Indenture or of the Notes.
ARTICLE 11
SUPPLEMENTAL INDENTURES
SECTION 11.1 PURPOSES FOR WHICH SUPPLEMENTAL INDENTURES MAY BE
EXECUTED BY COMPANY AND TRUSTEE. Without the consent of the holders of any
Notes, the Company, when authorized by a Certified Resolution of its Board of
Directors, and the Trustee may at any time and from time to time, enter into an
indenture or indentures supplemental hereto, in form satisfactory to the
Trustee, for one or more of the following purposes:
(A) To evidence the succession of another corporation to
the Company, or successive successions, and the assumption by the
successor corporation of the covenants, agreements and obligation of
the Company pursuant to Article 7 hereof;
(B) To add to the covenants of the Company such further
covenants for the protection of the Noteholders, to insure the
enforcement of the remedies of the Trustee and Noteholders upon an
Event of Default by the Company, or to surrender any right or power
herein conferred upon the Company as the Board of Directors shall
consider to be necessary for the protection of the Noteholders, and to
make the occurrence and continuance of a default under any of such
additional covenants a Default permitting the enforcement of all or
any of the several remedies provided in this Indenture; provided,
however, that in respect of any such additional covenant, such
supplemental indenture may provide for a particular period of grace
after default (which period may be shorter or longer than that allowed
in the case of other Defaults) or may provide for an immediate
enforcement of said remedy or remedies upon such default or may limit
the remedies available to the Trustee upon such default or may
authorize the holders of not less than a majority in aggregate
Principal amount of the Outstanding Notes to waive such default and
prescribe limitations on such rights of waiver; or
(C) To cure any ambiguity or to correct or supplement any
provision contained in this Indenture which may be inconsistent with
any other provision
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contained herein or in any supplemental indenture, or to make such
other provisions in regard to matters or questions arising under this
Indenture as shall not be inconsistent with the provisions and
purposes of this Indenture, provided any such action shall not
adversely affect the interest of the Noteholders.
Nothing contained in this Article 11 shall affect or limit the right
or obligation of the Company to execute and deliver to the Trustee any
instrument of further assurance or other instrument which elsewhere in this
Indenture it is provided shall be delivered to the Trustee.
The Trustee is hereby authorized and directed to join with the Company
in the execution of any such supplemental indenture, to make any further
appropriate agreements and stipulations which may be herein contained and to
accept the conveyance, transfer and assignment of any property thereunder, but
the Trustee shall not be obligated to enter into any such supplemental
indenture which, in its opinion, does not afford adequate protection to the
Trustee or adversely affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise or adversely affects the interests of the
Noteholders.
SECTION 11.2 MODIFICATION OF INDENTURE BY WRITTEN CONSENT OF
NOTEHOLDERS. With the consent (evidenced as provided in Article 10) of the
holders of not less than a majority in aggregate Principal amount of the
Outstanding Notes by Act of said holders delivered to the Company and the
Trustee, the Company (when authorized by a Certified Resolution) and the
Trustee at any time and from time to time, by entering into an indenture or
indentures supplemental hereto, may modify, alter, add to or eliminate in any
manner (with the approval of any governmental agency if required by law) any
provisions of this Indenture or the rights of the Noteholders or the rights and
obligations of the Company; provided, however, that no such supplemental
indenture shall, without the consent of the holder of each Outstanding Note
affected thereby:
(A) change the Stated Maturity of the Notes, reduce the
Payments of any Note, if any are due and payable pursuant to and in
accordance with the terms of the Notes and this Indenture, or the coin
or currency in which such Payments are payable, or amend the
definition of Available Cash, or impair the right to institute suit
for the enforcement of payment of any such Payments on or after such
amounts have become due and payable pursuant to and in accordance with
the terms of the Notes and this Indenture, or
(B) reduce the percentage(s) of the aggregate Principal
amount of Outstanding Notes, the consent of the holders of which is
required for any such supplemental indenture, or the consent of whose
holders is required for any waiver (of compliance with certain
provisions of this Indenture or certain Defaults hereunder and their
consequences) provided for in this Indenture, or
(C) modify any of the provisions of this Section 11.2 or
Section 5.15, except to increase any such percentage or to provide
that certain other provisions of
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this Indenture cannot be modified or waived without the consent of the
holder of each Note affected thereby.
Notes shall be deemed to be "affected" by a supplemental indenture, if
such supplemental indenture adversely affects or diminishes the rights of
holders thereof against the Company or against the property of the Company.
The Trustee may in the exercise of its discretion, subject to Section 8.2,
determine whether or not any Notes would be affected by any supplemental
indenture and any such determination shall be conclusive upon the holders of
all Notes, whether theretofore or thereafter authenticated and delivered
hereunder.
It shall not be necessary for any Act of Noteholders under this
Section 11.2 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
Any supplemental indenture authorized by the provisions of this
Section 11.2 shall be executed by the Company and the Trustee in accordance
with the terms of Section 11.3.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 11.3, the Company
shall mail to the holders of the Notes at their last addresses as they shall
appear on the Note Register of the Company a notice setting forth in general
terms the substance of such supplemental indenture. Any failure of the Company
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture.
SECTION 11.3 REQUIREMENTS FOR EXECUTION; DUTIES AND IMMUNITIES OF
TRUSTEE. Prior to the execution of any supplemental indenture, the Trustee
shall receive a Company Request, accompanied by a Certified Resolution
authorizing the execution of any supplemental indenture pursuant to Section
11.1 or Section 11.2, and, if pursuant to Section 11.2, evidence filed with the
Trustee of the Act of Noteholders as aforesaid.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and subject to Section 8.2 shall be fully protected in relying upon,
an Opinion of Counsel stating that the execution of such supplemental indenture
is authorized or permitted by this Indenture and stating such other matters as
the Trustee may reasonably request. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's rights, duties or immunities under this Indenture or otherwise.
SECTION 11.4 SUPPLEMENTAL INDENTURES PART OF INDENTURE. Upon the
execution of any supplemental indenture pursuant to the provisions of this
Article 11, this Indenture shall be, and shall be deemed to be, modified and
amended in accordance therewith and the respective rights, limitations, duties
and obligations under this Indenture of the Company, the Trustee and the
Noteholders, and each of them, shall thereafter be
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determined, exercised and enforced hereunder, subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be, and shall be deemed to be, part of the terms
and conditions of this Indenture for any and all purposes, as if originally
contained herein.
SECTION 11.5 NOTES EXECUTED AFTER SUPPLEMENTAL INDENTURE TO BE
APPROVED BY TRUSTEE. Notes authenticated and delivered after the execution of
any supplemental indenture pursuant to the provisions of this Article 11 may,
and shall if required by the Trustee, bear a notation in form approved by the
Trustee, as to any matter provided for in such supplemental indenture. If the
Company and the Trustee shall so determine, new Notes modified so as to
conform, in the opinion of the Trustee and the Board of Directors of the
Company, to any modification of this Indenture contained in any such
supplemental indenture, may be prepared by the Company, authenticated by the
Trustee and delivered without expense to the holders of the Outstanding Notes,
upon surrender of such Notes, the new Notes so issued to be in an aggregate
Principal amount equal to the aggregate Principal amount of those so
surrendered.
SECTION 11.6 SUPPLEMENTAL INDENTURES REQUIRED TO COMPLY WITH TRUST
INDENTURE ACT OF 1939. No supplemental indenture shall be entered into
pursuant to any authorization contained in this Indenture which shall not
comply with the provisions of the Trust Indenture Act of 1939 as then in
effect.
ARTICLE 12
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 12.1 IMMUNITY OF CERTAIN PERSONS. No recourse for the
payment of the Payments on any Note, if any are due and payable pursuant to and
in accordance with the terms of the Notes and this Indenture, or for any claim
based thereon or otherwise in respect thereof, and no recourse under or upon
any obligation, covenant or agreement of the Company, contained in this
Indenture or in any supplemental indenture, or in any Note, or because of the
creation of any contingent indebtedness represented thereby, shall be had
against any incorporator, stockholder, officer or director, as such, past,
present or future, of the Company or any successor corporation, either directly
or through the Company or any successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment
or penalty or otherwise; it being expressly understood that all such liability
is hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issue of the Notes.
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<PAGE> 66
ARTICLE 13
MISCELLANEOUS
SECTION 13.1 BENEFITS RESTRICTED TO PARTIES AND TO HOLDERS OF
NOTES. Except as provided herein, nothing in this Indenture, expressed or
implied, is intended, or shall be construed, to confer upon, or to give to, any
person other than the parties hereto and the Holders of the Notes Outstanding
hereunder any right, remedy, or claim under or by reason of this Indenture or
any covenant, condition, stipulation, promise or agreement hereof, and all the
covenants, conditions, stipulation, promises and agreements contained in this
Indenture by and on behalf of the Company shall be for the sole and exclusive
benefit of the parties hereto, and of the holders of the Notes Outstanding
hereunder.
SECTION 13.2 DEPOSITS FOR NOTES NOT CLAIMED FOR SPECIFIED PERIOD
TO BE RETURNED TO COMPANY ON DEMAND. Any moneys deposited with the Trustee or
any paying agent, or then held by the Company, in trust for the payment of the
Payments on any Note and remaining unclaimed for six (6) years after the date
upon which the Payments on such Notes shall have become due and payable
pursuant to and in accordance with the terms of the Notes and this Indenture,
shall be paid to the Company upon Company Request, or, if then held by the
Company, shall be discharged from such trust; and the holder shall thereafter,
as an unsecured general creditor, be entitled to look only to the Company for
payment thereof, and all liability of the Trustee or any paying agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that, before being required
to make any such payment to the Company, the Trustee, or any paying agent, may,
at the expense of the Company, cause to be published once in a Daily Newspaper
in such areas as the Trustee, or any paying agent, as the case may be, may deem
necessary a notice that such moneys remain unclaimed and that, after a date
named in said notice, the balance of such moneys then unclaimed will be
returned to the Company.
SECTION 13.3 FORMAL REQUIREMENTS OF CERTIFICATES AND OPINIONS
HEREUNDER.
(A) Each certificate or opinion which is specifically
required by the provisions of this Indenture to be delivered to the
Trustee with respect to compliance with a condition or covenant herein
contained shall include (1) a statement that each person signing such
certificate or opinion has read such covenant or condition; (2) a
brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinions are based; (3) a statement that, in the
opinion of each such person, he has made such examination or
investigation as is necessary to enable him to express an informed
opinion as to whether or not such covenant or condition has been
complied with; and (4) a statement as to whether or not in the opinion
of each such person such condition or covenant has been complied with.
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<PAGE> 67
(B) Every request or Application by the Company for
action by the Trustee shall be accompanied by an Officers' Certificate
stating that all conditions precedent, if any, to such action,
provided for in this Indenture (including any covenants compliance
with which constitutes a condition precedent) have been complied with
and an Opinion of Counsel stating that in the opinion of such counsel
all conditions precedent, if any, to such action, provided for in this
Indenture (including any covenants compliance with which constitutes a
condition precedent) have been complied with, except that in the case
of any such request or Application as to which the furnishing of such
documents is specifically required by any provision of this Indenture
relating to such particular request or Application, no additional
certificate or opinion need be furnished.
(C) In any case where several matters are required to be
certified by, or covered by an opinion of, any specified person, it is
not necessary that all such matters be certified by, or covered by the
opinion of, only one such person, or that they be so certified or
covered by only one document, but one such person may certify or give
an opinion with respect to some matters and one or more other such
persons as to other matters, and any such person may certify or give
an opinion as to such matters in one or several documents.
SECTION 13.4 EVIDENCE OF ACT OF THE NOTEHOLDERS. Any request,
demand, authorization, direction, notice, consent, waiver or other action
provided by this Indenture to be given or taken by Noteholders may be embodied
in and evidenced by one or more instruments of substantially similar tenor
signed by such Noteholders in person or by agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee,
and, where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Noteholders signing such instrument
or instruments. Proof of execution of any such instrument or of a writing
appointing any such agent, shall be sufficient for any purpose of this
Indenture and (subject to Section 8.2) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
The fact and date of the execution by any person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer
authorized by law to take acknowledgements of deeds, certifying that the
individual signing such instrument or writing acknowledged to him the execution
thereof. Where such execution is by an officer of a corporation or a member of
a partnership, on behalf of such corporation or partnership, or by a fiduciary,
such certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or
writing, or the authority of the person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
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<PAGE> 68
Any request, demand, authorization, direction, notice, consent, waiver
or other action by the holder of any Note shall bind every future holder to the
same Note and the holder of every Note issued upon the transfer thereof or in
exchange therefor or in lieu thereof, in respect of anything done or suffered
to be done by the Trustee or the Company in reliance thereon, whether or not
notation of such action is made upon such Note.
SECTION 13.5 PARTIES TO INCLUDE SUCCESSORS AND ASSIGNS. Subject
to the provisions of Articles 7 and 8 hereof, whenever in this Indenture any of
the parties hereto is named or referred to, such name or reference shall be
deemed to include the successors or assigns of such party, and all the
covenants and agreements in this Indenture contained by or on behalf of the
Company or by or on behalf of Trustee shall bind and insure to the benefit of
the respective successors and assigns of such parties whether so expressed or
not.
SECTION 13.6 IN EVENT OF CONFLICT WITH TRUST INDENTURE ACT OF
1939, PROVISIONS THEREIN TO CONTROL. If any provision of this Indenture
limits, qualifies, or conflicts with another provision of this Indenture
required to be included herein by any of the provisions of the Trust Indenture
Act of 1939 such required provision shall control. Provisions required by said
Trust Indenture Act to be included herein which are not included herein are
hereby incorporated herein by reference to said Trust Indenture Act.
SECTION 13.7 REQUEST, NOTICES, ETC. TO TRUSTEE OR COMPANY. Any
request, demand, authorization, direction, notice, consent, waiver or Act of
the Noteholders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with:
(A) the Trustee by any Noteholder or by the Company shall
be sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its main office, or
(B) the Company by the Trustee or by any Noteholders
shall be sufficient for every purpose hereunder (except as herein
otherwise provided) if in writing and mailed, first-class, postage
prepaid, to the Company addressed to it at 570 Lake Cook Road, Suite
126, Deerfield, Illinois 60015 or at any other address previously
furnished in writing to the Trustee by the Company.
SECTION 13.8 MANNER OF NOTICE. Where this Indenture provides for
notice to Noteholders of any event, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class, postage prepaid, to each Noteholder affected by such event, at his
address as it appears on the Note Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such notice.
In any case where notice to Noteholders is given by mail, neither the failure
to mail such notice, nor any defect in any notice so mailed, to any particular
Noteholder shall affect the sufficiency of such notice with respect to other
Noteholders, and any notice which is mailed in the manner herein provided shall
be conclusively presumed to have been duly given.
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<PAGE> 69
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Trustee, but
such filing shall not be condition precedent to the validity of any action
taken in reliance upon such waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
SECTION 13.9 SEVERABILITY. In case any provision in this
Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 13.10 PAYMENTS DUE ON DAYS WHEN BANKS CLOSED. In any case
where the date of any Payment Date or the Stated Maturity of any Note or any
date on which any other payment is to be made or any action is to be taken
shall not be a business day, then (notwithstanding any other provision of the
Notes or this Indenture) payment of the Principal of or Interest on, any Notes
or other payment or action need not be made or taken on such date, but may be
made or taken on the next succeeding business day with the same force and
effect as if made on the nominal date of any such Payment Date or Stated
Maturity or date for any other payment or action, as the case may be, and no
interest shall accrue for the period from and after any such nominal date.
SECTION 13.11 BACKUP WITHHOLDING FORMS. The Company shall provide
the Trustee with Backup Withholding Forms prescribed by the Internal Revenue
Service and shall indemnify the Trustee for any penalties, expenses, costs and
liabilities assessed against the Trustee for using improper forms.
SECTION 13.12 TITLES OF ARTICLES AND SECTIONS OF THIS INDENTURE NOT
PART THEREOF. The titles of the several Articles and Sections of this
Indenture and the table of contents shall not be deemed to be any part hereof.
SECTION 13.13 EXECUTION IN COUNTERPARTS. This Indenture is being
executed in several counterparts, each of which shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
SECTION 13.14 GOVERNING LAW. This Indenture and each Note issued
hereunder shall be governed by the laws of the State of New York as to all
matters affecting the duties, liabilities, privileges, rights and obligations
of the Noteholders, the Company and the Trustee and any agents of the
foregoing, including but not limited to, matters of validity, construction,
effect and performance.
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SECTION 13.15 PLAN PROVISIONS CONTROL. Subject to Section 13.6
hereof, in the event that any provision of this Indenture conflicts with, or is
materially different than, any provision of the Plan, such provision of the
Plan will control and govern.
IN WITNESS WHEREOF, FIRST MERCHANTS ACCEPTANCE CORPORATION has caused
its name to be hereunto affixed, and this instrument to be signed by its
President or any Vice President and its corporate seal to be affixed hereto,
and the same to be attested by its Secretary or an Assistant Secretary; and IBJ
Schroder Bank & Trust Company, in token of its acceptance of the trust hereby
created, has caused its corporate name to be hereunto affixed, and this
instrument to be signed and sealed by one of its Officers and its corporate
seal to be attested by its Secretary or by one or its Assistant Secretaries, as
of the day and year first written above.
FIRST MERCHANTS ACCEPTANCE CORPORATION
By:
-----------------------------
President or Vice President
ATTEST:
- ------------------------------
Assistant Secretary
IBJ SCHRODER BANK & TRUST COMPANY
By:
-----------------------------
ATTEST:
- ------------------------------
Assistant Secretary
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<PAGE> 1
EXHIBIT T3E.1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
FIRST MERCHANTS ACCEPTANCE ) Case No. 97-1500 (JJF)
CORPORATION )
)
FIRST MERCHANTS RESIDENTIAL CREDIT ) Case No. 97-1892 (JJF)
CORPORATION, )
)
Debtors. ) Jointly Administered
___________________________________ )
JOINT DISCLOSURE STATEMENT OF DEBTORS IN CONNECTION WITH
SOLICITATION OF BALLOTS WITH RESPECT TO
SECOND AMENDED JOINT PLAN UNDER CHAPTER 11
OF THE UNITED STATES BANKRUPTCY CODE
Laura Davis Jones, Esq.
Robert Brady, Esq.
YOUNG CONAWAY STARGATT & TAYLOR
Rodney Square North
Wilmington, Delaware 19899
(302) 571-6600
Counsel for the Debtors and
Debtors in Possession
Robert E. Richards, Esq.
Mitchell L. Hollins, Esq.
SONNENSCHEIN NATH & ROSENTHAL
8000 Sears Tower
Chicago, Illinois 60606
(312) 876-8000
Special Counsel for the Debtors and
Debtors in Possession
Dated: February 9, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. SUMMARY OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
III. GENERAL INFORMATION REGARDING THE DEBTORS AND
THE EVENTS LEADING TO THE CHAPTER 11 FILING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
IV. SUMMARY OF BANKRUPTCY PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
V. THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
VI. CONFIRMATION AND CONSUMMATION PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
VII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
VIII. CERTAIN SECURITIES LAW AND OTHER CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
IX. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE
PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
X. VOTING INSTRUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
</TABLE>
EXHIBIT I -- Chapter 11 Plan
EXHIBIT II -- Liquidation Analysis as of March 31, 1998:
Chapter 11 Plan vs. Chapter 7 Liquidation
EXHIBIT III -- Projected Creditor Recoveries
EXHIBIT IV -- Resumes/Biographical Information of Post-
Confirmation Directors
EXHIBIT V -- Ugly Duckling Corporation Prospectus for UDC
Warrants, Underlying Shares of UDC Common Stock
and Stock Option Shares
-i-
<PAGE> 3
I. INTRODUCTION
First Merchants Acceptance Corporation ("FMAC") and First Merchants
Residential Credit Corporation ("FMRCC") (collectively, the "Debtors") filed
voluntary petitions for relief under Chapter 11 of the United States Bankruptcy
Code on July 11, 1997 and September 9, 1997, respectively. The Debtors' cases
are administratively but not substantively consolidated. The Debtors' proposal
for the collection, liquidation and sale of their assets and distribution of
related proceeds and collections is set forth in the Second Amended Joint Plan
Under Chapter 11 of the Bankruptcy Code (the "Plan"). A copy of the Plan is
attached hereto as Exhibit I. This Disclosure Statement is intended to
describe the Plan and provide you with adequate information to allow you to
make an informed judgment regarding the Plan. Capitalized terms used in this
Disclosure Statement have the meaning ascribed to them in the Plan unless
otherwise defined in this Disclosure Statement.
The Plan is summarized in Section II below and described in more
detail in Section V below. Pursuant to the provisions of the Bankruptcy Code,
only Classes of Claims or Interests which are "impaired" and which receive or
retain property pursuant to the Plan are entitled to vote to accept or reject
the Plan. A description of the requirements for acceptance of the Plan is set
forth in Section VI below.
THE DEBTORS BELIEVE THAT THE PLAN PROVIDES EQUAL OR GREATER VALUE TO
CREDITORS THAN OTHER AVAILABLE ALTERNATIVES. A COMPARISON OF RECOVERIES UNDER
THE PLAN VERSUS A CHAPTER 7 LIQUIDATION IS ATTACHED HERETO AS EXHIBIT II. A
RANGE OF THE MORE LIKELY RECOVERIES UNDER THIS PLAN IS ATTACHED HERETO AS
EXHIBIT III. THE DEBTORS BELIEVE THAT ACCEPTANCE OF THE PLAN IS IN THE BEST
INTERESTS OF EACH AND EVERY CLASS OF CREDITORS AND INTERESTHOLDERS AND
RECOMMEND THAT EACH CREDITOR AND INTERESTHOLDER VOTE TO ACCEPT THE PLAN. THIS
DISCLOSURE STATEMENT CONTAINS GOOD FAITH ESTIMATES AND ASSUMPTIONS WHICH ARE
BASED ON FACTS CURRENTLY KNOWN TO THE DEBTORS AND WHICH MAY BE MATERIALLY
DIFFERENT FROM ACTUAL FUTURE RESULTS.
EACH CREDITOR AND INTERESTHOLDER SHOULD READ THIS DISCLOSURE
STATEMENT AND THE PLAN IN THEIR ENTIRETY AND CONSULT WITH ITS LEGAL AND/OR
BUSINESS ADVISORS BEFORE VOTING ON THE PLAN. THIS DISCLOSURE STATEMENT IS NOT
LEGAL ADVICE TO YOU. THIS DISCLOSURE STATEMENT MAY NOT BE RELIED UPON FOR ANY
PURPOSE OTHER THAN TO DETERMINE HOW TO VOTE ON THE PLAN. THIS DISCLOSURE
STATEMENT IS NOT INTENDED TO REPLACE CAREFUL AND DETAILED REVIEW AND ANALYSIS
OF THE PLAN BY EACH HOLDER OF A CLAIM OR INTEREST ENTITLED TO VOTE THEREON, BUT
IS INTENDED TO AID AND SUPPLEMENT THAT REVIEW. THE DESCRIPTION OF THE PLAN
HEREIN IS ONLY A SUMMARY AND HOLDERS OF CLAIMS, INTERESTS, AND OTHER PARTIES IN
INTEREST ARE CAUTIONED TO REVIEW THE PLAN ITSELF FOR A FULL UNDERSTANDING OF
THE PLAN. THE TERMS OF THE PLAN ARE CONTROLLING IF ANY INCONSISTENCY EXISTS
BETWEEN THE PLAN AND THIS DISCLOSURE
<PAGE> 4
STATEMENT. THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY ANY FEDERAL OR
STATE SECURITIES AGENCIES.
General information regarding the Debtors, the Debtors' businesses
and material events leading to and during these Cases are set forth in Sections
III and IV below. Except where otherwise noted, this information is provided
by the Debtors and their managements. THE STATEMENTS AS TO THE DEBTORS'
FINANCIAL CONDITION CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF
DECEMBER 31, 1997 (UNLESS ANOTHER TIME IS SPECIFIED) AND THERE IS NO
REPRESENTATION OR IMPLICATION THAT THE INFORMATION CONTAINED HEREIN WILL NOT
HAVE CHANGED AS OF ANY TIME SUBSEQUENT TO THAT DATE NOR WILL YOU RECEIVE ANY
NOTICE OF SUCH CHANGES.
Alternatives to confirmation and consummation of the Plan are
described in Section IX below. Certain Federal Income Tax consequences
associated with the Plan are described in Section VII below. Certain
Securities Law and other considerations are described in Section VIII below. A
description of the warrants to be issued by UDC and UDC's option to offer
common stock in UDC to the Reorganized Company and its stakeholders are set
forth in Sections V and VIII below. A prospectus containing the background
information regarding UDC and the UDC Warrants and common stock of UDC is
attached as Exhibit V hereto.
BALLOTS WITH RESPECT TO THE PLAN MUST BE RECEIVED AT THE ADDRESS SET
FORTH ON THE ENCLOSED BALLOT ON OR BEFORE FEBRUARY 27, 1998. FOR YOUR
CONVENIENCE, A BALLOT AND PREADDRESSED ENVELOPE ARE ENCLOSED. ANY BALLOTS
RECEIVED AFTER THE EXPIRATION DATE OR WHICH DO NOT INDICATE EITHER AN
ACCEPTANCE OR A REJECTION OF THE PLAN SHALL NOT CONSTITUTE VALID BALLOTS AND
SHALL NOT BE COUNTED IN DETERMINING THE VOTE OF ANY CLASS. FURTHER VOTING
INSTRUCTIONS ARE SET FORTH IN SECTION X BELOW.
If you have questions concerning the procedure for voting, or if you
did not receive the appropriate Ballot or Ballots, or if you received a damaged
Ballot or have lost your Ballot, or if you have any questions concerning the
Disclosure Statement and/or the Plan, please call the Debtor's tabulation
agent, Logan & Company, Inc., at (201) 798- 1031.
THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE ANY OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY THE UDC WARRANTS, THE UDC COMMON STOCK
ISSUABLE UPON FUTURE EXERCISE OF THE UDC WARRANTS OR THE STOCK OPTION SHARES
DESCRIBED HEREIN, AND THE OFFERING OF SUCH WARRANTS AND/OR SHARES WILL BE MADE
ONLY BY MEANS OF A PROSPECTUS THAT IS PART OF THE REGISTRATION STATEMENT OF UDC
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS DISCLOSURE STATEMENT AND THE PLAN HAVE NOT BEEN
PREPARED BY ANY OTHER PARTY
-2-
<PAGE> 5
BESIDES THE DEBTORS AND NO OTHER PARTY, INCLUDING UDC, MAKES ANY
REPRESENTATIONS WITH RESPECT TO THE INFORMATION INCLUDED HEREIN OR IN ANY
EXHIBITS HERETO (EXCEPT THAT UDC PREPARED THE PROSPECTUS ATTACHED AS EXHIBIT V
HERETO WITH RESPECT TO THE UDC WARRANTS, UNDERLYING SHARES RELATED TO THE UDC
WARRANTS AND STOCK OPTION SHARES AS DESCRIBED THEREIN, WITH RESPECT TO WHICH
THE DEBTORS MAKE NO REPRESENTATION AND ASSUME NO RESPONSIBILITY FOR THE
ACCURACY AND ADEQUACY THEREOF) AND ASSUMES NO RESPONSIBILITY FOR THE ACCURACY
OR ADEQUACY THEREOF. WITHOUT LIMITATION OF THE FOREGOING, UDC HAS NOT
EVALUATED AND CONFIRMED THE PROJECTIONS AND OTHER FINANCIAL INFORMATION
CONTAINED HEREIN AND IN EXHIBITS II AND III HERETO NOR THE REASONABLENESS OF
ANY ASSUMPTIONS ON WHICH SUCH PROJECTIONS AND OTHER FINANCIAL INFORMATION IS
BASED AND ASSUMES NO RESPONSIBILITY FOR THE ACCURACY OR ADEQUACY THEREOF.
THIS DISCLOSURE STATEMENT INCLUDES CERTAIN STATEMENTS, ESTIMATES AND
PROJECTIONS PROVIDED BY THE DEBTORS WITH RESPECT TO THE ANTICIPATED FUTURE
PERFORMANCE OF THE REORGANIZED COMPANY. SUCH STATEMENTS, ESTIMATES AND
PROJECTIONS REFLECT VARIOUS ASSUMPTIONS CONCERNING ANTICIPATED RESULTS, WHICH
ASSUMPTIONS MAY OR MAY NOT PROVE TO BE CORRECT. THE DEBTORS DO NOT UNDERTAKE
ANY OBLIGATION TO PROVIDE ADDITIONAL INFORMATION OR TO CORRECT OR UPDATE ANY OF
THE INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT OR THE EXHIBITS THERETO.
THIS DISCLOSURE STATEMENT HAS BEEN APPROVED BY THE HONORABLE JOSEPH
F. FARNAN, JR., CHIEF DISTRICT JUDGE OF THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF DELAWARE. APPROVAL BY JUDGE FARNAN DOES NOT CONSTITUTE A
RECOMMENDATION BY THE COURT AS TO THE MERITS OF THE PLAN, BUT INCLUDES A
FINDING THAT THIS DISCLOSURE STATEMENT CONTAINS ADEQUATE INFORMATION TO ENABLE
YOU TO DECIDE WHETHER TO VOTE FOR OR AGAINST THE PLAN.
II. SUMMARY OF THE PLAN
OVERVIEW OF ASSETS AND LIABILITIES OF THE ESTATES.
FMAC historically has been a specialty finance company primarily
engaged in financing the purchase of used vehicles by acquiring
dealer-originated finance contracts and then servicing those loans. FMAC began
operations in 1991 and originated over $500 million of subprime automobile and
vehicle loans in 1996. In the period 1995 to 1997, FMAC did a series of whole
loan sales and eight securitizations of its then current loan production. With
respect to the eight securitizations, it retained rights in its single purpose
subsidiaries to receive excess cash flow (the so-called "B Pieces") after the
securitization debt and related obligations (the so-called "A Pieces") were
satisfied in full. In certain of the securitizations, the B Pieces include
certificates of interest. The securitization debt was insured by
-3-
<PAGE> 6
Financial Security Assurance, Inc., a monoline insurance company incorporated
under the laws of the State of New York ("FSA").
On April 16, 1997, FMAC announced that it had discovered
irregularities involving unauthorized entries made in the Company's financial
records and as a result, the FMAC Board terminated the employment of its then
President and Chief Executive Officer, Mitchell C. Kahn; Thomas R. Ehmann, a
Vice President, Chief Information Officer and a former Chief Financial Officer;
Paul Van Eyl, a Vice-President of Strategic Planning; and one other employee.
Shortly thereafter, certain shareholder and noteholder class action lawsuits
were filed against FMAC related to the irregularities.
FMAC's warehouse line/working capital facility from a group of nine
lending institutions (the "Bank Group") for whom LaSalle National Bank acted as
agent (the "Agent") became due on June 30, 1997 and, when workout negotiations
failed, the Agent refused to honor FMAC checks beginning on July 3, 1997. FMAC
filed this Chapter 11 case on July 11, 1997. As of the filing date, the face
amount of FMAC's owned loan portfolio was approximately $120 million and the
face amount of FMAC's securitized loan portfolio was approximately $580
million. FMAC services the loans in both of these portfolios (other than the
loans securitized under the 1997-2 Securitized Pool), but has not originated
any new loans since its Case was filed.
FMRCC is a wholly owned subsidiary of FMAC which was established for
the purpose of originating home mortgage loans. While much of the
infrastructure for this operation was acquired, FMRCC did not actually start
originating home mortgage loans. FMRCC filed its Chapter 11 case on September
9, 1997 and its primary assets were sold at auction on September 22, 1997 for
$200,000 plus assumption of certain contracts and liabilities to Coast
Financial Partners L.L.C. ("Coast").
Effective as of December 15, 1997, the Agent on behalf of the Bank
Group acquired FMAC's owned motor vehicle loans and vehicles (other than those
pledged to Greenwich). At confirmation, UDC will acquire FMAC's leases,
contracts, furniture, fixtures and equipment related to its servicing
operations. The Reorganized Company will retain the B Piece Distributions
(subject to certain servicing fees), which will be used first to pay
obligations to the Bank Group and UDC. After distributions to the Bank Group
and UDC are paid in full, 82.5% of the remaining B Piece Distributions will be
retained by the Reorganized Company and 82.5% of excess collections on the
Owned Loans will be paid to the Reorganized Company for distribution in
accordance with this Plan and 17.5% of the remaining B Piece
-4-
<PAGE> 7
Distributions and excess collections on the Owned Loans will be paid to UDC.
In the event that UDC or its permitted assigns are not servicing one or more
securitized pools, it will not receive its 17.5% share of B Piece Distributions
with respect to the applicable pools. In the event that UDC or its permitted
assigns are not servicing the Owned Loans, the Secured Claim Recovery Amount
(i.e. the guaranty of recovery of any deficiency relating to the sale of FMAC's
owned loans) will be limited to $10 million (including payments previously
received from the B Pieces) and the split percentage on excess B Piece
Distributions will be changed to 85% for the Reorganized Company, 15% for UDC.
Further, if there has been such a servicing change, UDC shall only receive a
15% portion of the excess collections on the Owned Loans calculated solely to
the extent B Piece Distributions have been applied to the Secured Claim
Recovery Amount. UDC has a one-time option to substitute UDC common stock for
all or a portion of the Debtor's share of distributions under the Excess
Collections Contribution Agreement entered into in connection with the December
15, 1997 sale of the Owned Loans.
The Reorganized Company will also retain all Causes of Action, all
furniture, fixtures and equipment at the Deerfield headquarters and any other
premises not being acquired by UDC, all Tax Refunds and other tax attributes,
all general intangibles and any other retained assets. The Tax Refunds will be
applied to repay the DIP Financing and Overadvance Facility.
For purposes of the recovery analysis attached as Exhibit III
hereto, FMAC has assumed that the total allowed unsecured claims against FMAC
will be $72.6 to $74.5 million, although it is possible that actual allowed
unsecured claims will be materially higher or lower than this estimate and FMAC
is still reviewing the proofs of claim filed to date. The main bar date in the
FMAC case was November 7, 1997 and a supplemental bar date for claims for
individual subordinated note holders and FMAC Interestholders of December 15,
1997 was set.
Debt of the Reorganized Company to Unsecured Creditors in the amount
of $44 million plus interest at the applicable federal rate for medium term
obligations as of the Effective Date (currently approximately 5.77%), will be
allocated among 1996 Subordinated Reset Noteholders (Subclass 7A-1) on the one
hand and all other unsecured creditors (Subclass 7A-2) on the other hand as set
forth in Section 5.7 of the Plan. The Debt of the Reorganized Company to
Unsecured Creditors may be paid in cash, Stock Option Shares, UDC Warrant
Shares, UDC Warrants or a combination thereof as discussed in Section VIII
below. In addition, holders of the Subordinated Reset Notes issued in 1996
will receive their pro rata share of 43% of the equity in the reorganized FMAC,
while all other holders of Allowed Unsecured Claims will receive 57% of such
equity. As a result of such
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<PAGE> 8
treatment of Subclass 7A-1 and Subclass 7A-2 Creditors under Section 5.7 of
the Plan, 1996 Subordinated Reset Noteholders will receive a greater relative
portion of the debt of the Reorganized Company, but a lesser relative portion
of the equity of the Reorganized Company, while 1995 Subordinated Reset
Noteholders, trade creditors of FMAC and other unsecured creditors of FMAC will
receive a lesser relative portion of the debt and a greater relative portion of
the equity of the Reorganized Company. This is necessary because the 1996
Subordinated Reset Noteholders are not "qualified creditors" under the tax code
(as discussed in Section VII of this Disclosure Statement below). FMAC
believes that the two different packages of debt and equity to be distributed
are roughly equivalent in total value.
Warrants to purchase 325,000 shares of common stock in UDC will be
issued to the Reorganized Company. FMAC's existing common stockholders will
receive the benefit of 32,500 of these warrants as described below, plus a
possible greater number of warrants in the event that FMAC's share of any cure
costs to be paid to Alltel is less than $472,304.01 (i.e. less than 90% of the
asserted cure amount of $524,782.32). All of the remaining UDC Warrants would
be retained by the Reorganized Company for the benefit of unsecured creditors
and the new shareholders of the Reorganized Company in accordance with the Plan
or at the option of the Reorganized Company, the UDC Warrants or common stock
in UDC received upon exercise thereof may be distributed as provided in Section
8.1 of the Plan.
FMAC has an approximately $1.9 million intercompany claim for
advances to FMRCC. Total unsecured claims of other creditors of FMRCC not
assumed by Coast are scheduled as approximately $110,000, subject to review of
additional claims which have been filed against FMRCC before the FMRCC bar date
of December 15, 1997. After payment of administrative expenses in the FMRCC
estate and cure costs on contracts assumed by Coast where FMRCC was responsible
for such cure cost amount, the remaining funds in the FMRCC estate should be
approximately $160,000 or approximately 6 to 8 cents per dollar of estimated
unsecured claims.
For a more detailed description of asserted Claims and available
assets, see Sections IV and V below. These sections also describe certain
other features of the Plan and implementing provisions thereof, including
permanent and temporary injunctions in Section 8.6 of the Plan and releases of
certain non-debtor parties in Section 8.7 of the Plan.
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<PAGE> 9
CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS.
The following table briefly summarizes the classification and
treatment of Claims and Interests under the Plan. This summary is qualified in
its entirety by reference to the provisions of the Plan. For a more detailed
description of the terms and provisions of the Plan, see Section V below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Class Description Treatment under the Plan
- -------------------------------------------------------------------------------------------------------------
<S> <C>
ALLOWED ADMINISTRATIVE EXPENSES. Allowed costs of Will be paid in full in Cash on the Effective Date
the Cases, including, without limitation, or where applicable, when otherwise Allowed or due
professional fees and other expenses of operating after the Effective Date, by advances under the DIP
during the Cases. Financing and Overadvance Facility or other
available cash. Obligations under the DIP
Financing and Overadvance Facility will be paid
(including simple interest at the rate of 10% per
annum) from the Tax Refund and from the B Piece
Distributions remaining after repayment of Class 2
below. The increase of availability under the DIP
Financing and Overadvance Facility to $18.5 million
is conditioned on a sale of receivables in the
Securitized Pools which were charged off prior to
or on December 31, 1997 to UDC or such other higher
and better bidder as may make an offer for such
charged off receivables.
- -------------------------------------------------------------------------------------------------------------
ALLOWED PRIORITY TAX CLAIMS. Claims entitled to Will be paid, at the option of the Debtors, either
priority under Code Section 507(a)(8). (i) in one Cash payment on the Effective Date or
(ii) in equal Cash payments on each anniversary of
the Effective Date, until the last anniversary of
the Effective Date that precedes the fourth
anniversary date of the date of assessment of the
Allowed Priority Tax Claim.
- -------------------------------------------------------------------------------------------------------------
CLASS 1. Allowed Priority Non-Tax Claims entitled UNIMPAIRED. Will be paid the full amount of its
to priority under Code Sections 507(a)(3), Allowed Claim in Cash on the Effective Date unless
507(a)(4) or 507(a)(6). paid earlier pursuant to prior order of the Court
or agreed otherwise by the Debtors and the holder
of such Claim.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-7-
<PAGE> 10
<TABLE>
- -------------------------------------------------------------------------------------------------------------
<S> <C>
CLASS 2. Allowed Secured Claim against FMAC under UNIMPAIRED. On December 15, 1997, the Agent on
Guarantee of Secured Claim Recovery Amount. behalf of the Bank Group credit bid all of FMAC's
obligations to the Bank Group at a sale of FMAC's
owned receivables. In consideration for that bid
and the release of the Bank Group's lien on the Tax
Refunds and certain other assets of FMAC, FMAC
granted the Bank Group (or UDC as its assignee) a
non-recourse lien on the B Piece Distributions to
secure the amounts set forth in Section 5.2 of the
Plan.
- -------------------------------------------------------------------------------------------------------------
CLASS 3. Allowed Secured Claim of Financial IMPAIRED. FSA will retain its lien on the stock of
Security Assurance, Inc. against FMAC FMARC II (the main special purpose subsidiary of
FMAC involved in most of the securitized
transactions) to secure the contingent obligations
currently secured thereby.
- -------------------------------------------------------------------------------------------------------------
CLASS 4. Allowed Secured Claim of Greenwich IMPAIRED. Greenwich will continue to receive all
Capital Financial Products, Inc. against FMAC. collections on account of the accounts receivable
pledged to Greenwich until such time as the
obligations to Greenwich are paid in full.
- -------------------------------------------------------------------------------------------------------------
CLASS 5. Allowed Miscellaneous Secured Claims. IMPAIRED. At the applicable Debtor's option, the
holders of any Miscellaneous Secured Claims shall
either (i) be paid the replacement value of their
collateral or (ii) have their collateral returned
to them.
- -------------------------------------------------------------------------------------------------------------
CLASS 6. Allowed Convenience Class Claims against IMPAIRED. Creditors in Class 6 shall be paid the
FMAC. lesser of $500 or 50% of their Allowed Convenience
Class Claims in Cash on the Effective Date or as soon
as practicable after such Claim becomes Allowed.
Allowed Convenience Class Claims shall receive no
other distributions under the Plan. The Convenience
Class consists of all creditors (other than holders
of Subordinated Reset Notes) holding claims of
$1,000 or less (including trade creditors who opt
to voluntarily reduce their claim to $1,000). Any
party within the Convenience Class can opt out if
they so choose.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-8-
<PAGE> 11
<TABLE>
- -------------------------------------------------------------------------------------------------------------
<S> <C>
CLASS 7A. Allowed Unsecured Claims against FMAC. IMPAIRED. Class 7A consists of two subclasses:
Subclass 7A-1 (unsecured claims related to the 1996
Subordinated Reset Notes) and Subclass 7A-2 (all
other unsecured claims including claims related to
the 1995 Subordinated Reset Notes and trade and
landlord claims). Subclass 7A-1 Creditors will
receive 43% of the equity in the Reorganized
Company and Subclass 7A-2 Creditors will receive
57% of such equity. FMAC currently anticipates
that the value of the stock in the Reorganized
Company will be approximately $3 million. In
addition, the Reorganized Company will issue debt
to the Class 7A Creditors in the amount of $44
million plus compound interest from the Effective
Date at the applicable federal rate for medium term
obligations as of the Effective Date of the Plan
(currently, about 5.77%) (the "Debt of Reorganized
Company to Unsecured Creditors"). Such debt will
be allocated between the two subclasses such that
Subclass 7A-1 receives additional debt equal in
value to the additional equity being received by
Subclass 7A-2.
- -------------------------------------------------------------------------------------------------------------
CLASS 7B. Allowed Unsecured Claims against FMRCC. IMPAIRED. Allowed Unsecured Claims against FMRCC,
including FMAC's scheduled claim against FMRCC,
will be paid Pro Rata from the FMRCC Sale Proceeds.
The estimate of the most likely payout is
approximately 6 to 8 cents.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 12
<TABLE>
- -------------------------------------------------------------------------------------------------------------
<S> <C>
CLASS 8A. Interests in FMAC. IMPAIRED. All Allowed Interests in FMAC will
receive the benefit of their Pro Rata share of 10%
of the UDC Warrants or if greater, the UDC Warrants
reallocated to Class 8A under the Alltel Cure
Reallocation. Any Claims subject to subordination
under Code Section 510(b) shall participate based
on the ratio of their stock holdings to all Allowed
Interests. There is no assurance that there will
be any Alltel Cure Reallocation. Existing holders
of Interests in FMAC will not receive any share of
the equity of the Reorganized Company and all
existing shares representing Interests in FMAC
shall be cancelled on the Effective Date, subject
to their rights as to the UDC Warrants as described
above.
- -------------------------------------------------------------------------------------------------------------
CLASS 8B. Interests in FMRCC. IMPAIRED. FMAC will not receive any distribution
on its equity interest (as opposed to loan
advances) in FMRCC and FMRCC shall be dissolved as
soon as all Claims against FMRCC are adjudicated in
a Final Order.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
EFFECTIVE DATE. The Effective Date shall be (i) the eleventh day
after the Confirmation Date, calculated in accordance with Bankruptcy Rule
9006, unless the Confirmation has been stayed or any of the other conditions
set forth in Section 14.1 of the Plan have not been met or waived or (ii) such
later date as the Debtors, UDC and the Committee shall agree to.
ACCEPTANCE OF THE PLAN. A Class of Claims or Interests shall have
accepted the Plan if it is accepted by the holders of at least two-thirds in
amount and more than one-half in number of the Claims or Interests that are
Allowed or deemed allowed for voting purposes and that have actually voted on
the Plan. Classes of Claims or Interests that are entitled to vote on the Plan
are identified in Section X of this Disclosure Statement. The requirements for
Confirmation of the Plan are discussed in Section VI of this Disclosure
Statement.
III. GENERAL INFORMATION REGARDING THE DEBTORS AND
THE EVENTS LEADING TO THE CHAPTER 11 FILING
A. CORPORATE STRUCTURE AND GENERAL BUSINESS
FMAC was a specialty finance company primarily engaged in financing
the purchase of used motor vehicles by acquiring
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<PAGE> 13
dealer-originated finance contracts. FMAC targeted its marketing efforts to
dealers which sell automobiles to consumers who have limited access to
traditional sources of credit. Such consumers are relatively high credit risks
due to various factors, including their impaired credit history or the absence
or limited extent of their credit history.
FMAC was incorporated in Delaware in March 1991. FMAC commenced
operations in June 1991 in the Chicago market, where it is headquartered, and
expanded its operations by opening a network of dealer service centers
primarily in the southeastern region of the United States. FMAC initially
funded its expansion and the purchase of finance contracts with borrowing from
banks and other lenders. FMAC subsequently supplemented such borrowing by
completing an initial public offering of common stock in September 1994 and
additional public offerings of debt and equity securities during the period
from February 1995 through November 1996. Beginning in November 1995, FMAC
began securitizing portions of its portfolio of finance contract receivables to
increase FMAC's liquidity, provide for the redeployment of capital, reduce
risks associated with interest rate fluctuations and provide FMAC with a
diversified source of financing. In connection with the securitizations, FMAC
formed two special purpose subsidiaries, First Merchants Auto Receivables
Corporation and First Merchants Auto Receivables Corporation II.
FMAC utilized the proceeds from the above-referenced transactions to
rapidly expand its finance contract portfolio and network of dealer service
centers. FMAC's finance contract portfolio increased from approximately $57.2
million at May 31, 1994 to approximately $479.2 million at June 30, 1996. As
of May 31, 1994, FMAC purchased finance contracts from approximately 650
dealers in 12 states. By September 30, 1996, FMAC was purchasing finance
contracts from approximately 3,000 dealers located in 37 states.
In 1996, FMAC experienced a substantial increase in delinquencies and
losses with respect to its portfolio of finance contracts. Certain members of
FMAC's senior management evidently began to make unauthorized entries in FMAC's
financial records in an effort to conceal the rising delinquencies and losses
and their corresponding effects on FMAC's financial condition and results of
operations. An internal auditor of FMAC discovered the irregularities in
FMAC's financial records, and the matter was reported to the Audit Committee of
FMAC's Board of Directors on April 3, 1997, which ordered an investigation. On
April 16, 1997, FMAC issued a press release disclosing that it had discovered
irregularities involving unauthorized entries made in FMAC's financial records,
that it had terminated the employment of certain members of its senior
management for cause and that it
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<PAGE> 14
expected that it would restate its previously announced results for the year
ended December 31, 1996.
As of the Petition Date, FMAC's stock was publicly traded on the
NASDAQ exchange under the symbol "FMACE," but is no longer listed by NASDAQ.
Approximately 6,500,000 shares of common stock are outstanding and held by
approximately 100 shareholders of record and 4000 beneficial owners.
B. CLASS ACTION LAWSUITS
Several class action lawsuits were filed relating to the
above-referenced financial irregularities. Those lawsuits have now been
consolidated into a single class action amended complaint encaptioned In re
First Merchants Acceptance Corp. Sec. Litig., No. 97 C 2715, pending in the
United States District Court for the Northern District of Illinois, Eastern
Division (the "Consolidated Class Action"). The complaint in the Consolidated
Class Action alleges various purported causes of action under various
securities and other laws on behalf of persons who purchased subordinated reset
notes and/or common stock of FMAC between September 23, 1994 and April 16,
1997, which class encompasses nearly all of the existing noteholders and some
of the existing shareholders.
The plaintiff class action lawyers in the Consolidated Class Action
filed a purported class proof of claim on behalf of their class members in the
Bankruptcy Case asserting claims for an unliquidated amount. The Debtor
asserts that such a class proof of claim is improper and will be filing an
objection to that class proof of claim as well as objections to certain related
claims filed by certain individual shareholders and holders of Subordinated
Reset Notes. The complaint in the Consolidated Class Action names as
defendants three former officers of FMAC who were terminated for cause
pre-petition by the board of directors of FMAC, as well as Deloitte & Touche,
L.L.P. and the members of the audit committee who currently serve as directors
of FMAC.
The releases described in Section V(E) of this Disclosure Statement
and contained in Section 8.7 of the Plan would release the members of the audit
committee and any other officers or directors of FMAC who served post-petition,
subject to the ability of certain shareholders and creditors to opt out of
those releases with respect to their individual claims as provided therein.
None of the three officers terminated for cause nor Deloitte and Touche L.L.P.
nor the providers of directors and officer liability insurance are being
released. These releases are part of the overall negotiations of the terms of
the Plan with the Committee, UDC and other parties. The Debtor believes that
these releases are proper, warranted and consistent with
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<PAGE> 15
releases approved in other bankruptcy cases. The plaintiff's attorneys in the
Consolidated Class Action have indicated that they will object to the releases
at the confirmation hearing.
The members of the board of directors and FMAC management who have
served FMAC post-petition have all filed contingent indemnification claims
against FMAC. The Debtors believes that the release provisions will help
resolve those claims and make administering these estates and distributing
assets and proceeds under the Plan more efficient.
C. PREPETITION RESTRUCTURING EFFORTS AND CHAPTER 11 FILING
FMAC had a warehouse line and working capital facility from a group of
nine lending institutions for which LaSalle National Bank acted as agent
("Agent"). The Bank Group facility matured on June 30, 1997. FMAC and the
Bank Group discussed various pre-petition workout and forbearance proposals but
no agreement was reached. The Agent refused to honor checks starting July 3,
1997, and approximately $8 million of checks to purchase dealer paper could not
be cashed. FMAC filed a Chapter 11 petition in the District of Delaware on
July 11, 1997.
D. FIRST MERCHANTS RESIDENTIAL CREDIT CORPORATION
FMRCC was a start-up operation in the home mortgage loan business.
While much of the operational platform was assembled to begin originating home
mortgage loans, no such loans were actually originated by FMRCC. A sale of
FMAC's stock interest was noticed for September 22, 1997. After a lockout for
unpaid rent by the landlord at FMRCC's headquarters and a letter from the
leading potential bidder for FMRCC that it would not bid at a stock sale but
would bid at an asset sale, FMRCC filed its own Case in the District of
Delaware on September 9, 1997, which Case was administratively, but not
substantively, consolidated with the FMAC Case pending before Judge Farnan. An
asset sale of substantially all of FMRCC's assets to Coast occurred on
September 22, 1997 as described below.
IV. SUMMARY OF BANKRUPTCY PROCEEDINGS
A. DIP FINANCING/CASH COLLATERAL ORDER
Immediately prior to the commencement of these Cases, the Debtor
negotiated the terms of a $10 million debtor- in-possession financing facility
(the "DIP Facility") with UDC. Emergency and interim authority to borrow under
this DIP Facility were obtained on July 14, 1997 and July 16, 1997,
respectively. Final authority to borrow the full $10 million line was obtained
on August 28, 1997. A stipulation and agreed order increasing the
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<PAGE> 16
availability on the line to $16.5 million was approved on December 22, 1997.
A further increase on availability under the financing line to $18.5 million
($8.5 million after certain permanent reductions from paydowns with the first
$10 million of FMAC's tax refunds) as of the Effective Date is described in
Section 2.2 of the Plan but such increase is conditioned upon the sale of
receivables in the Securitized Pools which were charged off prior to December
31, 1997. Certain other changes to the documents evidencing the DIP Financing
and Overadvance Facility such as extension of the maturity date and removal of
certain Chapter 11 related covenants and events of default will be put into
place by the Effective Date as well.
Current borrowings as of January 15, 1998 under the DIP Facility were
approximately $11.5 million.
These orders also provided that the obligations to the Bank Group
would be paid down from collections of collateral constituting FMAC's owned
loans and that Greenwich would be paid down by collections from certain of
FMAC's owned loans on which it held a first priority security interest.
Obligations to the Bank Group have been paid down from approximately $103
million as of the FMAC Petition Date to approximately $81.3 million (including
approximately $4.9 million of interest) as of January 15, 1998. Obligations to
Greenwich have been paid down from approximately $1.7 million as of the FMAC
Petition Date to approximately $670,000 (including accrued interest and an exit
financing fee) as of December 31, 1997.
B. THE OFFICIAL COMMITTEE
Shortly after the entry of the order for relief in the FMAC case, the
United States Trustee's office formed an Official Committee of Unsecured
Creditors (the "Committee") in the FMAC case. The eight members of the
Committee are J.C. Bradford & Co. (Underwriter; 1995 and 1996 Subordinated
Reset Noteholder; Chairperson of the Committee); Piper Jaffray, Inc.
(Underwriter; 1995 and 1996 Subordinated Reset Noteholder); Keefe Bruyette &
Woods, Inc. (Underwriter; 1996 Subordinated Reset Noteholder); Stifel, Nicolaus
& Company, Inc. (Underwriter; 1996 Subordinated Reset Noteholder); Investors
Title Insurance Company (Individual 1996 Subordinated Reset Noteholder); Robert
H. Smith (Individual 1995 Subordinated Reset Noteholder); Robert K. Willms, Jr.
(Individual 1996 Subordinated Reset Noteholder); and ALLTEL Financial Services,
Inc. (trade vendor). The Committee has formed a plan negotiating subcommittee
composed of three of the underwriter members of the Committee. The Committee
has retained Faegre & Benson, LLP and Pepper Hamilton & Scheetz as its
co-counsel. It has also retained Price Waterhouse as its general
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<PAGE> 17
financial advisor and Boston Portfolio Advisors as its special securitization
loan advisor.
C. CERTAIN MATERIAL ORDERS IN THE CASES
Since the Petition Date, FMAC has obtained several material orders
discussed below.
1. Employee Wages and Benefits
FMAC obtained an order on July 14, 1997 allowing it to honor
pre-petition wages and benefits of its employees, as well as certain severance
obligations to former employees within the $4,000 statutory priority set forth
in Code Section 507(a).
2. Employee Retention Program
FMAC obtained an order on August 19, 1997 under which it has offered
various stay bonuses to retain key personnel in its collection centers and
headquarters and certain personnel in the loan origination centers. The
aggregate expenses on the program were estimated not to exceed approximately
$3.3 million plus certain benefits. The headquarters and origination centers
bonuses were contingent on the applicable employee staying through a designated
date and not having been fired for cause. The collection center bonus was
similar but was payable in two installments, the first for collection personnel
who remained through October 31, 1997 and the second for collection personnel
who remained through January 31, 1998. The bonuses for the origination center
and first installment for the collection center are in the process of being
paid. The unpaid portion of those bonuses, together with the headquarters
bonuses and the second installment of the collection center bonuses, is
estimated to be approximately $2.4 million as of January 22, 1998.
3. Retention of Debtors' Professionals
The Debtors have retained Young Conaway Stargatt & Taylor and
Sonnenschein Nath & Rosenthal as their counsel and Ernst & Young L.L.P. as
FMAC's financial advisor. FMAC has also retained KPMG Peat Marwick L.L.P. to
complete preparation of its income tax returns and provide certain other tax
advice and retained McGladrey & Pullen, L.L.P. as its auditor.
4. Abandonment of Certain Contracts to Dealers
When the Agent stopped honoring checks on July 3, 1997, certain checks
to dealers to purchase new loan contracts in the aggregate amount of
approximately $8 million were either dishonored or were never presented in
light of the Agent's refusal to honor checks. Counsel for several of the
dealers, the
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<PAGE> 18
Committee, the Debtor and the Bank Group negotiated an agreed order allowing
FMAC to abandon all of its interest in such contracts to the applicable dealer
so the dealer could refinance the paper or take other appropriate actions. The
abandonment order provided that all related claims of dealers against FMAC and
certain other parties were deemed released in consideration for the
abandonment. This order was entered on September 22, 1997.
D. SCHEDULES AND BAR DATE
1. SETTING OF BAR DATE AND FILING OF SCHEDULES
The Court set November 7, 1997 as the general bar date for filing
prepetition Claims against FMAC. Individual notices were mailed to all
scheduled creditors and notice was published in the Wall Street Journal,
National Edition. A supplemental bar date of December 15, 1997 was established
for individual subordinated reset noteholder or shareholder claims against
FMAC. A bar date of December 15, 1997 was also set in the FMRCC case.
FMAC scheduled approximately $3 million of general unsecured claims
plus approximately $66 million of principal owed in connection with two series
of unsecured notes issued by FMAC. FMRCC scheduled approximately $2.0 million
of general unsecured claims, including a $1.9 million intercompany claim in
favor of FMAC.
2. CLAIMS PROCESSING
The Current Indenture Trustee has filed a proof of claim in the
approximate amounts of $51 million related to the 1996 Subordinated Reset Notes
and $15 million related to the 1995 Subordinated Reset Notes. FMAC expects to
complete its reconciliation of this Claim prior to confirmation and enter an
agreed stipulation fixing this Claim. A number of individual noteholders have
filed proofs of claim which overlap with this Proof of Claim.
The counsel in the Consolidated Class Action have filed a proof of
claim on behalf of all noteholders and shareholders within its class action
suit as described in Section III(B) above. While the amount of the proof of
claim is unliquidated, there is a reference to the amount sought being in
excess of $100 million. FMAC believes that a substantial portion of this claim
represents the principal and accrued interest on the 1995 Subordinated Reset
Notes and 1996 Subordinated Reset Notes and to that extent, is duplicative of
the claim filed by the Current Indenture Trustee. To the extent that this
claim relates to shareholders' claims, FMAC believes these claims are subject
to subordination under
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<PAGE> 19
Code Section 510(b). FMAC intends to file an objection to this proof of claim
on these and other grounds prior to confirmation.
Approximately $15 million of unsecured claims (other than the Claims
related to Subordinated Reset Notes and stock interests in FMAC) plus certain
unliquidated claims have been filed. As set forth in Exhibits II and III
hereto, FMAC assumes that approximately $5 million to $7 million (including
proofs of claim which may be filed related to certain leases and executory
contracts which may be rejected after the date of this disclosure statement)
will ultimately be allowed, although there is no assurance that this number
will not be greater (resulting in dilution of the projected recoveries for
scheduled unsecured creditors) or smaller (possibly resulting in slightly more
favorable recoveries).
Only two claims were filed against FMRCC. One is a claim in the
amount of $4,461.30 and the other is a rejection claim by the landlord for
FMRCC's headquarters in the amount of $262,267.48. FMRCC is reviewing these
claims and may file objections thereto.
E. MARKETING EFFORTS AND RELATED SALE
The Debtors engaged Ernst & Young's corporate finance group to market
the businesses as a whole or in their constituent business units. Over 100
potential bidders for FMAC and 100 potential bidders for FMRCC were contacted.
Separate marketing books for FMAC and FMRCC were developed and circulated to
interested parties and a due diligence room was assembled.
FMAC received four plan proposals, two involving a sale of the
business with a sharing of collections on the Owned Loans and the B Pieces and
two involving a recapitalized FMAC with some limited new loan origination.
FMAC only received one stand alone cash bid for the Owned Loans (which bid was
withdrawn) and that bid was unacceptably low.
After extensive due diligence by both FMAC and the four potential
acquirers and several rounds of bids, FMAC determined that the plan proposal
from UDC and the related Code Section 363 sale of the Owned Loans was superior
based on a combination of economic, servicing capability and feasibility
factors. FMAC, the Committee and UDC have signed an agreed term sheet for a
plan and have negotiated definitive documents to implement that plan agreement
and the related Code Section 363 sale of owned loans and vehicles, which sale
was approved on December 15, 1997.
On September 22, 1997, Coast was the only party who appeared to bid at
an auction of the FMRCC assets and/or stock. Coast's bid of $200,000 cash plus
assumption of certain liabilities and contracts was accepted and closed
effective October 1, 1997.
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<PAGE> 20
F. LAYOFFS AND SHUTDOWN OF ORIGINATION CENTERS
Immediately after FMAC's Chapter 11 filing, the employment of 99
employees at FMAC's corporate headquarters was terminated. This is in addition
to pre-petition termination of approximately 68 headquarters employees.
FMAC also shut down 31 loan origination centers pre-petition (19 in
1996 and 12 in 1997 prior to the filing). FMAC marketed the remaining 14
origination centers both on a stand alone basis and as part of a reorganized
FMAC. When no bids were received on September 22, 1997 for the origination
centers on a stand alone basis and it appeared that the potential plan
supporters who were interested in origination would only be interested in one
or two national buying centers, 12 of the origination centers were shut down
and the leases for those offices were either rejected or consensually
terminated. The remaining two centers (Dallas, Texas and Denver, Colorado)
were converted into additional loan collection centers.
G. POTENTIAL CAUSES OF ACTION
Under the Plan, the Debtors retain all of their potential causes of
action for the benefit of the estate, subject to certain releases discussed in
Section V(E)(6) below. Such causes of action may include preference actions
held by the Debtors for certain pre-petition transfers and potential causes of
action against (i) certain former pre- petition officers and a former
pre-petition director of FMAC, (ii) FMAC's director and officer liability
insurers, (iii) Deloitte & Touche as FMAC's former auditor relating to the
financial irregularities in the books and records discussed in Section III(A)
above and (iv) any other potential defendants in any other possible causes of
action. The potential net proceeds from these causes of action are speculative
and hard to quantify at this stage of the Cases. The attorneys in the
Consolidated Class Action dispute that FMAC has any direct cause of action
against FMAC's director and officer liability insurers.
V. THE PLAN
A. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
The Plan treats Allowed Claims and Interests of the Debtors' Creditors
and Interestholders as stated below.
For purposes of the Plan, an Allowed Claim is a Claim against a Debtor
to the extent that such Claim is allowed under Code Section 502. Claims
listed by the Debtors in their schedules and not designated as "contingent,"
"unliquidated" or "disputed" or the subject of a pending unadjudicated proof of
claim seeking an
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amount greater than the scheduled amount, are Allowed Claims (although the
Debtors reserve the right to amend their schedules). All other Claims are not
Allowed Claims for purposes of distribution under the Plan until the Court
enters a Final Order allowing such Claims and only to the extent allowed by
such Final Order. Unless otherwise specified, the term "Allowed Claim" does
not include (i) interest on the amount of such Claim accruing from and after
the Petition Date, (ii) fees and costs incurred from and after the Petition
Date, (iii) punitive or exemplary damages or (iv) any fine, penalty or
forfeiture. The Debtors reserve the right to pursue and collect setoffs or
counterclaims they may have against otherwise valid claims.
The Plan designates 7 Classes of Claims (with certain subclasses) and
1 Class of Interests (with 2 subclasses). High and low ranges of expected
Allowed Claims in each Class is set forth in Exhibit III hereto.
1. UNCLASSIFIED CLAIMS -- ADMINISTRATIVE EXPENSES AND PRIORITY
TAX CLAIMS
a. ADMINISTRATIVE EXPENSES
Administrative Expenses are Claims against the Debtors constituting a
cost or expense of administration of these Cases allowed under Code Section
503(b), including any actual and necessary costs and expenses of preserving any
of the estates of the Debtors, any actual and necessary costs and expenses of
operating the Debtors' respective business, any allowance of compensation and
reimbursement of expenses of professionals to the extent allowed by the Court
and certain other amounts as set forth in the Plan. The Code does not require
Administrative Expense Claims to be classified under a plan. It does, however,
require that allowed Administrative Expense Claims be paid in full in Cash in
order for a plan to be confirmed, unless the holder of such Claim consents to
different treatment.
Pursuant to the Plan, each Allowed Administrative Expense Claim will
be paid in respect of such Claim in Cash, in full, on the Effective Date, or,
if such Claim has not been Allowed on or before the Effective Date, promptly
after the allowance of the Claim by a Final Order; provided, however, that an
Allowed Administrative Expense Claim may be satisfied on such other terms as
may be agreed to by the holder of such Claim and the relevant Debtor.
If such Claim has not been Allowed on or before the Effective Date,
such Claim shall be paid in Cash promptly after the allowance of such Claim by
a Final Order. Notwithstanding anything to the contrary, Administrative
Expenses related to the Debtors' ordinary course of business (including amounts
owed to
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vendors and suppliers which have sold goods or furnished services to the
Debtors after the commencement of these Cases) will continue to be paid by the
Debtors during the Cases in accordance with the terms and conditions of the
particular transactions and any agreement or court order relating thereto.
The Plan provides for an administrative bar date which falls 45 days
after the Effective Date of the Plan. All unpaid Administrative Claims arising
on or before the Effective Date shall be filed with the Court and served on
Debtors' counsel in accordance with the Plan or be forever barred. There is a
separate procedure for professional fee and expense applications and
post-petition extensions of trade credit for goods and services. The Debtor's
projections of remaining unpaid Administrative Expense Claims, Priority Claims
and Post-Confirmation Expenses are set forth in Exhibit III hereto.
b. PRIORITY TAX CLAIMS
Priority Tax Claims are Claims asserted by governmental units entitled
to priority under Code Section 507(a)(8). The Code does not require Priority
Tax Claims to be classified under a plan, but requires that such claims
receive the treatment described below unless the holder of such Claim consents
to different treatment.
Any holder of an Allowed Priority Tax Claim shall receive at the
option of the Debtors: (i) the amount of the holder's Allowed Priority Tax
Claim in one Cash payment on the Effective Date or (ii) the amount of the
holder's Allowed Priority Tax Claim, with interest at a rate to be determined
by the Court at the hearing on Confirmation of the Plan in equal annual Cash
payments on each anniversary of the Effective Date, until the last anniversary
of the Effective Date that precedes the fourth anniversary date of the date of
assessment of the Allowed Priority Tax Claim. A Priority Tax Claim that is a
Contested Claim shall not receive any distribution on the Effective Date or
thereafter unless and until such Claim becomes an Allowed Priority Tax Claim.
c. DIP AND OVERADVANCE FACILITY
On December 22, 1997, UDC amended the existing DIP loan facility under
the Final DIP Order to make overadvances to FMAC of up $6.5 million (for a
total DIP Financing and Overadvance Facility of $16.5 million). A further
increase on availability under the financing line to $18.5 million ($8.5
million after certain permanent reductions from paydowns with the first $10
million of FMAC's tax refunds) as of the Effective Date is described in Section
2.2 of the Plan, but is conditioned on the sale of loans in the Securitized
Pools which were charged off prior to or on December 31, 1997 to UDC or such
higher and better bidders as
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may bid therefor. The proceeds of the sale of such charged-off loans will be
applied to reduce the indebtedness owed in the applicable Securitized Pool.
Certain other changes to the documents evidencing the DIP Financing and
Overadvance Facility such as extension of the maturity date and removal of
certain Chapter 11 related covenants and events of default will be put into
place by the Effective Date as well.
On the Effective Date, FMAC may use such facility to pay
Administrative Expenses, Priority Claims, any Miscellaneous Secured Claims
which the Debtors elect to satisfy in Cash, Convenience Class Claims and
post-confirmation expenses of the Reorganized Company. All amounts received by
FMAC with respect to Tax Refunds shall be applied to reduce outstanding
obligations under the DIP Financing and Overadvance Facility and all remaining
obligations under the DIP Financing and Overadvance Facility shall be paid from
the collections from the B Piece Distributions after payment of Class 2 Claims
in accordance with the Plan. The DIP Financing and Overadvance Facility shall
accrue simple interest at a rate of 10% per annum. The only financing fees UDC
will receive under this Plan or the orders entered in these Cases, including,
without limitation, the Final DIP Order, are: (a) the Modified UDC Fee of
$450,000 payable without interest after repayment in full of Class 2 Claims and
the DIP Financing and Overadvance Facility; and (b) the Emergence Fee of
$100,000 of fees, costs and expenses related to the DIP Financing and
Overadvance Facility. UDC requires as a condition to the increase of the DIP
Financing and Overadvance Facility to $18.5 million that the $100,000 Emergency
Fee be allowed in full.
2. CLASS 1 - PRIORITY NON-TAX CLAIMS AGAINST FMAC
Class 1 Priority Non-Tax Claims are any Claims against FMAC entitled
to priority under Code Sections 507(a)(3), 507(a)(4) or 507(a)(6) including:
(i) unsecured Claims for accrued but unpaid employee compensation earned within
90 days prior to the Petition Date, to the extent of $4,000 per employee; (ii)
unpaid contributions to employee benefit plans arising from services rendered
within 180 days prior to the Petition Date, but only to the extent of (a) the
number of employees covered by such plans multiplied by $4,000, less (b) the
aggregate amount paid to such employees from the estate for prepetition items
such as wages, salaries or commissions; and (iii) unearned and currently held
individual customer deposits up to $1,800 per each such individual.
Pursuant to the Plan, Allowed Class 1 Priority Non-Tax Claims shall
receive the amount of the holder's Allowed Priority Non-Tax Claim in one Cash
payment on the Effective Date. A Priority Non-Tax Claim that is a Contested
Claim shall not
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receive any distribution on the Effective Date or thereafter unless and until
such Claim becomes an Allowed Priority Non- Tax Claim.
The Debtors estimate that the accrued but unpaid Class 1 Claims do not
exceed $100,000.
Class 1 is unimpaired and thus holders of such Claims are conclusively
presumed pursuant to Code Section 1126(f) to have accepted the Plan.
3. CLASS 2 - THE ALLOWED SECURED CLAIMS AGAINST FMAC UNDER
GUARANTEE OF SECURED CLAIM RECOVERY AMOUNT
At a hearing held on December 15, 1997, the Agent for the Bank Group
credit bid the entire amount of the obligations owed to the Bank Group as of
that date, including, but not limited to, (a) any and all outstanding
principal, accrued and unpaid interest (including default interest from and
after July 11, 1997 through and including the sale date), (b) an agreed amount
of $150,000.00 of attorneys' fees, costs and expenses of the Bank Group through
August 21, 1997 stipulated as allowable under Code Section 506(b) and (c) an
estimate of attorneys fees, costs and expenses of the Bank Group after August
21, 1997 as discussed below. As set forth in the Order, this amount was
$85,167,127.24. In exchange for such credit bid, the Agent acquired all of
FMAC's owned retail installment automobile loan contracts, whether current,
delinquent or charged off, FMAC's right to the collateral securing such
contracts and all related repossessed vehicles (but excluding any such
collateral pledged to Greenwich) (the "Owned Loans"). The amount of
post-August 21, 1997 attorneys fees and costs of the Bank Group was assumed to
be $450,000 for purposes of determining the Agent's credit bid amount, but was
subject to adjustment up or down if there are objections to such fees by FMAC,
the Committee or any other party in interest after a review of detailed
supporting invoices. In consideration for UDC's agreement to increase the DIP
Financing and Overadvance Facility to $18.5 million, such claim for post-August
21, 1997 attorneys fees and costs of the Bank Group shall be fixed and allowed
at $450,000 without any upward or downward adjustment. No other assets of the
Debtors, including, but not limited to the Tax Refunds, other tax attributes of
the Debtors, the loans and vehicles pledged to Greenwich, furniture, fixtures
and equipment, general intangibles and causes of action were sold at the
auction, and the lien of the Bank Group on such items has been released as of
December 15, 1997.
In consideration of the credit bid of the entire Bank Group Claim and
the release of the Bank Group's lien on other assets of FMAC, FMAC granted
to the Agent for the Bank Group or its
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successor on the sale date a non-recourse guarantee payable solely out of and
secured by a lien on B Piece Distributions. The guarantee secures payment
of any shortfall between (i) all collections and proceeds received on the loans
and vehicles acquired at the credit bid sale and (ii) the amount of the credit
bid plus simple interest on the remaining unpaid balance of (i), above, at the
rate of 11% per annum from and after the date of the credit bid sale, plus an
additional charge calculated on a monthly basis, of the greater of 1/12 of
3-1/4% of the outstanding principal balance on the loans acquired at the credit
bid sale or $15.00 per contract, applied only to contracts which are less than
120 days past due at the end of such month and for which the related vehicle
has not been repossessed. In the event that UDC withdraws its support for, or
is unable or unwilling to consummate this Plan for any reason, the guarantee
and replacement lien set forth in this paragraph shall be null and void. Owned
loan collections would be used to pay the guarantee amount and thereafter, will
be split between UDC and the Reorganized Company under the Excess Collections
Contribution Agreement.
Proceeds from the B Piece Distributions will first be used to pay the
guaranteed amount with respect to the Class 2 Claims under the Guaranty and
Pledge Agreement and then shall next be applied to any remaining balance on the
DIP Financing and Overadvance Facility after application of the Tax Refunds
until paid in full. The B Piece Distributions after the payment in full of
Class 2 Claims and the DIP Financing and Overadvance Facility shall thereafter
be applied to pay the Modified UDC Fee in full and then split between the
Reorganized Company and UDC pursuant to the Excess Collections Contribution
Agreement.
The Confirmation Order shall contain a final acknowledgement that the
Bank Group had duly perfected and valid liens as set forth in the Final DIP
Order which are not subject to avoidance, counterclaim or offset. All interim
payments received by the Bank Group during these Cases shall become final on
the Effective Date.
Class 2 is unimpaired and thus the holders of such claims are deemed
to have voted to accept the Plan.
4. CLASS 3 - ALLOWED SECURED CLAIM OF FSA AGAINST FMAC
FSA shall retain its contingent lien on the stock of FMARC II to
secure FMAC's obligation to reimburse FSA for any amount that FSA is required
to pay on account of its insurance of certain amounts related to the
securitized trusts. FSA has agreed to grant certain concessions, including an
increased servicing fee and a commitment to release cash in the spread
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accounts after a 150% coverage ratio is achieved (subject to a $15 million
minimum cash and current accounts receivable reserve until all of the
securitized debt is satisfied in full). The Reorganized Company may have
certain rights to prepay certain indebtedness in the applicable Securitized
Pool when and as permitted in the Securitization Related Documents. Class 3 is
impaired and thus FSA is entitled to vote on the Plan.
5. CLASS 4 - ALLOWED SECURED CLAIM OF GREENWICH AGAINST FMAC
Greenwich will continue to receive all collections on account of the
FMAC accounts receivable pledged to Greenwich until such time as its
obligations are paid in full including default interest. Until such
obligations are paid in full with default interest, Greenwich shall also retain
its second lien on the stock of FMARC II. Class 4 is impaired, and is thus
entitled to vote on the Plan.
6. CLASS 5 - ALLOWED MISCELLANEOUS SECURED CLAIMS
Class 5 Claims consist of all Allowed Secured Claims against FMAC, if
any, held by Persons other than the Bank Group, FSA and Greenwich. Although
the Debtors did not list any such Miscellaneous Secured Claims in their
schedules, approximately 100 purported Miscellaneous Secured Claims in the
aggregate amount of approximately $2.3 million were filed in the Debtors'
Cases. The Debtors are reviewing these purported Miscellaneous Secured Claims.
If there are any Allowed Miscellaneous Secured Claims, at the Debtor's option,
the holders of such Claims shall either (i) be paid the replacement value of
their collateral or (ii) have their collateral returned to them. Any
Deficiency Amount shall be classified in Classes 6 or 7. In the event any
Miscellaneous Secured Claim is determined to be an Allowed Secured Claim, such
Allowed Secured Claim shall be treated as if it were separately classified for
purposes of voting on this Plan and Sections 1126 and 1129 of the Bankruptcy
Code.
The largest asserted Miscellaneous Secured Claim was filed in the
amount of $978,663.09 by Insight Financial Corporation ("Insight") relating to
a sale/leaseback of various equipment used in FMAC's operations. This amount
represents the stream of rental payments which would be due over the full term
of the lease. FMAC and UDC are in discussions with Insight and are near
reaching a consensual resolution of all issues with Insight including
assumption and assignment of a modified lease to UDC.
Class 5 Claims are impaired and are thus entitled to vote on the Plan.
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7. CLASS 6 - ALLOWED CONVENIENCE CLASS CLAIMS AGAINST FMAC
Class 6 consists of the Allowed Claims of unsecured claimants (other
than holders of Subordinated Reset Notes) against FMAC for $1,000 or less.
Based on FMAC's schedules, such claims are estimated to be less than $100,000
and approximately 50% in number of FMAC's trade creditor claims. Creditors in
Class 6 shall be paid the lesser of $500 or 50% of their Allowed Convenience
Class Claims in Cash on the Effective Date or as soon as practicable after such
Claim becomes Allowed. Allowed Convenience Class Claims shall receive no
other distributions. If a Convenience Class Creditor wishes to opt out and
elect Class 7A-2 treatment, it may do so. Class 7A-2 creditors (other than
holders of 1995 Subordinated Reset Notes) may reduce their claim to $1,000 and
elect Class 6 treatment. Since FMAC can make any distributions to the holders
of Subordinated Reset Notes through a single transfer to the Current Indenture
Trustee and since allowing such claims to participate in the convenience class
may make such a class impracticable given the large aggregate amount of such
claims and limited availability under the DIP Financing and Overadvance
Facility, holders of Subordinated Reset Notes are excluded from eligibility from
the Convenience Class. FMAC believes that the Convenience Class for trade
creditors will allow for cost efficient distributions to such creditors under
the Plan and will simplify and save expense in post-confirmation administration
of its estate by addressing over half of all trade creditors in one distribution
immediately after confirmation at an anticipated cost of less than $100,000.
Class 6 Claims are impaired and thus the holders of such Claims are
entitled to vote on the Plan.
8. CLASS 7A - ALLOWED UNSECURED CLAIMS AGAINST FMAC
Class 7A is divided into two subclasses as set forth below. As a
general matter, Class 7A will receive a new debt obligation of the Reorganized
Company in the original principal amount of $44 million plus interest at the
applicable federal rate for medium term obligations (approximately 5.77%
currently), for projected total cash flow of $52 million (the "Debt of
Reorganized Company to Unsecured Creditors"), plus all of the equity in the
Reorganized Company, with a projected value of approximately $3 million. The
Debtor believes that the different debt and equity packages being allocated to
Subclass 7A-1 and Subclass 7A-2 are roughly equivalent in total value and are
necessary to preserve the Debtor's tax attributes. If the Debtor's tax
attributes were not preserved, the Reorganized Company would be subject to
millions of dollars of income taxes which would materially reduce the
recoveries of all of FMAC's
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unsecured creditors as well as possibly rendering the Plan infeasible due to
lack of liquidity in 1998 and 1999 to pay such taxes. It is anticipated that
after B Piece Distributions are applied to satisfy senior obligations owed to
UDC, B Piece Distributions, subject to UDC's rights under the Excess
Collections Contribution Agreement, will begin to be available for
distributions on account of the Debt of Reorganized Company to Unsecured
Creditors beginning around the Spring or Summer of the Year 2000.
Dividends to holders of common stock in the Reorganized Company will
only occur after satisfaction of the Debt of Reorganized Company to Unsecured
Creditors and are not anticipated to occur until around late in 2001 or in
early 2002. To prevent potential loss or limitation of the tax attributes of
the Reorganized Company, trading in the common stock in the Reorganized Company
is prohibited until the second anniversary of the Effective Date of the Plan
(which second anniversary is anticipated to be around March, 2000). The Debt
of the Reorganized Company to Unsecured Creditors may be paid in cash, Stock
Option Shares, UDC Warrant Shares, UDC Warrants or a combination thereof as
discussed in Section VIII below. There may be changes in the market price of
the Stock Option Shares and UDC Warrant Shares and there may or may not be any
market for the UDC Warrants.
a. Subclass 7A-1 - Allowed Unsecured Claims Against FMAC
related to Subordinated Reset Notes issued in 1996. Allowed Subclass
7A-1 Claims will receive their Pro Rata share of the Debt of
Reorganized Company to Unsecured Creditors plus an adjustment in the
debt amount allocated to this subclass equal to the Additional Equity
Value to Subclass 7A-2. This new debt shall be payable from available
cash flow after satisfaction of senior obligations and obligations to
Class 8A Interestholders under this Plan plus any reserve deemed
reasonable by the board of directors of the Reorganized Company to
satisfy post-confirmation expenses of the Reorganized Company and/or
by delivery of Stock Option Shares, UDC Warrant Shares and UDC
Warrants as discussed in Section VIII below. This new debt shall
mature and be fully due and payable four years and eleven months after
the Effective Date. Such payments shall be first applied to interest,
then principal.
Allowed Subclass 7A-1 Claims will also receive their Pro Rata
share of 43% of the common stock of the Reorganized Company.
b. Subclass 7A-2 - Allowed Unsecured Claims Against FMAC
other than Claims related to Subordinated Reset Notes issued in 1996.
Allowed Subclass 7A-2 Claims (such as holders of 1995 Subordinated
Reset Notes and trade and landlord creditors) will receive their Pro
Rata share of the
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Debt of Reorganized Company to Unsecured Creditors minus an adjustment
in the debt amount allocated to this subclass equal to the Additional
Equity Value to Subclass 7A-2. This new debt shall be payable from
available cash flow after satisfaction of senior obligations and
obligations to Class 8A Interestholders under this Plan plus any
reserve deemed reasonable by the board of directors of the
Reorganized Company to satisfy post-confirmation expenses of the
Reorganized Company and/or by delivery of Stock Option Shares, UDC
Warrant Shares and UDC Warrants as discussed in Section VIII below.
This new debt shall mature and be fully due and payable four years and
eleven months after the Effective Date. Such payments shall be first
applied to interest, then principal.
Allowed Subclass 7A-2 Claims will also receive their Pro Rata
share of 57% of the common stock of the Reorganized Company. FMAC
reserves the right to provide any Creditor in Subclass 7A-2 who does
not qualify as a "qualified creditor" under 26 U.S.C. Section
382(l)(5)(E) with alternative treatment in lieu of its Pro Rata share
of the common stock of the Reorganized Company in order to protect the
Debtors' federal income tax attributes. Such alternative treatment
will be the economic equivalent of the treatment otherwise given to
other holders of Allowed Subclass 7A-2 Claims. Such alternative
treatment will be agreed upon by FMAC, such Creditor and the Committee
or if no such agreement is reached, as determined by the Court after
notice and a hearing.
UDC has a one-time option to substitute UDC common stock (the
"Stock Option Shares") for all or a portion of the Reorganized
Company's 82.5% share of the distributions under the Excess
Collections Contribution Agreement as set forth in Section 8.14 of
the Plan. In the event UDC exercises the option, the Stock Option
Shares will likely be distributed to the Class 7A Creditors who
will then each have a decision as to whether to hold or sell their
shares. This would allow immediate receipt of all or a significant
part of the expected value of the B Piece Distributions rather than
receiving a series of quarterly distributions over time. There also
would be possible upside and downside market risk on the Stock Option
Shares received.
The value of the Causes of Action and the other assets are difficult
to quantify and will depend significantly on subsequent developments.
Subclass 7A-1 and 7A-2 are impaired and thus holders of such claims
are entitled to vote on the Plan.
9. CLASS 7B - ALLOWED UNSECURED CLAIMS AGAINST FMRCC
All Allowed Unsecured Claims Against FMRCC, including FMAC's
intercompany claim against FMRCC, will be paid Pro Rata from the
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FMRCC Sale Proceeds. The estimated payout is approximately 6 to 8 cents per
dollar of allowed unsecured claims against FMRCC. Class 7B is impaired and
thus holders of such claims are entitled to vote on the Plan.
10. CLASS 8A - ALLOWED INTERESTS IN FMAC
Class 8A consists of all Allowed Interests in FMAC. Holders of Class
8A Allowed Interests will receive the benefit of their Pro Rata share of the
greater of (i) UDC Warrants reallocated to Class 8A under the Alltel Cure
Reallocation and (ii) UDC Warrants to purchase 32,500 shares of UDC common
stock. Their existing common stock in FMAC will be cancelled (other than their
rights to receive UDC Warrants) as of the Effective Date and they shall not
receive any equity interest in the Reorganized Company.
Class 8A is impaired and thus holders of such claims are entitled to
vote on the Plan.
UDC will on or prior to the Effective Date contribute to FMAC as
treasury stock all of UDC's common stock in FMAC as part of its consideration
for acquiring the servicing platform of FMAC under the Plan.
11. CLASS 8B - ALLOWED INTERESTS IN FMRCC
Class 8B consists of all Allowed Interests in FMRCC, which interest is
exclusively held by FMAC. FMAC will not receive any distribution on account of
its ownership of the stock of FMRCC and FMRCC shall be dissolved as of the
Effective Date. Class 8B is impaired and because it will not receive any
distribution in such capacity under the Plan, is deemed to reject the Plan.
Since there is no further subordinate class in the FMRCC estate, the Debtors do
not believe such acceptance is necessary and that the Plan can be approved
under Code Section 1129 without such acceptance.
B. OVERVIEW OF ASSETS AND LIABILITIES
Projections of available assets and allowed claims are set forth in
Exhibit III hereto. The principal assets of the Reorganized Company are the B
Piece Distributions and the Causes of Action.
The principal unsecured obligations of the Reorganized Company will be
two issues of Subordinated Reset Notes in the amount of approximately $67
million and an estimate of approximately $5 to $7 million of trade, landlord
and other general unsecured claims. It is possible that allowed claims will be
greater or less than these projections.
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C. OWNED LOANS AND TRANSFER OF SERVICING CENTER ASSETS
Following a hearing held on December 15, 1997, the Agent on behalf of
the Bank Group acquired the owned motor vehicle loans and related vehicles
(other than owned loans and related collateral pledged to Greenwich). At
confirmation, UDC will acquire the leases, contracts, furniture, fixtures and
equipment and other personal property related to the servicing operations as
set forth in Exhibit B to the Plan. UDC is providing interim consulting
services without compensation at the servicing centers prior to confirmation,
but FMAC retains responsibility for all such servicing at this time. UDC will
take over such servicing on the Effective Date.
D. CONTESTED CLAIMS AND INTERESTS
No distribution shall be made with respect to any Contested Claim or
Interest, even if a portion of the Claim or Interest is not disputed, until the
entire Claim or Interest is resolved by a Final Order. At such time as a
Contested Claim or Interest becomes an Allowed Claim or Interest, the holder of
such Allowed Claim or Interest shall receive the Cash and/or other
distributions to which such holder is then entitled to under the Plan, but in
no event prior to the later of (i) the Effective Date, (ii) the date that an
order regarding such Claim becomes a Final Order or (iii) the end of the
quarter where assets become available for distribution to such Claim or
Interest under the Plan.
E. MEANS FOR EXECUTION OF THE PLAN
1. RESTATED CHARTER.
On the Effective Date, FMAC's corporate charter shall be amended to
prohibit the issuance of non-voting equity securities to the extent required
under Code Section 1123 and to prohibit accumulating or trading of blocks of
5% or more of stock without the prior written consent of the board of directors
of the Reorganized Company. The restrictions on stock trading are necessary to
assure that there is no adverse impact on FMAC's tax attributes.
2. BOARD OF DIRECTORS AND PRESIDENT.
The board of directors of the Reorganized Company shall be
reconstituted under a restated charter and amended bylaws on the Effective Date
as follows: Mr. Eric Grubelich of Keefe, Bruyette & Woods, Inc.; Mr. Buck
Jones, a former employee of J.C. Bradford & Co.; and Mr. Howard Adamski,
Treasurer of FMAC. Mr. Richard Vogelman, General Counsel and Secretary of
FMAC, shall also become its President. The Reorganized Company may, but is not
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obligated to, have such other officers as the board of directors deems
necessary or appropriate. The board of directors and officers of the
Reorganized Company shall be entitled to reasonable compensation and
reimbursement of expenses pursuant to policies or resolutions as may be
approved by the board of directors of the Reorganized Company after consulting
with the Committee.
Certain existing members of management of FMAC, including Mr. William
Plamondon, its current President and a current director and Mr. Howard Adamski,
its current treasurer and a proposed post-confirmation director, have had
preliminary discussions about possible employment with UDC or its affiliates
after confirmation of the Plan.
3. UDC WARRANTS.
On the Effective Date, UDC will issue warrants to the Reorganized
Company to purchase 325,000 shares of UDC common stock at a price of $20.00 per
share, exercisable at any time before the third anniversary of the Effective
Date. The UDC Warrants will be callable by UDC when UDC common stock trades at
a price of $28.50 per share, or greater, for 10 consecutive trading days. The
UDC Warrants and the common stock for which they may be exercised are being
registered pursuant to the Securities Act of 1933, as amended. All
registration expenses have been or will be paid by UDC.
In the event that the amount of the cure costs paid to Alltel pursuant
to Code Section 365 by the Debtor are reduced by more than 10% from the
$524,782.32 of cure costs asserted by Alltel, a percentage of the UDC Warrants
equal to the percentage reduction in the cure costs, if any, below $472,304.01
which must be paid to Alltel as an Administrative Expense, will be reallocated
from Class 7A Creditors to Class 8A Interests and the proceeds from such
reallocated UDC Warrants will be distributed for the benefit of Class 8A
Interestholders pursuant to the Plan. There is no assurance that the Alltel
lease will be assumed and that if assumed, the cure costs will be less than
this threshold.
4. VESTING OF ASSETS.
As of the Effective Date, all remaining property of the Debtors,
including the B Piece Distributions, the Causes of Action, the Tax Refunds (if
not already applied to repayment of the DIP Facility), the Debtors' tax
attributes and the furniture fixtures and equipment at the properties not being
acquired by UDC, shall vest in the Reorganized Company free and clear of all
Claims, Interests and Liens except as provided in this Plan.
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5. INJUNCTION.
From and after the Effective Date, Section 8.6 of the Plan provides
that all Persons who have held, hold, or may hold Claims against or Interests
in either of the Debtors shall be (a) permanently enjoined from taking in
connection with matters related to the Debtors or these Cases any of the
following actions against (i) purchasers of assets from either of the Debtors,
including, without limitation, UDC, the Bank Group or their assignees, (ii) any
parties who received distributions or transfers made prior to the filing of
these Cases, during these Cases as permitted by the Bankruptcy Code or a Final
Order of this Court, or after Confirmation pursuant to this Plan, and (iii) the
parties released under Section 8.7 hereof (as to the claims released and the
parties giving releases), and (b) preliminarily enjoined from taking any of
the following actions against the Debtors, the Reorganized Company or any of
their property on account of such Claims or Interests: (i) commencing or
continuing, in any manner or in any place, any action or other proceeding; (ii)
enforcing, attaching, collecting or recovering in any manner any judgment,
award, decree or order; (iii) creating, perfecting or enforcing any lien or
encumbrance; (iv) asserting a setoff, right of subrogation or recoupment of any
kind against any debt, liability, or obligation due to the Debtors; and (v)
commencing or continuing, in any manner or in any place, any action that does
not comply with or is inconsistent with the provisions of the Plan; provided,
however, that (x) nothing contained herein shall relieve the Reorganized
Company, UDC or other parties in interest from performing their obligations as
set forth in this Plan, the Plan Documents or any related documents
contemplated herein; and (y) the preliminary injunction of actions against the
Debtors, the Reorganized Company or any of their property (if any) shall be
dissolved and terminate one day following the final distribution under this
Plan. Nothing in this Plan will restrict any federal governmental regulatory
agency from pursuing any regulatory or police enforcement action against the
Debtors, the Reorganized Company and any of the other parties referenced above.
6. RELEASES.
Section 8.7 of the Plan provides that on the Effective Date, the
following individuals and entities shall be forever released and discharged
from any and all claims, actions, suits, debts, accounts, causes of action,
agreements, promises, damages, judgments, demands and liabilities which any of
the Debtors (or Creditors or Interestholders receiving distributions under this
Plan who do not opt out of this release may have in their individual capacity
as opposed to derivatively through the Reorganized Company) may have against
them related to the Debtors or these Cases arising prior to the Effective Date:
(i) all directors, officers, employees, Professionals and agents of the
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Debtors (or affiliates thereof) who served the Debtors on or after the Petition
Date; (ii) UDC and any of its directors, officers, employees, professionals,
agents or affiliates in its capacity as both post-petition lender under the DIP
Financing and Overadvance Facility as well as a member of the Current Bank
Group; (iii) the members of the Current Bank Group and the Original Bank Group
and the Former Assignees in their capacity as secured lenders to the Debtors
(which specifically excludes LaSalle National Bank in its capacity as indenture
trustee for the Subordinated Reset Notes or any of the members of the Bank
Group as parties to unsecured swap or interest rate cap agreements) and their
directors, officers, employees, professionals, agents or affiliates; (iv) each
member of the Committee and the Committee's Professionals and agents in such
capacity; and (v) FSA, Chase Manhattan Bank as trustee, Harris Trust and
Savings Bank as trustee and backup servicer and any of their directors,
officers, employees, professionals, agents or affiliates. Any party receiving
a release under the Plan shall be deemed without ability to opt out to give a
release to the other releasees thereunder from any and all claims, actions,
suits, debts, accounts, causes of action, agreements, promises, damages,
judgments, demands and liabilities which they may have against the other
releasees related to the Debtors or these Cases arising prior to the Effective
Date.
The foregoing shall not release obligations arising under this Plan
and the related exhibits, including, without limitation, contractual
obligations under the Excess Collections Contribution Agreement or contractual
obligations under the Securitization Related Documents. The foregoing releases
do not extend to and shall not be construed to release Mitchell C. Kahn, Thomas
R. Ehmann, Paul Van Eyl, Deloitte & Touche, L.L.P., Executive Risk Indemnity,
Inc., The First Reinsurance Company of Hartford or Agricultural Excess and
Surplus Insurance Company. Nothing in this Plan will restrict any federal
governmental regulatory agency from pursuing any regulatory or police
enforcement action against the Debtors, the Reorganized Company and any of the
other parties referenced above.
Holders of Claims and Interests who wish to opt out of releasing their
individual causes of action against the released parties related to the Debtors
as set forth in the proceeding paragraph must check the opt-out box on the
Ballot accompanying this Disclosure Statement.
The releases described in Section V(E) of this Disclosure Statement
and contained in Section 8.7 of the Plan would release the members of the audit
committee and any other officers or directors of FMAC who served post-petition,
subject to the ability of certain shareholders and creditors to opt out of
those releases with respect to their individual claims as provided
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therein. None of the three officers terminated for cause nor Deloitte and
Touche L.L.P. nor the providers of directors and officer liability insurance
are being released. These releases are part of the overall negotiations of the
terms of the Plan with the Committee, UDC and other parties. The Debtor
believes that these releases are proper, warranted and consistent with releases
approved in other bankruptcy cases. The plaintiff's attorneys in the
Consolidated Class Action have indicated that they will object to the releases
at the confirmation hearing.
7. MAINTENANCE OF INDEMNIFICATION POLICIES.
The Reorganized Company shall maintain the Indemnification Policies
from and after the Effective Date to pay obligations to current and former
directors and officers of the Debtors and the Reorganized Company and UDC shall
advance such funds under the DIP Financing and Overadvance Facility as are
necessary to pay the applicable premiums.
8. AMENDMENTS TO SERVICING AGREEMENTS.
This Plan is conditioned upon the execution of amendments to the
servicing agreements for receivables in the Securitization Pools (other than
the 1997-2 Securitized Pool, which is currently serviced by a third party
servicer) which agreement will provide, among other things, for (i) an
increased monthly base percentage servicing fee on a per contract basis equal
to the greater of 1/12 of 3-1/4% of the monthly outstanding principal balance
of such Contracts as of the applicable date of each month, or $15 per contract;
(b) the right of FSA to terminate the servicing agreements if UDC or such other
servicer as FSA may consent to does not achieve levels of performance and rates
of default (the "Performance Tests") pursuant to an agreed upon schedule of
Performance Tests on a portfolio by portfolio basis for the first failure of
the Performance Tests and thereafter as to all servicing for a second failure
of the Performance Tests; (c) the continued receipt from the securitization
trusts of premium supplements with respect to the Securitized Pools and the
1997-2 Securitized Pool as if it had been due and payable as of August 29, 1997
and continuing thereafter unless and until the applicable events of default
(prior to any Amendment thereof) triggering the premium supplement have been
cured; and (d) the payment of all costs, fees and expenses incurred by any of
FSA, the custodians, and/or the trustees of the securitization trust in
connection with any of the Securitization Related Documents. A proposed form
of such agreement is attached as Exhibit C to the Plan. These agreements
provide that FSA will continue to collect a supplemental insurance premium of
50 basis points on a going forward basis regardless of future performance of
the Securitized Pools and the performance by the Reorganized Company of its
going forward obligations.
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9. MODIFIED SPREAD ACCOUNT AGREEMENTS. The Plan is conditioned
upon the execution by FSA, the applicable trustees, the applicable escrow
agents, and FMARC or FMARC II (as applicable), of amendments to the spread
account agreements and any other applicable Securitization Related Documents
(which amendments shall be in form and substance acceptable to the parties
thereto, FMAC and the Committee) to authorize and require the distribution of a
portion of the cash held in the spread accounts to the Reorganized Company for
distribution in accordance with this Plan if and to the extent that:
(a) such cash in the spread accounts in the aggregate; plus
(b) the remaining unpaid principal balance in the aggregate on all
Contracts on which the obligors are current in their payment or for
which the obligors are in default for a single payment for 30 days or
less (together with the cash described in subclause (a) above, the
"Aggregate Collateral"); exceeds
(c) 150% percent of the aggregate amount of all principal, interest
and other obligations then due and owing on the FSA insured
indebtedness related to the Securitized Pools and the 1997-2
Securitized Pool.
Such amendments will further provide that the Aggregate Collateral shall at all
times exceed the FSA insured indebtedness related to the Securitized Pools and
the 1997-2 Securitized Pool by a minimum of $15 million. To the extent that
the cash maintained in the spread accounts is sufficient to satisfy all
obligations owing on indebtedness related to the Securitized Pools and the
1997-2 Securitized Pool to the extent allowed by the Securitization Related
Documents, such cash may be applied to prepay and satisfy those obligations
related to the Securitized Pools and all remaining excess cash in the spread
accounts shall be distributed to FMAC for distribution in accordance with the
Plan.
10. BREAK-UP FEE.
FMAC has obtained an order approving a break-up fee of $500,000 plus
UDC's reasonable attorneys fees and expenses incurred in connection with
review, preparation and/or negotiation of this Plan, the exhibits thereto, the
Plan term sheet and related documents, as a break-up fee in the event that a
competing plan is supported and confirmed by the Debtor and/or the Committee.
This break-up fee would be paid in lieu of the Modified UDC Fee, the Emergence
Fee set forth in Article 1 and Section 2.2 of the Plan and the existing
commitment fee of $500,000 under the Final DIP Order.
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11. NO MARKET MAKING.
Section 8.11 of the Plan contains restrictions on the Reorganized
Company and its directors, officers, employees or agents directly or indirectly
making or encouraging the making of a market in Claims or Interests in the
Reorganized Company. This restriction is necessary to avoid possible
registration as an investment company under the Investment Company Act of 1940
and related restrictions.
F. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
The Plan shall be deemed to constitute and incorporate a motion by the
Debtor to reject all executory contracts and unexpired leases to which a Debtor
is a party or is otherwise bound, except for any contracts and leases that (a)
have been assumed or rejected pursuant to an order of the Court entered prior
to the Confirmation Date, (b) are listed as one of the Assumed Contracts and
Leases on Exhibit B to the Plan which will be assumed by FMAC and assigned to
UDC or (c) are the subject of a motion to assume that is pending before the
Court on the Confirmation Date. The Confirmation Order shall represent and
reflect an order of the Court approving the assumptions or rejections of such
contracts and leases as of the Confirmation Date. Any cure costs which the
Reorganized Company is required to pay by a Final Order in connection with an
assumed contract or lease shall be treated as an administrative expense of the
Cases. All payments necessary to cure defaults under Code Section 365(b)(1)
as a precondition to assuming and assigning the Alltel contract to UDC will be
paid by FMAC. Any and all other payments required under Code Section
365(b)(1) and 365(f)(2) as a precondition to FMAC assuming and assigning the
Assigned Contracts (other than the Alltel contract) to UDC will be paid by UDC.
FMAC has filed a motion seeking to extend its time to decide whether
to assume or reject its remaining real property leases in the (i) Dallas,
Texas, (ii) Deerfield, Illinois, (iii) Denver, Colorado, (iv) Nashville,
Tennessee, and (v) Pensicola, Florida areas through the anticipated
confirmation date. Motions to extend this decision period have been previously
granted as to leases not previously rejected by motion of the Debtors or
consensually terminated.
If the rejection of an executory contract or unexpired lease by the
Debtors results in damages to the party or parties to the contract or lease, a
Claim for damages shall be forever barred and shall not be enforceable against
Debtors, their successors or assigns, or their property unless a proof of claim
is filed with the Court and served upon Debtors or the Reorganized Company by
sixty (60) days after entry of the Confirmation Order or by such earlier date
as may be fixed by an order of the Court authorizing rejection of the contract
or lease. FMAC projects that rejection
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damages resulting from the rejection of its leases and contracts will range
from $1.7 million to $2.2 million, although this range may be too high or too
low. Damages resulting from the rejection of any such leases and contracts, if
Allowed, shall constitute Subclass 7A-2 Claims entitled to share Pro Rata with
other Allowed Subclass 7A-2 Claims as discussed above.
UDC is interested in receiving an assignment of certain of FMAC's
executory contracts and leases, including the loan servicing software from
Alltel and the sale/leaseback of a portion of FMAC's furniture, fixtures and
equipment from Insight, subject to certain modified terms or in connection with
certain supplemental services. UDC, FMAC and the applicable contract parties
are in discussions regarding such terms. If a consensual assumption and
assignment cannot be reached by the time of Plan confirmation, then FMAC in
consultation with UDC will need to make a decision whether to assume the
applicable agreements in their entirety or reject the agreements in their
entirety. If UDC is not willing to assume and as a result, FMAC decides to
reject, there could at a minimum be significant operational and transitional
difficulties in replacing the applicable equipment, intellectual property or
services. While FMAC does not believe that assumption of any particular lease
or contract is key to feasibility, failure to consensually assume major
operational components could increase transition costs to FMAC and UDC and
could harm collections efficiency, at least in the short- term. There could
also be sizeable rejection damage claims in excess of the projections set forth
in Exhibit III asserted in connection with such agreements if rejected.
G. RETENTION OF JURISDICTION
1. CLAIMS AND ACTIONS
The Court shall retain jurisdiction over the Cases as provided in the
Plan, including, without limitation, such jurisdiction as is necessary to
enforce and construe the Plan. The Court shall also expressly retain
jurisdiction: (i) to hear and determine all Claims against the Debtors and (ii)
to enforce all Causes of Action which may exist on behalf of the Debtors.
2. RETENTION OF ADDITIONAL JURISDICTION
The Court shall also retain jurisdiction for the purpose of
classification of the Claims of any Creditor and the determination of such
objections as may be filed with respect to the Claims and Interests, including
Section 502(c) proceedings for the estimation of Claims. The Court shall
further retain jurisdiction over matters as indicated in Article 11 of the
Plan.
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3. MODIFICATIONS OF THE PLAN
The Debtors may modify the Plan in the manner provided for under Code
Section 1127. The Debtors shall give notice of any proposed modification to
counsel for the Committee, UDC and the United States Trustee for the District
of Delaware and to any other parties designated by the Court. The Debtors also
reserve the right to make such modifications at any hearings on confirmation as
are necessary to permit the Plan to be confirmed under Code Section
1129 subject to the requirements of the Bankruptcy Code.
4. REVOCATION AND WITHDRAWAL OF THE PLAN
The Debtors reserve the right to revoke or withdraw the Plan at any
time before entry of a Confirmation Order. If the Debtors revoke or withdraw
the Plan prior to the Confirmation Date, or if the Confirmation or the
Effective Date does not occur, then the Plan shall be deemed to be null and
void. In such event, nothing contained herein, in the Plan or in any document
relating to the Plan shall be deemed to constitute an admission of validity,
waiver or release of any Claims by or against the Debtors or any Person or to
prejudice in any manner the rights of the Debtors or any Person in any
proceeding involving the Debtors.
5. SECTION 1146(C) EXEMPTION
Pursuant to Section 1146(c) of the Bankruptcy Code, the making or
delivery of any instrument of transfer or the holding of title for
administrative purposes only by the Debtors or transfer or sale of any real or
personal property of the Debtors pursuant to, in implementation of or as
contemplated by the Plan, shall not be taxed under any state or local law
imposing a stamp tax, transfer tax or similar tax or fee.
H. CONDITIONS TO THE EFFECTIVENESS OF THE PLAN
All of the following conditions must occur and be satisfied for the
Plan to be effective:
1. The Confirmation Order must be signed by the judge of the
Court and duly entered on the docket for the Cases by the
clerk of the Court;
2. All necessary consents must be obtained to the modified
servicing and spread account agreements with FSA.
3. All necessary amendments to continue the DIP Financing and
Overadvance Facility post-confirmation shall have been
executed by UDC and the Reorganized Company and such amount
shall be sufficient to pay administrative
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and priority claims with a reasonable cushion for anticipated
post-confirmation expenses, including obtaining the consent of
FSA to the sale of previously charged off loans which is a
condition precedent to the increase of availability to $18.5
million.
4. There must be no stay in effect with respect to the
Confirmation Order.
The Debtors may waive any of these conditions.
VI. CONFIRMATION AND CONSUMMATION PROCEDURE
A. DISCLOSURE AND SOLICITATION
This Disclosure Statement is presented to the holders of Claims and
Interests in impaired Classes which receive or retain property pursuant to the
Plan to satisfy the requirements of Bankruptcy Code Sections 1125 and 1126.
Bankruptcy Code Section 1125 requires that full disclosure be made to all
holders of Claims and Interests in impaired Classes which receive or retain
property pursuant to a plan at the time, or before, solicitation of acceptances
of such plan is commenced.
B. ACCEPTANCE OF THE PLAN
The Bankruptcy Code defines acceptance of a plan by a Class of
Creditors or Interestholders as acceptance by holders of more than two-thirds
in dollar amount and more than one-half in number of the Claims of that Class
that have timely voted on a plan. A vote may be disregarded if the Court
determines, after notice and a hearing, that such acceptance or rejection was
not solicited or procured in good faith or in accordance with the provisions of
the Bankruptcy Code.
A vote to accept or reject the Plan can only occur by proper
submission of a duly executed ballot. Failure of a holder to vote does not
constitute a vote to reject the Plan by that holder. EACH HOLDER OF A CLAIM
SHOULD SEEK SUCH INDEPENDENT LEGAL AND/OR BUSINESS ADVICE AS IT DEEMS
APPROPRIATE REGARDING WHETHER TO VOTE TO ACCEPT OR REJECT THE PLAN.
C. CLASSIFICATION
The Debtors are required under Bankruptcy Code Section 1122 to
classify the Claims and Interests of its Creditors and Interestholders into
Classes that contain Claims and Interests that are substantially similar to the
other Claims or Interests in such Class. The Plan can be confirmed so long as
there is one consenting Class of impaired Claims (not including the votes of
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insiders), and so long as the other requirements for confirmation which do not
involve voting are met.
D. CONFIRMATION
The Code requires the Court, after notice, to hold a confirmation
hearing. At the confirmation hearing, the Court will confirm the Plan only if
all the requirements of Section 1129 of the Bankruptcy Code are met. Among
the requirements for confirmation of a plan are that the plan is (i) accepted
by all impaired Classes of Claims and Interests or, if rejected by an impaired
Class, that the plan "does not discriminate unfairly" and is "fair and
equitable" as to such Class; (ii) feasible; and (iii) in the "best interests"
of rejecting Creditors and Interestholders impaired under the plan.
1. ACCEPTANCE
Classes 3, 4, 5, 6, 7A-1, 7A-2, 7B, 8A and 8B are impaired under the
Plan, and therefore, must accept the Plan in order for it to be confirmed
without application of the "fair and equitable" test. For confirmation despite
rejection by a Class, the Court must determine that the Plan is "fair and
equitable" with respect to the rejecting Class.
The "fair and equitable" test is described below under the heading
"Confirmation without Acceptance by All Impaired Classes."
2. FEASIBILITY
Attached as Exhibit III is a recovery analysis which has been reviewed
and approved by Debtor's management. The analysis contains reasonable
estimates of the high and low recovery ranges although it is possible that
either recoveries may be significantly lower than the low end of the range or
higher than the high end of the range given the highly variable nature of the B
Piece Distributions and the Causes of Action. Certain material assumptions are
also set forth in Exhibit III and should be read carefully. Exhibit III is not
a guaranty of any particular level of recovery and in any vote to accept the
plan, unsecured creditors and equity interests are voting to accept whatever
level of distribution there may be to them, if any, under the terms of the Plan
and the related documents, including the Excess Collections Contribution
Agreement, after payment of secured, priority, administrative and
post-confirmation obligations. The Debtors believe that it is reasonably
likely that the Reorganized Company will be able to pay the Debt of Reorganized
Company to Unsecured Creditors in full including the applicable interest
thereon.
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The Debtors believe that the $18.5 million DIP Financing and
Overadvance Facility will be sufficient to pay all administrative, priority and
post-confirmation expenses in accordance with the terms of this Plan. The
Reorganized Company will strive to minimize such expenses wherever practicable
and would hope not to borrow the full overadvance amount.
To avoid further administrative cost from operating in Chapter 11, the
Debtors believe a swift emergence from Chapter 11 under the Plan is necessary.
Claims processing will not be completed as of the expected confirmation date
but the Debtors do not expect there to be any material administrative or
priority claims not covered by the projections. Any material unsecured claims
against FMAC and FMRCC above the estimates set forth in Exhibit III which are
allowed will dilute recoveries of other allowed unsecured creditors, but will
not impact the feasibility of the Plan.
3. BEST INTERESTS TEST
With respect to each impaired Class, confirmation of the Plan requires
that each holder of an Allowed Claim or Allowed Interest in such class either
(a) accepts the Plan or (b) receives or retains under the Plan property of a
value, as of the Effective Date, that is not less than the value such holder
would receive or retain if the Debtor were liquidated under Chapter 7 of the
Bankruptcy Code. Under the Debtor's liquidation analysis attached as Exhibit
II hereto, the projected payout for FMAC unsecured creditors in a Chapter 7
case ranges from approximately 5 cents on the claims dollar to approximately 20
cents on the dollar of estimated unsecured claims, which is substantially less
than the likely range of recoveries under the Plan as set forth in Exhibit III.
See Section IX, "Alternatives to Confirmation and Consummation of the Plan,"
and the liquidation analysis attached as Exhibit II hereto for a further
discussion of why the Debtors believe that this test is met.
4. CONFIRMATION WITHOUT ACCEPTANCE BY ALL IMPAIRED CLASSES
The Code provides that, so long as at least one impaired Class of the
Debtor (other than insiders) accepts the Plan, the Debtor can nevertheless seek
confirmation of the Plan. To obtain such confirmation, the Debtor must
demonstrate to the Court that the Plan "does not discriminate unfairly" and is
"fair and equitable" with respect to these and any other dissenting Classes.
The "unfair discrimination" test requires, among other things, that the Plan
recognize the relative priorities among Creditors and Interestholders.
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The Code establishes different "fair and equitable" tests for secured
Creditors, unsecured Creditors and Interestholders. The respective tests are
as follows:
(a) SECURED CREDITORS
Either (i) each impaired secured Creditor of the rejecting
Class (a) retains its liens in the collateral securing such Creditor's
Claim or in the proceeds thereof to the extent of the allowed amount
of the Secured Claim and (b) receives deferred cash payments in at
least the allowed amount of such Secured Claim with a present value at
the Effective Date at least equal to such Creditor's interest in its
collateral or in the proceeds thereof or (ii) the plan provides each
impaired secured Creditor with the "indubitable equivalent" of its
Secured Claim.
(b) UNSECURED CREDITORS
Either (i) each impaired unsecured Creditor of the rejecting
Class receives or retains under the Plan property of a value equal to
the amount of its Allowed Claim or (ii) the holders of Claims and
Interests that are junior to the Claims of the dissenting Class do not
receive or retain any property under the Plan.
(c) INTERESTHOLDERS
Either (i) each Interestholder of the rejecting Class receives
or retains under the Plan property of a value equal to the greater of
(a) the fixed liquidation preference or redemption prices, if any, of
the interest it holds or (b) the value of such Interest or (ii) the
holders of interests that are junior to such Interest do not receive
or retain any property under the Plan.
The Debtors believe that the Plan can meet the applicable tests
described above, even in the event that it is rejected by the holders of one or
more Classes of Claims and Interests.
The Bankruptcy Code provides for confirmation of a plan even if the
plan is not accepted by all impaired classes as long as at least one impaired
Class of Claims has accepted it and the other non-voting requirements of a
confirmation are met. These "cramdown" provisions for confirmation of a plan,
despite the nonacceptance of one or more impaired Classes of Claims or
Interests, are set forth in Code Section 1129(b).
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VII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain significant federal income
tax consequences of the transactions that are described herein and in the Plan
that affect Subclass 7A-1 and 7A-2 Creditors, Class 8A Interest Holders and
FMAC. This summary is based upon the Internal Revenue Code of 1986, as amended
(the "Tax Code"), the Treasury Department regulations promulgated thereunder
(the "Treasury Regulations"), judicial authority and current administrative
rulings and practice now in effect. These authorities are all subject to
change at any time by legislative, judicial or administrative action, and such
change may be applied retroactively in a manner that could adversely affect
Subclass 7A-1 and 7A-2 Creditors, Class 8A Interest Holders and FMAC. The
federal income tax consequences to any particular Subclass 7A-1 and 7A-2
Creditor or Class 8A Interest Holder may be affected by matters not discussed
below. For example, neither the impact of the Plan on foreign holders of
Claims or Interests nor the impact under any state or local law are discussed
herein. Further, this summary generally does not address the tax consequences
to Subclass 7A-1 and 7A-2 Creditors who may have acquired their Claims from the
initial holders nor does it address the tax considerations applicable to
Subclass 7A-1 and 7A-2 Creditors or Class 8A Interest Holders that may be
subject to special tax rules such as financial institutions, insurance
companies, dealers in securities or currencies, tax-exempt organizations or
taxpayers subject to the alternative minimum tax.
Due to the complexity of certain aspects of the Plan, the lack of
applicable legal precedent, the possibility of changes in the law, the
differences in the nature of the Claims (including Claims within the same
Class) and Interests, the Creditor's status and methods of accounting
(including Creditors within the same Class) and the potential for disputes as
to legal and factual matters with the Internal Revenue Service ("IRS"), the tax
consequences described herein are subject to significant uncertainties.
NO RULING WILL BE SOUGHT FROM THE IRS, AND NO OPINION OF COUNSEL HAS
BEEN OR WILL BE SOUGHT, WITH RESPECT TO ANY OF THE TAX ASPECTS OF THE PLAN.
THE DISCUSSION SET FORTH BELOW IS FOR GENERAL INFORMATION ONLY. EACH SUBCLASS
7A-1 AND 7A-2 CREDITOR AND CLASS 8A INTEREST HOLDER IS URGED TO CONSULT WITH
ITS OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE PLAN.
This summary refers to certain tax attributes of the Reorganized
Company (e.g., an estimate of a $70 million net operating loss ("NOL")
carryforward as of December 31, 1997). These numbers are supplied by FMAC
(hereinafter sometimes referred to as the "Reorganized Company") and are
estimates
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subject to numerous factual and legal uncertainties. This summary also assumes
that the Reorganized Company has not undergone, and will not undergo an
"ownership change" within the meaning of Section 382 of the Tax Code prior to
the consummation of the Plan.
A. Federal Income Tax Consequences to Subclass 7A-1 and 7A-2
Creditors
The federal income tax consequences of the Plan to a Subclass 7A-1 or
7A-2 Creditor that holds Subordinated Reset Notes issued in 1996 or 1995,
respectively (collectively, "Notes") will depend, among other things, on
whether the Subclass 7A-1 or 7A-2 Creditor ("Noteholder") reports income using
the accrual or cash method, whether the Noteholder has taken a "bad debt"
deduction with respect to its Claim, whether the Noteholder's present claim
constitutes a "security" of FMAC for federal income tax purposes and whether,
as discussed below, the consideration received by a Noteholder pursuant to the
Plan constitutes a "security" of FMAC for federal income tax purposes.
Under the Plan, Subclass 7A-1 Creditors will obtain the right to
receive (i) approximately 71.5% of $44 million principal amount notes plus
compounded interest from the Effective Date at the applicable federal rate for
medium term obligations as of the Effective Date ("New Debt") and (ii) 43% of
the Common Stock ("Common Stock") of the Reorganized Company. Subclass 7A-2
Creditors will obtain the right to receive (i) approximately 28.5% of the New
Debt and (ii) 57% of the Common Stock.
1. Exchange of Notes
Under Section 1001 of the Tax Code, if a debt instrument is modified
such that the modified instrument differs materially in either kind or extent
from the original debt instrument, the modification results in exchange of the
debt instrument for federal income tax purposes. Gain or loss may be realized
in such a deemed exchange in the same manner as in any other taxable exchange
of property. The holder of the debt instrument will recognize gain or loss
based on the difference between the holder's basis in the original debt
instrument and the issue price of the modified debt instrument unless the
exchange qualifies for nonrecognition under the Tax Code. See Section A.3.a.
"Consequences of the Exchange of Notes--General Consequences".
Treasury Regulations promulgated under Section 1001 of the Tax Code
set forth rules for determining whether certain changes to a debt instrument
results in an exchange of the old debt instrument for a new debt instrument for
federal income tax
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purposes. The Treasury Regulations provide specific rules for determining
whether the change results in a modification to the debt instrument, and if so,
whether such modification is significant. If a modification to a debt
instrument is significant, such that the debt instrument is materially
different, the change to the debt instrument will result in an exchange of the
old debt instrument for a new debt instrument for federal income tax purposes.
Under these Treasury Regulations, a modification generally means any
alteration, including any deletion or addition, in whole or in part, of a legal
right or obligation of the issuer to a holder of a debt instrument, whether the
alteration is evidenced by an express agreement (oral or written), conduct of
the parties, or otherwise. For example, the Treasury Regulations provide that
a "modification" within the meaning of the Treasury Regulations includes an
exchange of a new instrument for an existing debt instrument. Except as
provided below, a modification is significant if, based on all of the facts and
circumstances, the legal rights or obligations that are altered and the degree
to which they are altered are economically significant. In making this
determination, all modifications are considered collectively, so that a series
of modifications which might not be significant individually may be significant
when considered collectively. The Treasury Regulations describe certain
modifications that will always be considered significant including a change in
yield that is more than the greater of 25 basis points or five percent of the
yield on the original instrument.
Based on the foregoing, upon consummation of the Plan, Noteholders
should be treated as exchanging their Notes (with characteristics that existed
prior to the changes effected by the Plan) for New Debt (with the
characteristics that exist after the changes effected by the Plan) and Common
Stock.
2. Debt Characterization of the New Debt
The Plan indicates that it is most likely that 100 percent of the New
Debt, and interest thereon, will be paid. Although more than 50 percent of the
New Debt and Common Stock may be treated as held proportionately, upon
consummation of the Plan, the New Debt is freely transferable. Based on
Treasury Regulations under Section 1001 of the Tax Code, public statements by
members of the national office of the IRS, and to a lesser extent, certain case
law, the Reorganized Company believes that the New Debt will be treated as debt
for federal income tax purposes.
If the New Debt were to be treated as an equity investment, the
Noteholders should still not recognize gain or loss as a
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result of the exchange of Notes. See Section A.3.a. "Consequences of the
Exchange of Notes--General Consequences". However, if the New Debt were
treated as an equity investment, the Reorganized Company would undergo an
"ownership change" within the meaning of Section 382 of the Tax Code, and, it
is believed, that the Reorganized Company would not be entitled to the special
bankruptcy rules available under Section 382(l)(5) of the Tax Code. If such
were to occur, the utilization of the Reorganized Company's tax attributes
would be eliminated. See Section D.2.b.(1) "Federal Income Tax Consequences to
the Reorganized Company--Special Bankruptcy Rules - Section 382(l)(5) of the
Tax Code". The following summary assumes that the New Debt will be treated as
debt for federal income tax purposes.
3. Consequences of the Exchange of Notes.
a. General Consequences
Except as discussed below under "Accrued Interest on Notes", the
exchange of Notes for New Debt and Common Stock should be treated as a
nontaxable recapitalization under Section 368(a)(1)(E) of the Tax Code. Under
Section 354(a)(1) of the Tax Code, gain or loss is generally not recognized on
the exchange of "securities" for stock or "securities" (of the same or lesser
principal amount) pursuant to a nontaxable recapitalization under Section
368(a)(1)(E) of the Tax Code. A Noteholder should not recognize gain or loss
upon the exchange of Notes for New Debt and Common Stock provided that both the
Notes and New Debt are treated as "securities" under the Tax Code.
Whether an instrument constitutes a "security" for federal income tax
purposes depends upon the facts and circumstances surrounding such instrument,
and upon the interpretation of numerous judicial decisions. Prominent factors
that the courts have relied upon in making this determination include (i) most
significantly, the term of the instrument; (ii) whether the instrument is
secured; (iii) the degree of subordination of the instrument; (iv) the ratio of
debt-to-equity of the issuer; (v) the riskiness of the business of the issuer
and (vi) the negotiability of the instrument. The Reorganized Company believes
that the Notes and New Debt will constitute "securities" for purposes of these
provisions of the Tax Code. If either the Notes or New Debt are not treated as
"securities" for purposes of these provisions of the Tax Code, a Noteholder
will recognize gain or loss, subject to certain limitations set forth below,
upon the consummation of the Plan. See B. "Federal Income Tax Consequences to
Subclass 7A-2 Creditors that Hold Trade Claims". The following summary assumes
that the Notes and New Debt are "securities" for purposes of these provisions
of the Tax Code.
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A Noteholder should have an aggregate tax basis in the New Debt and
Common Stock equal to the Noteholder's aggregate adjusted tax basis in the
Notes (less any portion of such tax basis which is attributable to previously
unpaid interest on the Notes which accrued after the Noteholder acquired the
Notes). Because a Noteholder will receive both New Debt and Common Stock for
Notes, the Noteholder's adjusted tax basis in the Notes (less any portion of
such tax basis which is attributable to previously unpaid interest on the Notes
which accrued after the Noteholder acquired the Notes ("Interest Portion"))
must be allocated between the New Debt and Common Stock in proportion to the
respective fair market values of the New Debt and Common Stock received on the
consummation of the Plan. The Noteholder's holding period for the portion of
the New Debt and Common Stock that are not allocable to the Interest Portion
will include the period during which the Noteholder held the Notes.
b. Accrued Interest on Notes
Under Section 354(a)(2)(B) of the Tax Code, the general rule regarding
nonrecognition of gain or loss in a recapitalization will not apply to the
portion, if any, of the New Debt or Common Stock that are deemed to be received
in exchange for previously unpaid interest on the Notes which has accrued after
the Noteholder acquired the Notes. The legislative history to Section
354(a)(2)(B) clarifies that a Noteholder must include in income the portion of
the New Debt or Common Stock deemed received in the exchange for previously
unpaid accrued interest notwithstanding whether the Noteholder has a realized
gain on the exchange of Notes. If a portion of the New Debt or Common Stock is
deemed to be received in payment of accrued interest, the amount includeable in
income should be equal to either the "issue price" (as defined below under
Section A.4.a. "Consequences of Ownership and Sale of the New Notes or Common
Stock--Original Issue Discount") of New Debt, and the fair market value of
Common Stock, deemed received for accrued interest on the Notes.
As no Treasury Regulations or other relevant guidance has been issued
under Section 354(a)(2)(B) of the Tax Code, it is unclear whether or to what
extent the New Debt and Common Stock will be considered to be issued in payment
of previously unpaid accrued interest on the Notes. The legislative history of
Section 354(a)(2)(B) of the Tax Code indicates, however, that if the Plan
explicitly allocates the value of the New Debt and Common Stock between the
principal amount and accrued interest on the Notes, both the Reorganized
Company and the Noteholders should utilize that allocation for federal income
tax purposes.
The legislative history to Section 354(a)(2)(B) of the Tax Code
indicates that a Noteholder that has included accrued interest on the Notes in
income may recognize a loss to the
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extent the amount previously included in income exceeds the amount of interest
deemed paid under the Plan. Alternatively, a Noteholder who has not previously
included all accrued interest in income may be required to recognize interest
income to the extent the amount of interest deemed paid under the Plan exceeds
the amount previously included in income.
A Noteholder's tax basis in the portion of the New Debt deemed to be
received under the Plan for accrued interest would be equal to the "issue
price" (or portion thereof) of New Debt received in exchange for such accrued
interest. A Noteholder's tax basis in the portion of Common Stock deemed to be
received for accrued interest would be equal to a portion of the fair market
value of the Common Stock received on the consummation of the Plan. The
holding period for New Debt and Common Stock would begin on the day following
the consummation of the Plan.
FMAC estimates that there is approximately $500,000 of previously
unpaid accrued interest on the Notes. Because the Plan does not distinguish
between accrued and unpaid interest and unpaid principal of the Notes, the
Plan, in effect, provides that the New Debt and Common Stock will be applied
pro rata to the stated principal amount of the Notes and accrued and unpaid
interest thereon. However, there can be no assurance that the IRS will agree
with this allocation. For example, based on Treasury Regulations concerning
the accrual of original issue discount ("OID"), the IRS could assert that
accrued interest with respect to a debt obligation is always deemed to be paid
before the principal amount of such obligation. Consequently, Noteholders
should consult their own tax advisors regarding the allocation of New Debt and
Common Stock to accrued interest and make their own determination whether any
portion of the New Debt and Common Stock received under the Plan should be
treated as received in payment for accrued interest on the Notes.
4. Consequences of Ownership and Sale of New Debt or Common Stock
a. Original Issue Discount
Subject to the rules discussed below in Section A.4.b. "Consequences
of Ownership and Sale of New Debt or Common Stock--Acquisition Premium" or
Section A.4.c "Consequences of Ownership and Sale of New Debt or Common Stock--
Amortizable Bond Premium", holders of New Debt will be required to include in
income the amount of OID with respect to the New Debt on an economic accrual
basis, without regard to the holder's method of tax accounting, prior to the
date the Noteholder receives cash, except to the extent a Noteholder can offset
the amount of OID by expense deductions for acquisition premium or bond
premium. However, a Noteholder will not be required to include separately in
income
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cash payments received on the Notes even if denominated as interest.
The amount of OID is the excess of the "stated redemption price at
maturity", excluding "qualified stated interest", over the "issue price" of the
debt obligation, provided that the amount of OID is not "de minimis". OID is
treated as "de minimis" if the amount of OID is less than one-quarter of one
percent multiplied by the number of complete years to maturity of the debt
obligation. The Reorganized Company anticipates that the New Debt will not
have "de minimis" OID.
Under the Tax Code, the "issue price" of a debt instrument that is
part of an issue that is traded on an established market is the fair market
value of the debt instrument on the issue date. If the debt instrument is not
part of an issue that is traded on an established market and the debt
instrument is issued for property that is traded on an established market, then
the issue price is the fair market value of the property on the issue date.
Under applicable Treasury Regulations, a debt instrument or other property is
considered, insofar as relevant, traded on an established securities market,
if, at any time within the 60-day period ending 30 days after the issue date,
(i) the property appears on a system of general circulation (including a
computer listing disseminated to subscribing brokers, dealers or traders) that
provides a reasonable basis to determine the fair market value by disseminating
either recent price quotations (including yields, rates, or other pricing
information) of one or more identified brokers, dealers, or traders, or actual
prices (including yields, rates, or other pricing information) of recent sales
transactions (hereinafter a "quotation medium"), or (ii) price quotations are
readily available from dealers, brokers or traders.
The Reorganized Company believes that within the 60-day period ending
30 days after the consummation of the Plan, recent sales transactions with
respect to the New Debt or, alternatively, the Notes will be available on a
quotation medium within the meaning of these Treasury Regulations. As a
result, the issue price of the New Debt will be equal to the fair market value
of the New Debt on the consummation of the Plan, or if such cannot be
determined, then the issue price of the New Debt will be equal to the fair
market value of the Notes on the consummation of the Plan. The Reorganized
Company will determine such issue price in connection with providing the
holders with the annual amount of OID noted above. The Notes have been
recently selling at 20 percent of their initial principal amount but the
Reorganized Company expects that the trading price of the Notes should increase
after filing of the Plan.
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The "stated redemption price at maturity" of a debt instrument is
equal to the instrument's stated principal amount at maturity plus all payments
including interest other than "qualified stated interest". "Qualified stated
interest" is interest that is payable unconditionally at a fixed rate at fixed
periodic intervals of one year or less during the entire term of the debt
instrument. Because the stated interest with respect to the New Debt is not
required to be paid at least annually, such interest will not be treated as
"qualified stated interest." Consequently, the "stated redemption price at
maturity" of the New Debt should equal their stated principal amount plus all
interest to be paid on such New Debt during their entire term.
The amount of OID includeable in income by the holders of a New Debt
is the sum of the "daily portions" of OID with respect to the New Debt for each
day during the taxable year or portion of the taxable year in which such holder
holds such New Debt ("accrued OID"). The daily portion is determined by
allocating to each day in any "accrual period" a pro rata portion of the OID
allocable to that accrual period. The "accrual period" for a Note may be of
any length and may vary in length over the term of the New Debt, provided that
each accrual period is no longer than one year and each scheduled payment of
principal or interest occurs on the first day or the final day of an accrual
period. The amount of OID allocable to any accrual period is an amount equal
to the excess, if any, of (a) the product of the New Debt's adjusted issue
price at the beginning of such accrual period and its yield to maturity
(determined on the basis of compounding at the close of each accrual period and
properly adjusted for the length of the accrual period) over (b) the sum of any
qualified stated interest allocable to the accrual period. The "adjusted issue
price" of the New Debt at the beginning of any accrual period is equal to its
"issue price" increased by the accrued OID for each prior accrual period
(determined without regard to the amortization of any acquisition or bond
premium, as described below) and reduced by any payments made on such New Debt
on or before the first day of the accrual period. Under these rules, a holder
of New Debt will have to include in income increasingly greater amounts of OID
in successive accrual periods.
A holder of New Debt may elect to include in gross income all interest
that accrues on the New Debt using the constant-yield method described above.
For the purposes of this election, interest includes stated interest,
acquisition discount, OID, de minimis OID, market discount, de minimis market
discount and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium. This election generally will apply only to the New Debt
with respect to which it is made and may not be revoked without the consent of
the IRS. The election is to be made for the taxable year in which the holder
acquired the New Debt, and may not be revoked without the consent of the IRS.
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Holders of New Debt should consult with their own tax advisors concerning the
propriety and consequences of this election.
The Reorganized Company will determine the amount of OID and will
provide each holder with a Form 1099-OID setting forth the amount of OID for
each holder of New Debt. Each holder's tax basis in such holder's New Debt
will be increased by the amount of OID included in income and will be reduced
by the amount of cash received with respect thereto.
b. Acquisition Premium
A holder of New Debt whose tax basis in New Debt (the determination of
which is described in Section A.3.a. "Consequences of the Exchange of
Notes--General Consequences") is less than the stated redemption price at
maturity of the New Debt (i.e., the stated principal amount of the New Debt
plus all stated interest) but in excess of the issue price of the New Debt
(such excess being the "Acquisition Premium") will be entitled to reduce the
amount of OID includeable in income determined by the fraction described below.
In the case of a holder of New Debt who acquires New Debt at an Acquisition
Premium, OID otherwise includeable in income will be reduced by a fraction, the
numerator of which is equal to the amount of the Acquisition Premium and the
denominator of which is equal to the aggregate amount of OID on the New Debt
through maturity. Thus, a holder of New Debt who acquired a Note upon its
initial issuance should be able to substantially offset the amount of OID
attributable to the difference between the initial principal amount of the Note
and the issue price of the New Debt.
c. Amortizable Bond Premium
A holder of New Debt with "amortizable bond premium" will not be
required to include OID in income with respect to such New Debt. Amortizable
bond premium is the excess of a holder's tax basis in a debt instrument over
the stated redemption price at maturity of the debt instrument. Accordingly, a
holder who has an initial tax basis in New Debt that exceeds the stated
redemption price at maturity of the New Debt (as defined above) will not be
required to include OID in income with respect to such New Debt and may elect
to deduct the portion of the amortizable bond premium that is allocable to the
taxable year determined under a constant yield amortization method. Under
recently finalized Treasury Regulations amortizable bond premium allocable to a
taxable year is deductible only to the extent of the difference between (i)
prior interest inclusions over (ii) prior amortizable bond premium deduction on
the New Debt, with the excess carried forward to the next taxable year and
treated as amortizable bond premium allocable to that taxable year. The
Treasury Regulations are effective for New Debt acquired on or
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after March 2, 1998 and for amortization elections made for the taxable year
including March 2, 1998 or for any subsequent taxable year. Under the Treasury
Regulations, effective March 2, 1998, a holder of an instrument that does not
bear qualified stated interest and OID will not be able to amortize bond
premium. Any election to amortize bond premium applies to all bonds (other
than bonds the interest on which is excludeable from gross income) held by the
holder at the beginning of the first taxable year to which the election applies
or thereafter acquired by the holder of New Debt, and is irrevocable without
the consent of the IRS. Holders of New Debt should consult with their own tax
advisors whether they could have amortizable bond premium with respect to the
New Debt and whether a holder of New Debt should make the election discussed
above.
d. Sale or Exchange of New Debt or Common Stock
If New Debt or Common Stock is sold or exchanged (including a
redemption or retirement), the disposing holder will generally recognize gain
or loss in an amount equal to the difference between the amount realized on the
sale or exchange and the holder's tax basis in the New Debt or Common Stock
disposed of. Except as provided in the market discount rules discussed below,
any gain or loss on the sale or exchange of New Debt or Common Stock will be
capital gain or loss, provided that the New Debt is held as a capital asset.
Any capital gain recognized on the sale or exchange of New Debt or Common Stock
will be long-term gain taxable at 28 percent if the New Debt or Common Stock
were held for more than one year but not more than 18 months, or taxable at 20
percent if the New Debt or Common Stock were held for more than 18 months
(including the period during which the holder held the Notes to the extent that
the New Debt or Common Stock are not treated as received in payment of accrued
interest) as of the time of their disposition.
Section 302 of the Tax Code provides that proceeds received from the
redemption of Common Stock will be treated as received in exchange for the sale
of the Common Stock, rather than as a distribution under Section 301 of the Tax
Code, if the redemption is (i) "not essentially equivalent to a dividend," (ii)
the distribution is "substantially disproportionate" with respect to the
stockholder, (iii) the redemption is in complete redemption of all of the
Common Stock owned by the stockholder or (iv) the redemption is Common Stock
from a stockholder that is not a corporation which is in partial liquidation of
the issuing corporation. If the redemption is not treated as a sale or
exchange of the Common Stock under Section 302 of the Tax Code, the proceeds
received by the stockholder will be treated as a distribution under Section 301
of the Tax Code in which case the proceeds would be treated as a dividend to
the extent of the earnings and profits of the Reorganized Company, then as a
return
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of the stockholder's basis in the Common Stock and then as proceeds received on
the sale or exchange of the Common Stock. FMAC does not presently anticipate
redeeming the Common Stock.
A holder's initial tax basis and holding period in New Debt or Common
Stock acquired in the Plan will be determined as discussed above under Section
A.3.a. "Consequences of the Exchange of Notes--General Consequences" and
Section A.3.b. "Accrued Interest on Notes". At any time, a holder's basis in
New Debt should be equal to such holder's initial basis, plus any OID or market
discount previously included in such holder's income with respect to the New
Debt, minus any payments previously received and any bond premium previously
amortized with respect to the New Debt.
e. Market Discount
Any gain realized on the exchange of the Notes, and any gain realized
upon the sale, redemption or maturity of New Debt, may be affected by the
"market discount" provisions of the Tax Code. Market discount is defined as
the excess of a bond's "stated redemption price at maturity" (as defined below
in "Market Discount on New Debt") over the holder's tax basis in such bond
immediately after its acquisition provided the amount of such market discount
is not de minimis. The market discount provisions generally require a holder
of a bond acquired at a market discount to recognize as ordinary interest
income any gain realized on the disposition of such bond to the extent of the
"accrued market discount" on such bond at the time of disposition. In
addition, if a holder of a bond acquired at a market discount receives a
partial principal payment prior to maturity, that payment may be treated as
ordinary income to the extent of the accrued market discount on the bond at the
time the payment is received. These rules will not apply to the extent that
the holder has made an election to include the accrued market discount in
income as it accrues (on either a ratable or constant interest method). This
election to include market discount in income currently, once made, applies to
all market discount obligations, acquired on or after the first taxable year to
which the election applies and may not be revoked without the consent of the
IRS. Holders of New Debt should consult with their own tax advisors about this
election.
The Tax Code provides that "under regulations" (which have not yet
been issued), accrued market discount on a market discount bond is not
recognized as ordinary income at the time of the bond's disposition if the
disposition occurs in a "nonrecognition transaction" including a
recapitalization. Instead, accrued market discount on a market discount bond
disposed of in a nonrecognition transaction is converted into accrued market
discount on the property received in the
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transaction if that property qualifies as a market discount bond. If the
property received is not a market discount bond, accrued market discount on the
old market discount bond is treated as ordinary income on the disposition of
the property received in exchange therefor.
(1) Treatment of Accrued Market Discount on Notes
A holder of Notes that have accrued market discount should not be
required to recognize the accrued market discount as ordinary income when the
holder is deemed to exchange such Notes for New Debt and Common Stock pursuant
to the Plan. The accrued market discount with respect to the Notes will be
allocated to the New Debt and Common Stock deemed to be received under the
Plan. Although no regulations or rules have been provided on this subject, the
accrued market discount should be allocated in the same manner as tax basis is
allocated, as explained above in Section A.3.a. "Consequences of the Exchange
of Notes--General Consequences".
If the New Debt received under the Plan are themselves treated as
market discount bonds (because, as explained below, the holder's tax basis with
respect to the New Debt is less than the adjusted issue price of the New Debt),
the portion of the accrued market discount allocable to the New Debt will be
treated as accrued market discount on those instruments. The portion of the
accrued market discount allocated to New Debt and Common Stock that are not
market discount bonds will be treated as ordinary income upon disposition of
such New Debt or Common Stock, but not in excess of the total gain recognized
upon such disposition.
A holder of Notes with accrued market discount with respect to the
Notes would not have generally recognized ordinary income with respect to the
Notes until the sale or disposition of the Notes in a taxable disposition or
until the Notes were repaid. However, such holder of Notes who receive New
Debt pursuant to the Plan may recognize OID, as explained above, with respect
to the New Debt on a constant yield method, regardless of the holder's method
of accounting, prior to the receipt of cash. Thus, for certain holders of
Notes, OID with respect to the New Debt may replace all or part of the market
discount with respect to the Notes.
A holder of Notes with accrued market discount with respect to the
Notes may have been required to defer the deduction of a portion of the
interest on any indebtedness incurred or maintained to purchase or carry their
Notes. Holders of Notes who deferred their interest expense will be required
to continue to defer such deductions. Such deferred deductions generally
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will be deductible on a taxable disposition of the New Debt and Common Stock
received in the exchange.
(2) Market Discount on New Debt
As explained above, a debt instrument has market discount to the
extent of the excess, if any, of (i) the instrument's stated redemption price
at maturity over (ii) the basis of such instrument immediately after its
acquisition by the taxpayer. For this purpose, stated redemption price at
maturity is defined as explained above under Section A.4.a. "Consequences of
Ownership and Sale of New Debt or Common Stock - Original Issue Discount",
except in the case of a debt instrument which also has OID. Where a debt
instrument has OID (as will be the case with the New Debt), the instrument's
stated redemption price at maturity will be treated as equal to its revised
issue price (i.e., adjusted issue price increased by the amount of OID
previously included). Hence, New Debt acquired pursuant to the Plan will not
have market discount unless the holder's tax basis for such New Debt is less
than the revised issue price of such New Debt. Notwithstanding the foregoing,
market discount will not exist if the amount of market discount is de minimis
(i.e., less than one-quarter of one percent multiplied by the number of
complete years from the date of acquisition until the maturity date of the debt
obligation). Generally, holders of Notes who purchased their Notes pursuant to
the initial issuance of such Notes did not have market discount with respect to
the Notes and should not have market discount with respect to the New Debt.
Holders should consult with their individual tax advisors to determine whether
their Notes and/or New Debt have market discount.
The amount of market discount that accrues while a holder holds New
Debt will be equal to the amount which bears the same ratio to the market
discount on the New Debt as the number of days on which the holder holds the
New Debt bears to the number of days from the date the holder acquires the New
Debt through the date of their maturity. Alternatively, a holder of New Debt
may elect to accrue market discount on the basis of a constant yield method,
rather than the ratable accrual method described in the preceding sentence.
As discussed above, the market discount rules may also require any
holder of New Debt acquired at a market discount to defer the deduction of a
portion of the interest on any indebtedness incurred or maintained to purchase
or carry the New Debt until the New Debt are disposed of in a taxable
transaction. This rule will not apply if the holder elects, as described
above, to include accrued market discount in income currently.
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B. Federal Income Tax Consequences to Subclass 7A-2 Creditors
that Hold Trade Claims
Subclass 7A-2 Creditors who do not hold Notes are generally Subclass
7A-2 Creditors who hold trade claims (such as various claims that arose out of
the provision of goods and services to FMAC) that are not included in another
Class under the Plan ("Trade Claims"). Under the Plan, Trade Claims will be
exchanged for New Debt and Common Stock. Based on the discussion above
concerning the debt characterization of the New Debt as debt instruments for
federal income tax purposes (see Section A.2 "Federal Income Tax Consequences
to Subclass 7A-1 and 7A-2 Creditors--Debt Characterization of New Debt"), the
Reorganized Company believes that the New Debt will be treated as debt
obligations for federal income tax purposes and the following summary assumes
such treatment.
Based on the Treasury Regulations promulgated under Section 1001 of
the Tax Code discussed above under Section A.1. "Federal Income Tax
Consequences to Subclass 7A-1 and 7A-2 Creditors--Exchange of Notes", the Trade
Claims will be treated as significantly modified. As a result, the Trade
Claims will be treated as exchanged for New Debt and Common Stock. Since the
Trade Claims will not be treated as a "security" for Federal income tax
purposes (see Section A.3.a. "Consequences of the Exchange of Notes--General
Consequences"), the holders of Trade Claims will recognize gain or loss upon
the exchange of the Trade Claims for the New Debt and Common Stock.
The amount of such gain or loss will generally be determined by the
difference between a holder's tax basis in the Trade Claims and (i) the issue
price of the New Debt plus (ii) the fair market value of Common Stock received.
As discussed above in Section A.4.a. "Consequences of Ownership and Sale of New
Debt or Common Stock--Original Issue Discount", the issue price of the New Debt
will be the fair market value of the New Debt on the consummation of the Plan,
or if such cannot be determined, then the issue price of the New Debt will be
equal to the fair market value of the Notes on the consummation of the Plan.
See Section A.4.a. "Consequences of Ownership and Sale of New Debt or Common
Stock--Original Issue Discount".
A holder's gain or loss will generally be ordinary income or loss if
the Trade Claim is held by the initial holder. The tax consequences of the
Plan upon the holders of the Trade Claims will be affected by whether the
holders claimed a bad debt loss and whether market discount exists with respect
to the Trade Claims. See Section A.4.e. "Consequences of Ownership and Sale
of New Debt or Common Stock--Market Discount". Market Discount with
respect to the Trade Claims will exist only with respect to Trade Claims
acquired from the original holder.
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Based on the rules set forth under Section A.4.a. "Consequences of
Ownership and Sale of New Debt or Common Stock--Original Issue Discount",
the holders of New Debt will generally be required to include income as OID,
the stated interest (and discount), whether or not interest has been received
and without regard to the holders' method of accounting.
C. Federal Income Tax Consequences to Class 8A Interest Holders
of the Reorganized Company
The Class 8A Interest holders will receive the benefit of the greater
of (i) UDC Warrants to purchase 32,500 common shares of UDC or (ii) their pro
rata share of any UDC Warrants reallocated to Class 8A under the Alltel Cure
Reallocation, in exchange for existing common stock in FMAC ("Interests"). The
maximum value of all of the UDC Warrants for Class 8A is $276,250 (absent an
Alltel Cure Reallocation, in which case such aggregate maximum will be
increased by $8.50 per share for each UDC Warrant Share which is reallocated
from Class 7A to Class 8A thereunder) (the "aggregate maximum selling price")
and such value is being shared between the holders of approximately 6,500,000
shares of existing FMAC common stock or approximately 4 cents per share of
existing FMAC common stock in the base case scenario (absent an Alltel Cure
Reallocation). A finding on the aggregate maximum selling price shall be set
forth in the Confirmation Order. Upon consummation of the Plan, a Class 8A
holder should realize a capital gain to the extent that the maximum selling
price exceeds the taxpayer's tax basis in the Interests exchanged, provided
that the Interests are held as a capital asset. Such realized gain will not be
recognized on an installment basis under Section 453 of the Tax Code because
the Interests are publicly traded. Gain on the exchange of the Interests will
be long-term gain taxable at 28 percent if the Interests were held for more
than one year but not more than 18 months, or taxable at 20 percent if the
Interests were held for more than 18 months as of the time of their
disposition.
Although the matter is subject to some uncertainty, upon consummation
of the Plan, a Class 8A Interest holder should recognize a capital loss equal
to the difference between such holder's tax basis in the Interests exchanged
and the maximum selling price, to the extent that the Interests were held as
a capital asset. Upon the final determination of the amount to be
received under (i) or (ii) above, the Class 8A Interest holder should be
allowed to recognize an additional loss to the extent that the aggregate amount
received under (i) or (ii) above is less than the maximum selling price. Class
8A Interest holders are urged to consult with their tax advisors regarding the
amount and proper recognition period of any gain or loss with respect to a
disposition of their Interests.
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D. Federal Income Tax Consequences to the Reorganized Company
1. Realization of Cancellation of Indebtedness Income
Generally, a taxpayer recognizes cancellation of indebtedness ("COD")
income upon satisfaction of its outstanding indebtedness for less than it
adjusted issue price. The amount of COD income is, in general, the excess of
(i) the adjusted issue price of the indebtedness satisfied, over (ii) the issue
price of any new indebtedness of the taxpayer issued, the amount of cash and
the fair market value of any other consideration (including stock of the
taxpayer) given in exchange for the indebtedness satisfied. There are various
exceptions to the inclusion of COD income which will apply to the Reorganized
Company in connection with the Plan.
First, no COD income is realized from discharge of an indebtedness to
the extent that the liability discharged is not for an amount of borrowed funds
or an accrued expense. This exception should apply to the extent the
contingent lease obligations are not paid.
Second, no COD income is included in gross income if the discharge
occurs in a Title 11 case or the discharge occurs when the taxpayer-debtor is
insolvent. However, under the Tax Code the debtor must, as of the first day of
the next taxable year, reduce its NOLs first and then other tax attributes,
such as capital loss carryovers, and then the tax basis of its assets by the
amount of COD income excluded from gross income by this exception. The
applicable Treasury Regulations provide an order in which the tax basis of the
debtor's assets are to be reduced. The tax basis of the debtor's assets used
in its trade or business or held for investment are to be reduced prior to
reducing the tax basis in the debtor's inventory, accounts receivables or
notes. As an exception to the order of such reduction set forth in the Tax
Code, a taxpayer can elect to reduce its tax basis in its depreciable assets
first, then its NOLs.
The Reorganized Company believes that under the Plan it will realize
approximately $26 million of COD income attributable to satisfaction of the
Notes with the New Debt and Common Stock, assuming the fair market value of the
New Debt and Common Stock is approximately $47 million. The issue price of the
New Debt will be determined by the trading price of either the New Debt or the
Notes on the consummation of the Plan. The most recent prices at which the
Notes have traded suggest that the amount of COD income could be greater. See
Section A.4.a "Federal Income Tax Consequences to Subclass 7A-1 and 7A-2
Creditors--
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Consequences of Ownership and Sale of New Debt or Common Stock - Original
Issue Discount". An additional insignificant amount of COD income may be
realized upon the satisfaction of the administrative convenience claims. The
Reorganized Company believes that (i) the sale of the Owned Loans should be
treated as a financing (and not a sale) for federal income tax purposes; (ii)
the Secured Claim Recovery Amount is not "publicly-traded debt" within the
meaning of the OID provisions of the Tax Code; and (iii) the issue price of the
Secured Claim Recovery Amount should not be less than the Bank Group Claim.
Thus, the Reorganized Company believes that no COD income should result from
the Owned Loan Sale. If in future taxable years the Reorganized Company fails
to pay the New Debt and/or the Secured Claim Recovery Amount, the Reorganized
Company will recognize COD income to the extent of such shortfall and such COD
income will be required to be included in income, if the COD income is not
considered to occur in a Title 11 case.
Accordingly, the Reorganized Company will not be required to include
in income the COD income, but will reduce its NOLs and the tax basis in its
assets by the amount of the COD income. The IRS has informally ruled that the
attribute reduction rules apply on a separate company basis to corporations
that are members of a consolidated group of corporations. The Reorganized
Company anticipates that, as of January 1, 1999 (the first day of the taxable
year immediately following the taxable year in which the COD income is
recognized pursuant to the consummation of the Plan), the Reorganized Company
should, based on estimations, have approximately $70 million of NOL
carryforward, and the Reorganized Company will own the stock of FMARC and FMARC
II with an estimated projected tax basis in excess of $80 million and auto loan
receivables used to secure the Bank Group's Secured Claim Recovery Amount. As
a result, the Reorganized Company anticipates that it will first reduce the
amount of its NOLs, and then, although highly unlikely, reduce its tax basis of
the shares of FMARC and FMARC II. See Section D.4. "Federal Income Tax
Consequences to the Reorganized Company--Income of the Reorganized Company,
FMARC and FMARC II".
2. Net Operating Loss Carryforward and Built-In-Losses of the
Reorganized Company
The Reorganized Company anticipates that it will have an NOL
carryforward in excess of approximately $70 million as of December 31, 1997
available (subject to the limitations discussed below) to offset future income.
As discussed above, the NOL carryforward not utilized during 1998 will be
subject to reduction as of January 1, 1999 due to the reduction required as a
result of the nonrecognition of the anticipated amount of COD income of the
Reorganized Company. The Reorganized Company estimates that the NOL remaining
after such reduction will be
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approximately $18 million. The Reorganized Company also anticipates that the
consolidated group consisting of Reorganized Company, FMARC and FMARC II may
have, as of the consummation of the Plan, unrealized built-in-losses. The
Reorganized Company estimates that it could have approximately $18 million of
taxable income in taxable years 1998 through 2001 taking into account loan
losses during such period.
a. Section 382 of the Tax Code - General Rules
In general, Section 382 of the Tax Code limits the amount of
pre-change losses (i.e., NOLs, losses incurred in the current year prior to the
"ownership change" and, as discussed below, recognized built-in-losses) that a
loss corporation may use to offset its income in any year (or portion thereof)
following an "ownership change" (as described below) (hereinafter, the
limitation under Section 382 of the Tax Code is referred to as the "Section 382
Limitation"). The Section 382 Limitation on the use of pre-change losses in
any post-change year is equal to the product of the fair market value of the
corporation's outstanding stock immediately before the ownership change and the
long-term tax-exempt rate (which is published monthly by the Treasury
Department and is intended to represent current interest rates on long- term
tax-exempt debt obligations) in effect for the month in which the ownership
change occurs. The rate in effect for ownership changes occurring in January,
1998 is 5.23 percent. For the year in which an ownership change occurs, the
Section 382 Limitation is pro rated for the portion of the year which follows
the ownership change.
Notwithstanding the foregoing, the Section 382 Limitation will be
reduced to zero if the loss corporation does not continue its business
enterprise during the two year period following the ownership change.
Generally, a loss corporation is considered to continue its business enterprise
if it continues one or more of its historic businesses or uses a significant
portion of the loss corporation's assets in a business. For purposes of these
rules, the activities and assets of a subsidiary member of a consolidated group
will be attributed to its parent corporation.
If a corporation that undergoes an "ownership change" has a "net
unrealized built-in-loss", subject to certain limitations, any "built-in-loss"
recognized during the five-year period beginning with the date of the
"ownership change" is generally treated as a pre-change loss and is subject to
the Section 382 Limitation described above. A net unrealized built-in loss
exists to the extent of the excess of the adjusted tax basis of the loss
corporation's assets and the fair market value of its assets immediately before
an ownership change, provided the resulting net unrealized built-in loss is
greater than the lesser of (i) 15 percent of the fair market value of the loss
corporation's assets
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or (ii) $10 million. Under current IRS administrative policy, the amount of
the COD income recognized upon an ownership change is treated as an item of
income attributable to the prechange period under Section 382(h)(6) of the Tax
Code, and such COD income is added to the gross fair market value of the loss
corporation's assets in determining whether the loss corporation has a "net
unrealized built-in-loss."
An "ownership change" occurs under Section 382 of the Tax Code if the
percentage of stock of the corporation owned actually or constructively by one
or more "5-percent shareholders" increases by more than 50 percentage points on
any "testing date" (taking into account all relevant adjustments as of the end
of a "testing date") as compared to the lowest percentage of stock of the
corporation owned by those 5-percent shareholders at any time during the
statutory "testing period" (generally, the past three years or, if shorter,
since the last ownership change). Generally, a "testing date" is any date
there is any change in the ownership of common stock that affects the
percentage stock ownership of a 5-percent shareholder. Under applicable
Treasury Regulations, an ownership change with respect to an affiliated group
of corporations filing a consolidated return that have consolidated NOLs and
have net unrealized built- in-losses that are not attributable to a "new loss
member" or a "loss subgroup" is generally measured by changes in stock
ownership of the parent corporation (i.e., the Reorganized Company) of the
group. A "5-percent shareholder" is one who owns at least five percent of the
stock of the corporation (not including certain nonvoting nonparticipating
preferred stock), and all stock owned by shareholders, who are not 5-percent
shareholders (hereinafter referred to as "public shareholders"), is generally
treated as being owned by one 5-percent shareholder. Under applicable Treasury
Regulations, the issuance of shares to public shareholders can be segregated
into separate public groups for the purposes of treating each public group as a
separate 5-percent shareholder. Exceptions apply to this segregation rule for
certain transactions. However, no such exception applies to the issuance of
stock for debt where the public shareholders acquire from the loss corporation
equity stock that constitutes more than 10 percent of the value of the equity
stock of the loss corporation. Generally, such changes in the ownership of
common stock are based on the direct stock ownership of individuals in the loss
corporation and the constructive stock ownership of individuals in the loss
corporation through intervening entities is taken into account by disregarding
such entities.
Under the Plan, 100 percent of the shares of Common Stock will be
issued to the Class 7A Creditors of the Company upon the consummation of the
Plan in satisfaction of a portion of their Notes or Trade Claims. Under
Section 382 of the Tax Code, an ownership change will occur. However, the Plan
is predicated
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upon qualifying for a special bankruptcy rule under Section 382(l)(5) of the
Tax Code pursuant to which, as discussed below, there will be no Section 382
Limitation. See Section D.2.b.(1) "Federal Income Tax Consequences to the
Reorganized Company--Net Operating Loss Carryforward and Built-in-Losses of the
Reorganized Company--Special Bankruptcy Rules--Section 382(l)(5) of the Tax
Code".
b. Special Bankruptcy Rules.
When an "ownership change" occurs pursuant to the implementation of a
bankruptcy plan of reorganization, the general Section 382 Limitation may not
apply if certain requirements are satisfied. Instead, one of the two special
bankruptcy rules are available to the loss corporation, which generally
provides a more favorable result.
(1) Section 382(l)(5) of the Tax Code.
Section 382(l)(5) of the Tax Code provides that the general Section
382 Limitation does not apply to an "ownership change" resulting from
transactions that are pursuant to a plan of reorganization of a corporation in
a Title 11 case if the shareholders and certain creditors of such corporation
immediately before an "ownership change" own immediately after such change (as
a result of being shareholders or creditors immediately before such change) at
least 50 percent of the stock of the corporation by vote and value after the
ownership change. Also, the continuity of business enterprise requirement
under Section 382 of the Tax Code would not apply. See Section D.2.a. "Federal
Income Tax Consequences to the Reorganized Company--Net Operating Loss
Carryforward and Built-in-Losses of the Reorganized Company--Section 382 of the
Tax Code - General Rules".
For purposes of this rule, stock transferred to a creditor shall be
taken into account only to the extent that such stock is transferred in
satisfaction of indebtedness (and accrued interest with respect to such
indebtedness) and only if such indebtedness either (i) was held by the creditor
at least 18 months before the filing of the Title 11 case, or (ii) arose in the
ordinary course of the trade or business of the old loss corporation and is
held by the person who at all times held the beneficial interest in such
indebtedness (hereinafter such a creditor is sometimes referred to as a
"qualified creditor"). Pursuant to Treasury Regulations under Section
382(l)(5) of the Tax Code, options or warrants to acquire stock that are
outstanding at the time of an "ownership change" (including options or warrants
created pursuant to a plan of reorganization in a Title 11 case) are generally
deemed exercised upon such "ownership change" if such deemed exercise would
cause the shareholders and qualified
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creditors immediately before such "ownership change" to fail to meet the
50-percent threshold requirement of Section 382(l)(5) of the Tax Code. An
"option" for this purpose is construed broadly to include any written or
unwritten right to acquire stock, even if such right is contingent or is not
immediately exercisable.
Under the Treasury Regulations, for purposes of applying the
50-percent threshold requirement, beneficial ownership of a debt instrument is
determined without applying the attribution rules (i.e., the rule that
disregards intervening entities between the loss corporation and indirect
individual owners) under the general Section 382 rules stated above. A
creditor that is a corporation or another type of entity and that would have
otherwise been treated as a qualified creditor will cease to be treated as
such, if (i) such qualified creditor itself undergoes an ownership change as if
the creditor were a loss corporation and (ii) the debt or claim represents more
than 25% of the fair market value of the total gross assets of the beneficial
owner on such beneficial owner's change date (excluding any cash or cash
equivalents). Under the Treasury Regulations, a creditor who did not hold the
indebtedness from inception can be treated as holding the indebtedness for the
period prior to acquiring ownership in certain very limited circumstances, such
as a transfer from a family member or a related entity, or a transfer pursuant
to a subrogation right against the loss corporation or pursuant to a commercial
factoring transaction within 30 days after the account arose. Further, the
Treasury Regulations impose upon the loss corporation a duty to inquire that
the creditor meets the requirements to be a qualified creditor.
Such duty of inquiry does not apply in one situation. The loss
corporation is permitted to assume that an indebtedness was always owned by the
beneficial owner of the indebtedness immediately before an ownership change if
the beneficial owner is not, immediately after the ownership change, either a
5-percent shareholder or an entity through which a 5-percent shareholder owns
an indirect ownership interest in the loss corporation (a 5-percent entity).
This assumption does not apply to indebtedness beneficially owned by a person
whose participation in formulating a plan of reorganization makes evident to
the loss corporation that the person has not owned the indebtedness for the
requisite period. For purposes of this rule, the loss corporation must treat
as a 5-percent shareholder any person that would be a 5-percent shareholder
immediately after ownership change as a result of the exercise of an option to
acquire or dispose of stock of the loss corporation, if the loss corporation
has actual knowledge of such option. An option for this purpose is construed
broadly to include any written or unwritten right to acquire stock even if such
right is contingent or not immediately exercisable. In certain situations, the
loss corporation must treat as a 5-percent shareholder a person who indirectly
owns 5
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percent or more of the loss corporation, if the loss corporation has actual
knowledge of such indirect ownership.
Based on the Reorganized Company's understanding of the current status
and ownership of the Class 7A Claims, the Reorganized Company currently
anticipates that under the Plan the 50-percent threshold requirement of Section
382(l)(5) of the Tax Code as described above should be met. Under the Plan,
the holders of 1995 Notes and Trade Claims will receive 57 percent of the
Common Stock. Thus, the qualified creditors should own approximately 57
percent of the Reorganized Company upon consummation of the Plan. The
Reorganized Company, as of the date hereof, does not believe that any holder of
1995 Notes or Trade Claims will be a 5-percent shareholder of the Reorganized
Company under the Plan and is not aware that a person involved in formulating
the Plan has held the 1995 Notes or Trade Claims less than the required period.
However, there can be no certainty that this 50-percent threshold requirement
will be met as of the consummation of the Plan. The Reorganized Company's
ability to meet the threshold requirement could be adversely affected if there
are subsequent significant shifts in the ownership of the 1995 Notes and the
Trade Claims to persons who are 5-percent shareholders upon consummation of the
Plan or would be 5-percent shareholders upon exercise of any option (contingent
or otherwise) to acquire Common Stock. FMAC has obtained entry of an interim
order establishing notice procedures before trading in 1995 Subordinated Reset
Notes and general unsecured claims or 5% blocks of the existing equity are
deemed effective so that FMAC can review and monitor such proposed transactions
for their effect on the NOL. These procedures do not apply to the 1996
Subordinated Reset Notes.
Thus, under Section 382(l)(5) of the Tax Code, the Reorganized Company
would avoid entirely the application of the Section 382 Limitation to the NOLs
and recognized built-in losses, if any, but would, however, be required to
reduce its NOLs and possibly other tax attributes by any deduction for interest
claimed by the Reorganized Company with respect to any indebtedness converted
into Common Stock for (a) the 3-year period preceding the taxable year of the
"ownership change" and (b) the portion of the year of the "ownership change"
prior to the consummation of the Plan. The amount of NOL reduction that would
be required under Section 382(l)(5) of the Tax Code is estimated to be
approximately $4 million. The Reorganized Company believes that as a result of
the Plan qualifying under Section 382(l)(5) of the Tax Code, FMRCC, FMARC and
FMARC II, other members of the FMAC consolidated tax group, should be treated
as benefitting from Section 382(l)(5) treatment. This treatment it is believed
is necessitated by the `single entity method' and `parent change method'
applicable to members of the consolidated group and the fact that the
application of Section
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382(l)(5) of the Tax Code to FMAC consolidated group is not inconsistent with
the policies underlying Section 382(l)(5) of the Tax Code. Even if the IRS
should assert that Section 382(l)(5) does not so apply, substantially all of
the NOL carryforwards is an NOL attributable to the Reorganized Company and the
application of such NOLs carryforward should substantially offset the adverse
impact of any Section 382 Limitation applicable to FMRCC, FMARC and FMARC II.
Under Section 382(l)(5)(D) of the Tax Code, if a second "ownership
change" with respect to the Reorganized Company occurs within the two-year
period following the consummation of the Plan, the Section 382(l)(5) exception
will not apply and any NOLs and other pre-change losses remaining after the
second "ownership change" will be eliminated. This result would cause the
Reorganized Company to owe federal income tax in excess of the amount otherwise
payable in the case absent such an "ownership change" and would have a
significant negative impact upon the projections contained in the Plan. In
order to avoid such an "ownership change", the Plan prohibits the transfer of
the Common Stock for a two year period following the consummation of the Plan.
(2) Section 382(l)(6) of the Tax Code
If the Reorganized Company were to determine that either (i) the risk
of the occurrence of a second "ownership change", or (ii) the NOL reduction
under Section 382(l)(5) of the Tax Code is too substantial, the Reorganized
Company could elect out of the application of Section 382(l)(5) of the Tax
Code. In that event, or if the requirements of Section 382(1)(5) of the Tax
Code are not satisfied, Section 382(l)(6) of the Tax Code would provide that
the limitation under Section 382 of the Tax Code would generally be the same as
the general Section 382 Limitation (discussed above) except that the value of
the loss corporation would reflect the increase (if any) in value of the old
loss corporation resulting from the surrender or cancellation of creditors'
claims pursuant to the bankruptcy plan.
Under the Plan, the Common Stock is anticipated to have a value of
approximately $3 million, after the cancellation of a portion of the Notes in
exchange for the Common Stock and New Debt. Thus, under the Plan, Section
382(l)(6) of the Tax Code would not provide any material benefit.
(3) Section 269 of the Tax Code
In addition to the limitations on the use of NOL carryovers set forth
in Section 382 of the Tax Code, Section 269 of the Tax Code authorizes the IRS
to disallow any deduction of the Reorganized Company's NOL carryforward if
holders of Class 7A
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Claims are determined to have acquired control of the Reorganized Company
principally for tax avoidance purposes. Under the Treasury Regulations, in the
case of an ownership change to which Section 382(l)(5) of the Tax Code applies,
a presumption exists that the principal purpose of the acquisition was tax
avoidance unless the corporation carries on more than an insignificant amount
of business activities during and after the Title 11 proceeding. The test
applied under Section 269 of the Tax Code is not the continuity of business
enterprise requirement under Section 382 of the Tax Code. See Section D.2.a.
"Federal Income Tax Consequences to the Reorganized Company--Net Operating Loss
Carryforward and Built-in-Losses of the Reorganized Company--Section 382 of the
Tax Code - General Rules". Whether holders of Class 7A Claims are acquiring
control of the Reorganized Company principally for tax avoidance purposes
primarily is a question of fact. However, due to the anticipated continued use
of substantially all of the Reorganized Company's assets (provided that the
Owned Loan transaction is treated as a financing for federal income tax
purposes) the Reorganized Company believes that the IRS is not likely to
challenge the deductibility of the Reorganized Company's NOL carryforward under
Section 269 of the Tax Code and that such a challenge, if made, should not be
sustained. Nevertheless, there can be no assurance that the IRS will not
challenge the utilization of the Reorganized Company's NOL carryforward by
holders of Class 7A Claims on the basis of Section 269 of the Tax Code.
3. Deduction of OID on the New Debt
The Reorganized Company will be able to claim deductions for OID on
the New Debt using the economic accrual method, without regard to the payment
of such OID. See Section A.4.a. "Federal Income Tax Consequences to Subclass
7a-1 and 7a-2 Creditors--Consequences of Ownership and Sale of New Debt or
Common Stock and--Original Issue Discount" above. Generally, each year
the Reorganized Company will be able to claim an interest deduction for the
yield on the New Debt multiplied times the adjusted issue price of the New
Debt.
4. Income of the Reorganized Company, FMARC and FMARC II
It is anticipated that the FMARC and FMARC II subsidiaries of the
Reorganized Company will continue for a period of time to recognize taxable
income with respect to the B Pieces in excess of the cash available for
distribution to the Reorganized Company. Such income will constitute income of
the Reorganized Company in a tax consolidation. However, it is possible, due
to differences in timing between the recognition of income and losses, that the
Reorganized Company may have taxable income for one or more years, in excess of
the remaining amount of the
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Reorganized Company's NOL carryforward, resulting in a liability for taxes.
5. Alternative Minimum Tax.
A corporation must pay an alternative minimum tax ("AMT") equal to 20
percent of its alternative minimum taxable income ("AMTI") reduced by certain
credits allowable for AMT purposes to the extent that the AMT exceeds the tax
of the corporation calculated at the normal progressive income tax rates. In
calculating the AMTI, a corporation's income and losses are subject to various
adjustments. For example, in computing AMTI, a corporation's NOL's are
adjusted for the adjustments and preferences under the AMT sections of the Tax
Code and such resulting NOLs can be utilized to offset up to 90 percent of the
corporation's AMTI (determined prior to the NOL deduction). However, COD
income that is excluded from taxable income under the rules discussed above in
Section D.1. "Federal Income Tax Consequences to the Reorganized
Company--Realization of Cancellation of Indebtedness Income" similarly is
excluded from AMTI. As a result of limitations on the use of the Reorganized
Company's NOLs and the reduced annual amount of depreciation used in
calculating AMTI, it is possible that the Reorganized Company may be required
to pay AMT even though the Reorganized Company may not otherwise be required to
pay regular federal income tax. FMAC estimates that the amount of any such AMT
should not exceed $300,000.
E. Withholding and Reporting
The Reorganized Company will withhold all amounts required by law to
be withheld from payments of interest or dividends. The Reorganized Company
will comply with all applicable reporting requirements of the Tax Code.
F. Importance of Obtaining Professional Assistance
AS INDICATED ABOVE, THE FOREGOING IS INTENDED TO BE A SUMMARY ONLY AND
NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING WITH A TAX PROFESSIONAL. THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE PLAN ARE COMPLEX AND, IN SOME
CASES, UNCERTAIN. ACCORDINGLY, EACH HOLDER OF A CLAIM OR INTEREST IS STRONGLY
URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR REGARDING THE FEDERAL STATE
AND LOCAL TAX CONSEQUENCES OF THE PLAN WITH RESPECT TO THAT PERSON.
VIII. CERTAIN SECURITIES LAW AND OTHER CONSIDERATIONS
The issuance and transfer of the Common Stock of the Reorganized
Company (the "Common Stock"), the New Debt, the UDC Warrants and shares of UDC
common stock issuable upon exercise of
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the UDC Warrants (the "UDC Warrant Shares") and the possible issuance of Stock
Option Shares by UDC (each as described in Section V of this Disclosure
Statement above) raise several potential legal issues under the securities
laws, which are discussed in this section.
THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE ANY OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY THE UDC WARRANTS, UDC WARRANT SHARES OR THE
STOCK OPTION SHARES DESCRIBED HEREIN, AND THE OFFERING OF SUCH WARRANTS AND/OR
SHARES WILL BE MADE ONLY BY MEANS OF A PROSPECTUS THAT IS PART OF A
REGISTRATION STATEMENT OF UDC FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
(THE "COMMISSION") UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS
DISCLOSURE STATEMENT AND THE PLAN HAVE NOT BEEN PREPARED BY ANY OTHER PARTY
BESIDES THE DEBTORS AND NO OTHER PARTY, INCLUDING UDC, MAKES ANY
REPRESENTATIONS WITH RESPECT TO THE INFORMATION INCLUDED HEREIN OR IN ANY
EXHIBITS HERETO (EXCEPT THAT UDC PREPARED THE PROSPECTUS ATTACHED AS EXHIBIT V
HERETO WITH RESPECT TO THE UDC WARRANTS, UDC WARRANT SHARES AND STOCK OPTION
SHARES AS DESCRIBED THEREIN, WITH RESPECT TO WHICH THE DEBTORS MAKE NO
REPRESENTATIONS AND ASSUME NO RESPONSIBILITY FOR THE ACCURACY OR ADEQUACY
THEREOF) AND ASSUMES NO RESPONSIBILITY FOR THE ACCURACY OR ADEQUACY THEREOF.
WITHOUT LIMITATION OF THE FOREGOING, UDC HAS NOT EVALUATED AND CONFIRMED THE
PROJECTIONS AND OTHER FINANCIAL INFORMATION CONTAINED HEREIN AND IN EXHIBITS II
AND III HERETO NOR THE REASONABLENESS OF ANY ASSUMPTIONS ON WHICH SUCH
PROJECTIONS AND OTHER FINANCIAL INFORMATION IS BASED AND ASSUMES NO
RESPONSIBILITY FOR THE ACCURACY OR ADEQUACY THEREOF.
THE DEBTORS HAVE NOT RECEIVED ADVICE OR OTHER ACTION FROM THE
COMMISSION OR ANY STATE SECURITIES COMMISSION WITH RESPECT TO ANY MATTER
DISCUSSED HEREIN.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE COMMISSION NOR
ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED
HEREIN.
THIS DISCLOSURE STATEMENT INCLUDES CERTAIN STATEMENTS, ESTIMATES AND
PROJECTIONS PROVIDED BY THE DEBTORS WITH RESPECT TO THE ANTICIPATED FUTURE
PERFORMANCE OF THE REORGANIZED COMPANY. SUCH STATEMENTS, ESTIMATES AND
PROJECTIONS REFLECT VARIOUS ASSUMPTIONS CONCERNING ANTICIPATED RESULTS, WHICH
ASSUMPTIONS MAY OR MAY NOT PROVE TO BE CORRECT. THE DEBTORS DO NOT UNDERTAKE
ANY OBLIGATION TO PROVIDE ADDITIONAL INFORMATION OR TO CORRECT OR UPDATE ANY OF
THE INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT OR THE EXHIBITS THERETO.
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A. INITIAL ISSUANCE OF COMMON STOCK AND NEW DEBT
Section 1145 of the Bankruptcy Code provides that the securities
registration requirements of the Securities Act of 1933, as amended ("1933
Act"), and similar state and local laws do not apply to the offer or sale of
stock, warrants or other securities issued by a debtor (or its successor) if
(i) the offer or sale occurs under a plan and (ii) the securities are
transferred in exchange (or principally in exchange) for a claim against or
interest in a debtor. Accordingly, under Section 1145 of the Bankruptcy Code,
the issuance of Common Stock and New Debt to the holders of Class 7A Claims
pursuant to the Plan is exempt from registration under such 1933 Act and
similar state and local securities laws. However, the issuance of the New Debt
is subject to the registration requirements of the Trust Indenture Act of 1939.
See Item E below.
B. TRANSFER OF COMMON STOCK AND NEW DEBT
Any person other than the Debtors who is not an "underwriter" under
Section 1145 of the Bankruptcy Code or a "dealer" under the 1933 Act, and who
transfers the Common Stock or New Debt received under the Plan need not comply
with the registration requirements of the 1933 Act or under the state "blue
sky" laws. However, there is a prohibition against trading or accumulating any
Common Stock in the Reorganized Company until after the second anniversary of
the Effective Date of the Plan as described in Item C below.
The term "underwriter," as used in Section 1145 of the Bankruptcy
Code, includes four categories of persons, which are referred to in this
Disclosure Statement as "Controlling Persons," "Accumulators," "Distributors"
and "Syndicators." Dealers and the four types of underwriters are discussed
below. EACH PARTY RECEIVING COMMON STOCK OR NEW DEBT PURSUANT TO THE PLAN IS
URGED TO CONSULT ITS OWN LEGAL ADVISORS TO DETERMINE WHETHER SUCH PARTY MAY BE
DEEMED A DEALER OR UNDERWRITER UNDER THESE DEFINITIONS.
1. CONTROLLING PERSONS
"Controlling Persons" are persons who, after the Effective Date, have
the ability, whether direct or indirect and whether formal or informal, to
control the management and policies of the Reorganized Company. Whether a
person has such power depends on a number of factors, including the person's
equity in the Reorganized Company relative to other equity holders, and whether
the person, acting alone or in concert with others, has a contractual or other
relationship giving that person power over management policies and decisions.
Controlling Persons are permitted to sell or otherwise dispose of Common Stock
or New
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Debt only by complying with the registration requirements of the 1933 Act and
state "blue sky" laws, or an exemption therefrom.
Directors, executive officers and beneficial owners of 10% or more of
the outstanding stock of any issuer may be presumed to be controlling persons
of that issuer and thus an underwriter for purposes of Section 1145 of the
Code.
2. ACCUMULATORS AND DISTRIBUTORS
"Accumulators" are persons who purchase a claim against or interest in
the Debtors with a view to distribution of any Common Stock or New Debt to be
received under the Plan in exchange for such claims or interest. "Distributors"
are persons who offer to sell Common Stock or New Debt for the holders of those
securities.
3. SYNDICATORS
"Syndicators" are persons who offer to buy Common Stock or New Debt
from the holders with a view to distribution, under an agreement made in
connection with the Plan, with consummation of the Plan or with the offer or
sale of securities under the Plan. The Debtors are not aware of any
arrangements for the resale of Common Stock or New Debt which would make any
person a Syndicator.
4. DEALERS
"Dealers" are persons who engage either for all or part of their time,
directly or indirectly, as agent, broker, or principal, in the business of
offering, buying, selling, or otherwise dealing or trading in securities.
Section 4(3) of the 1933 Act exempts transactions in Common Stock or New Debt
by dealers taking place more than 40 days after the Effective Date. Within the
40-day period after the Effective Date, transactions by dealers who are
stockbrokers are exempt from the registration requirements of the 1933 Act and
similar state and local laws pursuant to Section 1145(a)(4) of the Bankruptcy
Code, as long as the brokers deliver a copy of this Disclosure Statement (and
supplements hereto, if any, as ordered by the Court) at or before the time of
delivery of Common Stock or New Debt to their customers. This requirement
specifically applies to trading and other after-market transactions in such
securities.
C. ABSENCE OF MARKET FOR COMMON STOCK AND NEW DEBT; TWO YEAR LIMITATION
ON TRADING OF COMMON STOCK IN REORGANIZED COMPANY
Although it is contemplated that the Reorganized Company will file
reports (such as Forms 10-K, 10-Q and 8-K with the Commission under the
Securities Exchange Act of 1934, as amended
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(the "1934 Act"), the Common Stock and New Debt in the Reorganized Company
(unlike the pre-petition shares of Common Stock in FMAC which were quoted on
the Nasdaq Stock Market until their delisting following the commencement of
these Cases) will not be quoted in the Nasdaq Stock Market or listed on any
national securities exchange. The Debtors note that the value of the Common
Stock and New Debt may be adversely affected by the absence of the Nasdaq Stock
Market or any securities exchange on which to trade Common Stock or New Debt.
There will also be a prohibition against trading or accumulating any Common
Stock in the Reorganized Company until after the second anniversary of the
Effective Date of the Plan (which second anniversary is anticipated to occur
around March, 2000.)
D. INVESTMENT COMPANY ACT OF 1940 (THE "1940 ACT")
It is not anticipated that the Reorganized Company will be required to
register as an investment company under the 1940 Act because the Reorganized
Company has the following characteristics: (i) the Reorganized Company will be
liquidated in accordance with the terms of the Plan over a period not to exceed
five years after the Effective Date of the Plan, unless extended by the
Bankruptcy Court for an additional period determined to be necessary for the
Reorganized Company to complete the distribution of its assets, (ii) the
Reorganized Company will not conduct a trade or business, will exist solely for
the purposes of liquidating its assets, satisfying its liabilities and
obligations and distributing the net proceeds thereof in accordance with the
terms of the Plan and will not make any investments, except for temporary
investments in cash, money market instruments, short-term government securities
or other short-term investment grade securities pending the distribution of
liquidation proceeds, (iii) the Reorganized Company will not hold itself out as
an investment company, but rather as a liquidating entity, (iv) the Reorganized
Company will not issue any equity or debt securities required to be registered
under the 1933 Act, (v) the Reorganized Company will comply with the reporting
requirements of the 1934 Act, (vi) the Reorganized Company will establish
personnel policies designed to avoid the possibility of self-dealing by the
Reorganized Company's officers, directors or employees in connection with sales
or other dispositions of property held by the Reorganized Company and (vii)
although the New Debt is transferrable for the benefit of the FMAC Creditors
and the Common Stock will be transferable after the second anniversary of the
Effective Date of the Plan, the Reorganized Company will not (a) cause its New
Debt or Common Stock to be listed on any national securities exchange or the
Nasdaq Stock Market, (b) engage the services of any market maker, facilitate
the development of an active trading market for such New Debt or its Common
Stock or encourage others to do so, (c) place advertisements in the media
promoting investment in such
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New Debt or its Common Stock or (d) except as required under Item 201(a) of
Regulation S-K under the 1934 Act, collect or publish information about prices
at which such New Debt or its Common Stock may be transferred.
Since the purpose of the Reorganized Company is to receive value for
its assets in connection with its liquidation and dissolution, the Reorganized
Company believes that it should be exempt from the registration requirements of
the 1940 Act on the basis that it is not "engaged ... in the business of
investing, reinvesting, holding or trading in securities ..." However, even if
the Reorganized Company is deemed to be an investment company, Sections 7(a)
and 7(b) of the 1940 Act, which prohibit an investment company from transacting
business in interstate commerce or effecting transactions in securities unless
the investment company is registered under the 1940 Act, are specifically not
applicable to transactions of an investment company which are merely incidental
to its dissolution. The Commission's Staff has stated that it would not
recommend enforcement action with respect to the operation of liquidating
entities with similar characteristics to those discussed above without
registration under the 1940 Act.
E. DESCRIPTION OF INDENTURE FOR THE NEW DEBT
The New Debt is to be issued under an Indenture (the "Indenture")
between the Reorganized Company and IBJ Schroder Bank & Trust Company, as
Trustee (the "Trustee"), the form of which is filed as Exhibit F to the Plan.
The following statements, unless the context otherwise requires, are summaries
of the substance or general effect of certain provisions of the Indenture, do
not purport to be complete and are qualified in their entirety by reference to
the Indenture. Unless otherwise defined herein, capitalized terms used in this
section have the same meanings as defined in the Indenture.
The New Debt will be limited to $44,000,000 aggregate principal
amount. The New Debt will be issued in fully registered form only, without
coupons. The New Debt will be direct, unsecured obligations of the Reorganized
Company. The New Debt will not be subject to any sinking fund.
CASH FLOW PAYMENTS
The Stated Maturity of the New Debt is four years and eleven months
after the Effective Date. Installments of cash flow Payments, if any are due
and payable pursuant to the terms of the notes evidencing the New Debt and the
Indenture, shall be payable quarterly on the last business day of March, June,
September and December of the applicable year, commencing June 30, 1998 (each,
a "Payment Date"), until the earlier of (a) such time as all of
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the Payments have been paid in full, or (b) four years and eleven months after
the Effective Date. Each installment of cash flow Payments prior to the Stated
Maturity shall be in an amount equal to the Available Cash, if any, on the date
that is ten business days prior to the date of such installment and shall be
applied first to the payment of Interest and then to the payment of Principal.
Notwithstanding the foregoing, the Reorganized Company does not anticipate that
there will be any Available Cash to make cash flow Payments until spring or
summer of the year 2000 and in the event that the Available Cash on the date
that is ten business days prior to the date of such installment is less than
$300,000, the Reorganized Company may elect not to make a quarterly installment
of cash flow Payments to the holders of the New Debt on the date that such
installment would otherwise be due and the Reorganized Company may elect not to
make any future quarterly installment of cash flow Payments to the holders of
the New Debt until additional Available Cash is received by the Reorganized
Company which, when aggregated with existing Available Cash, would equal or
exceed $300,000, as of the date that is ten business days prior to the date of
such installment (the "De Minimis Exception").
The Reorganized Company will pay on each Payment Date on behalf of
each person in whose name New Debt is registered at the close of business on
the Regular Record Date preceding such Payment Date such person's Applicable
Share of the Payments, if any are due and payable to such person's subclass
pursuant to and in accordance with the terms of the notes evidencing the New
Debt and the Indenture. Payments will be made in such coin or currency of the
United States of America as at the time of payment is legal tender for public
and private debts, in Stock Option Shares (as defined in the Plan) with a value
equal to the Stock Option Value (as defined in the Plan) or in UDC Warrant
Shares or UDC Warrants with a value equal to the fair market value of such
securities on the date of distribution to the holders of the New Debt as
determined in accordance with the terms of the Plan and the Indenture.
Pursuant to the Indenture, the Reorganized Company will initially appoint the
Trustee as the paying agent under the Indenture. Payments on the New Debt
shall be paid at the main office of the Trustee; provided, however, that the
Payment of any New Debt may be payable, at the option of the Reorganized
Company, by wire transfer of Federal funds or by check, Stock Option Shares,
UDC Warrant Shares or UDC Warrants mailed to the person entitled thereto as
such person's address shall appear on the register for the New Debt.
DISCHARGE OF INDENTURE
The Indenture will provide that the Reorganized Company will be
discharged from any and all obligations in respect of the New Debt upon deposit
with the Trustee, in trust, of money sufficient
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to pay the entire amount of Payments payable with respect to the New Debt.
Such a trust may only be established if, among other things, (i) the
Reorganized Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel each stating that the conditions precedent provided for
in the Indenture relating to satisfaction and discharge of the Indenture have
been complied with, and (ii) the Reorganized Company has paid all other sums
payable by it under the Indenture.
NO REDEMPTION
The New Debt will not be redeemable prior to the time that the
Payments are otherwise due and payable pursuant to the terms of the notes
evidencing the New Debt and the Indenture.
EVENTS OF DEFAULT; NOTICE AND WAIVER
The following will be Events of Default: (i) default in the payment
of Principal or Interest, when due, which continues for five days; (ii)
default in the performance, or any breach, of any other covenant of the
Reorganized Company set forth in the Indenture, which continues for 30 days
after written notice of such occurrence is given to the Reorganized Company by
the Trustee or holders of not less than 25% in Principal amount of the then
outstanding New Debt; (iii) material default in the performance, or any
material breach, of any covenant of the Reorganized Company contained in the
Plan, which remains uncured for 30 days after written notice of such occurrence
is given to the Reorganized Company by the Trustee or the holders of not less
than 25% in Principal amount of the outstanding New Debt; (iv) filing by the
Reorganized Company of a subsequent bankruptcy case or conversion of the FMAC
case to Chapter 7 or (v) the entry of a judgment that does not conflict with
the terms of the Plan which results (after provision for the proceeds of any
policies of insurance) for liability in excess of $400,000.
The Reorganized Company is required to deliver quarterly to the
Trustee an officers' certificate as to the absence or existence of any default
in the performance of any obligation contained in the Indenture during the
preceding quarter.
The Indenture provides that the Trustee will, within 60 days after
obtaining notice of the occurrence of a default, give the holders of New Debt
notice of all uncured defaults known to it; but, except in the case of a
default in the payment of Principal of or Interest on any of the New Debt, the
Trustee shall be protected in withholding such notice if it in good faith
determines that the withholding of such notice is in the interest of such
holders of New Debt.
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If an Event of Default shall occur and be continuing, the Trustee may,
at its election, and shall, upon the written direction of the holders of not
less than 25% in aggregate Principal amount of outstanding New Debt, declare
the New Debt immediately due and payable. Upon the occurrence of an Event of
Default, the Trustee may commence a suit to protect and enforce its rights and
the rights of the holders of the New Debt, whether for the specific performance
of any covenant or agreement contained in the Indenture or for the enforcement
or any other legal or equitable remedy. Upon the written request of the
holders of a majority in Principal amount of the outstanding New Debt, in case
an Event of Default shall have occurred, it is the duty of the Trustee, upon
being indemnified as provided in the Indenture, to exercise one or more of the
remedies available for the protection and enforcement of its rights and the
rights of the holders of the New Debt (including the taking of appropriate
judicial proceedings by action, suit or otherwise) as the Trustee deems best.
The holders of a majority in Principal amount of outstanding New Debt may
direct the time, method and places of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred upon the
Trustee, subject to certain limitations set forth in the Indenture. In the
event that any provision of the Indenture conflicts with any provision of the
Plan, the provision of the Plan will control (subject to the provisions of the
Trust Indenture Act of 1939).
The holders of not less than a majority of the aggregate Principal
amount of outstanding New Debt may on behalf of all of the holders of New Debt
waive certain past defaults, but not a default in payment of Principal of or
Interest on any note evidencing New Debt.
RESTRICTIONS ON ADDITIONAL INDEBTEDNESS
The Reorganized Company is prohibited by the Indenture from incurring
any Indebtedness other than Indebtedness contemplated by the Plan (including
Indebtedness incurred pursuant to the DIP Financing and Overadvance Facility).
MERGER, CONSOLIDATION OR SALE OF ASSETS; SUCCESSOR CORPORATION
The Reorganized Company has covenanted that it will not merge or
consolidate with, or, other than as part of a loan securitization or sale
entered into in the ordinary course of business, sell or convey all or
substantially all of its assets to, any person, firm or corporation unless the
Reorganized Company is the continuing corporation in such transaction and is
not in default under the Indenture or, if it is not the continuing corporation,
the successor corporation is a corporation organized under the laws of the
United States of
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America, expressly assumes the Reorganized Company's obligations under the
Indenture and, immediately after such transaction, the successor corporation is
not in default under the Indenture. Any successor corporation shall succeed to
and be substituted for the Reorganized Company as if such successor corporation
has been named as the Reorganized Company in the Indenture.
MODIFICATION OF THE INDENTURE
Modifications of and amendments to the Indenture may be made by the
Reorganized Company and the Trustee with the consent of the holders of a
majority of the aggregate Principal amount of outstanding New Debt, provided
that no such modification or amendment may (i) change the Stated Maturity of
the New Debt or reduce the Payments on any note evidencing New Debt or change
the currency in which the New Debt is to be paid, without the consent of each
holder of any New Debt affected thereby, or (ii) reduce the percentage of
holders of New Debt necessary to modify or alter the Indenture, without the
consent of the holders of all New Debt then outstanding.
THE TRUSTEE
IBJ Schroder Bank & Trust Company is the Trustee under the Indenture.
Its principal corporate trust office is located at One State Street, New York,
New York 10004.
The Indenture contains a provision pursuant to which the Reorganized
Company will indemnify the Trustee against any and all losses, liabilities or
expenses incurred by the Trustee in connection with its execution and
performance of the Indenture; provided, however, that such indemnification will
not extend to losses resulting from the negligence or bad faith of the Trustee.
The Trustee is not required to take any action at the direction of the holders
of New Debt unless the holders of New Debt have provided the Trustee with a
reasonable indemnity. The Indenture also provides that the Reorganized Company
will pay to the Trustee reasonable compensation for all services rendered by it
and will reimburse the Trustee for its incurred reasonable costs. The
Indenture will provide that, subject to the duty of the Trustee during default
to act with the required standard of care, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the holders of New Debt, unless such holders of
New Debt shall have offered to the Trustee reasonable indemnity.
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F. ISSUANCE AND TRANSFER OF UDC WARRANTS, UDC WARRANT SHARES AND STOCK
OPTION SHARES; ABSENCE OF MARKET FOR UDC WARRANTS; LIABILITY RISK TO
REORGANIZED COMPANY
On the Effective Date, UDC will issue the UDC Warrants to the
Reorganized Company, which warrants will either be distributed by the
Reorganized Company in accordance with the terms of the Plan or retained by the
Reorganized Company and the proceeds from any sale or exercise of the UDC
Warrants will be distributed in accordance with the terms of the Plan. If UDC
exercises its one-time option to issue its common stock in exchange for FMAC's
share of B Piece Distributions and any excess from the Owned Loan sale under
the Excess Collections Contribution Agreement, then creditors will receive such
UDC common stock as Stock Option Shares.
The UDC Warrants, the UDC Warrant Shares issuable upon exercise of the
UDC Warrants and the Stock Options Shares are being registered by UDC under the
1933 Act pursuant to a Registration Statement filed with the Commission. Each
creditor and interestholder should refer to the prospectus attached as Exhibit
V hereto for a description of UDC and its business. THE DEBTORS MAKE NO
REPRESENTATION WITH RESPECT TO ANY OF THE INFORMATION CONTAINED IN THE
PROSPECTUS ATTACHED AS EXHIBIT V HERETO. Because the UDC Warrants, UDC Warrant
Shares and the Stock Option Shares are being registered under the 1933 Act,
persons who receive UDC Warrants, UDC Warrant Shares or any Stock Option Shares
under the Plan (other than the Reorganized Company) and who are not affiliates
of UDC may resell the UDC Warrants, the UDC Warrant Shares and the Stock Option
Shares without any restrictions under the federal securities laws. Holders of
UDC Warrants, UDC Warrant Shares or Stock Option Shares who are affiliates of
UDC must comply with the provisions of Rule 144 under the 1933 Act in
connection with any resale of UDC Warrants, UDC Warrant Shares or any Stock
Option Shares. An "affiliate" of UDC is a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, UDC. HOLDERS OF UDC WARRANTS, UDC WARRANT SHARES OR STOCK
OPTION SHARES SHOULD CONSULT WITH THEIR LEGAL ADVISORS TO DETERMINE AFFILIATE
STATUS PRIOR TO SELLING ANY UDC WARRANTS, UDC WARRANT SHARES OR STOCK OPTION
SHARES. IF THE REORGANIZED COMPANY DECIDES TO SELL ANY UDC WARRANTS OR UDC
WARRANT SHARES AND DISTRIBUTE THE PROCEEDS THEREOF IN ACCORDANCE WITH THE TERMS
OF THE PLAN IN LIEU OF MAKING A DIRECT DISTRIBUTION OF THE UDC WARRANTS OR THE
UDC WARRANT SHARES, AND THE UDC PROSPECTUS ATTACHED HERETO AS EXHIBIT V CAN NO
LONGER BE UTILIZED IN CONNECTION WITH SUCH SALE IN ACCORDANCE WITH THE 1933
ACT, THE REORGANIZED COMPANY WILL NOT BE ABLE TO SELL THE UDC WARRANTS OR THE
UDC WARRANT SHARES UNLESS SUCH SECURITIES ARE REGISTERED UNDER THE 1933 ACT OR
AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
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Although the UDC common stock is quoted on the Nasdaq Stock Market,
the UDC Warrants will not be listed on any national securities exchange or
quoted on the Nasdaq Stock Market. The Debtors note that the value of the UDC
Warrants may be adversely affected by the absence of a securities exchange or
stock market on which to trade UDC Warrants.
The Reorganized Company will be an "underwriter" (as defined in the
1933 Act) of the UDC Warrants, the UDC Warrant Shares and the Stock Option
Shares to the extent that it participates, directly or indirectly, in the
distribution of such securities. As an underwriter, the Reorganized Company
may be liable under the 1933 Act for any material misstatement or omission in
the registration statement filed with the Commission by UDC relating to such
securities to persons who acquired such securities, who may be able to claim
rescission or damages or other relief. The Reorganized Company may also be
subject to similar liability under state "Blue Sky" securities laws. While the
Reorganized Company expects to obtain UDC's agreement to indemnify the
Reorganized Company for certain of such liabilities, there can be no assurance
that UDC will agree to such indemnification or that, if agreed to by UDC, such
indemnification would be enforceable, complete or adequate to satisfy any such
liabilities to which the Reorganized Company may become subject.
IX. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
If the Plan is not confirmed or consummated, the alternatives include,
in addition to dismissal of the Cases, (a) liquidation of the Debtors under
Chapter 7 of the Code or (b) an alternative plan.
If no plan can be confirmed or the Court determines other cause exists
for conversion, the Chapter 11 Cases may be converted to cases under Chapter 7
of the Bankruptcy Code. In Chapter 7, a trustee would be elected or appointed
to liquidate the assets of the Debtors for distribution to Creditors in
accordance with priorities established by the Bankruptcy Code.
The Debtors believe that liquidation under Chapter 7 would result in
little aggregate distributions to unsecured creditors (5 cents to 20 cents on
the dollar, in contrast to the substantial expected distributions over
time under the Plan) due to primarily the following: (a) FMAC believes that
FSA would attempt to terminate FMAC as servicer and transfer the function to
one or more third parties, which would result in a loss of servicing income
(currently such income is approximately $1.1 million a month), (b) FSA may
attempt to take other steps, such as foreclosing on its collateral, including
the stock of FMARC II in appropriate circumstances, which could have the effect
of reducing or eliminating potential recoveries on the B Pieces,
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(c) the fact that FMAC's assets would be valued at quick sale liquidation as
opposed to values achievable over a longer organized collection and liquidation
of those assets, (d) depressed asset values associated with a Chapter 7
disposition of assets, (e) additional administrative expenses involved in the
appointment of a trustee, attorneys and other professionals to assist such
trustee and their need to extensively study these Cases in order to fulfill
their fiduciary duties, and (f) delays while a Chapter 7 Trustee employs
professionals to analyze issues and research the background of the Debtors,
their assets and liabilities and the recovery analysis. Indeed, the Debtors'
liquidation analysis concludes that little distributions would be made to
unsecured creditors under a Chapter 7 liquidation. A copy of the liquidation
analysis is attached hereto as Exhibit II.
If the Debtors' exclusive period to file a plan and solicit
acceptances of a plan has expired pursuant to Section 1121 of the Bankruptcy
Code, other parties could propose their own plans for the Debtor. By virtue of
the timely filing of the Plan and this Disclosure Statement, FMAC's current
exclusive right to file a plan continues through February 6, 1998 and FMAC's
current exclusive right to solicit ballots continues through April 17, 1998
without prejudice to FMAC's and FMRCC's right to seek a further extension of
their rights to solicit acceptance of the Plan.
The Debtors believe that confirmation and implementation of the Plan
are preferable to either of the above- described alternatives and recommend
that all Creditors vote in favor of the Plan.
X. VOTING INSTRUCTIONS
A. CLASSES ENTITLED TO VOTE
Classes 3, 4, 5, 6, 7A-1, 7A-2, 7B and 8A are impaired and may receive
or retain property pursuant to the Plan; therefore, all Persons holding Claims
or Interests in those Classes are entitled to vote to accept or reject the Plan
provided that either: (a) the Claim has been scheduled by the applicable
Debtor and such Claim is not scheduled as disputed, contingent or unliquidated,
as set forth in the Debtor's most current schedules; or (b) the claimant has
timely filed a proof of Claim and the Debtor has not filed an objection to such
Claim. IF THE DEBTOR HAS FILED AN OBJECTION TO A CLAIM, THEN THE HOLDER OF SUCH
CLAIM MAY NOT VOTE ON THE PLAN UNLESS THE CLAIMANT HAS OBTAINED AN ORDER FROM
THE COURT UPON NOTICE AND HEARING ALLOWING SUCH CLAIM FOR VOTING PURPOSES.
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B. CLASSES NOT ENTITLED TO VOTE
Classes 1 and 2 are unimpaired and, therefore, the holders of Claims
in such Classes are conclusively presumed pursuant to Code Section 1126(f) to
have accepted the Plan. Class 8B will receive nothing under the Plan and
therefore, is deemed to reject the Plan.
C. BALLOTS
Separate ballots are used for each Class of Claims and Interests. In
addition, separate pre-addressed return envelopes are supplied for voting.
Creditors or Interestholders should take care to use the proper pre-addressed
envelope to ensure that Ballots are returned to the proper address.
D. VOTING MULTIPLE CLAIMS AND INTERESTS
ANY PERSON WHO HOLDS CLAIMS OR INTERESTS IN MORE THAN ONE CLASS IS
REQUIRED TO VOTE SEPARATELY WITH RESPECT TO EACH CLASS IN WHICH SUCH PERSON
HOLDS CLAIMS OR INTERESTS. PLEASE USE A SEPARATE BALLOT OR THE APPROPRIATE FORM
TO VOTE EACH SUCH CLASS OF CLAIM OR INTEREST. IF, HOWEVER, A CREDITOR CASTS
MORE THAN ONE BALLOT VOTING THE SAME CLAIM OR INTEREST PRIOR TO THE VOTING
DEADLINE, ONLY THE LAST BALLOT RECEIVED SHALL BE COUNTED.
E. INCOMPLETE BALLOTS
ANY BALLOT RECEIVED WHICH DOES NOT INDICATE EITHER AN ACCEPTANCE OR
REJECTION OF THE PLAN SHALL BE DEEMED TO CONSTITUTE AN ACCEPTANCE OF THE PLAN.
F. EXPIRATION DATE
THE SOLICITATION PURSUANT TO THIS DISCLOSURE STATEMENT WILL EXPIRE ON
FEBRUARY 27, 1998. TO BE COUNTED, YOUR BALLOTS MUST BE RECEIVED BY 4:00 P.M.
EASTERN TIME ON FEBRUARY 27, 1998. THE DEBTORS RESERVE THE RIGHT TO EXTEND
THIS SOLICITATION FOR SUCH PERIOD OR PERIODS AS THEY MAY DETERMINE UPON
APPROVAL BY THE COURT. THE DEBTORS WILL PROVIDE SUCH NOTICE AS REQUIRED BY
APPLICABLE LAW AND/OR AN ORDER OF THE COURT.
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CONCLUSION
The Debtors believe that acceptance of the Plan is in the best
interest of each and every Class of Creditors and Interestholders and recommend
that you vote to accept the Plan.
FIRST MERCHANTS ACCEPTANCE CORP.
By: /s/ William Plamondon
----------------------------
William Plamondon
President
FIRST MERCHANTS RESIDENTIAL
CREDIT CORPORATION
By: /s/ William Plamondon
----------------------------
William Plamondon
President
Laura Davis Jones, Esq.
Robert Brady, Esq.
YOUNG, CONAWAY, STARGATT & TAYLOR
Rodney Square North, 11th Floor
Wilmington, Delaware 19899
(302) 571-6600
Counsel to Debtors and Debtors in Possession
Robert E. Richards, Esq.
Mitchell L. Hollins, Esq.
SONNENSCHEIN NATH & ROSENTHAL
8000 Sears Tower
Chicago, Illinois 60606
(312) 876-8000
Special Counsel to Debtors and Debtors in Possession
Dated: February 9, 1998
<PAGE> 83
EXHIBIT I
CHAPTER 11 PLAN
THIS EXHIBIT HAS BEEN INTENTIONALLY
OMITTED. SEE EXHIBIT 99.2
<PAGE> 84
EXHIBIT II TO DISCLOSURE STATEMENT
FMAC Liquidation Analysis
Estimated Recoveries as of March 31, 1998
($ in Millions)
<TABLE>
<CAPTION>
Recovery Scenario
-----------------
Notes LOW HIGH
----- --- ----
<S> <C> <C> <C>
ASSETS
B Piece Distributions (1) $ 21.1 $28.1
Business Units (2) - -
Owned Loans (3) - -
Greenwich Collateral (4) 0.8 0.8
Repossessed Vehicle Inventory (3) - -
Deficiency Balances (3) - -
Potential Tax Refunds (5) 10.0 11.0
Other Assets (6) 0.1 0.2
------ -----
Total Estimated Proceeds 32.0 40.1
LIABILITIES
Post-Petition Liabilities
DIP Financing and Overadvance Facility (7) 15.8 15.1
Administrative Claims:
Employee Retention Program (8) 2.5 2.3
Chapter 11 Professional Fees Holdback (9) 0.7 0.6
Chapter 7 Trustee Fees (10) 0.9 1.2
Chapter 7 Expenses & Professional Fees (11) 1.2 0.8
------ -----
Subtotal Administrative Claims 5.3 4.9
Total Estimated Post-Petition Liabilities 21.1 20.0
------ -----
Available for Distribution to All Creditors 10.9 20.1
Pre-Petition Liabilities
Secured:
Senior Claim Recovery Amount (3) 6.3 4.7
Greenwich Debt (4) 0.8 0.8
Miscellaneous Secured Claims 0.2 -
------ -----
Total Secured Debt 7.3 5.5
------ -----
Available for Distribution to Unsecured Creditors $ 3.6 $14.6
====== =====
Unsecured:
Priority:
Tax & Other Priority Claims (12) $ 0.1 $ 0.1
Non-Priority:
Subordinated Reset Notes (13) 66.6 66.6
Accounts Payable (14) 3.7 3.3
Potential Executory Claims (15) 2.2 1.7
Other Unsecured Claims (16) 2.0 1.0
------ -----
Total Unsecured Non-Priority Claims $ 74.5 $72.6
====== =====
------ -----
Estimated Net Recovery to Non-Priority Unsecured Creditors % 4.7% 20.0%
====== =====
</TABLE>
1
<PAGE> 85
EXHIBIT II TO DISCLOSURE STATEMENT
NOTES TO LIQUIDATION ANALYSIS
In conjunction with the development of the Plan described in the Disclosure
Statement, and so as to provide holders of claims and interests with adequate
information to assist in the decision whether to accept or reject the Plan, a
liquidation analysis was prepared by FMAC and is based on the assumptions
discussed below.
The liquidation analysis outlines FMAC's estimate of the proceeds to be realized
if FMAC were to be liquidated under chapter 7 of the Bankruptcy Code. The
liquidation analysis is based on FMAC's projected assets and liabilities as of
March 31, 1998, and incorporates estimates and assumptions developed by FMAC,
which are subject to potentially material changes with respect to economic and
business conditions as well as uncertainties not within their control.
Accordingly, the results outlined in the liquidation analysis are subject to
change and there can be no assurance that the results of a liquidation, if
undertaken, would realize the calculated recoveries reflected in the liquidation
analysis.
FMAC expects that the liquidation proceeding would take approximately three
months to complete. As such, this analysis assumes that the liquidation process
begins on or about January 1, 1998 and would continue through March 31, 1998.
Expenses directly related to the disposition of assets are incorporated in the
liquidation liabilities presented in the liquidation analysis.
A comparison of the recoveries to unsecured creditors under the Plan and the
hypothetical chapter 7 liquidation results is set forth below (all other classes
of creditors, other than miscellaneous secured claims and interest holders,
receive the same recovery under the Plan and the hypothetical liquidation).
- --------------------------------------------------------------------------------
FMAC UNSECURED CREDITOR
RECOVERIES PER THE: LOW HIGH
- --------------------------------------------------------------------------------
Proposed Plan of Reorganization (a) 61% 81%
Hypothetical Chapter 7 Liquidation 5% 20%
- --------------------------------------------------------------------------------
(a) Does not take into account any discounting of future recoveries to their
present value.
FMAC has encountered significant difficulties in preparing and closing their
financial books and records since the bankruptcy petition date. As such,
prospective basis financial statements have not been prepared upon which a
forward looking liquidation analysis could be based. This liquidation analysis
reflects the anticipated recoveries for each of FMAC's significant asset
categories, which are presented either on or off-balance sheet for financial
reporting purposes. The potential recoveries for purposes of this liquidation
analysis have been estimated independent of the book balances of such assets.
2
<PAGE> 86
EXHIBIT II TO DISCLOSURE STATEMENT
NOTES TO LIQUIDATION ANALYSIS
No adjustment to creditor recoveries has been made for any alleged or potential
causes of action, including preferential transactions, fraudulent conveyances,
other avoiding power claims, or litigation that FMAC or the Creditors' Committee
may be capable of asserting, nor does it include an estimate of expenses to
litigate such claims. All capitalized terms refer to terms defined in FMAC's
chapter 11 Plan, unless otherwise defined herein.
Note (1)
As of December 31, 1997, FMAC serviced approximately $484.6 million of loans
(net of unearned interest); these loans included $89.2 million of active Owned
Loans, $2.5 million of loans that are collateral of Greenwich, and $392.9
million of Securitized Pools. The FMAC B Piece Distributions were separately
analyzed based on the individual securitization agreements underlying the
Securitized Pools.
The cash flows from each securitization were projected based on the historical
and projected prepayment rates, annual default rates, and loss severity. The
resulting future cash flows are directly tied to the quality of the future
servicing and collections efforts as applied to the securitized and
non-securitized loans. FMAC has assumed that Financial Security Assurance, Inc.,
guarantor of the notes payable issued in each of the securitizations, would
continue to trap all cash in the spread accounts in a liquidation proceeding.
It is assumed that a potential acquiror of the B Piece Distributions would
require a significant rate of return due to the significant uncertainty with
respect to the timing and amount of the future cash flows. Therefore, the
liquidation value was estimated using a 25 percent discount rate, reflecting the
assumed rate of return which would be required by an investor in a distressed
asset sale.
The results of the discounted cash flow analysis described above were then
reduced by an additional 25 percent to reflect the uncertain nature of the B
Piece Distributions, the significant dependency on future collections efforts,
the potential loss of FMAC collections personnel throughout the liquidation
process, and the distressed nature of the sub-prime automobile finance industry.
Note (2)
FMAC has not assigned any potential proceeds to its business units including the
dealer service centers, collections centers, and the national recovery center
("Business Units").
After an intensive marketing process, FMAC was unable to obtain any bids for its
dealer service centers. Subsequently, FMAC has closed most of the dealer service
center offices and severed the employees working in those offices.
None of the potential plan proponents with whom FMAC negotiated proposed to pay
separate value for FMAC's collection centers and national recovery center.
Rather, each of the bidders
3
<PAGE> 87
EXHIBIT II TO DISCLOSURE STATEMENT
NOTES TO LIQUIDATION ANALYSIS
assumed that the related personnel, computer systems, facilities, and furniture,
fixtures and equipment, were linked to the potential value of the B Piece
Distributions since they are a necessary part of being able to service and
collect the Securitized Pools.
For purposes of this liquidation analysis, any value resident in the Business
Units has been assumed to be included in the potential proceeds to be received
upon sale of the B Piece Distributions.
Note (3)
On December 15, 1997, the Agent on behalf of the Bank Group credit bid the
entire amount of the Bank Group Claim in exchange for the Owned Loans, including
the charged-off Contracts ("Deficiency Balances"), and the related repossessed
vehicle inventory. As a result, these assets are no longer the property of FMAC
and would not generate any proceeds to pay the remaining allowed creditor claims
in the event of a chapter 7 liquidation.
FMAC has no remaining direct obligations to the Bank Group under the Bank Group
Claim. FMAC's remaining obligations to the Current Bank Group are set forth in
the Guaranty and Pledge Agreement as of December 15, 1997. Under this agreement,
FMAC will be required to satisfy any shortfall between (i) collections on, net
proceeds from sales of charged-off Contracts constituting, and net proceeds of
collateral securing the Owned Loans after December 15, 1997, and (ii) the credit
bid amount plus interest at the rate of 11% from and after December 15, 1997,
until paid in full, including the Owned Loan Servicing Fee.
FMAC has estimated that the Owned Loan portfolio will result in potential
shortfalls in the range of $4.7 million to $6.3 million under the High and Low
Recovery Scenarios, respectively. These shortfalls are assumed to be satisfied
from the proceeds received from the sale of the B Piece Distributions.
Note (4)
As of December 31, 1997, the non-securitized loans that are the Greenwich
Collateral approximated $2.5 million and the outstanding Greenwich working
capital line plus accrued interest ("Greenwich Debt") approximated $672,000,
including estimated exit fees.
The Greenwich loan agreement contains a provision whereby exit fees are earned
and accrue for the benefit of Greenwich based on the performance of the
Greenwich Collateral. FMAC is currently working with Greenwich to determine the
amount of exit fees which will be incurred based on the terms of the loan
agreement. As a result, it has been difficult to quantify the amount of such
potential fees at this time.
FMAC has been unable to determine the amount of the potential excess Greenwich
Collateral, if any, that would be subject to liquidation by the chapter 7
Trustee. This analysis assumes that the
4
<PAGE> 88
EXHIBIT II TO DISCLOSURE STATEMENT
NOTES TO LIQUIDATION ANALYSIS
potential proceeds to be realized from the Greenwich Collateral are equal to
FMAC's current estimate of the Greenwich Debt plus any potential exit fees that
may be owed to Greenwich.
Note (5)
FMAC estimates that it will be entitled to receive federal and state tax refunds
in the range of $10 million to $11 million. This reflects federal tax refunds of
$7.0 million to $7.5 million for taxes paid in 1996 and refunds of prior taxes
paid in 1994 and 1995 of approximately $2.0 million to be generated from future
net operating loss carrybacks. FMAC has also estimated state tax refunds
primarily for 1996 to be approximately $1.0 million to $1.5 million.
Note (6)
FMAC's Other Assets include the Causes of Action and certain furniture,
fixtures, and equipment at its corporate offices and dealer service centers.
FMAC may have various legal Causes of Action that could result in additional
potential recoveries to unsecured creditors and Interestholders under a
liquidation scenario. Although these causes of action would likely be sold or
pursued by the Trustee under a liquidation scenario, it is not currently
possible to quantify the potential net proceeds. The FMAC corporate office and
dealer service center furniture, fixtures, and equipment are relatively
insignificant in amount and are estimated to generate proceeds of no more than
$100,000 to $200,000.
Note (7)
The estimated DIP Financing and Overadvance Facility balance as of March 31,
1998 is based on FMAC's projected cash activity through that date. This analysis
assumes that the DIP Financing and Overadvance Facility is used to fund
operating expenses in excess of servicing income through March 31, 1998.
The DIP Financing and Overadvance Facility balance excludes severance costs and
other administrative expenses which are accounted for separately in this
liquidation analysis. The estimated DIP balance does, however, include a
commitment fee of $500,000 as included in the Final DIP Order. FMAC has
projected the amount of financing required to fund operations through the
liquidation period to be in excess of the $16.5 million as provided in the Final
DIP Order. This additional financing is required due to the incremental
operating costs during the liquidation period beyond the estimated chapter 11
Plan confirmation date of February 28, 1998. This analysis assumes additional
financing fees of $300,000 (including reimbursement of legal costs) to
compensate a lender for increasing this facility in a liquidation above the
$16.5 million provided in the existing DIP Financing and Overadvance Facility.
There can be no assurances that FMAC would be able to obtain additional
financing above the existing $16.5 million DIP Financing and Overadvance
Facility in the event of a chapter 7 liquidation. If such a facility could not
be obtained, the liquidation period for both the High
5
<PAGE> 89
EXHIBIT II TO DISCLOSURE STATEMENT
NOTES TO LIQUIDATION ANALYSIS
Recovery Scenario and Low Recovery Scenario would have to be substantially
shortened. This would result in an emergency "fire sale" environment in which
the chapter 7 Trustee would be forced to liquidate all assets in an expeditious
manner. As a result, the estimated liquidation values of FMAC's assets would be
significantly reduced.
Note (8)
FMAC previously agreed to pay stay bonuses to retain key personnel during the
course of its Chapter 11 case. As a result, at the end of the liquidation
period, FMAC will owe stay bonuses related to the remaining employees in the
collections centers and the corporate office. The amounts included in the
liquidation analysis represent FMAC's current estimate of the scheduled stay
bonuses for the remaining collections center and corporate employees based upon
the severance and retention program previously approved by the Bankruptcy Court.
Note (9)
The chapter 11 professional fees holdback represents 20 percent of the estimated
fees earned by all approved professionals prior to commencement of the chapter 7
liquidation period. The holdback of professional fees is consistent with the
Compensation Procedures Motion in FMAC's Affidavit in Support of First Day
Motions which was previously approved by the Bankruptcy Court.
Note (10)
It is assumed that the chapter 7 trustee will receive a 3 percent fee on all
unencumbered assets distributed to Creditors. Under both the High and Low
Recovery Scenarios, the trustee fee is applied to the B Piece Distributions and
the potential Tax Refunds. The trustee fee is not applied to the Greenwich
Collateral as they are collateral for the Greenwich Debt, and the amount of
excess proceeds from this asset, if any, has not been determined.
6
<PAGE> 90
EXHIBIT II TO DISCLOSURE STATEMENT
NOTES TO LIQUIDATION ANALYSIS
Note (11)
The chapter 7 expenses and professional fees represent FMAC's estimate of
Chapter 7 professional fees and reimbursable expenses necessary to complete the
hypothetical liquidation and which would be due at the conclusion of the
hypothetical chapter 7 liquidation proceeding.
Note (12)
The unsecured priority claims represents FMAC's estimate of this claim class as
of the bankruptcy petition date. The amounts presented on the liquidation
analysis exclude any amounts paid to FMAC employees pursuant to the First Day
Orders.
Note (13)
The Subordinated Reset Notes claim represents the estimated principal and
accrued interest owing to the subordinated noteholders as of the bankruptcy
petition date.
Note (14)
The accounts payable amount represents FMAC's estimate of unsecured non-priority
claims as of the bankruptcy petition date.
Note (15)
FMAC has estimated the potential claims for the rejection of real property
leases and other executory contracts as of the end of the liquidation period.
Under a High Recovery Scenario, it is assumed that the collections centers and
national recovery center leases would not be rejected as the acquiror of the B
Piece Distributions would assume these leases and use the facilities in
servicing and collecting the B Piece Distributions. Under a Low Recovery
Scenario, FMAC has assumed that the acquiror of the B Piece Distributions would
move the servicing of these assets to their own collections centers and that all
outstanding FMAC leases would be rejected.
Note (16)
Other unsecured claims represents FMAC's estimate of potential additional
unsecured claims which have not yet been reviewed and analyzed, and therefore
have not been considered in the claim classifications discussed above.
7
<PAGE> 91
Exhibit III To Disclosure Statement
CERTAIN RISK FACTORS TO BE CONSIDERED
HOLDERS OF CLAIMS OR INTERESTS AGAINST THE DEBTORS SHOULD READ AND CONSIDER
CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION SET
FORTH IN THIS DISCLOSURE STATEMENT (AND THE DOCUMENTS DELIVERED TOGETHER
HEREWITH AND/OR INCORPORATED BY REFERENCE), PRIOR TO VOTING TO ACCEPT OR REJECT
THE PLAN. THESE RISK FACTORS SHOULD NOT, HOWEVER, BE REGARDED AS CONSTITUTING
THE ONLY RISKS INVOLVED IN CONNECTION WITH THE PLAN AND ITS IMPLEMENTATION.
THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY THE UDC WARRANTS, UDC WARRANT SHARES, OR THE
STOCK OPTION SHARES, ALL OF WHICH WILL BE OFFERED ONLY PURSUANT TO THE
PROSPECTUS ("PROSPECTUS") ACCOMPANYING THIS DISCLOSURE STATEMENT THAT IS PART OF
A REGISTRATION STATEMENT FILED BY UDC WITH THE SEC UNDER THE SECURITIES ACT OF
1933, AS AMENDED.
A. OVERALL RISK TO RECOVERY BY HOLDERS OF CLAIMS OR INTERESTS
The ultimate recoveries under the Plan to holders of claims (other than those
holders who are paid in Cash on the Effective Date under the Plan) are dependent
upon various factors, as well as the future performance of the Debtors' loan
portfolios. The factors specified below assume that the Plan has an effective
date on or about February 28, 1998. Prior to voting on the Plan, each holder of
a claim or interest should carefully consider the risk factors specified or
referred to below for each of the potential options as well as all of the
information contained in the Plan. The factors specified below relate to certain
risks associated with the future performance of the Debtor's loan portfolio and
servicing thereof. Upon confirmation of the Plan, it is contemplated that Ugly
Duckling Corporation ("UDC") or its successor, affiliate, or assignor, will
begin servicing the Debtor's loan portfolio ("Servicer").
1. INDUSTRY REGULATION
Due to the consumer oriented nature of the industry in which the Debtors and
Servicer operate and uncertainties with respect to the application of various
laws and regulations in certain circumstances, industry participants are named
from time to time as defendants in litigation, including class action suits,
involving alleged violations of federal and state consumer lending or other
similar laws and regulations. A significant judgment against the Debtors and/or
Servicer in connection with any litigation could have a material adverse affect
on the Debtors' and/or Servicer's financial condition, operating results, and
ability to service and collect the Debtors' loan portfolios.
1
<PAGE> 92
Exhibit III To Disclosure Statement
2. INDUSTRY RISKS AND BUSINESS FACTORS
The Debtors (principally FMAC) and Servicer are involved in the sub-prime
finance industry, and primarily the sub-prime auto finance market. The sub-prime
auto finance industry has during the past year experienced a downturn as
reflected in higher delinquencies, company bankruptcies, and a general decline
in industry earnings. Certain of the recent troubles are attributable to
increasing competition in the industry. Many of FMAC's and Servicer's
competitors or potential competitors have significantly greater resources and/or
other competitive advantages. To the extent any of such competitors
significantly expand their activities in the sub-prime auto finance market, FMAC
and/or Servicer could be materially adversely affected.
3. PROJECTED CREDITOR RECOVERIES
The projected creditor recoveries included in this Disclosure Statement reflect
numerous assumptions, including confirmation and consummation of the Plan in
accordance with its terms and the anticipated future performance of FMAC's loan
portfolios. In projecting the future performance of FMAC's loan portfolios, the
Debtors had to make certain material assumptions regarding loan servicing costs,
loan pre-payments, and losses on loans. Although management of FMAC believes
that the assumptions used to prepare the projections are reasonable based upon
historical and recent portfolio performance, industry conditions, and the
servicing and collection capabilities of Servicer, some or all of the
assumptions will differ; variations between the projected and actual assumptions
may cause the performance of the loan portfolios to be materially different than
the projected performance, thereby causing the actual creditor recoveries to be
materially different than the projected creditor recoveries. In addition,
unanticipated events and circumstances occurring subsequent to the preparation
of the projections may affect the actual creditor recoveries.
THE PROJECTIONS HEREIN WERE NOT PREPARED WITH A VIEW TOWARD COMPLIANCE WITH THE
GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
("AICPA") OR THE FINANCIAL ACCOUNTING STANDARDS BOARD ("FASB"). FURTHERMORE, THE
PROJECTIONS HAVE NOT BEEN AUDITED OR REVIEWED BY THE DEBTORS' INDEPENDENT
ACCOUNTANTS. WHILE REPRESENTED WITH NUMERICAL SPECIFICITY, THE PROJECTIONS ARE
BASED UPON A VARIETY OF ESTIMATES AND ASSUMPTIONS, WHICH, ALTHOUGH DEVELOPED AND
CONSIDERED REASONABLE BY MANAGEMENT, MAY NOT BE REALIZED AND ARE SUBJECT TO
SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES,
MANY OF WHICH ARE BEYOND THE CONTROL OF THE DEBTORS, ITS MANAGEMENT AND
SERVICER. CONSEQUENTLY, THE PROJECTIONS SHOULD NOT BE REGARDED AS A
REPRESENTATION OR WARRANTY BY THE DEBTORS, UDC, OR ANY OTHER PERSON, AS TO THE
ACCURACY OF THE PROJECTIONS OR THAT THE PROJECTIONS WILL BE REALIZED. ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE PRESENTED IN THE PROJECTIONS.
2
<PAGE> 93
Exhibit III To Disclosure Statement
THE PROJECTIONS AND OTHER INFORMATION CONTAINED HEREIN, INCLUDING BUT NOT
LIMITED TO THE VALUATION OF THE UDC WARRANTS CONTAINED HEREIN, WERE NOT PREPARED
OR CONFIRMED BY UDC NOR HAS UDC EVALUATED THE ACCURACY THEREOF OR THE
REASONABLENESS OF THE ASSUMPTIONS ON WHICH SUCH PROJECTIONS AND OTHER
INFORMATION ARE BASED. UDC MAKES NO REPRESENTATIONS WITH RESPECT TO THE
INFORMATION CONTAINED HEREIN AND ASSUMES NO RESPONSIBILITY FOR THE ACCURACY OR
ADEQUACY THEREOF.
The following is a discussion of the Debtors' analysis of the projected creditor
recoveries. Unless otherwise defined, capitalized terms contained herein are
defined by the Debtors' chapter 11 Plan.
A. SUMMARY OF CLAIMS AGAINST FMAC
The following are estimates as of the Plan effective date of (i) certain claims
against FMAC as reflected on the books and records of FMAC as of the petition
date, (ii) administrative and post confirmation claims incurred or anticipated
to be incurred by FMAC, and (iii) potential claims that may be asserted against
FMAC as a result of lease rejections or other contingent type claims (a):
<TABLE>
<CAPTION>
CLAIM CATEGORY LOW RECOVERY HIGH RECOVERY
($ Millions)
<S> <C> <C>
Unpaid Administrative & Post
Confirmation Expenses (b) $ 6.8 $ 6.4
DIP and Overadvance Facility 13.7 13.1
Priority Non-tax Claims 0.1 0.1
Secured Claim under Guaranty and
Pledge Agreement 4.6 3.1
Secured FSA Claim 0 0
Secured Greenwich Claims (c) 0.8 0.7
Miscellaneous Secured Claims 0.2 0
Allowed Convenience Claims 0.1 0.1
Allowed Unsecured Claims 73.9 72.5
--------- --------
TOTAL (d) $ 100.2 $ 96.0
========= ========
</TABLE>
3
<PAGE> 94
Exhibit III To Disclosure Statement
(a)There can be no assurance that the actual claims allowed by the Bankruptcy
Court will correspond to the estimates set forth herein.
(b)The Unpaid Administrative and Post Confirmation Expenses represent FMAC's
estimate of severance costs, professional fee holdbacks, cure costs, and
post-confirmation expenses to administer the FMAC estate. This amount is
based on FMAC's current estimate of these costs, and is subject to change
upon further analysis.
(c)As of February 28, 1998, FMAC has estimated the Greenwich Secured Claim to
have a balance of $700,000 to $800,000, including exit fees.
(d)Not included in the estimates above are (i) POTENTIAL TAXES (FEDERAL,
STATE, OR LOCAL) THAT MAY ARISE IN THE ORDINARY COURSE OF FMAC'S BUSINESS,
OR AS A RESULT OF THE CONSUMMATION OF THE PLAN (SEE TAX DISCLOSURES IN THE
DISCLOSURE STATEMENT), (ii) any debts or other claims of any other
subsidiaries of FMAC, and (iii) any claims that may ultimately be allowed as
a result of any asserted or unasserted litigation claims against FMAC or any
related entities.
NOTWITHSTANDING ANYTHING IN THIS DISCLOSURE STATEMENT TO THE CONTRARY, FMAC
RESERVES THE RIGHT TO (I) ASSERT ANY (A) COUNTER CLAIMS OR DEFENSE OR, (B) ANY
RIGHT OR CLAIMS OF SET-OFF, RECOUPMENT OR OTHER SIMILAR CLAIMS OR RIGHT, OR (II)
OTHERWISE SEEK THE DISALLOWANCE OR REDUCTION OF ANY CLAIM , IN EACH CASE, FOR
ANY REASON, INCLUDING, WITHOUT LIMITATION, ON THE BASIS OF ANY CLAIM RELATING TO
BREACH OF FIDUCIARY DUTY, LENDER LIABILITY, FRAUDULENT CONVEYANCE, PREFERENTIAL
TRANSFER, OR OTHERWISE.
B. FIRST MERCHANTS ACCEPTANCE CORP. PROJECTED CREDITOR RECOVERIES
FMAC projected creditor recoveries were estimated by management based upon (1)
the estimated claims against FMAC, and (2) the estimated value of the FMAC
estate to the FMAC creditors. Any excess after FMAC creditors are paid in full
would go to Interestholders. According to the Plan, administrative and secured
claims will be satisfied in full.
The Claims of the FMAC unsecured creditors will receive the following treatment:
1. Debt of the Reorganized Company with a principal amount of $44 million
plus interest to accrue at the applicable federal rate for medium term
obligations (this rate was 5.77% as of January, 1998 for monthly
compounding). The Reorganized Company debt will be repaid from the cash
flows under the Excess Collections Contribution Agreement and are expected
to be recovered by the year 2002,
4
<PAGE> 95
Exhibit III To Disclosure Statement
2. One hundred percent (100%) of the Reorganized Company's equity.
THE CLAIMS OF FMAC UNSECURED CREDITORS HAVE BEEN DIVIDED INTO TWO SUBCLASSES AS
SPECIFIED IN THE PLAN AND DISCLOSURE STATEMENT. READERS OF THIS EXHIBIT SHOULD
REFER TO THE PLAN AND DISCLOSURE STATEMENT FOR A DISCUSSION OF HOW THE ASSETS
DESCRIBED ABOVE WILL BE DISTRIBUTED AMONG THE TWO UNSECURED CREDITOR SUBCLASSES.
Management, with the assistance of its professional advisors, has analyzed the
future cash flows attributable to the Excess Collections Contribution Agreement,
the future value of the UDC Warrants, and the other proceeds or collections from
other assets. FMAC may have various legal Causes of Action that could result in
additional potential recoveries to unsecured creditors and equity holders.
Although these Causes of Action would likely be pursued, it is not possible to
quantify the potential proceeds at this time.
FMAC management has prepared various projections of future Owned Loans and B
Piece Distributions under various annual default rate assumptions resulting in
potential cash flows to unsecured creditors in the range of approximately $45
million to $58 million. The amount of the Reorganized Company debt of $44
million corresponds to future cash flows to unsecured creditors under the Excess
Collections Contribution Agreement of approximately $52 million. FMAC management
has determined that it is reasonably likely that debt in the amount of $44
million plus interest at the applicable federal rate compounded monthly will be
satisfied from the potential future cash flows under the Excess Collections
Contribution Agreement.
The cash flow projections set forth below assume that the Reorganized Company is
not required to pay income taxes out of the future Owned Loans and B Piece
Distributions. Should the Reorganized Company be required to pay such Federal
and/or State income taxes, the amount of future cash flows under the Excess
Collections Contribution Agreement and the corresponding recovery to unsecured
creditors would be reduced.
If the Reorganized Company is not required to pay regular federal and state
income taxes, it may be subject to paying certain alternative minimum tax
liabilities. It is anticipated that any alternative minimum tax payments that
would be payable by the Reorganized Company would be immaterial to the future
potential creditor recoveries (less than one percent of total future cash flows
to FMAC unsecured creditors).
The most significant component of potential value to the unsecured creditors is
the future cash flows from the Owned Loans and B Piece Distributions. The Excess
Collections Contribution Agreement provides for a sharing arrangement under
which UDC will collect out the Owned Loans and B Piece Distributions and share
any proceeds (net of costs of collection) remaining after payment of secured
claims of the Bank Group (including the
5
<PAGE> 96
Exhibit III To Disclosure Statement
Owned Loans Servicing Fee and interest on the Owned Loans), the DIP Financing
and Overadvance Facility, post-confirmation costs to administer the FMAC estate,
and the Modified UDC Fee.
Management has projected under various scenarios the future collections of the
Owned Loans and B Piece Distributions, including estimates of amounts allocable
to the potential range of secured claims of the Bank Group and DIP Financing and
Overadvance Facility, and the excess cash flows subject to the Excess
Collections Contribution Agreement.
FMAC PROJECTED CREDITOR RECOVERIES
<TABLE>
<CAPTION>
($ Millions) LOW HIGH
<S> <C> <C>
OWNED LOANS:
Estimated Excess (Deficiency) of Cash Flows Net of
Secured Claims and Related Fees and Costs $ (4.6) $ (3.1)
B PIECE DISTRIBUTIONS:
Estimated Future Cash Flows Net of Related Fees and Costs $ 67.3 $ 81.9
EXCESS COLLECTIONS CONTRIBUTION AGREEMENT: (a)
Estimated Future Cash Flows to UDC (d) $ 9.5 $ 12.4
Estimated Future Cash Flows to the Reorganized Company $ 44.6 $ 58.4
Estimated Total Unsecured Non-Priority Claims $ 73.9 $ 72.5
Estimated Potential Recovery to Unsecured Creditors (b),(c): 60.9% 81.2%
</TABLE>
NOTE: The analysis above assumes that UDC does not elect to distribute shares of
UDC Common Stock to the Reorganized Company under the UDC Stock Option. The
results of the analysis could be materially different if UDC decides to elect
the UDC Stock Option.
(a) The difference between the sum of the future cash flows under the Excess
Collections Contribution Agreement and the sum of the excess cash flows from the
Owned Loans and the B Piece Distributions noted above is the cash flows
allocated to repay the balance of the DIP Financing and Overadvance Facility,
the post-confirmation expenses to administer the FMAC Estate, and the Modified
UDC Fee.
(b) Includes estimated theoretical value of the UDC Warrants of $370,000 to
$475,000. The estimated range of values for the UDC Warrants was developed by
employing various options pricing models, including the Black-Scholes model.
(c) Exclusive of potential proceeds from Causes of Action.
6
<PAGE> 97
Exhibit III To Disclosure Statement
(d) Excluding servicing fees payable to UDC as servicer of the Owned Loans and
Securitized Pools and the Modified UDC Fee.
FOLLOWING ARE SOME OF THE CRITICAL ASSUMPTIONS UTILIZED BY FMAC IN DEVELOPING
THE RANGE OF POTENTIAL CREDITOR RECOVERIES NOTED ABOVE:
- The Owned Loan cash flows (net of servicing expenses) were projected based
on estimated loss rates for the underlying loans, estimated pre-payment
speeds, the contractual yield on the portfolio, and loss severity rates.
These cash flows were offset by the principal and interest payments on the
guaranty related to the sale on the Owned Loans with interest calculated at
an annual rate of 11 percent as specified in the Plan.
- The future cash flows from the B Piece Distributions are uncertain in
nature and are significantly impacted by customer delinquencies, customer
pre-payments, and collections results. The B Piece Distributions cash flows
projections were estimated under various assumptions to take into account
the wide range of potential cash flows resulting from various annual loss
rates, customer pre-payment speeds, and loss severity rates.
- The most significant assumption impacting future B Piece Distributions
cash flows is the estimated future annual default rates. FMAC used annual
default rates in the range of 8 percent to 11 percent to estimate the high
recovery and low recovery ranges, respectively.
- The estimated future cash flows to both the Reorganized Company and UDC
under the Excess Collections Contribution Agreement were derived from the
Owned Loans and the B Piece Distributions after paying in full the Bank
Group Claims (plus accrued interest at 11%), any amounts due on the DIP
Financing and Overadvance Facility (plus accrued interest at 10%) after
application of the potential Tax Refunds, post-confirmation expenses to
administer the FMAC Estate, and payment of the $450,000 Modified UDC Fee.
- This analysis assumes that the Federal and State tax refunds of
approximately $11 million are received subsequent to the Plan Effective
Date between the months of April, 1998 and October, 1998. Should the
receipt of such refunds be delayed or should the total refund received be
less than the amounts assumed, additional interest expense would be
incurred on the DIP Financing and Overadvance Facility. The projected
creditor recoveries would be negatively impacted by the lower tax refunds
and the additional interest expense.
THE ESTIMATED RANGE OF POTENTIAL UNSECURED CREDITOR RECOVERIES HAS BEEN
PRESENTED IN ORDER TO ASSIST HOLDERS OF CLAIMS IN THEIR EVALUATION OF THE
PROPOSED PLAN. THE INDICATED RECOVERIES ARE PURELY ESTIMATES OF POTENTIAL FUTURE
RECOVERIES, DEVELOPED BY
7
<PAGE> 98
Exhibit III To Disclosure Statement
THE DEBTORS AS DESCRIBED HEREIN. HOLDERS OF CLAIMS SHOULD NOT RELY ON THE
DEBTORS' ESTIMATES OF POTENTIAL RECOVERIES IN VOTING TO ACCEPT OR REJECT THE
PLAN, AS THE ACTUAL RECOVERIES COULD BE MATERIALLY DIFFERENT THAN THE ESTIMATES
HEREIN. HOLDERS OF CLAIMS ARE URGED TO REVIEW ALL ASPECTS OF THE PLAN AND THE
CONTENTS OF THE DISCLOSURE STATEMENT AND MAKE THEIR OWN INFORMED JUDGMENTS AS TO
THE MERITS OF THE PROPOSED PLAN AND ALTERNATIVES THERETO. WHEN VOTING ON THIS
PLAN, CREDITORS SHOULD BE VOTING FOR THE PLAN FORMULATION AND NOT A PARTICULAR
PAYOUT AMOUNT.
8
<PAGE> 99
Exhibit III To Disclosure Statement
C. SUMMARY OF CLAIMS AGAINST FIRST MERCHANTS RESIDENTIAL CREDIT CORPORATION
AND PROJECTED CREDITOR RECOVERIES
The following is a discussion of the Debtors' analysis of the projected creditor
recoveries.
SUMMARY OF CLAIMS AGAINST FMRCC
The following are estimates as of the plan confirmation date of (i) certain
claims against FMRCC as reflected on the books and records of FMRCC as of the
petition date, (ii) administrative claims incurred or anticipated to be incurred
by FMRCC through consummation of the Plan, and (iii) potential claims that may
be asserted against FMRCC as a result of lease rejections or other contingent
type claims (a):
<TABLE>
<CAPTION>
CLAIM CATEGORY LOW RECOVERY HIGH RECOVERY
<S> <C> <C>
($ Millions)
Administrative Expenses & Cure Costs
$ 0.06 $ 0.06
Allowed Unsecured Claims (b) 2.50 2.01
--------- --------
TOTAL (c) $ 2.56 $ 2.07
========= ========
</TABLE>
(a) There can be no assurance that the actual claims allowed by the Bankruptcy
Court will correspond to the estimates set forth herein.
(b) Includes FMAC intercompany advances of $1.97 million.
(c) Not included in the estimates above are (i) potential taxes (federal, state,
or local) that may arise in the ordinary course of FMRCC's business, or as a
result of the consummation of the Plan (see tax disclosures in the
Disclosure Statement), and (ii) any claims that may ultimately be allowed as
a result of any asserted or unasserted litigation claims against FMRCC or
any related entities.
NOTWITHSTANDING ANYTHING IN THIS DISCLOSURE STATEMENT TO THE CONTRARY, FMRCC
RESERVES THE RIGHT TO (I) ASSERT ANY (A) COUNTER CLAIMS OR DEFENSE OR, (B) ANY
RIGHT OR CLAIMS OF SET-OFF, RECOUPMENT OR OTHER SIMILAR CLAIMS OR RIGHT, OR (II)
OTHERWISE SEEK THE DISALLOWANCE OR REDUCTION OF ANY CLAIM , IN EACH CASE, FOR
ANY REASON, INCLUDING, WITHOUT LIMITATION, ON THE BASIS OF ANY CLAIM RELATING TO
BREACH OF FIDUCIARY DUTY, LENDER LIABILITY, FRAUDULENT CONVEYANCE, PREFERENTIAL
TRANSFER, OR OTHERWISE.
The FMRCC projected creditor recoveries were estimated by management based upon
(1) the estimated claims against FMRCC, and (2) the estimated value of the FMRCC
estate to
9
<PAGE> 100
Exhibit III To Disclosure Statement
the FMRCC creditors. According to the Plan, administrative and secured
claims will be satisfied in full.
The claims of the FMRCC unsecured creditors will be entitled to receive a
pro-rata cash payment from the FMRCC net sale proceeds. As of November 30, 1997,
the net sale proceeds approximated $150,000 to $160,000.
Estimated claims against the FMRCC estate total approximately $2.01 million to
$2.50 million, inclusive of FMAC's $1.97 million intercompany claim.
FMRCC PROJECTED CREDITOR RECOVERIES
<TABLE>
<CAPTION>
($ Millions) LOW HIGH
<S> <C> <C>
Estimated Net Proceeds From Sale Of Assets $ 0.15 $ 0.16
======= ======
Estimated Total Unsecured Non-Priority Claims $ 2.50 $ 2.01
======= ======
Estimated Potential Recovery to Unsecured Creditors 6.0% 8.0%
====== ======
</TABLE>
THE ESTIMATED RANGE OF POTENTIAL UNSECURED CREDITOR RECOVERIES HAS BEEN
PRESENTED IN ORDER TO ASSIST HOLDERS OF CLAIMS IN THEIR EVALUATION OF THE
PROPOSED PLAN. THE INDICATED RECOVERIES ARE PURELY ESTIMATES OF POTENTIAL FUTURE
RECOVERIES, DEVELOPED BY THE DEBTORS AS DESCRIBED HEREIN. HOLDERS OF CLAIMS
SHOULD NOT RELY ON THE DEBTORS' ESTIMATES OF POTENTIAL RECOVERIES IN VOTING TO
ACCEPT OR REJECT THE PLAN, AS THE ACTUAL RECOVERIES COULD BE MATERIALLY
DIFFERENT THAN THE ESTIMATES HEREIN. HOLDERS OF CLAIMS ARE URGED TO REVIEW ALL
ASPECTS OF THE PLAN AND THE CONTENTS OF THE DISCLOSURE STATEMENT AND MAKE THEIR
OWN INFORMED JUDGMENTS AS TO THE MERITS OF THE PROPOSED PLAN AND ALTERNATIVES
THERETO. WHEN VOTING ON THIS PLAN, CREDITORS SHOULD BE VOTING BE VOTING FOR THE
PLAN FORMULATION AND NOT A PARTICULAR PAYOUT AMOUNT.
10
<PAGE> 101
EXHIBIT IV
RESUMES OF PROPOSED POST-CONFIRMATION DIRECTORS
Attached Hereto
<PAGE> 102
RICHARD P. VOGELMAN
EMPLOYMENT HISTORY:
July 1995 to Present -- FIRST MERCHANTS ACCEPTANCE CORPORATION, Deerfield, IL.
Vice President, Secretary and General Counsel. First Merchants is a non-prime
secondary automobile finance company formed in 1991. The company had an initial
public offering in September 1994 and its stock is traded on the Nasdaq stock
market. I am the company's first general counsel and am responsible for all
legal matters. I assumed the position with First Merchants after accepting an
early retirement offer extended by Allstate Insurance Company to those home
office employees who met certain age and service criteria.
June 1969 to March 1995 -- ALLSTATE INSURANCE COMPANY, Northbrook, IL. I began
my career at Allstate upon graduation from law school in June, 1969. At early
retirement I was Assistant Vice President, Assistant General Counsel and
Assistant Secretary, one of the top 200 positions in the Allstate group of
companies. Just prior to becoming a corporate officer, I spent approximately six
months as a director in Allstate's Corporate Planning Department.
SUBSTANTIVE LEGAL EXPERIENCE:
As General Counsel to First Merchants and as a one person legal department I am
involved in all day to day legal matters, including state licensing, regulatory
compliance, litigation supervision, and drafting, negotiating and reviewing a
wide variety of contracts. I have also acted as inside counsel to two public
offerings of debt and equity securities as well as six private placement debt
financings. In addition, I have coordinated three annual stockholder meetings
with the related proxy material and acted as secretary to all board of director
meetings.
The following is a synopsis of the legal experience I had with Allstate over my
25 year tenure:
- - Venture capital investment and related follow-on work. My involvement in the
venture capital area provided me with the greatest overall breadth of
experience. Allstate has long been one of the major venture capital investors in
the country. Its equity ownership interests in portfolio companies vary from
less than 5% to over 90%. Over my career I worked on investments in over 150
portfolio companies, both corporations and partnerships, many involving multiple
transactions. Included in this work is purchase documentation, workouts, SEC
registration and due diligence work as a controlling and/or selling shareholder,
SEC compliance work, disposition work through merger, acquisition or Rule 144
sales and advising Allstate employees who serve on portfolio company boards of
directors. In addition, I regularly advised the Investment Department in
connection with issues arising in the management of the venture capital
portfolio.
- - Hiring and supervising outside counsel in connection with investment
transactions and litigation.
<PAGE> 103
- - Acquisition and disposition of Allstate subsidiaries, both domestic and
foreign.
- - Formation and dissolution of Allstate entities.
- - Counsel to the International Operations Department including the
formation of a Japanese joint venture.
- - Insurance regulatory compliance work primarily concerned with investment
and related issues.
- - Legal work in connection with the formation of an investment company
under the Investment Company Act of 1940 and the related broker dealer and
investment adviser.
- - Legal work associated with establishing and maintaining banking
relationships.
- - Complex and sophisticated negotiations in connection with many of the
above experiences.
SUPERVISORY EXPERIENCE:
At First Merchants the managers of human resources, policies and procedures and
corporate facilities have all reported to me. While at Allstate I had
supervisory responsibilities (including hiring authority) as head of a division
of the Allstate Law and Regulation Department consisting of 9 lawyers, 2
paralegals and 5 secretaries. The division acted as legal counsel for a wide
range of asset classes within the Investment Department including venture
capital, investment real estate, project finance and tax advantaged securities
as well as serving as counsel to the company owned real estate and construction
and strategic development divisions.
EDUCATION:
Northwestern University Law School, JD, 1969
Northern Illinois University, BS, Accounting, 1966 (Illinois CPA)
I attended numerous management and leadership workshops and training classes
while at Allstate including a four week Advanced Leadership Training course in
1992 conducted by The DeBianca-Berkman Group. I was also directly involved in
Allstate's quality initiative including serving on the Law Department's Quality
Improvement Team.
PERSONAL:
I am 54 years old and in excellent health. I have been married for 31 years and
have two adult children. I currently serve as a trustee of the Village of
Lakewood.
2
<PAGE> 104
Eric J. Grubelich, CFA
Senior Vice President
Chief Credit Analyst
Keefe, Bruyette & Woods, Inc.
Mr. Grubelich is the chief credit analyst in the Fixed Income Sales and Trading
division at Keefe, Bruyette & Woods, Inc., a New York-based investment banking
and brokerage firm that specializes in the banking and financial services
sector. Mr. Grubelich is responsible for the Fixed Income Division's credit
research and credit advisory services provided to KBW's institutional clients.
Prior to joining KBW in November of 1986 as an analyst in KBW's BankWatch credit
rating agency division, Mr. Grubelich held three rotational financial analyst
positions in General Electric's Financial Management Program after graduating
from college. In March of 1989, KBW's BankWatch division was sold to the Thomson
Corporation. Mr. Grubelich continued in his capacity as a member of the credit
rating committee covering domestic and international banks and securities firms
with Thomson BankWatch. In March of 1994, Mr. Grubelich rejoined KBW.
Mr. Grubelich earned a BS degree with a major in finance from Lehigh
University's College of Business and Economics in 1985. He was awarded the
Chartered Financial Analyst designation in 1990.
Age: 34
<PAGE> 105
GLENN W. "BUCK" JONES
PROFESSIONAL EXPERIENCE
WILLIAM R. HOUGH & CO. Florida
First Vice President, Corporate Finance
1996 - Present
- William R. Hough & Co. is a 35 year-old municipal finance-oriented
securities firm that entered the Corporate Finance business in
1996 by hiring two corporate finance professionals.
- Privately placed $6 million of convertible debentures for Republic
Bancshares with retail and institutional investors.
- Lead managed a $28 million public offering of trust preferred
shares for Republic Bancshares.
- Generated a backlog of potential transactions totaling over $50
million.
OKRA MARKETING CORPORATION, Tampa, Florida
Chief Financial Officer, Executive Vice President of Finance and
Administration 1993 - 1996
- Coordinated and implemented the successful sale of the company to
John H. Harland Company on May 31, 1996 as one of three Directors
totally responsible for this significant acquisition.
- Negotiated a complex 40,000 square foot lease for the relocation
of the corporate Headquarters.
- Secured term loan and line of credit, in addition to management of
all cash for this $15 million revenue company.
- Created and wrote OKRA's first Human Resources Manual and all
Travel/Entertainment guidelines for employees.
- Managed all Accounting, Finance, Human Resources, Administration
activities.
- Reviewed and approved financial details of new contracts.
J.C. BRADFORD & CO., Nashville, Tennessee
Managing Director, Corporate Finance Department
1985 - 1993
- As Partner in Charge of the Financial Institutions Group,
substantially increased the company's market share by targeting
regional bank holding companies, thrifts converting from mutual to
stock form, selected spinouts of non-banking subsidiaries, and
consumer finance operations in the Southeast.
- Led the department in revenue production on a multi-year basis
from 1988 through 1992 (last full year).
- Developed the department's junior personnel through mentoring
program.
<PAGE> 106
J.C. BRADFORD & CO., Nashville, Tennessee
Securities Analyst
1972 - 1984
- Recognized as "one of the two outstanding and leading bank stock
analysts in the Southeast" which led to an increase in clients and
revenue.
- Often sought after for consultations, and frequently quoted in
both National and Regional publications on any subject regarding
major developments in the banking industry.
- Trained successor in Research Department, who is now the leading
Southeastern bank analyst.
CLIENTS:
Bancorp of Mississippi Carolina First
Dominion Bankshares First American
First Commerce South Carolina National
Southern Bancorp SouthTrust
TransFinancial TrustMark
Total System Services Union Planters
First Financial Management First Financial Holdings
Other clients included 15 converting thrifts and World
Acceptance, a consumer finance company.
EDUCATION
UNIVERSITY OF CHICAGO, Chicago, Illinois
Masters Business Administration, Finance, 1972
Beta Gamma Sigma
DUKE UNIVERSITY, Durham, North Carolina
Bachelor of Arts, History, 1970
Phi Beta Kappa
PERSONAL INFORMATION
Married with sons ages 16 and 11. Board member of Alpha House, a home for
teenagers with crisis pregnancies. Elder in Presbyterian Church. Attend
Palma Ceia Presbyterian Church. Interests include golf and bridge.
<PAGE> 107
HOWARD J. ADAMSKI
SUMMARY Over eighteen years of experience in corporate
treasury and finance functions. Expertise in
financing, corporate finance, strategic planning and
risk management. Strong problem solving, leadership
and communication skills.
BUSINESS EXPERIENCE
FIRST MERCHANTS ACCEPTANCE CORPORATION, Deerfield, Illinois
Vice President & Treasurer - June 1997 to Present
- Responsibility: Manage all aspects of corporate
treasury function. Primary responsibilities include meeting
corporate funding needs and developing strong relationships
with the banking and investment community.
EAGLE FINANCE CORP., Gurnee, Illinois
Vice President & Treasurer - March 1996 to June 1997
- Responsibility: Manage all aspects of corporate treasury and
credit risk management functions. Primary responsibilities
include meeting corporate funding needs, developing strong
relationships with the banking and investment community and
maintaining the credit quality of the loan portfolio.
- Successfully structured and negotiated the company's first
asset-backed securitization transaction that reduced funding
costs by $2.5 million.
- Expanded the company's private loan sale program and
completed six sales.
- Renegotiated the $100 million bank credit facility,
successfully maintaining liquidity while in violation of debt
covenants.
- Restructured the company's funding programs to replace
a bank syndicated facility with non-regulated lenders.
- Managed the development and implementation of a credit
scoring model, reducing credit losses by $5 million and
improving risk-adjusted returns.
HOUSEHOLD INTERNATIONAL, Prospect Heights, Illinois,
September 1985 to March 1996
Director--Financial Relations - 1993 to 1996
- Responsibility: Manage all corporate debt ratings and
relationships with equity and fixed income analysts and
investors.
- Managed all global rating agency relationships and
ratings.
- Developed a fixed income investor presentation program to
expand the investor base and the direct placement of
securities.
<PAGE> 108
- Developed and managed relationships with key equity and
fixed income analysts.
- Presented company strategy and results to the
investment community.
Director--Strategic Planning - 1992 to 1993
- Responsibility: Value merger and acquisition
transactions, develop capital structure targets and
coordinate the strategic planning process.
- Approved 13 credit card and bank acquisitions.
- Developed leverage targets for all business unit
products strengthening the company's capital position
and enhancing product profitability.
- Developed the annual operating and strategic plans for
review with the board of directors.
Assistant Vice President--Treasury - 1989 to 1992
- Responsibility: Manage the company's domestic and
international asset/liability function.
- Formulated financing and hedging strategies that
improved net interest margins while maintaining targeted
liquidity and risk management goals.
- Initiated and managed a $1.3 billion hedge position with a
market value gain of $60 million.
- Installed a new integrated simulation modeling system
on time and within budget.
Assistant Vice President/Manager--Corporate Finance - 1985 to 1989
- Responsibility: Manage all external financing
activities, bank credit facilities, and securitization
programs. Responsible for all investment and
commercial banking relationships.
- Structured, negotiated, priced and documented nearly $10
billion of bank credit lines, debt, equity and asset-backed
securities.
- Reduced interest expense by $10 million by implementing
new financial products.
- Developed formal liquidity planning goals that diversified the
company's funding sources and expanded the use of synthetic
instruments.
- Successfully arranged independent financing for three
divisions that were spun-off to shareholders.
BORG-WARNER CORPORATION, Chicago, Illinois,
June 1980 to September 1985
Acting Director - 1983 to 1985
- Responsibility: Arrange financing for/and advise
clients.
- Negotiated a $500 million joint venture between a real estate
limited partnership and a large real estate developer.
- Restructured a $45 million mortgage for a real estate
limited partnership.
<PAGE> 109
Treasury Analyst - 1980 to 1983
- Responsibility: Support the ongoing enhancement of the
corporate cash management system. Developed financing
strategies for domestic and Mexican operations.
Analyzed foreign currency exposures and maintained the
worldwide netting system.
U.S. GYPSUM CORPORATION, Chicago, Illinois, 1979 to 1980
Staff Accountant
- Responsibility: Prepared monthly consolidated financial
statements. Analyzed the financial performance of
operating units.
EDUCATION
KELLOGG GRADUATE SCHOOL OF MANAGEMENT, NORTHWESTERN UNIVERSITY,
Executive Masters Program, Masters of Management, 1990
UNIVERSITY OF ILLINOIS, CHICAGO
Bachelor of Science, Accounting, 1979
PROFESSIONAL DESIGNATION
CERTIFIED PUBLIC ACCOUNTANT
<PAGE> 1
EXHIBIT T3E2
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re ) Chapter 11
)
FIRST MERCHANTS ACCEPTANCE ) Case No. 97-1500 (JJF)
CORPORATION, )
)
FIRST MERCHANTS RESIDENTIAL CREDIT ) Case No. 97-1892 (JJF)
CORPORATION, )
)
Debtors. ) Jointly Administered
- -----------------------------------)
SECOND AMENDED JOINT PLAN UNDER
CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE
First Merchants Acceptance Corp. and First Merchants
Residential Credit Corporation propose this Second Amended Joint
Chapter 11 Plan pursuant to ss. 1121(a) of the United States
Bankruptcy Code.
ARTICLE 1
DEFINITIONS AND INTERPRETATION
The following underlined terms, when capitalized, shall have the
meanings specified below, and such meanings shall be equally applicable to the
singular and plural forms of such terms.
1.1 1997-2 Securitized Pool means the pool of Contracts which FMAC
securitized through FMARC II on May 1, 1997.
1.2 Additional Equity Value for Subclass 7A-2 means the difference in
value between (i) the 57% of common stock in the Reorganized Company allocated
to Subclass 7A-2 hereunder and (ii) the percentage of common stock in the
Reorganized Company which would have been allocated to Subclass 7A-2 if such
common stock had been allocated in the ratio of all Allowed Claims in Subclass
7A-2 (including any applicable Contested Claim Reserve) to all Allowed Claims in
Class 7A (including any applicable Contested Claim Reserve). For purposes of the
foregoing calculation, the value of the common stock in the Reorganized Company
shall be FMAC's good faith estimate of such value as of the Effective Date which
shall be set forth in a finding of the Court in the Confirmation Order.
1.3 Administrative Expense means a Claim or portion of a Claim allowed
under Code ss. 503(b) and entitled to priority under Code ss. 507(a)(1).
<PAGE> 2
1.4 Agent means LaSalle National Bank in its capacity as agent under
the Warehouse Facility, or any successor agent thereunder.
1.5 Allowed, when used with respect to any Claim or Interest, means the
Claim or Interest or applicable portion thereof that has been allowed pursuant
to Code ss. 502, and, if the Claim or Interest was objected to, means that a
Final Order has been entered allowing the Claim or Interest pursuant to Code ss.
502.
1.6 Alltel Cure Reallocation means any reallocation of the UDC Warrants
from Class 7A Unsecured Claims to Class 8A Interests
pursuant to ss. 8.10 of the Plan.
1.7 Assigned Contracts means all of the executory contracts and
unexpired leases set forth on Exhibit B to this Plan.
1.8 Authorized Servicer means any assignee or successor-in-interest to
UDC or any affiliate of UDC who is servicing the Owned Loans and Securitized
Pools, whether or not such assignee or successor-in-interest is part of the
consolidated group of UDC and its subsidiaries, which meets all of the following
tests:
(i) such servicer has a consolidated net worth of not less
than $20,000,000;
(ii) such servicer has retained a substantial portion of UDC's or
an affiliate of UDC's servicing personnel, staff and
management;
(iii) such servicer has not less than one (1) full time collector
for every 350 receivables being serviced;
(iv) such servicer is an affiliate (as such term is defined in 11
U.S.C. ss. 101(2)(B) as if UDC were a debtor), or spin-off
of, or acquired directly from, UDC or an affiliate of UDC; and
(v) such servicer services receivables, having an aggregate
outstanding principal balance of not less than $100,000,000,
which are owned or previously were owned by UDC or UDC's
affiliates or in which UDC or such affiliates have, or had, a
residual interest.
1.9 B Piece Distributions means all amounts received or to be received
with respect to all of the residual interests, certificates in and all rights to
payments under or related to any of the Securitized Pools and the 1997-2
Securitized Pool held by FMAC, FMARC or FMARC II, without duplication,
including, without limitation, all amounts distributable from any of the spread
accounts. When this term is used with respect to the UDC Excess Amount, such
term shall not include the 1997-2 Securitized
2
<PAGE> 3
Pool unless and until such pool is being serviced by UDC, a wholly owned
subsidiary of UDC or an Authorized Servicer.
1.10 Bank Group means the Current Bank Group, the Original Bank Group
and the Former Assignees.
1.11 Bank Group Claim means all amounts owed to the Bank Group under
the Warehouse Facility.
1.12 Bankruptcy Rules mean the Federal Rules of Bankruptcy Procedure,
as amended and promulgated under ss. 2075 of Title 28 of the U.S. Code.
1.13 Break-Up Fee means the $500,000 fee plus reimbursement of certain
Plan related expenses which UDC is entitled to receive under and pursuant to the
Court's Order Approving and Authorizing the Debtor to Enter into a Servicing
Agreement with respect to Bank Group Accounts and a Break-Up Fee Agreement in
Connection with the UDC Chapter 11 Plan Proposal dated December 15, 1997.
1.14 Business Day means any day other than a Saturday, Sunday or legal
holiday in Delaware or Illinois.
1.15 Cases mean the above-captioned jointly administered bankruptcy
cases.
1.16 Cash means cash and cash equivalents, including but not limited to
U.S. currency on hand, U.S. currency on deposit in any bank account and checks
or other similar negotiable instruments denominated in U.S. currency.
1.17 Causes of Action means any and all causes of action of the Debtors
and/or the Reorganized Company, whether arising under the Code or other state,
federal or common law.
1.18 Claim means (a) right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or (b)
right to an equitable remedy for breach or performance if such breach gives rise
to a right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured.
1.19 Class means a category or group of holders of Claims or Interests
as designated in Article 3 of this Plan.
1.20 Code means the Bankruptcy Reform Act of 1978, as amended, 11
U.S.C. ss.ss. 101 et seq.
1.21 Committee means the Official Unsecured Creditors' Committee of
First Merchants Acceptance Corporation appointed by
3
<PAGE> 4
the Office of the United States Trustee for the District of Delaware.
1.22 Confirmation means the entry of the Confirmation Order by the
Court pursuant to Code ss. 1129.
1.23 Confirmation Date means the date that the Court enters the
Confirmation Order.
1.24 Confirmation Order means the order of the Court confirming this
Plan.
1.25 Contested Claim means a Claim against or Interest in a Debtor, as
the case may be, to which an objection has been filed by a party in interest and
which objection has not been resolved as of the relevant date.
1.26 Contested Claim Amount means the total amount of the Contested
Claim which is subject to any objection by a party in interest.
1.27 Contested Claim Reserve means the reserve maintained for the
benefit of holders of Contested Claims.
1.28 Contracts means retail installment motor vehicle contracts
originated or purchased by FMAC.
1.29 Convenience Class means a class of Allowed Unsecured Claims (other
than Claims held by the holders of Subordinated Reset Notes) against FMAC where
the aggregate amount of Allowed Claims held by the holder of any such Claims is
$1,000 or less, subject to any opt-outs and opt-ins as set forth in ss. 3.6 of
the Plan below.
1.30 Court means the United States District Court for the District of
Delaware or such other court of competent jurisdiction exercising jurisdiction
over all or part of the Cases.
1.31 Credit Facility means the debtor-in-possession financing facility
provided by UDC as set forth in that certain Loan and Security Agreement, dated
as of July 17, 1997, between UDC and FMAC, together with any amendments and
supplements thereto and as approved by the Final DIP Order.
1.32 Creditor means the holder of a Claim (other than as holder of an
Administrative Expense).
1.33 Current Bank Group means UDC solely in its capacity as the current
holder of the Bank Group Claim through the Agent.
1.34 Current Indenture Trustee means IBJ Schroder Bank & Trust Company,
having been appointed as of August 18, 1997 by
4
<PAGE> 5
FMAC to succeed LaSalle National Bank as trustee under the Indentures.
1.35 Debt of Reorganized Company to Unsecured Creditors means $44
million plus compound interest from the Effective Date at the applicable federal
rate for medium term obligations as of the Effective Date.
1.36 Debtor means, depending on the context, either FMAC or FMRCC, as a
debtor and debtor in possession, and Debtors means FMAC and FMRCC collectively
as debtors and debtors in possession.
1.37 Debtor Excess Amount shall have the meaning ascribed to such term
in the Excess Collections Contribution Agreement.
1.38 Deficiency Amount means the amount by which the total amount of a
Claim (other than an Administrative Expense) exceeds the value of the collateral
securing such Claim as of the date of the valuation of the collateral for
purposes of Claim allowance.
1.39 DIP Financing and Overadvance Facility means the
debtor-in-possession financing facility provided by UDC pursuant to the Final
DIP Order and the agreements referenced therein, as amended and supplemented
from time to time hereafter, including the overadvance being provided by UDC
described in ss. 2.2 of this Plan.
1.40 Disallowed, when used with respect to a Claim, means that the
Claim or applicable portion thereof has been determined by a Final Order to be
invalid.
1.41 Disclosure Statement means the disclosure statement filed under
Code ss. 1125 in support of this Plan.
1.42 Effective Date means the eleventh day after the Confirmation Date,
calculated in accordance with Bankruptcy Rule 9006, unless the Confirmation has
been stayed or any of the other conditions set forth in ss. 14.1 of this Plan
have not been met, in which event it is the first day after such stay is no
longer in effect or such conditions have been met (that is also ten days after
the Confirmation Date) calculated in accordance with Bankruptcy Rule 9006, or
such later date as the Debtors, UDC and the Committee shall unanimously agree to
in writing.
1.43 Emergence Fee means UDC's out of pocket expenses related to the
DIP Financing and Overadvance Facility of $100,000.
1.44 Exercise Date means that date on which UDC issues Stock Option
Shares as provided in ss. 8.14 hereof.
5
<PAGE> 6
1.45 Excess Collections Contribution Agreement means that certain
Contribution Agreement by and between FMAC and UDC, in substantially the form
attached as Exhibit A hereto.
1.46 Excess Greenwich Collateral means any remaining proceeds from
collections on Greenwich Collateral after full repayment of all loan obligations
to Greenwich secured thereby.
1.47 Fair Market Value per share of a UDC Warrant Share on any date
shall mean, except as hereinafter provided, the average closing price of the
common stock of UDC for the ten consecutive business days immediately preceding
the third business day prior to such date as reported on the Nasdaq National
Market ("Nasdaq") or, if such common stock is not traded on Nasdaq, then
as reported on the principal domestic stock exchange on which such stock is then
listed or admitted to trading, or, if such common stock is neither listed or
admitted to trading on any domestic stock exchange nor traded on Nasdaq, then as
reported in the over-the-counter market, as furnished by the National Quotation
Bureau, Inc., or, if such firm at the time is not engaged in the business of
reporting such prices, as furnished by any similar firm then engaged in such
business as selected by the Reorganized Company, or if there is no such firm, as
furnished by any member of the National Association of Securities Dealers, Inc.
selected by the Reorganized Company. If at any time such common stock is neither
listed on any domestic exchange, nor traded on Nasdaq, nor otherwise quoted in
the domestic over-the-counter market, then the Fair Market Value shall be the
fair market value per share of such common stock on the date of distribution of
the UDC Warrant Shares to the holders of the Debt of Reorganized Company to
Unsecured Creditors as determined by an Independent Appraiser selected by the
Reorganized Company.
1.48 Final DIP Order means that certain Final 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, dated August 28, 1997, as the same
was amended on December 22, 1997 and as the same may be amended from time to
time.
1.49 Final Order means an order that is final and nonappealable.
1.50 FMAC means First Merchants Acceptance Corporation, a Delaware
corporation.
1.51 FMARC means First Merchants Auto Receivables
Corporation, a Delaware corporation.
1.52 FMARC II means First Merchants Auto Receivables Corporation II, a
Delaware corporation.
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1.53 FMRCC means First Merchants Residential Credit Corporation, a
Delaware corporation.
1.54 FMRCC Sale Proceeds means all amounts held in a segregated account
from the sale of the assets of FMRCC to Coast Financial Partners, L.L.C., after
payment of cure costs for executory contracts and unexpired leases assumed by
FMRCC and assigned to Coast Financial Partners, L.L.C., to the extent that FMRCC
agreed to pay such costs, as well as Administrative Expenses of the FMRCC
estate.
1.55 Former Assignees means Cerberus Partners L.P. and Bear Stearns &
Co. Inc. as assignees of certain members of the Original Bank Group and who in
turn subsequently sold their interest to UDC effective as of December 15, 1997.
1.56 FSA means Financial Security Assurance Inc., a monoline insurance
company incorporated under the laws of the State of New York.
1.57 Guaranty and Pledge Agreement means that certain Guaranty and
Pledge Agreement (Stock), dated as of December 15, 1997, between FMAC and the
Agent.
1.58 Greenwich means Greenwich Capital Financial Products, Inc.
1.59 Greenwich Collateral means all Contracts and related collateral
securing repayment of the Allowed Secured Claim of Greenwich as and when
Allowed.
1.60 Indemnification Policies means the insurance policy or policies
obtained by the Debtors to cover their obligations to indemnify their officers
and directors pursuant to the applicable provisions of the Debtors' charters,
by-laws, and/or applicable state law.
1.61 Indentures means, collectively, (i) that certain indenture dated
as of January 1, 1995, between FMAC and LaSalle National Bank as the original
indenture trustee for Subordinated Reset Notes due 2005 in the aggregate
principal amount of $14,375,000 and (ii) that certain indenture dated as of
October 15, 1996 between FMAC and LaSalle National Bank as the original
indenture trustee for Subordinated Reset Notes due 2006 in the aggregate
principal amount of $51,750,000.
1.62 Independent Appraiser means a national independent public
accounting firm selected by the board of directors of the Reorganized Company.
1.63 Interest means an equity interest in FMAC or FMRCC.
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1.64 Interestholder means the holder of an Interest.
1.65 Lien means a charge against or interest in property to secure
payment of a debt or performance of an obligation.
1.66 Miscellaneous Secured Claims means a Secured Claim that is held by
a Person other than the Bank Group, Greenwich or FSA.
1.67 Modified UDC Fee means a non-recourse fee of $450,000 payable
solely out of B Piece Distributions after payment in full of the DIP Financing
and Overadvance Facility and the guaranty of Allowed Class 2 Claims under the
Guaranty and Pledge Agreement, but before any distributions under the Excess
Collections Contribution Agreement.
1.68 Original Bank Group means LaSalle National Bank, individually as a
lender and as Agent; NBD Bank; Firstar Bank Milwaukee, N.A.; Harris Trust and
Savings Bank; Nations Bank; First Bank, National Association; CoreStates Bank,
N.A.; Fleet Bank, National Association, f/k/a Natwest Bank, N.A.; Boatmen's
Bank; and Mellon Bank, N.A.; solely in their capacity as lenders to FMAC
pursuant to the terms of the Warehouse Facility.
1.69 Owned Loans means all of FMAC's owned Contracts as of December 15,
1997, other than the Greenwich Collateral, whether current, delinquent, or
charged off, together with all of FMAC's rights in the collateral securing such
Contracts and all related repossessed vehicles.
1.70 Owned Loans Servicing Change means that the Owned Loans, from and
after the date that UDC begins servicing the Owned Loans, are not being serviced
by UDC, a wholly owned subsidiary of UDC, an Authorized Servicer or such other
entity as the Reorganized Company and the Committee shall consent to, which
consent will not be unreasonably withheld.
1.71 Owned Loan Servicing Fee means a charge, calculated on a monthly
basis for each such Contract of the greater of (i) 1/12 of 3-1/4% of the then
outstanding principal balance of the applicable Contracts, or (ii) $15.00 per
Contract, in each case applied only to Contracts which constitute part of the
Owned Loans and are less than 120 days past due computed as of the last day of
the month and for which the related vehicle has not been repossessed.
1.72 Person means an individual, partnership, corporation, joint
venture, unincorporated association or organization, estate, trust or
governmental unit.
1.73 Petition Date means with respect to FMAC, July 11, 1997, the date
on which FMAC commenced its Case, and with respect
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to FMRCC, September 9, 1997, the date on which FMRCC commenced its Case.
1.74 Plan means this Second Amended Joint Plan under Chapter 11 of the
United States Bankruptcy Code, as the same may be amended from time to time
pursuant to the plan's terms, the Code or the Bankruptcy Rules.
1.75 Plan Documents means Exhibits A, C and D to this Plan, which
exhibits will be filed with the Court not later than the conclusion of the
Confirmation hearing on the Plan, and the Excess Collections Contribution
Agreement and certain agreements referenced therein.
1.76 Priority Non-Tax Claim means a Claim entitled to priority under
Code ss.ss. 507(a)(3), 507(a)(4) or 507(a)(6).
1.77 Priority Tax Claim means a Claim asserted by a governmental unit
entitled to priority under Code ss. 507(a)(8).
1.78 Pro Rata means the proportion that the amount of an Allowed Claim
or Allowed Interest in a particular Class or Subclass bears to the aggregate
amount of all Allowed Claims or Allowed Interests in such Class or Subclass
(including any Contested Claim Reserve).
1.79 Professionals means any court approved professional Person
employed in these Cases at any time before Confirmation by the Debtors or the
Committee.
1.80 Purchase Price means $85,167,127.24. This amount includes $450,000
for attorneys fees, costs and expenses of the Bank Group incurred after August
21, 1997 which will be allowed under Code ss. 506(b) on the Effective Date.
1.81 Reorganized Company means reorganized FMAC from and after the
Effective Date.
1.82 Secured Claim means a secured Claim within the meaning of Code ss.
506(a) and shall not include any Deficiency Amount.
1.83 Secured Claim Recovery Amount means any shortfall between (i)
collections on, net proceeds from sales of charged off Contracts constituting,
and net proceeds of collateral securing the Owned Loans after December 15, 1997,
and (ii) the Purchase Price plus interest at the rate of 11% from and after
December 15, 1997, until paid in full plus the Owned Loan Servicing Fee,
provided, however, that in the event the servicing of the Owned Loans is
transferred to an entity other than UDC, a wholly-owned subsidiary of UDC, an
Authorized Servicer or any other servicer without the prior written consent of
FMAC, such consent not to be unreasonably withheld, the Secured Claim Recovery
Amount shall be limited to $10,000,000.
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1.84 Securitization Related Documents means the documents set forth in
Exhibit E hereto, as the same may be amended from time to time.
1.85 Securitized Pools means the pools of Contracts which FMAC
securitized through FMARC and FMARC II, but excluding the 1997-2 Securitized
Pool, unless FMAC, UDC, a wholly-owned subsidiary of UDC or an Authorized
Servicer becomes the servicer for the 1997-2 Securitized Pool.
1.86 Stock Option has the meaning set forth inss. 8.14 hereof.
1.87 Stock Option Shares has the meaning set forth in ss. 8.14 hereof.
1.88 Subclass means a subclass of any Class as designated in Article 3
of the Plan.
1.89 Subordinated Reset Notes means, collectively, the Subordinated
Reset Notes issued by FMAC under the Indentures.
1.90 Tax Refunds means any and all tax refunds to which the Debtors may
be entitled under their return for tax year 1996 and prior tax years.
1.91 UDC means Ugly Duckling Corporation.
1.92 UDC Excess Amount shall have the meaning ascribed to such term in
the Excess Collections Contribution Agreement
1.93 UDC Warrants means warrants to buy 325,000 common shares of UDC
issued by UDC in accordance with Section 8.3 of this Plan, in substantially the
form attached as Exhibit D hereto.
1.94 UDC Warrant Shares means the share of UDC common stock issuable
upon exercise of the UDC Warrants.
1.95 Unsecured Claim means a Claim other than a Secured Claim, an
Administrative Expense, a Convenience Claim, a Priority Non-Tax Claim or a
Priority Tax Claim. Unsecured Claim also includes any Claim for a Deficiency
Amount.
1.96 Warehouse Facility means FMAC's warehouse loan facility pursuant
to that certain Fourth Amended and Restated Loan and Security Agreement, dated
as of February 28, 1996, as subsequently amended, by and among FMAC, the Agent
and the Original Bank Group.
1.97 Interpretation. Any term not defined herein has the meaning
ascribed to it in the Code or the Bankruptcy Rules. The exhibits attached to
this Plan are incorporated into and are part of this Plan as if fully set forth
in this Plan. The headings in this Plan are for convenience of reference only
and shall not limit or otherwise affect the provisions hereof.
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ARTICLE 2
PROVISIONS FOR THE ALLOWANCE AND PAYMENT OF UNCLASSIFIED
CLAIMS -- ADMINISTRATIVE EXPENSES AND PRIORITY TAXES
2.1 ADMINISTRATIVE EXPENSES. Each holder of an Allowed Administrative
Expense shall be paid in respect of such Claim in Cash, in full, on the
Effective Date, or, if such Claim has not been Allowed on or before the
Effective Date, promptly after the allowance of the Claim by a Final Order;
provided, however, an Allowed Administrative Expense may be satisfied on such
other terms as may be agreed to by the holder of such Claim and the applicable
Debtor. Administrative Expenses arising solely from the FMRCC estate shall be
paid solely from the FMRCC Sale Proceeds.
2.1.1 BAR DATE FOR REQUESTS FOR PAYMENT OF AN ADMINISTRATIVE
EXPENSE. All requests for payment of an Administrative Expense, except
for Professionals' requests for compensation and post-petition
extensions of trade credit for goods or services, shall be filed with
the Court no later than forty-five (45) days after the Effective Date
or be forever barred. Within five (5) days after the Effective Date,
the Debtors shall serve notice of such Administrative Expense bar date
on all known parties asserting Administrative Expenses except for
Professionals. A bar date for Professionals' requests for compensation
shall be set in the Confirmation Order.
2.1.2 DEADLINE FOR OBJECTIONS. All objections to allowance of
Administrative Expenses must be filed within thirty (30) days after the
Administrative Expense bar date. If no objection to the applicable
Administrative Expense is filed on or before that date, such
Administrative Expense shall be deemed Allowed as of that date.
2.2 DIP AND OVERADVANCE FACILITY. On the Effective Date, UDC shall
continue advances under the Credit Facility and approved in the Final DIP Order
as advances under the post-confirmation DIP Financing and Overadvance Facility,
which facility shall be on substantially identical terms (with appropriate
amendments to the documentation to reflect an increase in the overadvance as set
forth below and the post-confirmation nature of this financing facility). On the
Effective Date, UDC shall increase the overadvance availability to the
Reorganized Company to $8.5 million (for a total DIP Financing and Overadvance
Facility of $18.5 million), provided, however, that UDC's agreement to increase
the overadvance availability by $2 million from an aggregate of $16.5 million to
an aggregate of $18.5 million is conditioned on the loans in the Securitized
Pools which have been charged off through December 31, 1997 being sold to UDC or
such higher and better bidder as may outbid UDC at a sale held prior to the
Confirmation Date on
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terms acceptable to UDC. The proceeds of the sale of such charge-offs shall be
applied to reduce debt in the applicable Securitized Pool; provided, however,
that in the event that UDC is not the successful bidder, fifty percent (50%) of
the proceeds in excess of UDC's initial bid will be paid to UDC (but in no event
shall the amount of excess proceeds paid to UDC exceed $350,000). UDC's initial
bid was 1% of the receivables charged-off before September 30, 1997 and 2% of
the receivables charged-off between September 30, 1997 and December 31, 1997.
This post-confirmation facility may be used by the Reorganized Company
to pay Administrative Expenses, Priority Tax Claims, Priority Non-Tax Claims,
any Secured Claims which the Reorganized Company elects to satisfy in Cash,
Convenience Class Claims and post-confirmation expenses of the Reorganized
Company. All amounts received by FMAC with respect to the Tax Refunds shall be
applied to reduce outstanding obligations under the DIP Financing and
Overadvance Facility, with the first $10 million of proceeds from such Tax
Refunds acting as a permanent reduction of the DIP Financing and Overadvance
Facility. Any remaining obligations under the DIP Financing and Overadvance
Facility shall be paid from the B Piece Distributions after application of the B
Piece Distributions to the remaining balance on the Secured Claim Recovery
Amount but before payment of the Modified UDC Fee or distributions under the
Excess Collections Contribution Agreement, plus Excess Greenwich Collections and
net proceeds from sales of FMAC's furniture, fixtures and equipment not
otherwise acquired by UDC on the Effective Date. All B Piece Distributions shall
be applied to the DIP Financing and Overadvance Facility and act as a permanent
reduction of that facility. Payments from the Excess Greenwich Collections,
proceeds from sales of FMAC's furniture, fixtures and equipment and any
voluntary prepayments from the Reorganized Company's other assets such as
proceeds from the UDC Warrants and the Causes of Action, shall not result in a
permanent paydown of the DIP Financing and Overadvance Facility, and the
Reorganized Company will be allowed to reborrow under such facility to the
extent permitted thereunder. The Reorganized Company may, but is under no
obligation to, use proceeds from the UDC Warrants held for Class 7A and the
Causes of Action to repay amounts due under the DIP Financing and Overadvance
Facility if it so elects. Proceeds of the UDC Warrants held for Class 8A shall
only be distributed to such class (after recovery of the direct costs of such
distribution). The DIP Financing and Overadvance Facility shall bear simple
interest at a rate of 10% per annum from and after the Effective Date.
In consideration for the terms of the DIP Financing and Overadvance
Facility as modified on the Effective Date, UDC shall receive the Modified UDC
Fee and the Emergence Fee. The Modified UDC Fee and the Emergence Fee are the
only financing and similar fees UDC will receive under this Plan or the orders
entered in these Cases, including, without limitation, the Final DIP Order,
unless this Plan is not confirmed and UDC becomes entitled to the Break-Up Fee.
The Modified UDC Fee shall not be treated as an
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advance under the DIP Financing and Overadvance Facility and shall not accrue
any interest or costs. The Emergence Fee shall be treated as an advance under
the DIP Financing and Overadvance Facility and shall accrue interest as provided
in the DIP Financing and Overadvance Facility.
2.3 PRIORITY TAX CLAIMS. Any holder of an Allowed Priority Tax Claim
shall receive at the option of the Debtors (i) the amount of the holder's
Allowed Priority Tax Claim in one Cash payment on the Effective Date or (ii) the
amount of the holder's Allowed Priority Tax Claim, with interest at a rate to be
determined by the Court at the hearing on Confirmation of this Plan, in equal
annual Cash payments on each anniversary of the Effective Date, until the last
anniversary of the Effective Date that precedes the fourth anniversary date of
the date of assessment of the Allowed Priority Tax Claim. A Priority Tax Claim
that is a Contested Claim shall not receive any distribution on the Effective
Date or thereafter unless and until such Claim becomes an Allowed Priority Tax
Claim.
ARTICLE 3
CLASSIFICATION OF CLAIMS AND INTERESTS
3.1 CLASS 1 -- ALLOWED PRIORITY NON-TAX CLAIMS. Class 1 consists of all
Allowed Priority Non-Tax Claims.
3.1.1 CLASS 1A. Class 1A consists of Allowed Class 1 Claims
against FMAC.
3.1.2 CLASS 1B. Class 1B consists of Allowed Class 1 Claims
against FMRCC.
3.2 CLASS 2 -- ALLOWED SECURED CLAIM AGAINST FMAC UNDER GUARANTY AND
PLEDGE AGREEMENT. Class 2 consists of the Allowed Secured Claims of the Current
Bank Group or any successor thereto against FMAC under the Guaranty and Pledge
Agreement.
3.3 CLASS 3 -- ALLOWED SECURED CLAIM OF FSA. Class 3 consists of the
Allowed Secured Claim of FSA against FMAC.
3.4 CLASS 4 -- ALLOWED SECURED CLAIM OF GREENWICH. Class 4 consists of
the Allowed Secured Claim of Greenwich against FMAC.
3.5 CLASS 5 -- MISCELLANEOUS SECURED CLAIMS. Class 5 consists of all
Allowed Miscellaneous Secured Claims.
3.5.1 CLASS 5A. Class 5A consists of Allowed Class 5 Claims
against FMAC.
3.5.2 CLASS 5B. Class 5B consists of Allowed Class 5 Claims
against FMRCC.
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3.6 CLASS 6 -- ALLOWED CONVENIENCE CLASS CLAIMS. Class 6 consists of
all Allowed Convenience Class Claims against FMAC. There shall be no
convenience class for FMRCC creditors. A Class 6 Creditor desiring Subclass 7A-2
treatment must so elect in its ballot submitted in connection with voting on
this Plan. A Subclass 7A-2 Creditor (other than a holder of a 1995 Subordinated
Reset Note) holding a Claim above the $1,000 maximum for an Allowed Convenience
Class Claim may elect Class 6 treatment by reducing the amount of its Allowed
Claim to $1,000 and waiving any amount of its Allowed Claim above $1,000.
3.7 CLASS 7 -- ALLOWED UNSECURED CLAIMS. Class 7 consists of all
Allowed Unsecured Claims not specifically classified in other Classes including
all Allowed Claims for any Deficiency Amounts and any Allowed Claim of a Class 6
Creditor who elects to treat such Claim as a Subclass 7A-2 Claim.
3.7.1 CLASS 7A. Class 7A consists of Allowed Class 7 Claims
against FMAC. Subclass 7A-1 consists of Claims related to the
Subordinated Reset Notes issued in 1996, while Subclass 7A-2 consists
of all other general Unsecured Claims, including, without limitation,
the Subordinated Reset Notes issued in 1995 and trade and landlord
Claims.
3.7.2 CLASS 7B. Class 7B consists of Allowed Class 7 Claims
against FMRCC.
3.8 CLASS 8 -- ALLOWED INTERESTS. Class 8 consists of Allowed Interests
in FMAC and FMRCC.
3.8.1 CLASS 8A. Class 8A consists of Allowed Interests in
FMAC.
3.8.2 CLASS 8B. Class 8B consists of Allowed Interests in
FMRCC.
ARTICLE 4
IDENTIFICATION OF IMPAIRED CLASSES
OF CLAIMS AND INTERESTS
4.1 IMPAIRED CLASSES OF CLAIMS AND INTERESTS. Classes 3, 4, 5, 6, 7A-1,
7A-2, 7B, 8A and 8B are impaired under this Plan.
4.2 UNIMPAIRED CLASSES OF CLAIMS AND INTERESTS. Classes 1A, 1B and 2
are not impaired under this Plan.
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ARTICLE 5
PROVISIONS FOR TREATMENT OF
CLASSIFIED CLAIMS AND INTERESTS
5.1 CLASS 1 -- ALLOWED PRIORITY NON-TAX CLAIMS. Classes 1A and 1B are
unimpaired. Each holder of an Allowed Priority Non-Tax Claim shall be paid the
full amount of its Allowed Claim in Cash on the Effective Date unless paid
earlier pursuant to prior order of the Court or agreed otherwise by the
applicable Debtor and the holder of such Claim.
5.2 CLASS 2 -- ALLOWED SECURED CLAIM AGAINST FMAC UNDER GUARANTY AND
PLEDGE AGREEMENT. Class 2 is unimpaired. The Agent for the Bank Group has credit
bid the Purchase Price and, in exchange, has acquired the Owned Loans. FMAC has
no remaining obligations to the Original Bank Group and the Former Assignees
under the Bank Group Claim. FMAC's obligations to the Current Bank Group are set
forth in the Guaranty and Pledge Agreement. In the event that UDC withdraws its
support for, or is unable or unwilling to consummate this Plan for any reason,
the guaranty and replacement lien set forth in the Guaranty and Pledge Agreement
shall be null and void. Nothing herein shall prejudice the claims of UDC on the
one hand, and the Former Assignees, on the other hand, to funds deposited by UDC
into escrow pending resolution of the disputed claims of UDC and the Former
Assignees thereto.
The B Piece Distributions will first be used to pay FMAC's obligations
under the Guaranty and Pledge Agreement and then shall next be applied to any
remaining balance on the DIP Financing and Overadvance Facility after
application of the Tax Refunds until paid in full. Such B Piece Distributions
shall thereafter be applied to pay the Modified UDC Fee and then be retained by
the Reorganized Company for distribution under the Plan subject to the Excess
Collections Contribution Agreement and the Stock Option set forth in ss. 8.14
hereof.
The Confirmation Order shall contain a final acknowledgement and
determination that the Bank Group had duly perfected and valid liens in all of
FMAC's assets, except for the Greenwich Collateral and FMAC's stock in FMARC and
FMARC II, which liens are not subject to avoidance, counterclaim or offset. All
interim payments received by the Bank Group during these Cases shall become
final on the Effective Date.
5.3 CLASS 3 -- ALLOWED SECURED CLAIM OF FSA. Class 3 is impaired. FSA
shall retain its contingent lien on the stock of FMARC II to secure obligations
presently secured thereby, including, without limitation, FMAC's obligation to
reimburse FSA for any amounts FSA is required to pay on account of the
guarantees and certain fees arising under the Securitization Related Documents.
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5.4 CLASS 4 -- ALLOWED SECURED CLAIM OF GREENWICH. Class 4 is impaired.
Greenwich will continue to receive all collections on account of the Greenwich
Collateral until such time as the Allowed Secured Claim of Greenwich is
paid in full including default interest. Until such obligations are paid in
full with default interest, Greenwich shall retain its lien on the Greenwich
Collateral as well as its second lien on the stock of FMARC II. All interim
payments received by Greenwich during these Cases shall become final on the
Effective Date and shall be applied to reduce the Allowed Secured Claim of
Greenwich when and as Allowed. The Greenwich Collateral will be serviced by UDC
after the Effective Date pursuant to an agreement acceptable to the parties.
5.5 CLASS 5 -- ALLOWED MISCELLANEOUS SECURED CLAIMS. Classes 5A and 5B
are impaired. At the applicable Debtor's option, the holders of any
Miscellaneous Secured Claims, if any, shall either (i) be paid the replacement
value of their collateral on the Effective Date or as soon thereafter as there
is a Final Order allowing such a Miscellaneous Secured Claim or (ii) have their
collateral returned to them. Any Deficiency Amount held by the holder of a
Miscellaneous Secured Claim shall be classified in Class 6 or Subclass 7A-2,
depending on the size of the Deficiency Amount and any available election to
opt-in or opt-out of the Convenience Class made by the holder of such
Deficiency Amount.
5.6 CLASS 6 -- ALLOWED CONVENIENCE CLASS CLAIMS. Class 6 is impaired.
In full satisfaction of their Claims, Creditors in Class 6 shall be paid the
lesser of $500 or 50% of their Allowed Convenience Class Claims in Cash on the
Effective Date or as soon as practicable after such Claim becomes Allowed.
Allowed Convenience Class Claims shall receive no other distributions with
respect to the Debtors or the Reorganized Company.
5.7 CLASS 7 -- ALLOWED UNSECURED CLAIMS. Class 7 is impaired.
5.7.1 Subclass 7A-1 - Allowed Unsecured Claims Against FMAC
related to Subordinated Reset Notes issued in 1996. Holders of Allowed
Subclass 7A-1 Claims will receive their Pro Rata share of an amount
equal to (i) the Debt of the Reorganized Company to Unsecured Creditors
multiplied by the total amount of Allowed Subclass 7A-1 Claims
(including any Contested Claims Reserve for Subclass 7A-1 Claims)
divided by the total amount of Allowed Class 7A Claims (including any
Contested Claims Reserve for Class 7A Claims) plus (ii) the Additional
Equity Value for Subclass 7A-2. This amount shall mature and be fully
due and payable four years and eleven months after the Effective Date.
This amount shall be payable from (i) available cash flow after
satisfaction of senior obligations under this Plan and obligations to
Class 8A Interestholders, if any, and/or (ii)
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distribution of Stock Option Shares in accordance with the terms of
the Plan in the event that UDC exercises the Stock Option, and/or
(iii) at the option of the Reorganized Company, distribution of UDC
Warrants or UDC Warrant Shares. In the event that UDC exercises the
Stock Option and Stock Option Shares are distributed to holders of
Subclass 7A-1 Claims, the value of such Stock Option Shares shall be
deemed to be the Stock Option Value (as defined in ss. 8.14 hereof)
for such shares. In the event that the Reorganized Company distributes
UDC Warrant Shares to the holders of Subclass 7A-1 Claims, the value
of such UDC Warrant Shares shall be deemed to be their Fair Market
Value on the date of distribution of the UDC Warrant Shares. In the
event that the Reorganized Company distributes UDC Warrants to the
holders of Subclass 7A-1 Claims, the value of such UDC Warrants shall
be deemed to be their value on the date of distribution as determined
by an Independent Appraiser. All payments or the value of Stock Option
Shares, UDC Warrants Shares or UDC Warrants distriubted to Subclass
7A-1 Creditors shall be first applied to interest, then principal.
All amounts payable in cash, Stock Option Shares, UDC Warrant Shares
or UDC Warrants to Subclass 7A-1 Creditors hereunder shall be
subject to any reserve deemed reasonable by the board of directors of
the Reorganized Company to satisfy post-confirmation expenses of the
Reorganized Company.
Holders of Allowed Subclass 7A-1 Claims will also receive
their Pro Rata share of 43% of the common stock of the Reorganized
Company.
5.7.2 Subclass 7A-2 - Allowed Unsecured Claims Against FMAC
other than Claims related to Subordinated Reset Notes issued in 1996.
Holders of Allowed Subclass 7A-2 Claims will receive their Pro Rata
share of an amount equal to (i) the Debt of the Reorganized Company to
Unsecured Creditors multiplied by the total amount of Allowed Subclass
7A-2 Claims (including any Contested Claims Reserve for Subclass 7A-2
Claims) divided by the total amount of Allowed Class 7A Claims
(including any Contested Claims Reserve for Class 7A Claims) minus (ii)
the Additional Equity Value for Subclass 7A-2. This amount shall mature
and be fully due and payable four years and eleven months after the
Effective Date. This amount shall be payable from (i) available cash
flow after satisfaction of senior obligations under this Plan and
obligations to Class 8A Interestholders, if any, and/or (ii)
distribution of Stock Option Shares in accordance with the terms of the
Plan in the event that UDC exercises the Stock Option and/or (iii) at
the option of the Reorganized Company, distribution of UDC Warrants
or UDC Warrant Shares. In the event that UDC exercises the Stock
Option and Stock Option Shares are distributed to holders of Subclass
7A-2 Claims, the value of such Stock Option Shares shall be deemed to
be the Stock Option Value (as defined in ss. 8.14 hereof) for such
shares. In the event that the Reorganized Company distributes UDC
Warrant Shares to the holders of Subclass 7A-2 Claims, the value of
such UDC Warrant Shares shall be deemed to be their Fair Market Value
on the date of distribution of the UDC Warrant Shares. In the event
that the Reorganized Company distributes UDC Warrants to the holders
of Subclass 7A-2 Claims, the value of such UDC Warrants shall be
deemed to be
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their value on the date of distribution as determined by an
Independent Appraiser. All payments or the value of Stock Option
shares, UDC Warrant Shares or UDC Warrants distributed to Subclass
7A-2 Creditors shall be first applied to interest, then principal. All
amounts payable in cash, Stock Option Shares, UDC Warrant Shares or UDC
Warrants to Subclass 7A-2 Creditors hereunder shall be subject to any
reserve deemed reasonable by the board of directors of the Reorganized
Company to satisfy ~post-confirmation expenses of the Reorganized
Company.
Holders of Allowed Subclass 7A-2 Claims will also receive
their Pro Rata share of 57% of the common stock of the Reorganized
Company. FMAC reserves the right to provide any Creditor in Subclass
7A-2 who does not qualify as a "qualified creditor" under 26 U.S.C. ss.
382(l)(5)(E) with alternative treatment in lieu of its Pro Rata share
of the common stock of the Reorganized Company in order to protect the
Debtors' federal income tax attributes. Such alternative treatment will
be the economic equivalent of the treatment otherwise given to other
holders of Allowed Subclass 7A-2 Claims. Such alternative treatment
will be agreed upon by FMAC, the Committee and such Creditor or if no
such agreement is reached, as determined by the Court after notice and
a hearing.
5.7.3 Class 7B - Allowed Unsecured Claims Against FMRCC. All
Allowed Unsecured Claims against FMRCC, including FMAC's scheduled
Claim against FMRCC, will be paid Pro Rata from the FMRCC Sale
Proceeds.
5.8 CLASS 8.
5.8.1 Class 8A - Allowed Interests in FMAC. Except as to
shares of common stock in FMAC currently held by UDC which are being
contributed as set forth in Section 8.15 hereof, all Allowed Interests
in FMAC will receive the benefit of the greater of (i) UDC Warrants to
purchase 32,500 common shares of UDC or (ii) their Pro Rata share of
any UDC Warrants reallocated to Class 8A under the Alltel Cure
Reallocation. The reasonable direct costs incurred by the Reorganized
Company solely as a result of distributing the proceeds of the UDC
Warrants to Class 8A Interestholders shall be netted from such
distribution. The total amount available for distribution to all of
Class 8A under the foregoing formula cannot exceed $276,250 plus $8.50
per additional UDC Warrant, if any, received pursuant to the Alltel
Cure Reallocation and shall only be available when and if the right to
exercise or sell the UDC Warrants is exercised by the Reorganized
Company or any other holders thereof.
Any Claims subject to subordination under Code ss. 510(b)
shall participate in Class 8A based on the ratio of their stock
holdings to all Allowed Interests. All options or warrants to purchase
Interests in FMAC shall be cancelled
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unless exercised at least five Business Days before the Confirmation
Date.
5.8.2 Class 8B - Allowed Interests. FMAC will not receive any
distribution on account of its ownership of the stock of FMRCC. FMRCC
shall be dissolved once all Claims against FMRCC are adjudicated in a
Final Order.
ARTICLE 6
ACCEPTANCE OR REJECTION OF PLAN
AND ELECTIONS ON BALLOTS
6.1 CLASSES ENTITLED TO VOTE. Each impaired Class, except for Class 8B,
shall be entitled to vote separately to accept or reject this Plan. Any
unimpaired Class of Claims shall not be entitled to vote to accept or reject
this Plan.
6.2 CLASSES OF CLAIMS AND INTERESTS DEEMED TO REJECT THIS PLAN. The
Allowed Interest in FMRCC (Class 8B) is impaired and will not receive or retain
any property under this Plan. Under ss. 1126(g) of the Code, the holder of such
Interest is conclusively presumed to reject this Plan, and the vote of such
holder will not be solicited.
ARTICLE 7
PLAN DISTRIBUTIONS
7.1 TIMING OF CASH PAYMENTS. Payments of Cash to holders of Allowed
Administrative Expenses and Allowed Priority Tax Claims shall be made in
accordance with Article 2 of this Plan. Payments of Cash to Allowed Priority
Non-Tax Claims shall be made on the Effective Date from Cash on hand or advances
under the DIP Financing and Overadvance Facility. All payments to holders of
Allowed Convenience Class Claims and Class 7B Allowed Unsecured Claims against
FMRCC shall be made as soon as practicable after the later of the Effective
Date or the date such Claim becomes an Allowed Claim pursuant to a Final Order.
Payments to UDC pursuant to the Excess Collections Contribution Agreement will
be made as set forth in the Excess Collections Contribution Agreement. All
other Cash distributions, including payments to holders of Allowed Unsecured
Claims against FMAC and Allowed Interests in FMAC, shall be made quarterly on
the last Business Day of March, June, September and December of the applicable
year, provided that proceeds allocated to the applicable Class are received
during such quarter. If available cash proceeds held ten business days prior to
a scheduled distribution date are less than $300,000 (after satisfaction of
senior obligations under this Plan and obligations to Class 8A Interestholders,
if any, plus funding of any reserve deemed reasonable by the board of directors
of the Reorganized Company to meet anticipated post-confirmation expenses), the
Reorganized Company may elect not to make a
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quarterly distribution to Subclass 7A-1 or Subclass 7A-2 Creditors. Payments
to Creditors of FMRCC shall be made solely from the FMRCC Sale Proceeds.
Distributions to holders of Unsecured Claims and Interests will be net of costs
of collection and any reserves for post-confirmation administration and
expenses of the Reorganized Company (to the extent not paid with loans under
the DIP Financing and Overadvance Facility) deemed reasonable by the board of
directors of the Reorganized Company.
7.2 MEANS OF CASH PAYMENT. Cash distributions made pursuant to this
Plan shall be in United States funds, by check drawn on a domestic bank or if
the Debtors so elect in their sole discretion for distributions to certain large
claimants, by wire transfer from a domestic bank. Cash distributions by check
shall be mailed to Creditors or Interestholders entitled to such distributions
under this Plan at the addresses set forth on the Creditors' proofs of claim,
or, if no proof of claim was filed, shall be mailed to the Creditor's last known
address contained in the records of the Reorganized Company and in the case of
Interestholders, to the most current address reflected in the records of the
Reorganized Company.
7.3 TIME BAR TO CASH PAYMENTS. Checks issued by the Reorganized Company
with respect to Claims or Interests shall be null and void if not cashed within
ninety (90) days of the date of issuance thereof.
7.3.1 Requests for reissuance of any check must be made
directly to the Reorganized Company by the holder of the Allowed Claim
or Interest with respect to which the check originally was issued.
7.3.2 Any claim in respect of such a voided check shall be
made on or before ninety (90) days after the date of issuance of the
check, after which time all claims in respect of void checks shall be
discharged and forever barred, and the funds shall be redistributed to
other Allowed Claims or Interests (subject to a Contested Claims
Reserve) in the applicable Class during the next quarterly
distribution.
7.4 RECORD DATE. The record date for purposes of distributions under
this Plan shall be the close of business on the Confirmation Date. The Debtors
will rely on the register of proofs of claim filed in the Cases and their stock
records to identify holders of Claims and Interests except to the extent a
notice of transfer of Claim or Interest has been filed with the Court prior to
the Confirmation Date pursuant to Bankruptcy Rule 3001 and the Reorganized
Company has actual notice of a permitted post-confirmation transfer.
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ARTICLE 8
MEANS FOR IMPLEMENTATION OF THE PLAN
8.1 DISSOLUTION, LIQUIDATION, AND ADMINISTRATION OF ASSETS. The
Reorganized Company (through its post-confirmation board of directors and
officers) will oversee the liquidation, sale and/or collection of all of the
assets of the Reorganized Company, including (i) evaluation, pursuit and
settlement of the Causes of Action, (ii) monitoring amounts which are or will
become due and owing under the Excess Contributions Collection Agreement, and
(iii) overseeing distributions contemplated by this Plan. The board may (i)
direct UDC to distribute the UDC Warrants directly to the Class 7A Creditors
and/or Class 8A Interestholders, (ii) cause the Reorganized Company to
distribute the UDC Warrants to Class 7A Creditors and/or Class 8A
Interestholders, (iii) cause the Reorganized Company to exercise the UDC
Warrants and distribute the UDC Warrant Shares to Class 7A Creditors and/or
Class 8A Interestholders, or (iv) hold the UDC Warrants and/or UDC Warrant
Shares until such time as the board of directors of the Reorganized Company in
its sole discretion determines appropriate to exercise and/or sell the UDC
Warrants or UDC Warrant Shares. Any proceeds from the UDC Warrants or UDC
Warrant Shares received by the Reorganized Company shall be distributed in
accordance with this Plan. The Reorganized Company will not issue any equity or
debt securities in the Reorganized Company required to be registered under the
Securities Act of 1933, as amended, and will comply as required by applicable
law with the reporting requirements of the Securities Exchange Act of 1934, as
amended.
The Reorganized Company will not conduct any other trade or business
besides liquidating and collecting its existing assets. The Reorganized Company
will not make any investments, except temporary investments in cash, money
market instruments, short-term government securities and other short-term
investment grade securities pending distribution of such proceeds in accordance
with this Plan. The Reorganized Company will establish personnel policies
designed to avoid the possibility of self-dealing by the Reorganized Company's
officers, directors or employees in connection with sales or other dispositions
of property held by the Reorganized Company.
The Reorganized Company will seek to distribute all proceeds received
under the Excess Collections Contribution Agreement and from the Causes of
Action in accordance with ss. 7.1 of this Plan or as otherwise ordered by the
Court and close these Cases and dissolve as a corporation before the fifth
anniversary of the Effective Date, unless such date is extended by an order of
the Court for cause as necessary to complete distribution of the Reorganized
Company's assets. It is not presently contemplated that such an extension will
be necessary.
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8.2 DIP FINANCING AND OVERADVANCE FACILITY. The DIP Financing and
Overadvance Facility shall be amended on the Effective Date to reflect the terms
set forth in ss. 2.2 of this Plan.
8.3 UDC WARRANTS. On the Effective Date, UDC will issue the UDC
Warrants to the Reorganized Company pursuant to the Warrant Agreement in
substantially the form attached as Exhibit D hereto.
8.4 BOARD OF DIRECTORS AND OFFICERS OF THE REORGANIZED COMPANY. The
board of directors of the Reorganized Company shall be reconstituted under a
restated charter and amended bylaws on the Effective Date as follows: Mr. Eric
Grubelich of Keefe Bruyette & Woods, Inc.; Mr. Buck Jones, a former employee of
J.C. Bradford & Co.; and Mr. Howard Adamski, Treasurer of FMAC. Mr. Richard
Vogelman, General Counsel and Secretary of FMAC, shall also become its
President. The Reorganized Company may, but is not obligated to, have such other
officers as the board of directors deems necessary or appropriate. The board of
directors and officers of the Reorganized Company shall be entitled to
reasonable compensation and reimbursement of expenses pursuant to policies or
resolutions as may be approved by the board of directors of the Reorganized
Company after consulting with the Committee.
8.5 VESTING OF ASSETS. As of the Effective Date, all remaining property
of the Debtors (other than servicing related assets transferred to UDC on the
Effective Date pursuant to ss. 8.13 hereof and assets previously sold pursuant
to order of the Court) shall vest in the Reorganized Company free and clear of
all Claims, Interests and Liens except as provided in this Plan.
8.6 INJUNCTION. From and after the Effective Date, all Persons who have
held, hold, or may hold Claims against or Interests in either of the Debtors
shall be (a) permanently enjoined from taking in connection with matters
related to the Debtors or these Cases any of the following actions against (i)
purchasers of assets from either of the Debtors, including, without limitation,
UDC, the Bank Group or their assignees, (ii) any parties who received
distributions or transfers made prior to the filing of these Cases, during
these Cases as permitted by the Bankruptcy Code or a Final Order of this Court,
or after Confirmation pursuant to this Plan, and (iii) the parties released
under Section 8.7 hereof (as to the claims released and the parties
giving releases), and (b) preliminarily enjoined from taking any of the
following actions against the Debtors, the Reorganized Company or any of their
property on account of such Claims or Interests: (i) commencing or continuing,
in any manner or in any place, any action or other proceeding; (ii) enforcing,
attaching, collecting or recovering in any manner any judgment, award, decree
or order; (iii) creating, perfecting or enforcing any lien or encumbrance; (iv)
asserting a setoff, right of subrogation or recoupment of any kind against any
debt,
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liability, or obligation due to the Debtors; and (v) commencing or continuing,
in any manner or in any place, any action that does not comply with or is
inconsistent with the provisions of the Plan; provided, however, that (x)
nothing contained herein shall relieve the Reorganized Company, UDC or other
parties in interest from performing their obligations as set forth in this Plan,
the Plan Documents or any related documents contemplated herein; and (y) the
preliminary injunction of actions against the Debtors, the Reorganized Company
or any of their property (if any) shall be dissolved and terminate one day
following the final distribution under this Plan. Nothing in this Plan will
restrict any federal governmental regulatory agency from pursuing any regulatory
or police enforcement action against the Debtors, the Reorganized Company and
any of the other parties referenced above.
8.7 RELEASES. On the Effective Date, the following individuals and
entities shall be forever released and discharged from any and all claims,
actions, suits, debts, accounts, causes of action, agreements, promises,
damages, judgments, demands and liabilities which any of the Debtors (or
Creditors or Interestholders receiving distributions under this Plan who do not
opt out of this release may have in their individual capacity as opposed to
derivatively through the Reorganized Company) may have against them related to
the Debtors or these Cases arising prior to the Effective Date: (i) all
directors, officers, employees, Professionals and agents of the Debtors (or
affiliates thereof) who served the Debtors on or after the Petition Date; (ii)
UDC and any of its directors, officers, employees, professionals, agents or
affiliates in its capacity as both post-petition lender under the DIP Financing
and Overadvance Facility as well as a member of the Current Bank Group; (iii)
the members of the Current Bank Group and the Original Bank Group and the Former
Assignees in their capacity as secured lenders to the Debtors (which
specifically excludes LaSalle National Bank in its capacity as indenture trustee
for the Subordinated Reset Notes or any of the members of the Bank Group as
parties to unsecured swap or interest rate cap agreements) and their directors,
officers, employees, professionals, agents or affiliates; (iv) each member of
the Committee and the Committee's Professionals and agents in such capacity; and
(v) FSA, Chase Manhattan Bank as trustee, Harris Trust and Savings Bank as
trustee and backup servicer and any of their directors, officers, employees,
professionals, agents or affiliates. Any party receiving a release hereunder
shall be deemed without ability to opt out to give a release to the other
releasees hereunder from any and all claims, actions, suits, debts, accounts,
causes of action, agreements, promises, damages, judgments, demands and
liabilities which they may have against the other releasees related to the
Debtors or these Cases arising prior to the Effective Date.
The foregoing shall not release obligations arising under this Plan and
the related exhibits, including, without
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limitation, contractual obligations under the Excess Collections Contribution
Agreement or contractual obligations under the Securitization Related Documents.
The foregoing releases do not extend to and shall not be construed to release
Mitchell C. Kahn, Thomas R. Ehmann, Paul Van Eyl, Deloitte & Touche, L.L.P.,
Executive Risk Indemnity, Inc., The First Reinsurance Company of Hartford or
Agricultural Excess and Surplus Insurance Company. Nothing in this Plan will
restrict any federal governmental regulatory agency from pursuing any regulatory
or police enforcement action against the Debtors, the Reorganized Company and
any of the other parties referenced above.
8.8 MAINTENANCE OF INDEMNIFICATION POLICIES. The Reorganized Company
shall maintain the Indemnification Policies from and after the Effective Date to
pay obligations to current and former directors and officers of the Debtors and
officers and directors of the Reorganized Company, and UDC shall advance such
funds under the DIP Financing and Overadvance Facility as are necessary to pay
the applicable premiums.
8.9 MODIFIED SERVICING AGREEMENTS. This Plan is conditioned upon the
execution of modified servicing agreements for the Securitized Pools which
agreements will provide, among other things, for an increase of the monthly base
percentage servicing fee for each such Contract to the greater of 1/12 of 3-
1/4% of the monthly outstanding principal balance of such Contract, or $15 per
Contract, measured at the applicable date of each month. A proposed form of such
agreements is attached as Exhibit C hereto. The other Securitization Related
Documents shall remain in full force and effect, except as they may be modified
pursuant to the amendments referenced in Section 8.17 below. Upon the Effective
Date, UDC, one of its wholly owned subsidiaries, an Authorized Servicer or such
other entity as may be reasonably acceptable to the Debtors, the Committee and
FSA shall replace FMAC as servicer under the servicing agreements for the
Securitized Pools and Owned Loans.
8.10 ALLTEL CURE REALLOCATION. In the event that the amount of the cure
costs paid to Alltel pursuant to Code ss. 365(b)(1)(A)- (B) by FMAC (either by a
reduction of the cure amount paid to Alltel or a portion of such costs being
paid by UDC or some other party besides FMAC) are reduced below $524,782.32, a
percentage of the UDC Warrants equal to the percentage reduction in such cure
costs, if any, below such amount which must be paid to Alltel by FMAC as an
Administrative Expense, will be reallocated from Class 7A Creditors to Class 8A
Interests and such reallocated UDC Warrants will be held by the Reorganized
Company or distributed for the benefit of Class 8A Interestholders pursuant to
this Plan. As provided in ss. 5.8.1, the Alltel Cure Reallocation can only be
effective if the reduction of the Alltel cure amount is 10% or more (in light of
the base 10% of UDC Warrants allocated to Class 8A).
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8.11 NO MARKET MAKING. Neither the Reorganized Company nor its
directors, officers, employees or agents shall directly or indirectly make or
encourage the making of a market for trading in Claims against or Interests in
the Reorganized Company. Neither the Reorganized Company nor its directors,
officers, employees or agents will (a) cause its Claims or Interests to be
listed on any national securities exchange or the NASDAQ Stock Market, (b)
engage the services of any market maker, facilitate the development of an active
trading market for such Claims or Interests or encourage others to do so, (c)
place advertisements in the media promoting investment in such Claims or
Interests, or (d) except as required under Item 201(a) of Regulation S-K of the
Securities Exchange Act of 1934, as amended, collect or publish information
about prices at which such Claims and Interests may be transferred.
8.12 LIMITS ON EQUITY TRADING. No voting stock in the Reorganized
Company shall be traded, nor shall any agreements to trade be entered into,
until after the second anniversary of the Effective Date and any such purported
trade or agreement to trade such voting stock entered into during such period
shall be null and void. The voting stock will be held by a shareholder's agent
for the benefit of Allowed Class 7A-1 and Class 7A-2 Claims and such Claims in
the Contested Claims Reserve and shall only be disbursed to the parties entitled
thereto at the end of such two year period (subject to any remaining Contested
Claim Reserve).
8.13 UDC ACQUISITION OF SERVICING ASSETS. On the Effective Date, UDC
(or at UDC's election, any other servicer permitted under ss. 8.9 hereof) will
acquire the personal property owned by FMAC which is used in FMAC's loan
servicing operations as set forth in Exhibit B hereto (as the same may be
amended prior to the Effective Date) and the Assigned Contracts in
consideration for UDC's undertakings in this Plan, including the issuance of
the UDC Warrants and UDC's contribution of its existing FMAC common stock as
set forth in Section 8.15 hereof.
8.14 UDC STOCK OPTION. At the option of UDC, UDC may distribute shares
of UDC common stock to the Reorganized Company for distribution under this Plan
or if the Reorganized Company so requests, directly distribute such shares of
UDC common stock to the Class 7A Creditors, in lieu of the Reorganized Company's
right to retain a portion of the Reorganized Company's share of the B Piece
Distributions and the Debtor Excess Amount under the Excess Collections
Contribution Agreement in cash (the "Stock Option"). Any direct distribution of
UDC common stock by UDC at the request of the Reorganized Company shall be at
the Reorganized Company's expense and solely in accordance with the Reorganized
Company's instructions. UDC and its officers, directors, employees and agents
shall have no liability to any party with respect to such distribution unless
UDC acted with gross negligence or wilful misconduct.
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If UDC decides to exercise the Stock Option, UDC must give the
Reorganized Company and the Committee at least 15 days' advance written notice
(the "Option Notice") (and make a public announcement on the same date as the
giving of the Option Notice) of the date on which UDC will exercise the Stock
Option (the "Exercise Date") and the number of shares of UDC common stock (the
"Stock Option Shares") that UDC will issue to the Reorganized Company on the
Exercise Date. UDC may exercise the Stock Option one time only, with exercise
being the actual delivery of the Stock Option Shares. Revocation of the Option
Notice shall not be deemed to be an exercise of the Stock Option by UDC. On the
Exercise Date, the aggregate value of the Stock Option Shares shall be
determined by multiplying the number of the Stock Option Shares by 98% of the
average closing sale price for the previous ten trading days of UDC common stock
on the NASDAQ Stock Market or such other market as may quote prices for UDC
common stock (the "Stock Option Value"). In the event that UDC exercises the
Stock Option, and delivers the Stock Option Shares to the Reorganized Company,
UDC shall be entitled to receive the Debtor's share of B Piece Distributions and
the Debtor Excess Amount under the Excess Collections Contribution Agreement
from and after the Exercise Date until UDC has received cash distributions equal
to the Stock Option Value. This is in addition to UDC's right to receive its
share of the Owned Loans and UDC Excess Amount under the Excess Collections
Contribution Agreement. Once UDC has received cash distributions equal to the
Stock Option Value (without regard to any post-issuance change in the market
value of the issued Stock Option Shares), the Reorganized Company shall be
entitled to and shall retain the remaining portion of the Reorganized Company's
share of the B Piece Distributions and Debtor Excess Amount under the Excess
Collections Contribution Agreement, if any, in excess of the Stock Option Value.
In no event shall UDC be entitled to receive any portion of the Reorganized
Company's share of B Piece Distributions and Debtor Excess Amount under the
Excess Collections Contribution Agreement in excess of the Stock Option Value,
nor shall UDC be entitled to recover any portion of the Stock Option Value from
any source other than the Reorganized Company's share of the Excess Collections
Contribution Agreement. UDC shall not be entitled to exercise the Stock Option
unless and until (i) the value of UDC common stock on the Exercise Date and on
each day during the previous ten trading days shall be at least $8.00 per share,
(ii) UDC shall have caused (at UDC's sole cost and expense) the Stock Option
Shares to be registered under the Securities Act of 1933, as amended,
unrestricted and fully transferable and shall have taken all steps necessary to
allow the Reorganized Company to distribute the Stock Option Shares to the Class
7A Creditors, and (iii) UDC shall not have purchased any of its common stock or
announced any stock repurchase programs from and after the delivery of the
Option Notice to Reorganized Company through the Exercise Date. In the event
that UDC exercises the Stock Option, the Reorganized Company shall distribute
the Stock Option Shares directly to Allowed Class 7A
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Creditors, unless the Reorganized Company elects to have UDC make such
distribution directly to Class 7A Creditors or the Reorganized Company and the
Committee agree otherwise as to all or a portion of such distribution.
8.15 UDC CONTRIBUTION OF FMAC COMMON STOCK. Notwithstanding anything to
the contrary herein, UDC will on or prior to the Effective Date contribute to
FMAC as treasury stock all of UDC's common stock in FMAC as part of its
consideration (along with the issuance of the UDC Warrants and other
undertakings in this Plan) for the acquisition of the servicing assets described
in Section 8.13.
8.16 POST-CONFIRMATION BOARD AND COMMITTEE. Except for wilful
misconduct or bad faith, neither the Reorganized Company nor its directors,
officers, agents and professionals (collectively, the "Company Related
Parties"), nor the Committee nor its members, agents and professionals
(collectively, the "Committee Related Parties"), shall be liable to any person
or entity for any post-confirmation action, failure or omission to act or other
matter related to the Reorganized Company and these Cases. All parties are
permanently enjoined from initiating a suit against the Reorganized Company, the
Company Related Parties, the Committee or the Committee Related Parties related
to the foregoing, except for wilful misconduct or bad faith on the part of the
Company Related Parties or the Committee Related Parties.
8.17 MODIFIED SPREAD ACCOUNT AGREEMENTS. This Plan is conditioned upon
the execution by FSA, the applicable trustees, the applicable escrow agents, and
FMARC or FMARC II (as applicable), of amendments to the spread account
agreements and any other applicable Securitization Related Documents (which
amendments shall be in form and substance acceptable to the parties thereto,
FMAC and the Committee) to authorize and require the distribution of a portion
of the cash held in the spread accounts to the Reorganized Company for
distribution in accordance with this Plan if and to the extent that:
(a) such cash in the spread accounts in the aggregate; plus
(b) the remaining unpaid principal balance in the aggregate on all
Contracts on which the obligors are current in their payments or for
which the obligors are in default for a single payment for 30 days or
less (together with the cash described in subclause (a) above, the
"Aggregate Collateral"); exceeds
(c) 150% percent of the aggregate amount of all principal, interest and
other obligations then due and owing on the FSA insured indebtedness
related to the Securitized Pools and the 1997-2 Securitized Pool.
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Such amendments will further provide that the Aggregate Collateral shall at all
times exceed the FSA insured indebtedness in the aggregate related to the
Securitized Pools and the 1997-2 Securitized Pool by a minimum of $15 million.
To the extent that the cash maintained in the spread accounts in the aggregate
is sufficient to satisfy all obligations in the aggregate owing on FSA insured
indebtedness related to the Securitized Pools and the 1997-2 Securitized Pool,
such cash may be applied to prepay and satisfy those obligations in the
aggregate related to the Securitized Pools and the 1997-2 Securitized Pool, all
to the extent allowed by the Securitization Related Documents and all remaining
excess cash in the spread accounts shall be distributed to FMAC for distribution
in accordance with this Plan.
ARTICLE 9
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
9.1 REJECTED IF NOT ASSUMED. This Plan shall be deemed to constitute
and incorporate a motion by the Debtors to reject all executory contracts and
unexpired leases to which a Debtor is a party or is otherwise bound, except for
the contracts and leases that (a) have been assumed or rejected pursuant to an
order of the Court entered prior to the Confirmation Date, (b) are specifically
treated otherwise in this Plan (including the Assigned Contracts) or (c) are the
subject of a motion to assume or assume and assign that is pending before the
Court on the Confirmation Date. The Confirmation Order shall represent and
reflect an order of the Court approving the rejection of all other executory
contracts and unexpired leases not within clauses (a) to (c) above, as of the
Confirmation Date.
9.2 BAR TO REJECTION DAMAGES. If the rejection of an executory contract
or unexpired lease by the Debtors pursuant to ss. 9.1 of the Plan results in
damages to the party or parties to the contract or lease, a Claim for damages
shall be forever barred and shall not be enforceable against the Debtors, their
successors or assigns, or their property unless a proof of claim is filed with
the Court and served upon Reorganized Company and the Committee within
forty-five (45) days after entry of the Confirmation Order. The rejection Claim
bar date for leases and executory contracts rejected prior to Confirmation shall
be the date set forth in the applicable order rejecting such lease or contract.
9.3 ASSUMPTION AND ASSIGNMENT OF SPECIFIED CONTRACTS. Entry of the
Confirmation Order shall constitute the assumption and assignment of the
Assigned Contracts to UDC. The non-Debtor party to such Assigned Contract shall
be deemed to have irrevocably accepted the proposed cure amount set forth
opposite its name in Exhibit B to this Plan unless it files a written objection
at least three Business Days prior to the Confirmation hearing and a different
cure amount is determined by the Court to
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be due and owing in a Final Order entered after notice and a hearing. All
payments necessary to cure defaults under Code ss. 365(b)(1)(A)-(B) as a
precondition to assuming and assigning the Alltel contract to UDC will be paid
by FMAC. Any and all payments required by Code ss. 365(b)(1) and (f)(2) will be
paid by UDC as a precondition to FMAC assuming and assigning the Assigned
Contracts (other than the Alltel contract) to UDC.
ARTICLE 10
PROCEDURES FOR RESOLVING AND TREATING
CONTESTED CLAIMS
10.1 OBJECTION DEADLINE. As soon as practicable, but in no event later
than ninety (90) days following the Effective Date, any party in interest
desiring to object to Claims or Interests shall file objections to such Claims
and Interests with the Court and serve copies of the objections upon the Debtors
and/or Reorganized Company, the Committee and the holder of the applicable
Claims or Interests to which the objections are made. There shall be no
post-confirmation right to object to the extent a particular Claim is
specifically allowed under this Plan or under prior Final Order of the Court.
This ss. 10.1 shall not limit the Reorganized Company's or the Committee's right
to object to Claims or Interests, if any, filed or amended more than ninety (90)
days after the Effective Date. Any late filed claims shall be disallowed unless
the Court determines in a Final Order that there was excusable neglect for
filing such claims after the applicable bar date.
10.2 PROSECUTION OF OBJECTIONS. The Reorganized Company shall litigate
to judgment, settle, or withdraw objections to Contested Claims filed by the
Reorganized Company.
10.3 POWER TO COMPROMISE AND SETTLE WITHOUT NOTICE AND A HEARING. The
Reorganized Company may compromise and settle an objection to a Claim without
notice and a hearing thereon where the Allowed Claim will be $20,000.00 or less
as a result of such compromise and settlement. The Reorganized Company may also
compromise and settle an objection to a Claim without notice and a hearing
thereon where the difference between the amount of the proof of claim as filed
and the amount of the Claim as scheduled by the applicable Debtor is less than
$10,000.00. Such compromises and settlements shall be embodied in an agreed
order which shall be submitted to the Court for entry and served on counsel to
the Committee and shall not become effective until the agreed order becomes a
Final Order.
10.4 POWER TO COMPROMISE AND SETTLE UPON NOTICE AND A HEARING. The
Reorganized Company may compromise and settle all Objections to Claims not
covered by ss. 10.3 of this Plan only upon twenty (20) days notice to the United
States Trustee for the
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District of Delaware and counsel to the Committee and a hearing thereon.
10.5 NO DISTRIBUTIONS PENDING ALLOWANCE. Notwithstanding any other
provision of this Plan, no payments or distributions shall be made with respect
to any Claim or Interest held by the holder of a Contested Claim to which an
objection has been interposed unless and until the Contested Claim has been
adjudicated and a Final Order has been entered with respect to the Claim or
Interest.
ARTICLE 11
RETENTION OF JURISDICTION
11.1 CLAIMS AND ACTIONS. The Court shall retain jurisdiction over the
Cases, including, without limitation, such jurisdiction as is necessary to
ensure that the purposes and intent of this Plan are implemented. The Court
shall also expressly retain jurisdiction: (i) to hear and determine all Claims
against the Debtors and (ii) to enforce all Causes of Action which belong to the
Debtors.
11.2 RETENTION OF ADDITIONAL JURISDICTION. The Court shall also retain
jurisdiction for the purpose of classification of the Claims of any Creditor or
Interests of any Interestholder and the determination of such objections as may
be filed with respect to the Claims and Interests, including proceedings for
estimation of Claims or Interests pursuant to Code ss. 502(c). The Court shall
further retain jurisdiction for the following additional purposes:
(1) to determine all questions and disputes regarding title to
the assets of a Debtor, all Causes of Action, controversies, disputes
or conflicts, whether or not subject to any pending action as of the
Effective Date, between the Debtors and any other party, including,
without limitation, any right to recover assets pursuant to the
provisions of the Code;
(2) to modify the Plan with the consent of the Reorganized
Company after the Effective Date but prior to substantial consummation
of the Plan pursuant to ss. 11.3 of this Plan, upon advance written
notice to the Committee and UDC;
(3) to construe, interpret, implement and enforce the terms
and conditions of the Plan and Confirmation Order;
(4) to determine issues and disputes concerning entitlement to
distributions to be made under and pursuant to this Plan;
30
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(5) to enter such orders, including, but not limited to, such
future injunctions as are necessary to enforce the respective title,
rights and powers of the Debtors, and to impose such limitations,
restrictions, terms and conditions on such title, rights and powers as
the Court may deem necessary;
(6) to correct any defect, cure any omission or reconcile any
inconsistency in the Plan or the Confirmation Order as may be necessary
to implement the purposes and intent of the Plan;
(7) to determine any and all objections to the allowance of
Claims or Interests, including, without limitation, any counterclaims
and rights of setoff;
(8) to determine any and all applications for allowance of
compensation and reimbursement of expenses and the reasonableness of
any fees and expenses authorized to be paid or reimbursed under the
Code or the Plan;
(9) to determine any and all applications or motions for the
rejection, assumption or assumption and assignment of any executory
contract or unexpired lease and to hear and determine, and, if need be,
to liquidate any and all Claims arising therefrom;
(10) to determine any and all applications, adversary
proceedings and contested matters, including any adversary proceeding
concerning any Cause of Action, that may be pending on or initiated
after the Effective Date relating to matters which arose prior to the
Effective Date;
(11) to consider any technical or immaterial modification of
the Plan, whether or not the Plan has been substantially consummated,
to remedy any defect or omission or reconcile any inconsistency in the
Confirmation Order or any other Order of the Court, to the extent
authorized by the Plan or the Code and requiring Court approval;
(12) to determine all controversies, suits and disputes that
may arise in connection with the interpretation, enforcement or
consummation of the Plan, any agreements or instruments issued under or
relating to this Plan or any other documentation evidencing the terms
of this Plan;
(13) to consider and act on the compromise and settlement of
any Claim against or cause of action by or against the Debtors arising
under or in connection with the Plan;
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(14) to issue such orders in aid of execution of the Plan as
may be authorized by Code ss. 1142;
(15) to hear and determine all controversies, suits and
disputes, if any, as may arise with regard to orders of this Court;
(16) to liquidate damages in connection with any disputed,
contingent or unliquidated Claims or Interests;
(17) to adjudicate all Claims to a security or ownership
interest in any property of the Debtors or in any proceeds thereof and
for adequate protection claimed by any holder of such Claims;
(18) to adjudicate all claims or controversies arising out of
any purchases, sales or contracts made or undertaken by the Debtors
during the pendency of the Case; and
(19) to determine such other matters or proceedings as may be
provided for under Title 28 or other title of the United States Code,
the Code, the Bankruptcy Rules, other applicable law, the Plan or in
any order or orders of the Court, including, but not limited to, the
Confirmation Order or any order which may arise in connection with the
Plan or the Confirmation Order.
11.3 MODIFICATIONS OF THE PLAN. The Debtors may modify this Plan in the
manner provided for under Code ss. 1127. The Debtors shall give notice of any
proposed modification to counsel for the Committee, counsel to UDC, and to the
United States Trustee for the District of Delaware and to any other parties
designated by the Court. The Debtors also reserve the right to make such
modifications at or prior to any hearings on confirmation as are necessary to
permit this Plan to be confirmed under Code ss. 1129.
11.4 REVOCATION AND WITHDRAWAL OF THE PLAN. The Debtors reserve the
right to revoke or withdraw this Plan at any time before entry of a Confirmation
Order. If the Debtors revoke or withdraw this Plan prior to the Confirmation
Date, or if the Confirmation or the Effective Date does not occur, then this
Plan shall be deemed to be null and void. In such event, nothing contained
herein or in any disclosure statement relating to the Plan shall be deemed to
constitute an admission of validity, waiver or release of any Claims by or
against the Debtors or any Person or to prejudice in any manner the rights of
the Debtors or any Person in any proceeding involving the Debtors.
11.5 SECTION 1146(C) EXEMPTION. Pursuant to Code ss. 1146(c), the
making or delivery of any instrument of transfer pursuant to, in implementation
of or as contemplated by the Plan or the holding by or transfer or sale of any
real or personal property of the Debtors pursuant to, in implementation of or as
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contemplated by the Plan, shall not be taxed under any state or local law
imposing a stamp tax, transfer tax or similar tax or fee.
ARTICLE 12
NOTICE PROVISIONS
12.1 NOTICES. All notices, requests, elections or demands in connection
with this Plan, including any change of address of any Creditor or
Interestholder for the purposes of receiving distributions under this Plan and
to avoid forfeiting the same pursuant to Article 8 of this Plan, shall be in
writing and shall be delivered personally, by facsimile, overnight courier or
first class mail. Such notice shall be deemed to have been given when received
or, if mailed by first class mail, five (5) Business Days after the date of
mailing, or if by overnight courier, the next Business Day following the date of
mailing. Notices required to be sent to the following parties under this Plan
shall be addressed to:
Debtors:
---------
First Merchants Acceptance Corporation
570 Lake Cook Road, Suite 126
Deerfield, IL 60015
Attention: President
Telephone: (847) 948-9300
Facsimile: (847) 945-2556
with a copy to each of the following Persons:
Debtors' Counsel:
-----------------
Laura Davis Jones, Esq.
Robert Brady, Esq.
Young Conaway Stargatt & Taylor
11th & Market Streets
Wilmington, DE 19801
Telephone: (302) 571-6600
Facsimile: (302) 571-1253
and
Robert E. Richards, Esq.
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, IL 60606
Telephone: (312) 876-8000
Facsimile: (312) 876-7934
33
<PAGE> 34
UDC
---
Ugly Duckling Corporation
2525 East Camelback Road
Suite 1150
Phoenix, AZ 85016
Attn.: President
Telephone: (602) 852-6600
Facsimile: (602) 852-6696
UDC's Counsel
-------------
Christopher Bayley, Esq.
Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, AZ 85004
Telephone: (602) 382-6000
Facsimile: (602) 382-6070
and
Todd Jones, Esq.
Snell & Wilmer L.L.P.
One South Church Avenue
Suite 1500
Tucson, Arizona 85701
Telephone: (520) 882-1200
Facsimile: (520) 884-1294
Creditors Committee
-------------------
Mr. James F. Graves
Chairman of the Unsecured Creditors Committee
J.C. Bradford & Co.
330 Commerce Street
Nashville, TN 37201
Telephone: (615) 748-9000
Facsimile: (615) 271-1096
Creditors Committee's Counsel
-----------------------------
Stephen Mertz, Esq.
Michael Stewart, Esq.
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Center
Minneapolis, MN 55402
Telephone (612) 336-3000
Facsimile (612) 336-3026
and
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David Stratton, Esq.
David M. Fournier, Esq.
Pepper Hamilton & Scheetz
Suite 1600
1201 Market Street
P.O. Box 1709
Wilmington, DE 19899-1709
Telephone (302) 777-6565
Facsimile (302) 656-8865
Greenwich
---------
Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: Craig Eckes
Telephone (203) 622-5651
Facsimile (203) 629-4640
Greenwich's Counsel
-------------------
James H.M. Sprayregen, Esq.
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Telephone (312) 861-2000
Facsimile (312) 861-2200
12.2 LIMITATION ON NOTICE. The Debtors shall give the following notice
with regard to the following matters, which notice shall be deemed to be good
and sufficient notice of such matters with no requirement for any additional or
further notice:
12.2.1 NOTICE OF ENTRY OF CONFIRMATION ORDER. Notice of the
entry of the Confirmation Order shall be sufficient if (a) mailed to
all known holders of Claims and Interests (which have not become
Disallowed as of the date of mailing) and (b) published at least one
time in the national edition of The Wall Street Journal. Such notice
shall be mailed within five (5) Business Days of the date that the
Confirmation Order becomes a Final Order.
12.2.2 POST-CONFIRMATION DATE SERVICE. From and after the date
the Confirmation Order becomes a Final Order, notices of appearances
and demands for service of process filed with the Court prior to such
date shall no longer be effective. No further notices (other than
notice of entry of the Confirmation Order) shall be required to be sent
to any entities or Persons, except those Persons specified in ss.ss.
12.1 and 13.3 of this Plan.
12.2.3 NOTICE TO CREDITORS. All notices and requests to
Creditors of any Class shall be sent to them at the
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<PAGE> 36
addresses set forth on the proofs of claim or, if no proof of claim was
filed, to their last known address as reflected in the records of
Debtor. Any Creditor may designate in writing any other address for
purposes of this section, which designation shall be effective upon
receipt by Debtor.
ARTICLE 13
MISCELLANEOUS PROVISIONS
13.1 REQUEST FOR CRAMDOWN/SS. 510(B) SUBORDINATION. In the event this
Plan is not confirmed under Code ss. 1129(a), thE Debtors request that this Plan
be confirmed under Code ss. 1129(b). Any claims arising from the sale, purchase
or holding of Interests shall be subordinated under ss. 510(b) of the Code below
Class 7A Claims under this Plan and to the level of Class 8A Interests as set
forth in ss. 5.8.1.
13.2 POST-PETITION STATUS OF COMMITTEE. The Committee shall continue in
effect following the Effective Date for the purposes of (i) consulting on the
composition of the board of directors of the Reorganized Company, (ii) objecting
to certain Claims which the Debtors have not elected to object to or objecting
to the settlement or compromise of Claims or Causes of Action, (iii) having the
right to negotiate and object to any proposed modifications of the Plan, and
(iv) having the right to enforce the provisions of the Plan and the documents
executed in connection with the Plan or to implement the provisions of the Plan
for the benefit of the holders of Class 6 Allowed Convenience Class Claims and
Class 7A Allowed Unsecured Claims. The Committee shall be governed by its bylaws
and shall have the power to amend such bylaws in accordance with their terms.
All actions by the Committee contemplated under the Plan shall constitute
actions within the scope of Code ss. 1103(c) for which the Committee and its
members are entitled to immunity to the same extent as prior to Confirmation.
The Reorganized Company will supply a copy to the Committee of all material
filings made by the Reorganized Company with the Securities and Exchange
Commission, plus on a quarterly basis statements of cash flows of the
Reorganized Company and a copy or detailed summary of any servicing reports
received from the servicer of the Securitized Pools and the Owned Loans.
13.2.1 At the option of the members of the Committee or as may
be ordered by the Court after notice and a hearing, a successor
committee consisting of all, or fewer than all of the existing members
of the Committee may be appointed to fulfill the Committee's rights and
responsibilities under the Plan.
13.2.2 The Committee may retain professionals of its own
selection to advise and assist the Committee in fulfilling its rights
and responsibilities under the Plan as
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set forth above. Reasonable compensation of professionals for the
Committee and reimbursement for reasonable expenses of the Committee
shall be paid by the Reorganized Company after the Effective Date upon
presentation of an invoice to the Reorganized Company and a period of
15 days for the Reorganized Company to raise any objections. If an
objection is raised and cannot be consensually resolved, the disputed
portion of such fees and expenses shall be determined by the Court.
Counsel and any other professionals for the Reorganized Debtor shall
circulate any post-confirmation invoices to the Committee and the same
payment and objection procedure shall apply to such counsel or other
professional.
13.2.3. The Reorganized Company or any other party in interest
shall be entitled to seek an order from the Court disbanding the
Committee at any time that the Reorganized Company or other party in
interest believes that the Committee has fulfilled all of its rights
and responsibilities under the Plan, and the Court shall retain
jurisdiction to enter an order disbanding the Committee only upon a
proper showing by the Reorganized Company or party in interest that the
Committee has fulfilled its rights and responsibilities.
13.3 MODIFICATION OF WRITINGS EVIDENCING INDEBTEDNESS. On the Effective
Date, all writings evidencing indebtedness of the Debtors shall be deemed to be
modified as provided in this Plan or documents executed in connection with this
Plan. The Current Indenture Trustee shall be entitled to its reasonable fees,
costs and expenses to be paid from distributions to holders of Allowed Class 7A
Claims as provided for under a replacement indenture in substantially the form
attached as Exhibit F hereto; provided, however, that if the Reorganized Company
deems, in its sole discretion, the fees, costs and expenses of the Indenture
Trustee to be reasonable, it may pay the same, using funds available to it under
the DIP Financing and Overadvance Facility, on any Business Day after the
Confirmation Date without application to or further order of the Court. On and
after the Effective Date, the duties, covenants and obligations of the Debtor
and the Current Indenture Trustee under the existing Indentures shall cease as
of the Effective Date and be replaced with the duties, covenants and obligations
set forth in such replacement indenture and such other related documents as the
Reorganized Company and the Current Indenture Trustee may agree to.
13.4 SEVERABILITY. Should any provision in this Plan be determined to
be unenforceable, such determination shall in no way limit or affect the
enforceability and operative effect of any and all other provisions of this
Plan.
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<PAGE> 38
13.5 GOVERNING LAW. Except to the extent that the Code is applicable,
the rights and obligations arising under this Plan shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware,
without giving effect to choice of law principles.
13.6 SUCCESSORS AND ASSIGNS. The rights and obligations of any entity
named or referred to in this Plan shall be binding upon, and shall inure to the
benefit of, the successors and assigns of such entity.
13.7 SETOFFS/COUNTERCLAIMS. Except as otherwise provided in this Plan,
the Reorganized Company may, but shall not be required to, set off or
counterclaim against any Claim and the payments or other distributions to be
made pursuant to this Plan in respect of the Claim, claims of any nature
whatsoever the estate may have against the holder of the Claim, but neither the
failure to do so nor the allowance of any Claim hereunder shall constitute a
waiver or release by the Reorganized Company of any claim that the estate may
have against the holder; provided, however, that the Reorganized Company will
not seek to set off or counterclaim for any obligation that is not yet due.
Setoffs or counterclaims arising from events after the Petition Date shall
reduce the payouts under any Allowed Claim dollar for dollar. Setoffs or
counterclaims arising from pre-petition events shall only reduce the amount of
the Allowed Claim and therefore, shall only reduce the payout amount
proportionally with the reduction in the Allowed Claim. If any counterclaim or
setoff asserted by the Debtors exceeds the amount of any Claim, the holder of
such Claim shall not be entitled to any distribution under the Plan, and the
Reorganized Company will reserve the right to recover any such excess
counterclaim or setoff from the holder of the applicable Claim.
13.8 BINDING EFFECT. Unless this Plan is revoked and withdrawn, and
except to the extent modified in the manner set forth in ss. 12.4 of this Plan,
the provisions of this Plan shall bind all Creditors and Interestholders,
whether or not they vote to accept the Plan.
13.9 EFFECT OF CONFIRMATION ORDER. Except as expressly provided in this
Plan and the documents executed in connection with this Plan, the Confirmation
Order shall contain an injunction, embodying the protections of the automatic
stay of Code ss. 362(a), against the prosecution against the Debtors of any
Claim or Interest, whether or not a proof of Claim or proof of Interest based on
any such debt, liability, or Interest is filed under Code ss. 502, including the
pursuit of any Creditor's or Interestholder's derivative actions against any
third party derived from the rights and interests of the Debtors or the Debtors'
estates, which injunction shall come into effect on the Effective Date.
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<PAGE> 39
ARTICLE 14
CONDITIONS TO THE EFFECTIVENESS OF THE PLAN
14.1 CONDITIONS. All of the following conditions must occur and be
satisfied for this Plan to be effective:
14.1.1 ENTRY OF CONFIRMATION ORDER. The Confirmation Order
must be signed by the judge of the Court and duly entered on the docket
for the Case by the clerk of the Court.
14.1.2 MODIFIED SERVICING AGREEMENTS. All necessary consents
shall have been obtained to the modified servicing agreements described
in ss. 8.9 of this Plan.
14.1.3 MODIFIED SPREAD ACCOUNT AGREEMENTS. All necessary
consents shall have been obtained to the modified spread account
agreements described in ss. 8.17 of this Plan.
14.1.4 EXIT FINANCING FACILITY. Amendments to the DIP
Financing and Overadvance Facility necessary to continue the same after
the Effective Date consistent with the provisions of this Plan shall
have been entered into among UDC and the Reorganized Company and the
Reorganized Company will have sufficient borrowing availability under
the DIP Financing and Overadvance Facility or other sources to pay all
Allowed Administrative Expenses, Priority Tax Claims and Priority
Non-Tax Claims plus a reasonable cushion to pay anticipated
post-confirmation expenses.
14.1.5 NO STAY. There must be no stay in effect with
respect to the Confirmation Order.
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<PAGE> 40
14.2 CONDITIONS WAIVABLE BY THE DEBTORS. The Debtors may waive any of
the conditions contained in Article 14 of this Plan.
Respectfully Submitted,
FIRST MERCHANTS ACCEPTANCE CORPORATION
FIRST MERCHANTS RESIDENTIAL CREDIT
CORPORATION
By: /s/ William Plamondon
-------------------------------------
William Plamondon
President
Laura Davis Jones, Esq.
Robert Brady, Esq.
YOUNG, CONAWAY, STARGATT & TAYLOR
Rodney Square North, 11th Floor
Wilmington, Delaware 19899
Telephone: (302) 571-6600
Facsimile: (302) 571-1253
Special Counsel:
Robert E. Richards, Esq.
Mitchell L. Hollins, Esq.
SONNENSCHEIN NATH & ROSENTHAL
8000 Sears Tower
Chicago, Illinois 60606
Telephone: (312) 876-8000
Facsimile: (312) 876-7934
COUNSEL TO DEBTORS AND DEBTORS IN POSSESSION
Dated: February 9, 1998
<PAGE> 41
EXHIBIT A
CONTRIBUTION AGREEMENT
THIS AGREEMENT, dated as of December 15, 1997, is made between First Merchants
Acceptance Corporation, debtor and debtor-in-possession (the "Debtor") and Ugly
Duckling Corporation ("UDC"). Capitalized terms not otherwise defined herein are
used as defined in Schedule 1.
RECITALS
WHEREAS, on the Sale Date, the Agent, on behalf of the Bank Group, credit bid
the Purchase Price and acquired the Owned Loans.
WHEREAS, in addition to the Debtor's receipt of the Purchase Price, UDC has
agreed to become involved in all servicing of collections of the Owned Loans,
the Greenwich Collateral and the Securitized Pools.
WHEREAS, to facilitate UDC's agreement to service the Owned Loans, the Greenwich
Collateral and the Securitized Pools, UDC will enter into agreements whereby UDC
will assume the full, separate and independent rights, duties and
responsibilities for servicing the Owned Loans, the Greenwich Collateral and
Securitized Pools after the confirmation and effective date of the Chapter 11
Plan ("UDC Servicing Agreements").
WHEREAS, the Debtor and UDC wish to enter into such UDC Servicing Agreements,
inter alia, to create a procedure and format to enable the Debtor and
reorganized Debtor through the sale of the Owned Loans and a confirmed Chapter
11 Plan to: (a) maximize recovery of the Secured Claim Recovery Amount and all
amounts due UDC under the DIP Facility, and (b) more efficiently administer the
collection of the Owned Loans, the Greenwich Collateral and the Securitized
Pools for the benefit of the Debtor.
AGREEMENTS
NOW, THEREFORE, the parties hereto agree as follows:
1. SERVICING OF OWNED LOANS AND SECURITIZED POOLS AND PAYMENT OF
SECURED CLAIM RECOVERY AMOUNT AND DIP FACILITY. Prior to the effective date of
the Chapter 11 Plan (the "Effective Date"), UDC will consult with the Debtor in
its continued servicing of the Owned Loans, the Greenwich Collateral and the
Securitized Pools as agreed by UDC and the Debtor without compensation to UDC.
After the Effective Date, UDC, as servicer (in such capacity, the "Servicer"),
will expressly assume the rights, duties and responsibilities of servicing the
Owned Loans, the
<PAGE> 42
Greenwich Collateral and the Securitized Pools pursuant to the UDC Servicing
Agreements. UDC may assign its obligations as servicer to a wholly-owned
subsidiary of UDC or to such successor or assignee as set forth in the Chapter
11 Plan (such parties are referred to herein as an "Authorized Assignee").
Any and all proceeds received by the Servicer from the Owned Loans will
be applied as follows: (a) first, to the Secured Claim Recovery Amount until
paid in full; and (b) second, if any amounts remain, then 82.5% of such amount
(the "Debtor Excess Amount") shall be paid by UDC to the Debtor in accordance
with paragraph 2 below, and the balance of such amount will be paid to UDC.
All proceeds and distributions from the B Pieces will be utilized to
(a) first, retire the Secured Claim Recovery Amount to the extent the Secured
Claim Recovery Amount remains outstanding; then (b) the next distributions will
be used to satisfy in full the remaining indebtedness to UDC under the DIP
Facility; then (c) if the Chapter 11 Plan is confirmed, the next distributions
will be used to satisfy in full the Modified UDC Fee; and (d) finally, if any
amount remains, 17.5% of such amount (the "UDC Excess Amount") shall be paid by
the Debtor to UDC in accordance with paragraph 2 below, and the balance of such
amount shall be retained by the Debtor.
All proceeds to the Debtor from collections on the Greenwich Collateral
(after payment in full of the obligations to Greenwich) will be utilized to (a)
first satisfy in full the remaining indebtedness to UDC under the DIP Facility,
if any, and then (b) be retained by the Debtor.
2. PAYMENT AND ACCOUNTING OF EXCESS.
(a) In the event that the Owned Loans are not being
serviced by the Servicer or an Authorized Assignee
without the prior written consent of the Debtor (an
"Owned Loan Servicing Change"), which consent will
not be unreasonably withheld, the Debtor's share of
excess collections on the B Pieces shall be 85% and
the UDC Excess Amount will be 15% with respect to the
B Pieces. In the event of an Owned Loan Servicing
Change,
(i) UDC will receive a 15% share (with 85% to
the Debtor) of the eligible proceeds and
collections received by the Servicer with
respect to the Owned Loans (after
satisfaction in full of the Secured Claim
Recovery Amount); provided, however, that
for purposes of the foregoing calculation,
the amount of such proceeds and collections
with respect to the Owned Loans (after
satisfaction in full of the Secured Claim
Recovery Amount) shall
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be limited to an amount equal to the amount
of any B Pieces that have been applied to
satisfy the Secured Claim Recovery Amount
during the period when UDC or an Authorized
Assignee was servicing the Owned Loans, and
(ii) the Debtor will receive 100% of any proceeds
and collections on the Owned Loans in excess
of such amount.
Except as specifically set forth above, UDC's rights
to payment and obligations hereunder are absolute and
shall not be affected by any subsequent transfer or
sale of the Owned Loans to GE or any other party.
(b) In no event will UDC be entitled to receive any of
the UDC Excess Amount related to a Securitized Pool
for any period of time during which UDC or an
Authorized Assignee shall not be acting as servicer
for that Securitized Pool.
(c) On the 15th calendar day of each month, the Servicer
shall provide the Debtor with a written summary of
the information set forth in Paragraph 3(a) below, in
sufficient detail to permit the Debtor to confirm the
accuracy thereof.
(d) The Debtor Excess Amount and UDC Excess Amount shall
be payable on the 20th calendar day of each month for
amounts payable with respect to the immediately
preceding month.
3. REPORTING AND AUDIT.
(a) From and after the earlier of (i) confirmation of the
Chapter 11 Plan, or (ii) that time at which the
Servicer becomes the servicer of any of the Owned
Loans, the Greenwich Collateral or the Securitized
Pools, the Servicer will provide to the Debtor
monthly reports no later than the 15th day after the
end of each calendar month (each such month being a
"Collection Period" disclosing with respect to such
Collection Period, (i) the total amount of proceeds
and collections from the Owned Loans, Greenwich
Collateral, the B Pieces and/or the Securitized
Pools, as applicable, (ii) the amount of Owned Loans
collections applied to the Secured Claim Recovery
Amount, the amount of Greenwich Collateral applied to
the DIP Facility, the amount of the B Pieces applied
to the Secured Claim Recovery Amount, the DIP
Facility
3
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and the Modified UDC Fee (as applicable), as well as
an accounting of subsequent payments made from such
proceeds, and (iii) any Debtor Excess Amount and UDC
Excess Amount payable with respect to the applicable
Collection Period (the "Monthly Reports"). The
Servicer shall also deliver to the Debtor copies of
all monthly, quarterly and annual reports which the
Servicer provides to any party under the UDC
Servicing Agreements at the time such reports are
delivered to such parties.
(b) Debtor and its agents shall have the right, upon 3
business days prior written notice to the Servicer,
to inspect, audit and make copies of and abstracts
from the records of the Servicer with respect to
servicing and proceeds of the Owned Loans, the
Greenwich Collateral and the Securitized Pools and
payments made or received with respect thereto.
(c) Within 15 days of the later to occur of paying off or
writing off of (i) the final Owned Loan outstanding,
(ii) the final loan outstanding in the pool of loans
constituting the Greenwich Collateral, and (iii) the
final securitized loan outstanding in the Securitized
Pools (the "Final Outstanding Loan Date"), UDC (or
its successor or agent) shall deliver to the Debtor a
computation of both the total Debtor Excess Amount
and the total UDC Excess Amount. The Debtor will
advise UDC within ten (10) business days after
delivery of such final computation if it disagrees
with the computation. If the Debtor notifies UDC of
such disagreement within such ten (10) business day
period, the parties agree in good faith to try to
reconcile their differences on such computation. If
after a subsequent ten (10) business day period they
cannot agree on the calculation, UDC and the Debtor
will submit the disputed elements to the Court for a
resolution of those disputed matters.
4. TRANSITION OF SERVICING. The Debtor and UDC will coordinate an
orderly and prompt transition of servicing of the Owned Loans, the
Greenwich Collateral and the Securitized Pools, as applicable, from the
Debtor to the Servicer during the pendency of the Bankruptcy Case to
enable UDC (or an Authorized Assignee) to begin such servicing
activities on the Effective Date pursuant to the UDC Servicing
Agreements. UDC (and where applicable, the Debtor) will negotiate,
enter into and, to the extent required, agree to seek Court approval of
the UDC Servicing Agreements.
5. TERMINATION. Notwithstanding anything herein to the contrary,
UDC shall not be entitled to any payment of the UDC Excess Amount
attributable to any Securitized Pool which Servicer is not then
servicing.
4
<PAGE> 45
6. UDC STOCK OPTION. Nothing herein shall modify the UDC Stock
Option.
7. NOTICES. Any notice or other communication under this
Agreement shall be in writing to the party for whom intended at the
following address (or at such other address as such party may have
previously specified by notice to the other parties at the address to
which notice shall be given to such party):
If to UDC or the Servicer, to:
Ugly Duckling Corporation
2525 E. Camelback Road, Suite 1150
Phoenix, Arizona 85016
Attention: Steven P. Johnson, Esq.
Facsimile No.: (602) 852-6696
With a copy to:
Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004
Attention: Christopher H. Bayley, Esq.
Facsimile No.: (602) 382-6070
If to the Debtor, to:
First Merchants Acceptance Corporation
570 Lake Cook Road, Suite 126
Deerfield, Illinois 60015
Attention: William Plamondon
Facsimile No.: (847) 945-2556
With a copy to:
Sonnenschein Nath & Rosenthal
Suite 8000 Sears Tower
233 S. Wacker Drive
Chicago, Illinois 60606
Attention: Robert E. Richards
Facsimile No.: (312) 876-7934
Each such notice or other communication, together with appropriate
copies, shall be (a) mailed by United States registered or certified
mail, return receipt requested, postage prepaid, (b) delivered by
overnight delivery service such as Federal Express, providing for
signed receipts, (c) delivered by personal service
5
<PAGE> 46
in the manner provided for service of legal process, or (d) transmitted
by facsimile at the above facsimile numbers, with a copy by United
States mail as provided in subsection (a) hereof. Counsel to a party
may give notice for its client provided such notice is otherwise made
in accordance with the provisions of this Section. Notices shall be
effective on the first business day following the date of mailing or
transmission, or upon receipt or personal service.
8. CHOICE OF LAW. Irrespective of the place of execution or
performance, this Agreement shall be governed by and construed in
accordance with the law of Delaware, without giving effect to choice of
law principles.
9. BINDING EFFECT. The Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto, and their respective
heirs, beneficiaries, legal representatives, successors and permitted
assigns, including any successor trustee. Servicer cannot assign its
servicing obligations hereunder, except as set forth herein or as
consented to in writing by the Debtor, such consent not to be
unreasonably withheld.
10. ATTORNEYS' FEES. If any action is brought by either party in
respect to its rights under this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees and court costs as determined
by the court.
11. WAIVERS. No waiver of any of the provisions of this Agreement
shall constitute a waiver of any other provision, whether or not
similar, nor shall any waiver be a continuing waiver. Except as
expressly provided in this Agreement, no waiver shall be binding unless
executed in writing by the party making the waiver. Either party may
waive any provisions of this Agreement intended for its benefit;
provided, however, that any such waiver shall in no way excuse the
other party from the performance of any of its other obligations under
this Agreement.
12. HEADINGS AND COUNTERPARTS. The headings of this Agreement are
for purposes of reference only and shall not limit or define the
meaning of any provision of this Agreement. This Agreement may be
executed in any number of counterparts, each of which shall be an
original but all of which shall constitute one and the same instrument.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties pertaining to the subject matter
contained in this Agreement. All prior and contemporaneous agreements,
representations and understandings of the parties, oral or written, are
superseded by and merged in this Agreement. No supplement, modification
or amendment of this Agreement shall be binding unless in writing and
executed by each of the parties hereto.
6
<PAGE> 47
14. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof,
and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other
jurisdiction.
15. ASSIGNMENT. UDC may assign its rights to receive amounts
hereunder to any subsidiary, affiliate or any successor, assign or
transferee of any such successor or affiliate. UDC shall remain liable
for payment of the Debtor Excess Amount owed to the Debtor hereunder in
the event that the Servicer fails to do so. This agreement shall bind
any successors and assigns to the parties hereto.
Agreed as of the date set forth above:
UGLY DUCKLING CORPORATION
By:
------------------------------
"UDC" or "SERVICER"
FIRST MERCHANTS ACCEPTANCE
CORPORATION,
Debtor and Debtor-in-Possession
By:
------------------------------
"DEBTOR"
7
<PAGE> 48
SCHEDULE I
DEFINITIONS
"1997-2 Securitized Pool" means the pool of contracts the Debtor
securitized through FMARC II on May 1, 1997.
"Acquisition Date" means August 21, 1997.
"Agent" means LaSalle National Bank in its capacity as agent under the
Warehouse Facility, or any successor agent thereunder.
"Bank Group" means the Current Bank Group and the Original Bank Group.
"Bank Group Claim" means all amounts owed to the Bank Group under the
Warehouse Facility.
"Bankruptcy Case" means the Debtor's chapter 11 bankruptcy case pending
in the United States District Court for the District of Delaware entitled In re
First Merchants Acceptance Corporation, Case No. 97-1500 (JJF) (D. Del., July
11, 1997).
"B Pieces" means all of the residual interests and certificates in the
Securitized Pools held by FMARC or FMARC II.
"Chapter 11 Plan" means a chapter 11 plan of the Debtor containing
terms consistent with the terms of the Modified Plan Agreement.
"Committee" means the Official Committee of Unsecured Creditors of
First Merchants Acceptance Corporation.
"Contracts" means retail installment automobile loan contacts
originated or purchased by the Debtor.
"Contribution Agreement" means that certain Contribution Agreement
dated as of December 15, 1997 between FMAC and UDC.
"Court" means the United States District Court for the District of
Delaware.
"Current Bank Group" means as of December 15, 1997, UDC, Cerberus
Partners, L.P., and Bear, Stearns Co., Inc., solely in their capacities as
assignees of the Original Bank Group and as the current holders of the Bank
Group Claim.
"Debtor" means First Merchants Acceptance Corporation.
<PAGE> 49
"DIP Facility" means that certain Final 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 dated August 28, 1997, as amended by that Stipulation and
Agreed Order to Amend DIP Facility dated as of
December 15, 1997.
"Exercise Date" means the date on which UDC will exercise the Stock
Option.
"Excess Collections Split" means the sharing arrangement between the
Debtor and UDC on the proceeds and collections of the Owned Loans and the B
Pieces whereby, after payment in full of the Secured Claim Recovery Amount, the
DIP Facility and the Modified UDC Fee, the Debtor and UDC will share all excess
collections and proceeds on the Owned Loans and the B Pieces, with 82 1/2% of
such excess collections and proceeds to be paid to the Debtor and 17 1/2% of
such excess collections and proceeds to be paid to UDC, as more particularly
described in and subject to the terms of the Contribution Agreement (including
adjustments in the sharing percentages upon the occurrence of certain events as
set forth in the Contribution Agreement).
"FMAC" means First Merchants Acceptance Corporation.
"FMARC" means First Merchants Auto Receivables Corporation.
"FMARC II" means First Merchants Auto Receivables Corporation II.
"FSA" means Financial Security Assurance, Inc.
"GE" means General Electric Capital Corporation.
"Greenwich" means Greenwich Financial Products, Inc.
"Greenwich Collateral" means all Contracts and related collateral
securing repayment of the Debtor's obligations to Greenwich.
"Modified Plan Agreement" means that certain Binding Agreement To
Propose and Support Modified Plan Agreement dated as of December 15, 1997, by
and among the Debtor, UDC and the Committee.
"Modified UDC Fee" means a $450,000.00, non-recourse, flat fee, payable
by the Debtor to UDC prior to initiation of the Excess Collections Split on the
B Pieces and solely from collections from and proceeds of the B Pieces and
secured by a pledge of the B Pieces subordinate only to the DIP Facility and the
Secured Claim Recovery Amount.
<PAGE> 50
"Option Notice" means 15 days' advance written notice to be delivered
by UDC to the Debtor, and a public announcement by UDC on the same date as the
giving of the notice, specifying the Exercise Date and the Stock Option Shares.
"Original Bank Group" means LaSalle National Bank; NBD Bank; Firstar
Bank Milwaukee, N.A.; Harris Trust and Savings Bank; Nationsbank, N.A.; First
Bank, National Association; CoreStates Bank, N.A.; Fleet Bank, National
Association, f/k/a Natwest Bank, N.A.; and Mellon Bank, N.A.; solely in their
capacity as lenders to FMAC pursuant to the terms of the Warehouse Facility.
"Overadvance Cap" means additional advances under the DIP Facility (in
excess of the prior limit of $10,000,000 on such advances) to pay administrative
and post-Plan Confirmation operating expenses of the Debtor as set forth in that
certain Stipulation and Agreed Order to Amend DIP Facility dated as of December
15, 1997 and the Modified Plan Agreement; provided, however, that the total
amount of advances outstanding at any time under the DIP Facility shall not
exceed $16,500,000.00.
"Owned Loans" means all of the Debtor's owned Contracts, other than the
Greenwich Collateral, whether current, delinquent, or charged off, together with
all of the Debtor's rights in the collateral securing such Contracts and all
related repossessed vehicles.
"Owned Loan Servicing Fee" means a charge, calculated on a monthly
basis for each such Contract, from and after the date on which UDC or its
permitted assigns begin to service the Owned Loans, of the greater of (i) 1/12
of 3-1/4% of the then outstanding principal balance of the applicable Contracts,
or (ii) $15.00 per Contract, in each case applied only to Contracts which
constitute part of the Owned Loans and are less than 120 days past due at the
end of such month and for which the related vehicle has not been repossessed.
"Petition Date" means July 11, 1997.
"Plan Confirmation" means confirmation of the Chapter 11 Plan.
"Purchase Price" means the entire amount of the Bank Group Claim as of
the Sale Date, including, but not limited to, any and all outstanding principal,
plus accrued and unpaid interest through the Sale Date (including default
interest from and after the Petition Date through and including the Sale Date),
plus an agreed amount of $150,000.00 of attorneys' fees, costs and expenses of
the Original Bank Group incurred through the Acquisition Date and stipulated as
allowable under 11 U.S.C. ss. 506(b), plus all attorneys fees, costs and
expenses of the Bank Group incurred after the Acquisition Date allowable under
11 U.S.C. ss. 506(b); provided, that, attorneys fees, costs and expenses of the
Bank Group incurred after the Acquisition Date will be assumed to be $450,000
for purposes of determining the Purchase Price; and provided further, that, if
<PAGE> 51
(i) there are objections by the Debtor, the Committee or any other
party-in-interest to the attorneys' fees, costs and expenses of the Bank Group
incurred after the Acquisition Date after review of detailed supporting invoices
provided by the Bank Group, and (ii) at a subsequent hearing, the Court reduces
or increases the amount of such attorneys' fees, costs and expenses allowable
under 11 U.S.C. ss. 506(b), the Purchase Price will be reduced or increased by
an amount equal to the reduction or increase in such fees, costs and expenses.
"Replacement Lien" means the lien granted by the Debtor to the Agent on
the stock of FMARC and FMARC II to secure the Debtor's non-recourse guaranty of
the Secured Claim Recovery Amount.
"Retained Property" means all assets of the Debtor other than the Owned
Loans, including, but not limited to, the Tax Refunds and other tax attributes
of the Debtor, the Greenwich Collateral, and the Debtor's furniture, fixtures,
equipment, general intangibles and causes of action.
"Sale" means the sale of the Owned Loans by the Debtor to the Agent.
"Sale Date" means December 15, 1997.
"Secured Claim Recovery Amount" means any shortfall between (i)
collections on, net proceeds from sales of charged off Contracts constituting,
and net proceeds of collateral securing payment of, the Owned Loans after the
Sale Date, and (ii) the Purchase Price plus interest at the rate of 11% from and
after the Sale Date until paid in full plus the Owned Loan Servicing Fee,
provided, however, that in the event the servicing of the Owned Loans is
transferred to an entity other than UDC or a wholly-owned subsidiary of UDC or
an entity agreed upon by the Debtor, UDC and the Committee in the Chapter 11
Plan without the prior written consent of the Debtor, which consent will not be
unreasonably withheld, the Secured Claim Recovery Amount shall be limited to
$10,000,000.
"Securitized Pools" means the pools of Contracts the Debtor securitized
through FMARC and FMARC II, but excluding the 1997-2 Securitized Pool, unless
the Debtor or UDC becomes the servicer for the 1997-2 Securitized Pool.
"Securitized Pools Servicing Fee" means, subject to FSA approval (or
any other consents required pursuant to governing documents), the base servicing
fee UDC and/or the Debtor will receive after the Sale Date for servicing and
collection of the Securitized Pools, equal to the greater of 1/12 of 3 1/4%, or
$15.00 per Contract, calculated on a monthly basis, on the outstanding principal
balance of the Securitized Pools, applied only to Contracts in the Securitized
Pools which are less than 120 days past due at the end of such month, and for
which the related vehicle has not been repossessed, together with all
<PAGE> 52
other amounts, fees, costs and expenses payable under the servicing agreements
for the Securitized Pools.
"Stock Option" means UDC's option to distribute Stock Option Shares to
the Debtor for the benefit of the Debtor's unsecured creditors (and, if
applicable, stockholders), or if the Debtor so requests, at the Debtor's expense
and solely in accordance with the Debtor's instructions (and UDC shall have no
liability to any party in connection with any distribution made in accordance
with such instructions), to make direct distribution to the Debtor's unsecured
creditors (and if applicable, stockholders), in lieu of the Debtor's right to
retain a portion of the Debtor's share of the Excess Collections Split in cash,
which UDC may exercise by giving the Option Notice, subject to the following
conditions:
(a) UDC may exercise the Stock Option one time only, with exercise
being the actual delivery of the Stock Option Shares;
(b) Revocation of the Option Notice shall not be deemed to be an
exercise of the Stock Option by UDC;
(c) In the event that UDC exercises the Stock Option, and delivers
the Stock Option Shares to the Debtor for the benefit of the
Debtor's unsecured creditors (and, if applicable,
stockholders), UDC shall be entitled to receive the Debtor's
share of cash distributions under the Excess Collections Split
from and after the Exercise Date until UDC has received cash
distributions equal to the Stock Option Value (this is in
addition to UDC's right to receive its share of cash
distributions under the Excess Collections Split);
(d) Once UDC has received cash distributions equal to the Stock
Option Value (without regard to any post-issuance change in
the market value of the issued Stock Option Shares), the
Debtor shall be entitled to and shall retain the remaining
portion of the Debtor's share of cash distributions under the
Excess Collections Split, if any, in excess of the Stock
Option Value;
(e) In no event shall UDC be entitled to receive any portion of
the Debtor's share of cash distributions under the Excess
Collections Split in excess of the Stock Option Value, nor
shall UDC be entitled to recover any portion of the Stock
Option Value from any source other than the Debtor's share of
the Excess Collections Split; and
(f) UDC shall not be entitled to exercise the Stock Option unless
and until (i) the value of UDC common stock on the Exercise
Date and the closing price for UDC common stock on each day
during the previous ten trading days shall be at least $8.00
per share, (ii) UDC shall have caused (at UDC's sole cost and
expense) the Stock Option Shares to be (x) registered under
the
<PAGE> 53
Securities Act of 1933, as amended, (y) unrestricted and (z)
fully transferable and shall have taken all steps necessary to
allow the Debtor to distribute the Stock Option Shares to the
Debtor's unsecured creditors, and if applicable, shareholders,
and (iii) UDC shall not have purchased any of its common stock
(except upon the exercise of previously issued and outstanding
options, warrants, stock appreciation rights or other rights)
or announced any stock repurchase programs from and after the
delivery of the Option Notice to the Debtor through the
Exercise Date.
"Stock Option Shares" means the number of shares of UDC common stock
that UDC will issue to the Debtor on the Exercise Date.
"Stock Option Value" means the aggregate value of the Stock Option
Shares, determined by multiplying the Stock Option Shares by 98% of the average
of the closing prices of UDC common stock on the NASDAQ National Market or on
such other market as such stock may be traded, for the 10 trading days
immediately preceding the Exercise Date.
"Tax Refunds" means the Debtor's uncollected state and federal income
tax refunds for 1996 and prior years.
"UDC" means Ugly Duckling Corporation.
"UDC Warrants" means 3-year warrants to purchase 325,000 shares of UDC
common stock at a price of $20.00 per share which will be callable by UDC when
UDC common stock trades at a price of $28.50 per share, or greater, for 10
consecutive trading days, which UDC will issue to the Debtor pursuant to the
terms of the Warrant Agreement.
"Warehouse Facility" means the Debtor's warehouse loan facility
pursuant to that certain Fourth Amended and Restated Loan and Security
Agreement, dated as of February 28, 1996, as subsequently amended, by and among
FMAC, the Agent and the Original Bank Group.
"Warrant Agreement" means that certain Warrant Agreement to be entered
into between UDC and Harris Trust Company of California, as warrant agent.
<PAGE> 54
EXHIBIT B
List of Contracts and Leases to be Assumed
and Assigned to UDC and Servicing Center Personalty to be
Assigned to UDC on the Effective Date
Listing of all owned and leased personal property assets of FMAC, subject
to final audit, is attached hereto. Any leased assets which UDC does not elect
to assume or purchase or owned assets which UDC elects not to acquire will be
omitted from the final list.
The following is a list of executory contracts and unexpired leases which
FMAC intends to assume and assign to UDC on the Effective Date of the Plan. FMAC
and UDC reserve the right to amend or supplement this listing prior to
confirmation. The cure amount set forth below shall be binding unless it is
contested in a written objection filed by February 27, 1998, at 4 p.m. and
served on the parties set forth in the Notice of Order Approving Joint
Disclosure Statement enclosed herewith.
I. Real Property Leases
--------------------
Landlord Location Cure Amount
- -------- -------- -----------
SL Holdings Nashville RASC $2,823.74
c/o Trammell Crow Company
6000 Poplar Avenue
Suite 150
Memphis, TN 38199
1600 Plano Parkway Plano Office $5,852.67
c/o Allan Peterson
222 West Las Colinas
Blvd.
Suit 1440
Irving, TX 75039
II. Personal Property Leases and Executory Contracts
-------------------------------------------------
Contract Party Asset/Location Cure Amount
- -------------- -------------- -----------
Robert J. Young 2 Copiers $3,548.73
809 Division Street Nashville
Nashville, TN 37204
Topp Brass Cleaning Service $1,398.87
1722 Gen. Geo. Nashville
Patton Dr.
Brentwood, TN 37024
42
<PAGE> 55
AC Services & Air Conditioner Maint. $429.43
Installation, Inc. Nashville
P.O. Box 17102
Nashville, TN 37217
Cintas Corporation Floor Mat Service $367.57
2400 Briley Park Nashville
Blvd.
Nashville, TN 37207
Green Resources Plant Maintenance $301.00
1701 Fatherland St. Nashville
Nashville, TN 37206
Pitney Bowes Credit Mail Machine and Opener $0
Corp. Machine
201 Merritt Street Nashville
Norwalk, CT 06856
Minolta Copier $629.14
5195 Marshall St. Denver
Arveda, CO 80002
Custom Coffee Plan Coffee Service $409.43
5595 Joliet St. Denver
Unit B
Denver, CO 80239
Interior Foliage Plant Maintenance $254.32
970 South Oneida St. Denver
Denver, CO 80244
American Business Postage Meter $53.65
Corp. Denver
222 East 20th Ave.
Denver, CO 80239
Monarch Business Copier $398.83
Systems Plano
15660 No. Dallas
Parkway
Suite 600
Dallas, TX 75248
Ascom Hasler Leasing Postage Meter $73.71
100 Corporate North Plano
Bannockburn, IL 60015
43
<PAGE> 56
Exhibit C
Final Amended Servicing Agreements with FSA
Form Available Upon Request
44
<PAGE> 57
EXHIBIT D
UGLY DUCKLING CORPORATION
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (the "Agreement"), dated as of _______ __, 1998,
is between UGLY DUCKLING CORPORATION, a Delaware corporation (the "Company"),
and HARRIS TRUST COMPANY OF CALIFORNIA, as warrant agent (the "Warrant Agent").
WHEREAS, on July 11, 1997, First Merchants Acceptance Corporation, a
Delaware corporation ("FMAC"), filed a Chapter 11 petition under the provisions
of Title 11, United States Code, as amended, in the United States District Court
for the District of Delaware and such petition is currently pending as Case No.
97-1500 (JJF) (the "Bankruptcy Case");
WHEREAS, the Company has entered into a Binding Agreement to Propose
and Support Modified Plan Agreement dated as of December 15, 1997 (the "Letter
Agreement"), by and among the Company, FMAC, and The Official Committee of
Unsecured Creditors of First Merchants Acceptance Corporation, in connection
with the Bankruptcy Case, pursuant to which the parties agreed to jointly
support a plan of reorganization of FMAC in compliance with the Letter Agreement
(the "Plan");
WHEREAS, pursuant to the Letter Agreement, the Company has agreed to
issue to FMAC warrants (the "Warrants") to purchase up to an aggregate of
325,000 shares of common stock, $.001 par value per share ("Common Stock"), of
the Company, subject to the terms and conditions of this Agreement;
WHEREAS, FMAC may, but is under no obligation to, redistribute the
Warrants, to its creditors or interest holders in the manner provided for in the
Plan; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, transfer, exchange, exercise, and redemption of the
Warrants.
NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein set forth, the parties agree as follows:
Section 1. Appointment of Warrant Agent. The Company hereby appoints
the Warrant Agent to act as agent of the Company in accordance with the terms
and conditions set forth in this Agreement, and the Warrant Agent hereby accepts
such appointment.
<PAGE> 58
Section 2. Issuance of Warrants and Form of Warrants.
(a) Subject to the terms and conditions hereof, the Company shall issue
to FMAC and FMAC shall accept from the Company, 325,000 Warrants substantially
in the form attached hereto as Exhibit A.
(b) Each Warrant shall entitle the registered holder of the certificate
representing such Warrant to purchase upon the exercise thereof one share of
Common Stock, subject to the adjustments provided for in Section 9 hereof, at
any time until 5:00 p.m., New York City time, on __________ ___, 200__ [three
years from date of issuance], unless earlier redeemed pursuant to Section 11
hereof.
(c) The Warrant certificates shall be in registered form only. Each
Warrant certificate shall be dated by the Warrant Agent as of the date of
issuance thereof (whether upon initial issuance or upon transfer or exchange),
and shall be executed on behalf of the Company by the manual or facsimile
signature of its President or a Vice President, and attested to by the manual or
facsimile signature of its Secretary or an Assistant Secretary. In case any
officer of the Company who shall have signed any Warrant certificate shall cease
to be such officer of the Company before such Warrant Certificate has been
countersigned by the Warrant Agent or prior to the issuance thereof, such
Warrant certificate may nevertheless be issued and delivered with the same force
and effect as though the person who signed the same had not ceased to be such
officer of the Company.
Section 3. Exercise of Warrants, Duration and Warrant Price. Subject to
the provisions of this Agreement, each registered holder of one or more Warrant
certificates shall have the right, which may be exercised as provided in such
Warrant certificates, to purchase from the Company (and the Company shall issue
and sell to such registered holder) the number of shares of Common Stock or
other securities to which the Warrants represented by such certificates are at
the time entitled hereunder.
(a) Each Warrant not exercised by its expiration date shall become
void, and all rights thereunder and all rights in respect thereof under this
Agreement shall cease on such date.
(b) A Warrant may be exercised by the surrender of the certificate
representing such Warrant to the Company, at the office of the Warrant Agent, or
at the office of a successor to the Warrant Agent, with the subscription form
set forth on the reverse thereof duly executed and properly endorsed with the
signatures properly guaranteed, and upon payment in full to the Warrant Agent
for the account of the Company of the Warrant Price (as hereinafter defined) for
the number of shares of Common Stock or other securities as to which the Warrant
is exercised. Such Warrant Price shall be paid in full in cash, or by certified
check or bank draft payable in United States currency to the order of the
Warrant Agent.
2
<PAGE> 59
(c) The price per share of Common Stock at which each Warrant may be
exercised (the "Warrant Price") shall be Twenty Dollars ($20.00) (subject to
adjustment in accordance with Section 9 hereof).
(d) Subject to the further provisions of this Section 3 and of Section
6 hereof, upon surrender of Warrant certificates and payment of the Warrant
Price, the Company shall issue and cause to be delivered, as promptly as
practicable to or upon the written order of the registered holder of such
Warrants and in such name or names as such registered holder may designate,
subject to applicable securities laws, a certificate or certificates for the
number of securities so purchased upon the exercise of such Warrants, together
with cash, as provided in Section 10 of this Agreement, in respect of any
fraction of a share or security otherwise issuable upon such surrender. All
shares of Common Stock or other such securities issued upon the exercise of a
Warrant shall be duly authorized, validly issued, fully paid and nonassessable
and free and clear of all liens and other encumbrances.
(e) Certificates representing such securities shall be deemed to have
been issued and any person so designated to be named therein shall be deemed to
have become a holder of record of such securities as of the date of the
surrender of such Warrants and payment of the Warrant Price; provided, however,
that if, at the date of surrender of such Warrants and payment of such Warrant
Price, the transfer books for the Common Stock or other securities purchasable
upon the exercise of such Warrants shall be closed, the certificates for the
securities in respect of which such Warrants are then exercised shall be
issuable as of the date on which such books shall next be opened and until such
date the Company shall be under no duty to deliver any certificate for such
securities and the person to whom such securities are issuable shall not be
deemed to have became a holder of record of such securities. The rights of
purchase represented by each Warrant certificate shall be exercisable, at the
election of the registered holder thereof, either as an entirety or from time to
time for part of the number of securities specified therein and, in the event
that any Warrant certificate is exercised in respect of less than all of the
securities specified therein at any time prior to the expiration date of the
Warrant certificate, a new Warrant certificate or certificates will be issued to
such registered holder for the remaining number of securities specified in the
Warrant certificate so surrendered.
Section 4. Countersignature and Registration.
(a) The Warrant Agent shall maintain books (the "Warrant Register") for
the registration and the registration of transfer of the Warrants. Upon the
initial issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the name of FMAC in accordance with Section 2 hereof. The Warrant
certificates shall be countersigned manually or by facsimile by the Warrant
Agent (or by any successor to the Warrant Agent then acting as such under this
Agreement) and shall not be valid for any purpose unless so countersigned.
Warrant certificates may be so countersigned, however, by the Warrant Agent and
delivered by the Warrant Agent, notwithstanding that the persons whose manual or
facsimile signatures appear
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thereon as proper officers of the Company shall have ceased to be such officers
at the time of such countersignature or delivery.
(b) Prior to due presentment for registration of transfer of any
Warrant certificate, the Company and the Warrant Agent may deem and treat the
person in whose name such Warrant certificate shall be registered upon the
Warrant Register (the "registered holder") as the absolute owner of such Warrant
certificate and of each Warrant represented thereby (notwithstanding any
notation of ownership or other writing on the Warrant certificate made by anyone
other than the Company or the Warrant Agent), for the purpose of any exercise
thereof, of any distribution or notice to the holder thereof, and for all other
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice to the contrary.
Section 5. Transfer and Exchange of Warrants.
(a) The Warrant Agent shall register the transfer, from time to time,
of any outstanding Warrant or portion thereof upon the Warrant Register, upon
surrender of the certificate evidencing such Warrant for transfer, properly
endorsed with signatures properly guaranteed and accompanied by appropriate
instructions for transfer. Upon any such transfer, a new Warrant certificate
representing an equal aggregate number of Warrants so transferred shall be
issued to the transferee and the surrendered Warrant certificate shall be
canceled by the Warrant Agent. In the event that only a portion of a Warrant is
transferred at any time, a new Warrant certificate representing the remaining
portion of the Warrant will also be issued to the transferring holder. The
Warrant certificates so canceled shall be delivered by the Warrant Agent to the
Company from time to time upon request. Notwithstanding the foregoing, no
transfer or exchange may be made except in compliance with applicable securities
laws and Section 14 hereof.
(b) Warrant certificates may be surrendered to the Warrant Agent,
together with a written request for exchange, and thereupon the Warrant Agent
shall issue in exchange therefor one or more new Warrant certificates as
requested by the registered holder of the Warrant certificate or certificates so
surrendered, representing an equal aggregate number of Warrants.
(c) The Warrant Agent shall not be required to effect any registration
of transfer or exchange which will result in the issuance of a Warrant
certificate for a fraction of a Warrant.
(d) No service charge shall be made for any exchange or registration of
transfer of Warrant certificates.
(e) The Warrant Agent is hereby authorized to countersign and to
deliver, in accordance with the terms of this Agreement, the new Warrant
certificates required to be issued pursuant to the provisions hereof, and the
Company, whenever required by the Warrant Agent, will supply the Warrant Agent
with certificates duly executed on behalf of the Company for such purpose.
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Section 6. Payment of Taxes. The Company will pay any documentary stamp
taxes attributable to the initial issuance or delivery of the shares of Common
Stock or other securities issuable upon the exercise of Warrants; provided,
however, the Company shall not be required to pay any tax or taxes which may be
payable in respect of any transfer of the Warrants or involved in the issuance
or delivery of any Warrant certificate or certificates for shares of Common
Stock in a name other than registered holder of Warrants in respect of which
such shares are issued, and in such case neither the Company nor the Warrant
Agent shall be required to issue or deliver any certificate for shares of Common
Stock or any Warrant certificate until the person requesting the same has paid
to the Company the amount of such tax or has established to the Company's
satisfaction that such tax has been paid.
Section 7. Mutilated or Missing Warrants. In case any of the Warrant
certificates shall be mutilated, lost, stolen or destroyed, the Company may
issue, and the Warrant Agent shall countersign and deliver in exchange and
substitution for and upon cancellation of the mutilated Warrant certificate, or
in lieu of and substitution for the Warrant certificate lost, stolen or
destroyed, a new Warrant certificate representing an equal aggregate number of
Warrants, but only upon receipt of evidence satisfactory to the Company and the
Warrant Agent of such loss, theft or destruction of such Warrant certificate and
reasonable indemnity, if requested, also satisfactory to them. Applicants for
such substitute Warrant certificates shall also comply with such other
reasonable conditions and pay such reasonable charges as the Company or the
Warrant Agent may prescribe.
Section 8. Reservation of Common Stock.
(a) There have been reserved, and the Company shall at all times keep
reserved, out of its authorized and unissued shares of Common Stock, a number of
shares sufficient to provide for the exercise of the rights of purchase
represented by the Warrants then outstanding or issuable upon exercise, and the
transfer agent for the Common Stock and every subsequent transfer agent for any
shares of the Company's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid are hereby irrevocably authorized and directed at
all times to reserve such number of authorized and unissued shares as shall be
requisite for such purpose. The Company will keep a copy of this Agreement on
file with the transfer agent for the Common Stock and with every subsequent
transfer agent for any shares of the Company's capital stock issuable upon the
exercise of the rights of purchase represented by the Warrants.
(b) The Warrant Agent is hereby irrevocably authorized to requisition
from time to time from such transfer agent stock certificates required to honor
outstanding Warrants. The Company will supply such transfer agent with duly
executed certificates for such purpose and will itself provide or otherwise make
available any cash as provided in Section 10 of this Agreement. All Warrant
certificates surrendered in the exercise of the rights thereby evidenced shall
be canceled by the Warrant Agent and shall thereafter be delivered to the
Company. Promptly after the expiration date of the Warrants, the Warrant Agent
shall certify to the Company the aggregate number of such Warrants which expired
unexercised, and after the
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expiration date of the Warrants, no shares of Common Stock shall be subject to
reservation in respect of such Warrants.
Section 9. Adjustment of Warrant Price and Number of shares of Common
Stock. The number and kind of securities purchasable upon the exercise of the
Warrants and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
9.1 Adjustments. The number of shares of Common Stock or other
securities purchasable upon the exercise of each Warrant and the Warrant Price
shall be subject to adjustment as follows:
(a) If the Company (i) pays a dividend in Common Stock or makes a
distribution in Common Stock, (ii) subdivides its outstanding Common Stock into
a greater number of shares, (iii) combines its outstanding Common Stock into a
smaller number of shares, or (iv) issues, by reclassification of its Common
Stock, other securities of the Company, then the number and kind of shares of
Common Stock or other securities purchasable upon exercise of a Warrant
immediately prior thereto will be adjusted so that the holder of a Warrant will
be entitled to receive the kind and number of shares of Common Stock or other
securities of the Company that such holder would have owned and would have been
entitled to receive immediately after the happening of any of the events
described above, had the Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto. Any adjustment
made pursuant to this subsection 9.1(a) will become effective immediately after
the effective date of such event retroactive to the record date, if any, for
such event.
(b) No adjustment in the number of shares or securities purchasable
pursuant to the Warrants shall be required unless such adjustment would require
an increase or decrease of at least one percent in the number of shares or
securities then purchasable upon the exercise of the Warrants.
(c) Whenever the number of shares or securities purchasable upon
the exercise of the Warrants is adjusted, as herein provided, the Warrant Price
for shares payable upon exercise of the Warrants shall be adjusted by
multiplying such Warrant Price immediately prior to such adjustment by a
fraction, the numerator of which shall be the number of shares purchasable upon
the exercise of the Warrant immediately prior to such adjustment, and the
denominator of which shall be the number of shares so purchasable immediately
thereafter.
(d) Whenever the number of shares or securities purchasable upon
the exercise of the Warrants and/or the Warrant Price is adjusted as herein
provided, the Company shall cause to be promptly mailed to the Warrant Agent and
each registered holder of a Warrant by first class mail, postage prepaid, notice
of such adjustment and a certificate of the chief financial officer of the
Company setting forth the number of shares or securities purchasable upon the
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exercise of the Warrants after such adjustment, the Warrant Price as adjusted, a
brief statement of the facts requiring such adjustment and the computation by
which such adjustment was made. The Warrant Agent shall be fully protected in
relying on any such certificate and any adjustment therein contained, and shall
not be obligated or responsible for calculating any adjustment nor shall it be
deemed to have knowledge of such an adjustment unless and until it shall have
received such certificate.
(e) For the purpose of this subsection 9.1, the term "Common Stock"
shall mean (i) the class of stock designated as the voting Common Stock of the
Company at the date of this Agreement, or (ii) any other class of stock or
securities resulting from successive changes or reclassifications of such Common
Stock consisting solely of changes in par value, or from par value to no par
value, or from no par value to par value. In the event that at any time, as a
result of an adjustment made pursuant to this Section 9, a registered holder
shall become entitled to purchase any securities of the Company other than
shares of Common Stock, thereafter the number of such other securities so
purchasable upon exercise of the Warrants shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the shares contained in this Section 9.
9.2 No Adjustment for Dividends. Except as provided in subsection 9.1,
no adjustment in respect of any dividends or distributions shall be made during
the term of the Warrants or upon the exercise of the Warrants.
9.3 No Adjustment in Certain Cases. No adjustments are required to be
made pursuant to Section 9 hereof in connection with the issuance of shares of
Common Stock or the Warrants (or the underlying shares of Common Stock) in the
transactions contemplated by this Agreement.
9.4 Preservation of Purchase Rights upon Reclassification,
Consolidation, etc. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property, assets or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall execute with the Warrant Agent
an agreement that the registered holders of the Warrants shall have the right
thereafter, upon payment of the Warrant Price in effect immediately prior to
such action, to purchase, upon exercise of each Warrant, the kind and amount of
shares and other securities and property which it would have owned or have been
entitled to receive after the happening of such consolidation, merger, sale or
conveyance had each Warrant been exercised immediately prior to such action. Any
such agreements referred to in this subsection 9.4 shall provide for
adjustments, which shall be as nearly equivalent as may be practicable to the
adjustments provided for in Section 9 hereof. The provisions of this subsection
9.4 shall similarly apply to successive consolidations, mergers, sales, or
conveyances.
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9.5 Par Value of Shares of Common Stock. Before taking any action that
would cause an adjustment reducing the Warrant Price below the then par value of
the Common Stock issuable upon exercise of the Warrants, the Company will take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Common Stock at such adjusted Warrant Price.
9.6 Independent Public Accountants. The Company may but shall not be
required to retain a firm of independent public accountants of recognized
regional or national standing (which may be any such firm regularly employed by
the Company) to make any computation required under this Section 9, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of any computation made under this Section 9 and the Company shall cause to be
promptly mailed to the Warrant Agent and each registered holder of a Warrant by
first class mail, postage prepaid, a copy of such certificate.
9.7 Statement on Warrant Certificates. Irrespective of any adjustments
in the Warrant Price or the number of securities issuable upon exercise of
Warrants, Warrant certificates theretofore or thereafter issued may continue to
express the same price and number of securities as are stated in the similar
Warrant certificates initially issuable pursuant to this Agreement. However, the
Company may, at any time in its sole discretion (which shall be conclusive),
make any change in the form of Warrant certificate that it may deem appropriate
and that does not affect the substance thereof; and any Warrant certificate
thereafter issued, whether upon registration of, transfer of, or in exchange or
substitution for, an outstanding Warrant certificate, may be in the form so
changed.
9.8 No Rights as Stockholder; Notices to Holders of Warrants. If, at
any time prior to the expiration of a Warrant and prior to its exercise, any one
or more of the following events shall occur:
(a) any action that would require an adjustment pursuant to
subsection 9.1 or 9.4 hereof; or
(b) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger or sale of its property, assets
and business as an entirety or substantially as an entirety) shall be proposed;
then the Company must give notice in writing of such event to the registered
holders of the Warrants, as provided in Section 21 hereof, at least 20 days to
the extent practicable, prior to the date fixed as a record date or the date of
closing the transfer books for the determination of the stockholders entitled to
any relevant dividend, distribution, subscription rights or other rights or for
the determination of stockholders entitled to vote on such proposed dissolution,
liquidation or winding up. Such notice must specify such record date or the date
of closing the transfer books, as the case may be. Failure to mail or receive
such notice or any defect therein will not affect the validity of any action
taken with respect thereto.
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Section 10. Fractional Interests. The Company is not required to issue
fractional shares of Common Stock on the exercise of a Warrant. If any fraction
of a share of Common Stock would, except for the provisions of this Section 10,
be issuable on the exercise of a Warrant (or specified portion thereof), the
Company will in lieu thereof pay an amount in cash equal to the then Current
Market Price multiplied by such fraction. For purposes of this Agreement, the
term "Current Market Price" means (i) if the Common Stock is listed for
quotation on the Nasdaq National Market or the Nasdaq SmallCap Market or on a
national securities exchange, the average for the 10 consecutive trading days
immediately preceding the date in question of the daily per share closing prices
of the Common Stock as quoted by the Nasdaq National Market or the Nasdaq
SmallCap Market or on the principal stock exchange on which it is listed, as the
case may be, whichever is the higher, or (ii) if the Common Stock is traded in
the over-the-counter market and is not listed for quotation on the Nasdaq
National Market or the Nasdaq SmallCap Market nor on any national securities
exchange, the average of the per share closing bid prices of the Common Stock on
the 10 consecutive trading days immediately preceding the date in question, as
reported by Nasdaq or an equivalent generally accepted reporting service. The
closing price referred to in clause (i) above shall be the last reported sale
price or, in case no such reported sale takes place on such day, the average of
the reported closing bid and asked prices, in either case as quoted by the
Nasdaq National Market or the Nasdaq SmallCap Market or on the national
securities exchange on which the Common Stock is then listed. For purposes of
clause (ii) above, if trading in the Common Stock is not reported by Nasdaq, the
bid price referred to in said clause shall be the lowest bid price as reported
on the OTC Bulletin Board or in the "pink sheets" published by National
Quotation Bureau, Incorporated.
Section 11. Redemption.
(a) The then outstanding Warrants may be redeemed, at the option of the
Company, at $.10 per share of Common Stock purchasable upon exercise of such
Warrants, at any time after the average Daily Market Price per share of the
Common Stock for a period of at least 10 consecutive trading days ending not
more than fifteen days prior to the date of the notice given pursuant to Section
11(b) hereof has equaled or exceeded $28.50, and prior to expiration of the
Warrants. The Daily Market Price of the Common Stock will be determined by the
Company in the manner set forth in Section 11(e) as of the end of each trading
day (or, if no trading in the Common Stock occurred on such day, as of the end
of the immediately preceding trading day in which trading occurred) and verified
to the Warrant Agent before the Company may give notice of redemption. All
outstanding Warrants must be redeemed if any are redeemed, and any right to
exercise an outstanding Warrant shall terminate at 5:00 p.m. (New York City
time) on the date fixed for redemption. Trading day means a day in which trading
of securities occurred on the Nasdaq National Market.
(b) The Company may exercise its right to redeem the Warrants only by
giving the notice set forth in the following sentence. If the Company exercises
its right to redeem, it shall give notice to the Warrant Agent and the
registered holders of the outstanding Warrants by
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mailing or causing the Warrant Agent to mail to such registered holders a notice
of redemption, first class, postage prepaid, at their addresses as they shall
appear on the records of the Warrant Agent. Any notice mailed in the manner
provided herein will be conclusively presumed to have been duly given whether or
not the registered holder actually receives such notice.
(c) The notice of redemption must specify the redemption price, the
date fixed for redemption (which must be at least 30 days after the date such
notice is mailed), the place where the Warrant certificates must be delivered
and the redemption price paid, and that the right to exercise the Warrant will
terminate at 5:00 P.M. (New York City time) on the date fixed for redemption.
(d) Appropriate adjustment shall be made to the redemption price and to
the minimum Daily Market Price prerequisite to redemption set forth in Section
11(a) hereof, in each case on the same basis as provided in Section 9 hereof
with respect to adjustment of the Warrant Price.
(e) For purposes of this Agreement, the term "Daily Market Price" means
(i) if the Common Stock is quoted on the Nasdaq National Market or the Nasdaq
SmallCap Market or on a national securities exchange, the daily per share
closing price of the Common Stock as quoted on the Nasdaq National Market or the
Nasdaq SmallCap Market or on the principal stock exchange on which it is listed
on the trading day in question, as the case may be, whichever is the higher, or
(ii) if the Common Stock is traded in the over-the-counter market and not quoted
on the Nasdaq National Market or the Nasdaq SmallCap Market nor on any national
securities exchange, the closing bid price of the Common Stock on the trading
day in question, as reported by Nasdaq or an equivalent generally accepted
reporting service. The closing price referred to in clause (i) above shall be
the last reported sale price or, in case no such reported sale takes place on
such day, the average of the reported closing bid and asked prices, in either
case on the Nasdaq National Market or the Nasdaq SmallCap Market or on the
national securities exchange on which the Common Stock is then listed. For
purposes of clause (ii) above, if trading in the Common Stock is not reported by
Nasdaq, the bid price referred to in said clause shall be the lowest bid price
as quoted on the OTC Bulletin Board or reported in the "pink sheets" published
by National Quotation Bureau, Incorporated.
(f) On the redemption date, each Warrant will be automatically
converted into the right to receive the redemption price and the Warrant Agent
will no longer honor any purported exercise of a Warrant. On or before the
redemption date, the Company will deposit with the Warrant Agent sufficient
funds for the purpose of redeeming all of the outstanding unexercised Warrants.
All such funds shall be maintained by the Warrant Agent in an interest-bearing,
segregated account for payment to holders of Warrants upon surrender of Warrant
Certificates in exchange for the redemption price therefor. Funds remaining in
such account on the date three years from the redemption date will be returned
to the Company. Any Warrants thereafter submitted to the Warrant Agent for
redemption will be forwarded for redemption by the Warrant Agent to the Company,
and the Warrant Agent will have no further responsibility with respect thereto.
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Section 12. Rights as Warrantholders. Nothing contained in this
Agreement or in any of the Warrants shall be construed as conferring upon the
holders thereof, as such, any of the rights of stockholders of the Company,
including, without limitation, the right to receive dividends or other
distributions, to exercise any preemptive rights, to vote or to consent or to
receive notice as stockholders in respect of the meetings of stockholders or the
election of directors of the Company or any other matter.
Section 13. Disposition of Proceeds on Exercise of Warrants. The
Warrant Agent must account promptly to the Company with respect to Warrants
exercised, and must promptly pay to the Company all monies received by it upon
the exercise of such Warrants, and agrees to keep copies of this Agreement
available for inspection by holders of Warrants during normal business hours.
Section 14. Registration of Warrants.
(a) Insert when true - [The Company has registered the Warrants and the
Common Stock issuable upon exercise of the Warrants under the Securities Act of
1933, as amended (the "Securities Act"). The Company agrees to use its best
efforts to maintain such registration for the period during which the Warrants
are exercisable. If at any time during the continuance of such registration, the
Company shall determine that the applicable registration statement contains an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing, or if for any other reason as
required by law it is necessary to amend or supplement the registration
statement or to discontinue trading in or exercise of the Warrants, the Company
may request the Warrant Agent in writing to discontinue effecting the
registration of transfer and/or exercise of the Warrants, as appropriate, until
such time as the Company subsequently advises the Warrant Agent in writing that
trading and/or exercises, as applicable, of the Warrants may be continued. The
Company will use best efforts to promptly amend or supplement its registration
statement to permit trading and exercise.]
(b) All fees, disbursements, and out-of-pocket expenses incurred in
connection with the filing of any registration statement under Section 14(a)
hereof and in complying with applicable securities and Blue Sky laws shall be
borne by the Company, provided, however, that any expenses of the holders of the
Warrants or the Shares, including but not limited to their attorneys' fees,
shall be borne by such holders.
Section 15. [Intentionally Left Blank]
Section 16. Merger or Consolidation or Change of Name of Warrant Agent.
(a) Any corporation into which the Warrant Agent may be merged or with
which it may be consolidated, or any corporation resulting from any merger or
consolidation to which
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the Warrant Agent shall be a party, or any corporation succeeding to the
corporate trust business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Warrant Agent under
the provisions of Section 19 of this Agreement. In case at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement and any of the Warrant certificates shall have been countersigned but
not delivered, any such successor to the Warrant Agent may adopt the
countersignature of the original Warrant Agent and deliver such Warrant
certificates so countersigned; and in case at that time any of the Warrant
certificates shall not have been countersigned, any successor to the Warrant
Agent may countersign such Warrant certificates either in the name of the
predecessor Warrant Agent or in the name of the successor Warrant Agent, and in
all such cases the Warrants represented by such Warrant certificates shall have
the full force provided in the Warrant certificates and in this Agreement. Any
such successor Warrant Agent shall promptly give notice of its succession as
Warrant Agent to the Company and to the registered holder of each Warrant
certificate.
(b) If at any time the name of the Warrant Agent is changed and at such
time any of the Warrant certificates have been countersigned but not delivered,
the Warrant Agent may adopt the countersignature under its prior name and
deliver Warrant certificates so countersigned; and if at that time any of the
Warrant certificates have not been countersigned, the Warrant Agent may
countersign such Warrant certificates either in its prior name or in its changed
name; and in all such cases the Warrants represented by such Warrant
certificates will have the full force provided in the Warrant certificates and
in this Agreement.
Section 17. Concerning the Warrant Agent. The Company agrees to pay to
the Warrant Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Warrant Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Warrant Agent, and its
officers, agents and directors for, and to hold each of them harmless against,
any loss, liability, or expense incurred without negligence or willful
misconduct on the part of the Warrant Agent, for anything done or omitted by the
Warrant Agent or such indemnified party in connection with the acceptance or
administration of this Agreement or the exercise or performance of its duties
hereunder, including the costs and expenses of defending against any claim of
liability in the premises. The indemnification provided for hereunder shall
survive the expiration of the Warrant, the termination of this Agreement and the
resignation or removal of the Warrant Agent. The costs and expenses of enforcing
this right of indemnification shall also be paid by the Company.
The Warrant Agent may conclusively rely upon and shall be protected by
the Company and shall incur no liability for, or in respect of any action taken,
suffered or omitted by it in connection with, its administration of this
Agreement or the exercise or performance of its duties hereunder in reliance
upon any Warrant certificate or certificate for the Common Stock or for
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other securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons, or otherwise upon the advice of counsel as set
forth herein.
Notwithstanding anything in this Agreement to the contrary, in no event
shall the Warrant Agent be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if the Warrant Agent has been advised of the likelihood of such loss or damage
and regardless of the form of the action.
Section 18. Duties of Warrant Agent. The Warrant Agent undertakes the
duties and obligations expressly imposed by this Agreement, and no implied
duties or obligations shall be read into this Agreement against the Warrant
Agent, upon the following terms and conditions, by all of which the Company and
the holders of Warrant certificates, by their acceptance thereof, shall be
bound:
(a) Before the Warrant Agent acts or refrains from acting, the Warrant
Agent may consult with legal counsel (who may be legal counsel for the Company)
and the opinion of such counsel shall be full and complete authorization and
protection to the Warrant Agent as to any action taken or omitted by it in good
faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Warrant Agent shall deem it necessary or desirable that any fact or factual
matter be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any person believed in good faith by the
Warrant Agent to be one of the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Treasurer or the Secretary of
the Company and delivered to the Warrant Agent; and such certificate shall be
full authorization to the Warrant Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Warrant Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or wilful misconduct.
(d) The Warrant Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Warrant
certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Warrant Agent is serving as an administrative agent and,
accordingly, shall not be under any responsibility in respect of the validity of
any provision of this Agreement or
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the execution and delivery hereof (except the due execution hereof by the
Warrant Agent) or in respect of the validity or execution of any Warrant
certificate (except its countersignature thereof); nor shall it be responsible
for any breach by the Company of any covenant or condition contained in this
Agreement or in any Warrant certificate; nor shall it be responsible for any
change in the exercisability of the Warrant (including the Warrant becoming
void) or any adjustment in the terms of the Warrant (including the manner,
method or amount thereof) provided for herein, or the ascertaining of the
existence of facts that would require any such change or adjustment (except with
respect to the exercise of any Warrant evidenced by a Warrant certificate after
actual notice to the Warrant Agent that such change or adjustment is required);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any shares of Common stock to
be issued pursuant to this Agreement or any Warrant certificate or as to whether
any shares of Common stock will, when issued, be validly authorized and issued,
fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Warrant Agent for the carrying out or performing by the Warrant Agent of
the provisions of this Agreement.
(g) The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
person believed in good faith by the Warrant Agent to be one of the Chairman of
the Board, the Chief Executive Officer, the President, any Vice President, the
Treasurer, or the Secretary of the Company, and to apply to such officers for
advice or instructions in connection with its duties, and it shall not be liable
for any action taken or suffered by it in good faith in accordance with
instructions of any such officer of for any delay in acting while waiting for
those instructions.
Any application by the Warrant Agent for written instructions from the
Company may, at the option of the Warrant Agent, set forth in writing any action
proposed to be taken or omitted by the Warrant Agent under this Agreement and
the date on or after which such action shall be taken or such omission shall be
effective. The Warrant Agent shall not be liable for any action taken by, or
omission of, the Warrant Agent in accordance with a proposal included in any
such application on or after the date specified in such application (which date
shall not be less than ten Business Days after the date any officer of the
Company actually receives such application, unless any such officer shall have
consented in writing to an earlier date) unless, prior to taking any such action
(or the effective date in the case of an omission), the Warrant Agent shall have
received written instructions in response to such application subject to the
proposed action or omission and/or specifying the action to be taken or omitted.
(h) Subject to applicable law, the Warrant Agent and any stockholder,
director, officer or employee of the Warrant Agent may buy, sell or deal in any
of the Warrants or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested, or
contract with or lend money to the Company or otherwise act
14
<PAGE> 71
as fully and freely as though it were not Warrant Agent under this Agreement.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Warrant Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Warrant Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such attorneys
or agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided that reasonable care was exercised in the
selection and continued employment thereof.
(j) No provision of this Agreement shall require the Warrant Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) The Warrant Agent shall not be required to take notice or be deemed
to have notice of any fact, event or determination (including, without
limitation, any dates or events defined in this Agreement) under this Agreement
unless and until the Warrant Agent shall be specifically notified in writing by
the Company of such fact, event or determination.
Section 19. Change of Warrant Agent. The Warrant Agent may resign
and be discharged from its duties under this Agreement by giving the Company at
least 30 days prior notice in writing, and by mailing notice in writing to the
registered holders at the expense of the Company at their addresses appearing on
the Warrant Register, of such resignation, at least 15 days prior to the date
such resignation shall take effect and specifying a date when such resignation
shall take effect. The Warrant Agent may be removed by like notice to the
Warrant Agent from the Company and by like mailing of notice to the registered
holders of the Warrants. If the Warrant Agent resigns or is removed or otherwise
becomes incapable of acting, the Company shall appoint a successor to the
Warrant Agent. If the Company fails to make such appointment within 30 days
after such removal or after it has been notified in writing of such resignation
or incapacity by the resigning or incapacitated Warrant Agent or by the
registered holder of a Warrant (who shall, with such notice, submit his Warrant
certificate for inspection by the Company), then the registered holder of any
Warrant may apply to any court of competent jurisdiction for the appointment of
a successor to the Warrant Agent. Pending appointment of a successor to the
Warrant Agent, either by the Company or such a court, the Company shall carry
out the duties of the Warrant Agent. Any successor Warrant Agent, whether
appointed by the Company or by such a court, must be registered and otherwise
authorized to serve as a transfer agent pursuant to the Securities Exchange Act
of 1934, as amended. If at any time the Warrant Agent ceases to be eligible in
accordance with the provisions of this Section 19, it will resign immediately in
the manner and with the effect specified in this Section 19. After acceptance in
writing of the appointment, the successor
15
<PAGE> 72
Warrant Agent will be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed; but the former Warrant Agent will deliver and transfer to
the successor Warrant Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
this purpose. Upon request of any successor Warrant Agent, the Company will
make, execute, acknowledge and deliver any and all instruments in writing for
more fully and effectually vesting in and confirming to such successor Warrant
Agent all such powers, rights, duties and responsibilities. Failure to file or
mail any notice provided in this Section 19, however, or any defect therein,
will not affect the legality or validity of the resignation or removal of the
Warrant Agent or the appointment of the successor Warrant Agent, as the case may
be.
Section 20. Identity of Transfer Agent. Following the appointment
of any transfer agent for the Common Stock or of any subsequent transfer agent
for shares of the Common Stock or other shares of the Company's capital stock
issuable upon the exercise of the rights of purchase represented by the
Warrants, the Company will file with the Warrant Agent a statement setting forth
the name and address of such transfer agent.
Section 21. Notices. Notices or demands authorized by this
Agreement to be given or made by the Warrant Agent or by the holder of any
Warrant certificate to or on the Company shall be sufficiently given or made if
sent by registered or certified mail, addressed (until another address is filed
in writing with the Warrant Agent) as follows (and shall be deemed given upon
receipt):
Ugly Duckling Corporation
2525 East Camelback Road
Suite 1150
Phoenix, Arizona 85016
Attention: Steven P. Johnson, Senior Vice President,
General Counsel and Secretary
With a copy to:
Steven D. Pidgeon
Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004-0001
16
<PAGE> 73
Notices or demands authorized by this Agreement to be given or made by the
Company or by the holder of any Warrant certificate to or on the Warrant Agent
shall be sent by registered or certified mail, addressed (until another address
is filed in writing with the Company) as follows (and shall be deemed given upon
receipt):
Harris Trust Company of California
601 South Figueroa
49th Floor
Los Angeles, CA 90017
Attention: Neil Rosso, Corporate Trust
Notices or demands authorized by this Agreement to be given or made by the
Company or the Warrant Agent to the holder of any Warrant certificate shall be
sufficiently given or made if sent by first class mail, postage prepaid,
addressed to such holder at the address of such holder as shown in the Warrant
Register. The Company shall deliver a copy of any notice or demand it delivers
to the holder of any Warrant certificate to the Warrant Agent.
Section 22. Supplements and Amendments. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Warrants in order to cure any ambiguity or to correct
or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not be
inconsistent with the provisions of the Warrants, or which shall not adversely
affect the interests of the holders of Warrants (including reducing the Warrant
Price or extending the redemption or expiration date). In any situation in which
this Agreement cannot be amended pursuant to the next sentence above, this
Agreement may be amended by the Company, the Warrant Agent and the holder or
holders of a majority of the outstanding Warrants representing a majority of the
shares of Common Stock underlying such Warrants; provided, however, that without
the consent of each holder of a Warrant, except as otherwise provided in Section
9, there can be no increase of the Warrant Price, reduction of the number of
shares of Common Stock purchasable or reduction of the exercise period for such
holder's Warrants and provided, further, that no such supplement or amendment
may affect the rights or duties of the Warrant Agent under this Agreement
without the written consent of the Warrant Agent. Notwithstanding anything in
this Agreement to the contrary, no supplement or amendment that changes the
rights and duties of the Warrant Agent under this Agreement shall be effective
without the written consent of the Warrant Agent.
Section 23. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company, or the Warrant Agent or the
registered holders of the Warrants will bind and inure to the benefit of their
respective successors and assigns hereunder.
Section 24. Governing Law. This Agreement will be deemed to be a
contract made under the laws of the State of Arizona and for all purposes will
be construed in accordance with
17
<PAGE> 74
the laws of said State, except as to Sections 17, 18 and 22, which shall be
governed by and construed in accordance with the laws of the State of Illinois.
Each holder of a Warrant by its acceptance thereof agrees to submit to the
jurisdiction of a court of competent jurisdiction in the State of Arizona, but
to the State of Illinois as to Sections 17, 18 and 22, for the purpose of
resolving any disputes arising with respect to the rights and obligations of the
Warrant Agent.
Section 25. Benefits of this Agreement. Nothing in this Agreement will
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrants any legal or equitable
right, remedy or claim under this Agreement. This Agreement is for the sole and
exclusive benefit of the Company, the Warrant Agent and the registered holders
of the Warrants.
Section 26. Counterparts. This Agreement may be executed in
counterparts and each of such counterparts will for all purposes be deemed to be
an original, and all such counterparts will together constitute but one and the
same instrument.
Section 27. Descriptive Headings. The descriptive headings of the
several Sections of this Agreement are inserted for convenience only and do not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, as of the day and year first above written.
UGLY DUCKLING CORPORATION
By:
----------------------------------
Name:
--------------------------------
Its:
---------------------------------
HARRIS TRUST COMPANY
OF CALIFORNIA
By:
----------------------------------
Name:
--------------------------------
Its:
---------------------------------
18
<PAGE> 75
Warrant No. ____
EXHIBIT A
WARRANT TO PURCHASE ________ SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M.,
NEW YORK CITY TIME, ON ____________ __, 200__
UGLY DUCKLING CORPORATION
This certifies that, for value received ________________________, the
registered holder hereof or assigns (the "Holder"), is entitled to purchase from
UGLY DUCKLING CORPORATION, a Delaware corporation (the "Company"), at any time
before 5:00 p.m., New York City time, on ___________ __, 200__, at the purchase
price per share of $20 (the "Warrant Price"), the number of shares of Common
Stock, par value $0.001 per share, of the Company set forth above (the
"Shares"). The number of shares of Common Stock purchasable upon exercise of the
Warrant evidenced hereby and the Warrant Price is subject to adjustment from
time to time as set forth in the Warrant Agreement referred to below.
This Warrant may be redeemed, at the option of the Company and as more
specifically provided in the Warrant Agreement, at $.10 per share of Common
Stock purchasable upon exercise hereof, at any time after the average Daily
Market Price (as defined in Section 11 of the Warrant Agreement) per share of
the Common Stock for a period of at least 10 consecutive trading days ending not
more than fifteen days prior to the date of the notice given pursuant to Section
11(b) thereof has equaled or exceeded $28.50, and prior to expiration of this
Warrant. The Holder's right to exercise this Warrant terminates at 5:00 p.m.
(New York City time) on the date fixed for redemption in the notice of
redemption delivered by the Company in accordance with the Warrant Agreement.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant certificate with the Purchase Form attached hereto
duly executed and guaranteed and simultaneous payment of the Warrant Price (as
defined in the Warrant Agreement and subject to adjustment as provided therein)
at the principal office in Los Angeles, California, of Harris Trust Company of
California (the "Warrant Agent"). Payment of such price may be made at the
option of the Holder in cash or by certified check or bank draft, all as
provided in the Warrant Agreement.
The Warrants evidenced hereby are part of a duly authorized issue of
Warrants and are issued under and in accordance with the Warrant Agreement dated
as of _________ ___, 1998, between the Company and the Warrant Agent, and are
subject to the terms and provisions contained in such Warrant Agreement, which
Warrant Agreement is hereby incorporated by
19
<PAGE> 76
reference herein and made a part hereof and is hereby referred to for a
description of the rights, limitations, duties and indemnities thereunder of the
Company and the Holder of the Warrants, and to all of which the Holder of this
Warrant certificate by acceptance hereof consents. A copy of the Warrant
Agreement may be obtained for inspection by the Holder hereof upon written
request to the Warrant Agent.
Upon any partial exercise of the Warrants evidenced hereby, there will
be issued to the Holder a new Warrant certificate in respect of the Shares
evidenced hereby that have not been exercised. This Warrant certificate may be
exchanged at the office of the Warrant Agent by surrender of this Warrant
certificate properly endorsed either separately or in combination with one or
more other Warrants for one or more new Warrants to purchase the same aggregate
number of Shares as evidenced by the Warrant or Warrants exchanged. No
fractional Shares will be issued upon the exercise of rights to purchase
hereunder, but the Company will pay the cash value of any fraction upon the
exercise of one or more Warrants, as provided in the Warrant Agreement.
The Warrant Price and the number of shares of Common Stock issuable
upon exercise of this Warrant is subject to adjustment as provided in Section 9
of the Warrant Agreement. The Warrant Agreement may be amended by the holder or
holders of a majority of the outstanding Warrants representing a majority of the
shares of Common Stock underlying such Warrants; provided that without the
consent of each holder of a Warrant certain specified changes cannot be made to
such holder's Warrants and no amendment may affect the rights and duties of the
Warrant Agent without the consent of the Warrant Agent. Pursuant to the Warrant
Agreement, by acceptance of a Warrant, each holder consents to the jurisdiction
of a court of competent jurisdiction in the State of Arizona for the purpose of
resolving any disputes arising with respect to the Warrants or the Warrant
Agreement.
The Holder hereof may be treated by the Company, the Warrant Agent and
all other persons dealing with this Warrant certificate as the absolute owner
hereof for all purposes and as the person entitled to exercise the rights
represented hereby, any notice to the contrary notwithstanding, and until any
transfer is entered on such books, the Company may treat the Holder hereof as
the owner for all purposes. Notices and demands to be given to the Company or
the Warrant Agent must be given by certified or registered mail at the addresses
provided in the Warrant Agreement.
All terms used in the Warrant Certificate that are defined in the
Warrant Agreement shall have the respective meanings ascribed to such terms in
the Warrant Agreement.
Dated: UGLY DUCKLING CORPORATION
-------------------------
By:
-------------------------
President
20
<PAGE> 77
ATTEST:
- --------------------------
Secretary
This is one of the Warrants referred to in
the within mentioned Warrant Agreement.
HARRIS TRUST COMPANY
OF CALIFORNIA
By:
------------------------------------------
Authorized Representative
21
<PAGE> 78
UGLY DUCKLING CORPORATION
PURCHASE FORM
Mailing Address:
UGLY DUCKLING CORPORATION
2525 East Camelback Road
Suite 1150
Phoenix, Arizona 85016
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant certificate for, and to purchase
thereunder, _____________Shares of Common Stock provided for therein, and
requests that certificates for such Shares be issued in the name of:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print or Type Name, Address and Social Security Number)
and that such certificates be delivered to ____________________________________
whose address is _______________________________________________________________
and, if said number of Shares shall not be all the Shares purchasable hereunder,
that a new Warrant certificate for the balance of the Shares purchasable under
the within Warrant certificate be registered in the name of the undersigned
Holder or his or her Assignee as below indicated and delivered to the address
stated below.
Dated:
---------------------------
Name of Holder or Assignee:
- --------------------------------------------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature:
- ----------------------------
Note: The above signature must correspond with the name as it appears upon the
face of the within Warrant certificate in every particular, without alteration
or enlargement or any change whatever, unless these Warrants have been assigned.
Signature Guaranteed:
- ----------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (Banks, Stock Brokers, Savings and Loan Association, and Credit
Unions)
22
<PAGE> 79
WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM PURSUANT TO S.E.C. RULE 17Ad-15.
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
______________________________________________________________________________
(Name and Address of Assignee Must Be Printed or Typewritten)
_______________________________________________________________________________
the within Warrants, hereby irrevocably constituting and appointing ____________
___________ Attorney to transfer said Warrants on the books of the Company, with
full power of substitution in the premises.
Dated:
-----------------------------
-----------------------------------
Signature of Registered Holder
Note: The signature on this assignment
must correspond with the name as it
appears upon the face of the within
Warrant certificate in every
particular, without alteration or
enlargement or any change whatever.
Signature Guaranteed:
- ----------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(Banks, Stock Brokers, Savings and Loan Association, and Credit Unions) WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO
S.E.C. RULE 17Ad-15.
23
<PAGE> 80
Exhibit E
Securitization Related Documents
All documents executed or delivered in connection with the
securitization transactions involving First Merchants Acceptance Corporation
("FMAC"), or any of its subsidiaries or affiliates, including, without
limitation, all agreements, amendments, supplements, instruments, insurance
policies, letters, legal opinions, certificates, correspondence and writings of
any kind or nature, whether executed or delivered prior to, concurrently with,
or at any time after, the closing of the related securitization transaction,
including, but not limited to, the following documents.
<TABLE>
<S> <C>
I. 1995-A Securitization
(Unless otherwise indicated, all documents are dated November
17, 1995.)
A. Sale and Servicing Agreement, dated as of November 17, 1995, among
FMAC, First Merchants Auto Receivables Corporation ("FMARC")
and Harris Trust and Savings Bank ("Harris"), acknowledged and
accepted by Harris and Financial Security Assurance Inc. ("FSA");
B. Insurance and Indemnity Agreement, dated as of November 1, 1995,
among FSA, FMAC and FMARC;
C. Financial Guaranty Insurance Policy (together with Endorsement No. 1
thereto) issued by FSA;
D. Indemnification Agreement, dated as of November 1, 1995, among
FSA, FMARC and Salomon Brothers Inc ("Salomon");
E. Premium Letter issued by FSA, agreed to and accepted by FMAC and
FMARC;
F. Collateral Agreement, dated as of November 17, 1995, among FSA,
FMARC and Harris;
G. Opinion of Bruce E. Stern, General Counsel of FSA;
H. Purchase Agreement, dated November 10, 1995, among FMAC,
FMARC, and Harris;
I. Indenture, dated as of November 17, 1995 between FMARC and
Harris;
J. Letter of The Prudential Insurance Company of America and PRUCO
Life Insurance Company addressed to Harris;
</TABLE>
E-1
<PAGE> 81
<TABLE>
<S> <C>
K. DTC Letter of Representations, dated November 16, 1995;
L. Opinion of Seward & Kissell, Counsel of Harris;
M. Opinion of Carolynne A. Paulsen, In-house Counsel of Harris;
N. Trustee's Certificate re: authority, incumbency and due execution;
O. Trustee's Acknowledgement of Deposits to the Spread Account and the
Collection Account;
P. Officer's Certificate of Harris Regarding Liens;
Q. Good Standing Certificate of Harris from the Illinois State Banking
Department, dated November 14, 1995;
R. Certificate of Harris re: establishment of Local Collection Accounts,
Collection Account and Spread Accounts; and
S. Receipt of Harris for Policy.
II. 1996-1 Securitization
(Unless otherwise indicated, all documents are dated as of
March 1, 1996.)
A. Pooling and Servicing Agreement among FMAC, First Merchants Auto
Receivables Corporation II ("FMARC II") and Harris;
B. Master Spread Account Agreement among FSA, FMARC II and
Harris;
C. Series 1996-1 Supplement to Master Spread Account Agreement among
FSA, FMARC II and Harris;
D. Insurance and Indemnity Agreement among FSA, FMAC and FMARC
II;
E. Financial Guaranty Insurance Policy, dated March 12, 1996 (together
with Endorsement No. 1 thereto), issued by FSA;
F. Indemnification Agreement among FSA, FMARC II and Salomon;
G. Premium Letter, dated March 12, 1996, issued by FSA, agreed to and
accepted by FMAC and FMARC II;
</TABLE>
E-2
<PAGE> 82
<TABLE>
<S> <C>
H. Local Collection Accounts Letter issued by Harris, agreed to and
acknowledged by FSA, Harris, FMAC, FMARC and FMARC II;
I. Stock Pledge Agreement among FSA, FMAC and Harris;
J. Side Letter, dated March 12, 1996, issued by FSA to FMAC and
Harris;
K. Opinion of Steven D. Thomas, Associate General Counsel of FSA,
dated March 12, 1996;
L. DTC Letter of Representations, dated March 12, 1996;
M. Trustee's Receipt for the Certificates, dated March 12, 1996;
N. Opinion of Seward & Kissell, Counsel of Harris, dated March 12,
1996;
O. Opinion of Carolynne A. Paulsen, In-house Counsel of Harris, dated
March 12, 1996;
P. Trustee's Certificate re: authority, incumbency and due execution,
dated March 12, 1996;
Q. Trustee's Acknowledgement of Deposit to the Collection Account,
dated March 12, 1996;
R. Officer's Certificate of Harris Regarding Liens, dated March 12, 1996;
S. Good Standing Certificate of Harris from the Illinois State Banking
Department, dated February 14, 1996;
T. Certificate of Harris re: establishment of Local Collection Accounts and
Collection Account, dated March 12, 1996;
U. Letter re: funds held in the Local Collection Accounts, issued by
Harris;
V. Collateral Agreement among FMARC, FSA and Harris, dated as of
November 17, 1995;
W. Trustee Indemnification Agreement between FMAC and Harris, dated
March 12, 1996;
</TABLE>
E-3
<PAGE> 83
<TABLE>
<S> <C> <C>
X. Letter of The Prudential Insurance Company of America and PRUCO
Life Insurance Company addressed to FMAC and Harris, dated March
12, 1996; and
Y. Trustee's Receipt for Policy, dated March 12, 1996.
III. 1996-2 Securitization
---------------------
(Unless otherwise indicated, all documents are dated as of
June 1, 1996.)
A. Pooling and Servicing Agreement among FMAC, FMARC II and
Harris;
B. Series 1996-2 Supplement to Master Spread Account Agreement among
FSA, FMARC II and Harris;
C. Insurance and Indemnity Agreement among FSA, FMAC and FMARC
II;
D. Financial Guaranty Insurance Policy, dated June 26, 1996 (together
with Endorsement No. 1 thereto), issued by FSA;
E. Indemnification Agreement among FSA, FMARC II and Salomon;
F. Premium Letter, dated June 26, 1996, issued by FSA, agreed to and
accepted by FMAC and FMARC II;
G. Local Collection Account Processing Agreement among FSA, Harris,
FMAC, FMARC, FMARC II and First Merchants Auto Trust 1996-A
("FMAT 1996-A");
H. Side Letter, dated June 26, 1996, issued by FSA to FMAC and Harris;
I. Opinion of Bruce E. Stern, General Counsel of FSA, dated June 26,
1996;
J. DTC Letter of Representations, dated June 26, 1996;
K. Trustee's Receipt for the Certificates, dated June 26, 1996;
L. Opinion of Seward & Kissell, Counsel of Harris, dated June 26, 1996;
M. Opinion of Carolynne A. Paulsen, In-house Counsel of Harris, dated
June 26, 1996;
</TABLE>
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<PAGE> 84
<TABLE>
<S> <C> <C>
N. Trustee's Certificate re: authority, incumbency and due execution;
O. Trustee's Acknowledgement of Deposit to the Collection Account,
dated June 26, 1996;
P. Officer's Certificate of Harris Regarding Liens, dated June 26, 1996;
Q. Good Standing Certificate of Harris from the Illinois State Banking
Department, dated June 21, 1996;
R. Certificate of Harris re: establishment of Local Collection Accounts and
Collection Account, dated June 26, 1996; and
S. Trustee's Receipt for Policy, dated June 26, 1996.
IV. 1996-A Securitization
---------------------
(Unless otherwise indicated, all documents are dated as of May
1, 1996.)
A. Sale and Servicing Agreement among FMAC, FMARC II, FMAT
1996-A and Harris;
B. Amendment to Master Spread Account Agreement among FSA,
FMARC II and Harris;
C. Series 1996-A Supplement to Master Spread Account Agreement among
FSA, FMARC II and Harris;
D. Insurance and Indemnity Agreement among FSA, FMAC, FMARC II
and FMAT 1996-A;
E. Financial Guaranty Insurance Policy, dated May 21, 1996 (together
with Endorsement No. 1 thereto), issued by FSA;
F. Indemnification Agreement among FSA, FMAT 1996-A and Salomon;
G. Premium Letter, dated May 21, 1996, issued by FSA, agreed to and
accepted by FMAC, FMARC II and FMAT 1996-A;
H. Local Collection Account Processing Agreement, dated May 21, 1996,
among FSA, Harris, FMAC, FMARC, FMARC II and FMAT 1996-A;
I. Side Letter, dated May 21, 1996, issued by FSA to FMAC and Harris;
</TABLE>
E-5
<PAGE> 85
<TABLE>
<S> <C>
J. Opinion of Bruce E. Stern, General Counsel of FSA, dated May 21,
1996;
K. Trust Agreement between FMARC II and Chemical Bank Delaware
("Chemical"), dated April 29, 1996;
L. Amended and Restated Trust Agreement between FMARC II and
Chemical, dated as of May 1, 1996;
M. Indenture between the Trust and Harris, dated as of May 1, 1996;
N. Administration Agreement among the Trust, FMAC, and Harris, dated
as of May 1, 1996;
O. DTC Letter of Representations, dated May 20, 1996;
P. Indenture Trustee's Receipt for the Notes, dated May 21, 1996;
Q. Opinion of Pryor, Cashman, Sherman & Flynn, Special Counsel to
Chemical, dated May 21, 1996;
R. Opinion of Seward & Kissell, Counsel of Harris, dated May 21, 1996;
S. Opinion of Carolynne A. Paulsen, In-house Counsel of Harris, dated
May 21, 1996;
T. Opinion of David J. Clark, Counsel of Chemical, dated May 21, 1996;
U. Indenture Trustee's Certificate re: authority, incumbency and due
execution, dated May 20, 1996;
V. Officer's Certificate of Harris Regarding Liens, dated May 21, 1996;
W. Good Standing Certificate of Harris from the Illinois State Banking
Department, dated May 17, 1996;
X. Owner Trustee's Certificate re: authority, incumbency and due
execution, dated May 21, 1996;
Y. Officer's Certificate of Chemical Regarding Liens, dated May 21,
1996;
Z. Owner Trustee's List of Authorized Officers, dated May 21, 1996;
</TABLE>
E-6
<PAGE> 86
<TABLE>
<S> <C>
AA. Good Standing Certificate of Chemical from the Delaware State
Banking Department, dated May 16, 1996;
AB. Indenture Trustee's Certificate re: establishment of Local Collection
Accounts, Collection Account and Note Distribution Account, dated
May 21, 1996;
AC. Indenture Trustee's Acknowledgment of Deposit to the Collection
Account, dated May 21, 1996;
AD. Indenture Trustee's Receipt for Policy;
AE. Owner Trustee's Certificate re: establishment of Certificate Distribution
Account, dated May 21, 1996;
AF. Sales Finance Company License of the Trust from the Commonwealth
of Pennsylvania Department of Banking, dated May 8, 1996;
AG. Sales Finance Company License of the Owner Trustee from the
Commonwealth of Pennsylvania Department of Banking, dated May 8,
1996; and
AH. Sales Finance Company License of the Owner Trustee from the
Commonwealth of Pennsylvania Department of Banking, dated May 8,
1996.
V. 1996-B Securitization
---------------------
(Unless otherwise indicated, all documents are dated as of
September 1, 1996.)
A. Sale and Servicing Agreement among FMAC, FMARC II, First
Merchants Auto Trust 1996-B ("FMAT 1996-B") and Harris;
B. Series 1996-B Supplement to Master Spread Account Agreement among
FSA, FMARC II, Chase Manhattan Bank Delaware ("Chase") and
Harris;
C. Insurance and Indemnity Agreement among FSA, FMAC, FMARC II
and FMAT 1996-B;
D. Financial Guaranty Insurance Policy (Notes), dated September 26, 1996
(together with Endorsement No. 1 thereto), issued by FSA;
E. Financial Guaranty Insurance Policy (Certificates), dated September 26,
1996 (together with Endorsement No. 1 thereto), issued by FSA;
</TABLE>
E-7
<PAGE> 87
<TABLE>
<S> <C>
F. Indemnification Agreement among FSA, FMAT 1996-B and Salomon;
G. Premium Letter, dated September 26, 1996, issued by FSA, agreed to
and accepted by FMAC, FMARC II and FMAT 1996-B;
H. Local Collection Account Processing Agreement among FSA, Harris,
FMAC, FMARC, FMARC II, FMAT 1996-A and FMAT 1996-B;
I. Side Letter, dated September 26, 1996, issued by FSA to FMAC and
Harris;
J. Opinion of Steven D. Thomas, Associate General Counsel of FSA,
dated September 26, 1996;
K. Trust Agreement between FMARC II and Chase Manhattan Bank
Delaware ("Chase"), dated September 9, 1996;
L. Amended and Restated Trust Agreement between FMARC II and
Chase, dated as of September 1, 1996;
M. Indenture between the Trust and Harris, dated as of September 1, 1996;
N. Administration Agreement among the Trust, FMAC, and Harris, dated
as of September 1, 1996;
O. DTC Letter of Representations for Notes, dated September 26, 1996;
P. DTC Letter of Representations for Certificates, dated September 26,
1996;
Q. Indenture Trustee's Receipt for the Notes, dated September 26, 1996;
R. Opinion of Pryor, Cashman, Sherman & Flynn, Special Counsel to
Chase, dated September 26, 1996;
S. Opinion of Seward & Kissell, Counsel of Harris, dated September 26,
1996;
T. Opinion of Carolynne A. Paulsen, In-house counsel of Harris, dated
September 26, 1996;
U. Opinion of David J. Clark, Counsel of Chase, dated September 26,
1996;
</TABLE>
E-8
<PAGE> 88
<TABLE>
<S> <C> <C>
V. Indenture Trustee's Certificate re: authority, incumbency and due
execution, dated September 26, 1996;
W. Officer's Certificate of Harris Regarding Liens, dated September 26,
1996;
X. Good Standing Certificate of Harris from the Illinois State Banking
Department, dated October 4, 1996;
Y. Owner Trustee's Certificate re: authority, incumbency and due
execution, dated September 26, 1996;
Z. Officer's Certificate of Chase Regarding Liens, dated September 26,
1996;
AA. Owner Trustee's List of Authorized Officers, dated September 26,
1996;
AB. Indenture Trustee's Certificate re: establishment of Local Collection
Accounts, Collection Account and Note Distribution Account, dated
September 26, 1996;
AC. Indenture Trustee's Acknowledgment of Deposit to the Collection
Account, dated September 26, 1996;
AD. Indenture Trustee's Receipt for Policy, dated September 26, 1996;
AE. Owner Trustee's Certificate re: establishment of Certificate Distribution
Account;
AF. Sales Finance Company License of the Trust from the Commonwealth
of Pennsylvania Department of Banking;
AG. Sales Finance Company License of the Owner Trustee from the
Commonwealth of Pennsylvania Department of Banking; and
AH. Sales Finance Company License of the Owner Trustee from the
Commonwealth of Pennsylvania Department of Banking.
VI. 1996-C Securitization
(Unless otherwise indicated, all documents are dated as of
December 1, 1996.)
</TABLE>
E-9
<PAGE> 89
<TABLE>
<S> <C>
A. Sale and Servicing Agreement among FMAC, FMARC II, First
Merchants Auto Trust 1996-C ("FMAT 1996-C") and Harris;
B. Series 1996-C Supplement to Master Spread Account Agreement among
FSA, FMARC II, Chase and Harris;
C. Insurance and Indemnity Agreement among FSA, FMAC, FMARC II
and FMAT 1996-C;
D. Financial Guaranty Insurance Policy (Notes), dated December 18, 1996
(together with Endorsement No. 1 thereto), issued by FSA;
E. Financial Guaranty Insurance Policy (Certificates), dated December 18,
1996 (together with Endorsement No. 1 thereto), issued by FSA;
F. Indemnification Agreement among FSA, FMAT 1996-C, Bear, Stearns
& Co. Inc. ("Bear, Stearns") and Salomon;
G. Premium Letter, dated December 18, 1996, issued by FSA, agreed to
and accepted by FMAC, FMARC II and FMAT 1996-C;
H. Local Collection Account Processing Agreement among FSA, Harris,
FMAC, FMARC, FMARC II, FMAT 1996-A, FMAT 1996-B and
FMAT 1996-C;
I. Side Letter, dated December 18, 1996, issued by FSA to FMAC and
Harris;
J. Opinion of Steven D. Thomas, Associate General Counsel of FSA,
dated December 18, 1996;
K. Trust Agreement between FMARC II and Chase Manhattan Bank
Delaware ("Chase"), dated as of December 5, 1996;
L. Amended and Restated Trust Agreement between FMARC II and
Chase;
M. Indenture between the Trust and Harris, dated as of December 1, 1996;
N. Administration Agreement among the Trust, FMAC, and Harris, dated
as of December 1, 1996;
O. DTC Letter of Representations for Notes, dated December 18, 1996;
</TABLE>
E-10
<PAGE> 90
<TABLE>
<S> <C>
P. DTC Letter of Representations for Certificates, dated December 18,
1996;
Q. Indenture Trustee's Receipt for the Notes, dated December 18, 1996;
R. Opinion of Pryor, Cashman, Sherman & Flynn, Special Counsel to
Chase, dated December 18, 1996;
S. Opinion of Seward & Kissell, Counsel of Harris, dated December 18,
1996;
T. Opinion of Carolynne A. Paulsen, In-house counsel of Harris, dated
December 18, 1996;
U. Opinion of David J. Clark, Counsel of Chase, dated December 18,
1996;
V. Indenture Trustee's Certificate re: authority, incumbency and due
execution, dated December 18, 1996;
W. Officer's Certificate of Harris Regarding Liens, dated December 18,
1996;
X. Good Standing Certificate of Harris from the Illinois State Banking
Department, dated December 10, 1996;
Y. Owner Trustee's Certificate re: authority, incumbency and due
execution, dated December 18, 1996;
Z. Officer's Certificate of Chase Regarding Liens, dated December 18,
1996;
AA. Owner Trustee's List of Authorized Officers, dated December 18,
1996;
AB. Good Standing Certificate of Owner Trustee from the Delaware State
Banking Department, dated December 12, 1996;
AC. Indenture Trustee's Certificate re: establishment of Local Collection
Accounts, Collection Account and Note Distribution Account, dated
December 18, 1996;
AD. Indenture Trustee's Acknowledgment of Deposit to the Collection
Account, dated December 18, 1996;
</TABLE>
E-11
<PAGE> 91
<TABLE>
<S> <C> <C>
AE. Indenture Trustee's Receipt for Notes Policy, dated December 18,
1996;
AF. Owner Trustee's Receipt for Certificates Policy, dated December 18,
1996;
AG. Owner Trustee's Certificate re: establishment of Certificate Distribution
Account, dated December 18, 1996;
AH. Sales Finance Company License of the Trust from the Commonwealth
of Pennsylvania Department of Banking, dated December 16, 1996;
AI. Sales Finance Company License of the Owner Trustee from the
Commonwealth of Pennsylvania Department of Banking;
AJ. Sales Finance Company License of the Owner Trustee from the
Commonwealth of Pennsylvania Department of Banking; and
AK. Subsequent Transfer Agreement among FMARC II, FMAC, First
Merchants Auto Trust 1996-C and Harris, dated December 26, 1996.
VII. 1997-1 Securitization
(Unless otherwise indicated, all documents are dated as of
March 1, 1997.)
A. Sale and Servicing Agreement among FMAC, FMARC II, First
Merchants Auto Trust 1997-1 ("FMAT 1997-1") and Harris;
B. Amendment to Master Spread Account Agreement among FSA,
FMARC II and Harris;
C. Series 1997-1 Supplement to Master Spread Account Agreement among
FSA, FMARC II, Chase and Harris;
D. Insurance and Indemnity Agreement among FSA, FMAC, FMARC II
and FMAT 1997-1;
E. Financial Guaranty Insurance Policy, dated March 31, 1997 (together
with Endorsement No. 1 thereto), issued by FSA;
F. Indemnification Agreement among FSA, FMAT 1997-1, Bear, Stearns
and Salomon;
</TABLE>
E-12
<PAGE> 92
<TABLE>
<S> <C>
G. Premium Letter, dated March 31, 1997, issued by FSA, agreed to and
accepted by FMAC, FMARC II and FMAT 1997-1;
H. Local Collection Account Processing Agreement among FSA, Harris,
FMAC, FMARC, FMARC II, FMAT 1996-A, FMAT 1996-B, FMAT
1996-C and FMAT 1997-1;
I. Side Letter, dated March 31, 1997, issued by FSA to FMAC and
Harris;
J. Opinion of Bruce E. Stern, General Counsel of FSA, dated March 31,
1997;
K. Trust Agreement between FMARC II and Chase Manhattan Bank
Delaware ("Chase"), dated as of March 10, 1997;
L. Amended and Restated Trust Agreement between FMARC II and
Chase;
M. Indenture between the Trust and Harris;
N. Administration Agreement among the Trust, FMAC, and Harris;
O. DTC Letter of Representations for Notes, dated March 27, 1997;
P. Indenture Trustee's Receipt for the Notes, dated March 31, 1997;
Q. Opinion of Pryor, Cashman, Sherman & Flynn, Special Counsel to
Chase, dated March 31, 1997;
R. Opinion of Seward & Kissell, Counsel of Harris, dated March 31,
1997;
S. Opinion of Carolynne A. Paulsen, In-house counsel of Harris, dated
March 31, 1997;
T. Opinion of David J. Clark, Counsel of Chase, dated March 31, 1997;
U. Indenture Trustee's Certificate re: authority, incumbency and due
execution, dated March 31, 1997;
V. Officer's Certificate of Harris Regarding Liens, dated March 31, 1997;
W. Good Standing Certificate of Harris from the Illinois State Banking
Department, dated March 25, 1997;
</TABLE>
E-13
<PAGE> 93
<TABLE>
<S> <C> <C>
X. Owner Trustee's Certificate re: authority, incumbency and due
execution, dated March 31, 1997;
Y. Officer's Certificate of Chase Regarding Liens, dated March 31, 1997;
Z. Owner Trustee's List of Authorized Officers, dated March 31, 1997;
AA. Good Standing Certificate of Owner Trustee from the Delaware State
Banking Department, dated March 25, 1997;
AB. Indenture Trustee's Certificate re: establishment of Local Collection
Accounts, Collection Account and Note Distribution Account, dated
March 31, 1997;
AC. Indenture Trustee's Acknowledgment of Deposit to the Collection
Account, dated March 31, 1997;
AD. Indenture Trustee's Receipt for Notes Policy, dated March 31, 1997;
AE. Owner Trustee's Certificate re: establishment of Certificate Distribution
Account, dated March 31, 1997;
AF. Sales Finance Company License of the Owner Trustee from the
Commonwealth of Pennsylvania Department of Banking; and
AG. Sales Finance Company License of the Indenture Trustee from the
Commonwealth of Pennsylvania Department of Banking.
VIII. 1997-2 Securitization
---------------------
(Unless otherwise indicated, all documents are dated as of
June 1, 1997.)
A. Sale and Servicing Agreement among FMAC, FMARC II, First
Merchants Auto Trust 1997-2 ("FMAT 1997-2"), LSI Financial Group
("LSI") and Harris;
B. Series 1997-2 Supplement to Master Spread Account Agreement among
FSA, FMARC II and Harris;
C. Insurance and Indemnity Agreement among FSA, FMAC, FMARC II
and FMAT 1997-2;
D. Financial Guaranty Insurance Policy, dated June 20, 1997 (together
with Endorsement No. 1 thereto), issued by FSA;
</TABLE>
E-14
<PAGE> 94
<TABLE>
<S> <C>
E. Indemnification Agreement among FSA, FMAT 1997-2 and Greenwich
Capital Markets, Inc.;
F. Premium Letter, dated June 20, 1997, issued by FSA, agreed to and
accepted by FMAC, FMARC II and FMAT 1997-2;
G. Local Collection Account Processing Agreement among FSA, Harris,
FMAC, FMARC, FMARC II, FMAT 1996-A, FMAT 1996-B, FMAT
1996-C, FMAT 1997-1 and FMAT 1997-2;
H. Side Letter, dated June 20, 1997, issued by FSA to LSI and Harris;
I. Supplement No. 1 to Stock Pledge Agreement among FSA, FMAC and
Harris (delivered on June 20, 1997);
J. Supplement No. 2 to Stock Pledge Agreement among FSA, FMAC and
Harris, consented and agreed to by Greenwich Capital Financial
Products, Inc. (delivered on June 20, 1997);
K. Retail Lockbox Mail Service Agreement between FMAC and LaSalle
National Bank ("LaSalle") (together with all related correspondence,
including, without limitation, related correspondence between LaSalle
and Thacher Proffitt & Wood);
L. Opinion of Brian H. Mellstrom, Assistant General Counsel of FSA,
dated June 20, 1997;
M. Trust Agreement between FMARC II and Chase Manhattan Bank
Delaware ("Chase"), dated as of March 10, 1997;
N. Amended and Restated Trust Agreement between FMARC II and
Chase, dated as of May 20, 1997;
O. Indenture between the Trust and Harris;
P. Administration Agreement among the Trust, FMAC, and Harris;
Q. DTC Letter of Representations for Notes, dated June 18, 1997;
R. Indenture Trustee's Receipt for the Notes, dated June 18, 1997;
S. Opinion of Pryor, Cashman, Sherman & Flynn, Special Counsel to
Chase, dated June 20, 1997;
T. Opinion of Seward & Kissell, Counsel of Harris, dated June 20, 1997;
</TABLE>
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<PAGE> 95
<TABLE>
<S> <C>
U. Opinion of Carolynne A. Paulsen, In-house counsel of Harris, dated
June 20, 1997;
V. Opinion of David J. Clark, Counsel of Chase, dated June 20, 1997;
W. Indenture Trustee's Certificate re: authority, incumbency and due
execution, dated June 20, 1997;
X. Officer's Certificate of Harris Regarding Liens, dated June 20, 1997;
Y. Good Standing Certificate of Harris from the Illinois State Banking
Department, dated June 6, 1997;
Z. Owner Trustee's Certificate re: authority, incumbency and due
execution, dated June 20, 1997;
AA. Officer's Certificate of Chase Regarding Liens, dated June 20, 1997;
AB. Owner Trustee's List of Authorized Officers, dated June 20, 1997;
AC. Good Standing Certificate of Owner Trustee from the Delaware State
Banking Department, dated March 25, 1997;
AD. Indenture Trustee's Certificate re: establishment of Local Collection
Accounts, Collection Account and Note Distribution Account, dated
June 20, 1997;
AE. Indenture Trustee's Acknowledgment of Deposit to the Collection
Account, dated June 20, 1997;
AF. Indenture Trustee's Receipt for Notes Policy, dated June 20, 1997;
AG. Owner Trustee's Certificate re: establishment of Certificate Distribution
Account, dated June 20, 1997;
AH. Sales Finance Company License of the Owner Trustee from the
Commonwealth of Pennsylvania Department of Banking; and
AI. Sales Finance Company License of the Indenture Trustee from the
Commonwealth of Pennsylvania Department of Banking.
</TABLE>
E-16
<PAGE> 96
EXHIBIT F
INDENTURE
THIS EXHIBIT HAS BEEN INTENTIONALLY
OMITTED. SEE EXHIBIT 4.1.
<PAGE> 1
EXHIBIT T3E.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, )
)
FIRST MERCHANTS RESIDENTIAL ) Case No. 97-1892 (JJF)
CREDIT CORPORATION, )
)
Debtors. ) Jointly Administered
NOTICE OF ORDER (I) APPROVING JOINT DISCLOSURE
STATEMENT OF DEBTORS IN CONNECTION WITH
SOLICITATION OF BALLOTS WITH RESPECT TO
JOINT PLAN UNDER CHAPTER 11 OF THE UNITED STATES
BANKRUPTCY CODE (II) FIXING THE TIME FOR FILING OF
ACCEPTANCES OR REJECTIONS OF PLAN AND OBJECTIONS
TO CONFIRMATION OF THE PLAN AND
(III) SCHEDULING A HEARING ON CONFIRMATION OF PLAN
TO: CREDITORS, INTEREST HOLDERS
AND OTHER PARTIES IN INTEREST
PLEASE TAKE NOTICE that the Honorable Joseph J. Farnan, Jr., United States
District Judge for the District of Delaware, has approved the adequacy of the
information in the disclosure statement at a hearing held on January 21, 1998
as embodied in an order (the "Order") in the above-referenced bankruptcy cases
approving the Joint Disclosure Statement of Debtors in Connection with
Solicitation of Ballots With Respect to Joint Plan Under Chapter 11 of the
United States Bankruptcy Code (the "Disclosure Statement").
<PAGE> 2
PLEASE TAKE FURTHER NOTICE that, pursuant to the Order and Rule 3017(c) of
the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), a hearing
to consider confirmation of the Joint Plan Under Chapter 11 of the United
States Bankruptcy Code (the "Plan"), will be held on March 3, 1998 at 4:30 p.m.
Eastern Time (standby), or as soon thereafter as counsel can be heard, before
the Honorable Joseph J. Farnan, Jr., United States District Judge, at the
United States District Court (the "District Court"), J. Caleb Boggs Federal
Building, 844 King Street, Wilmington, Delaware 19801 (the "Confirmation
Hearing"). The Confirmation Hearing may be adjourned from time to time without
further notice other than the announcement at the Confirmation Hearing of the
date or dates of any adjourned hearing. In addition, the Plan may be modified,
without further notice, prior to, at or as a result of the Confirmation
Hearing.
PLEASE TAKE FURTHER NOTICE that, pursuant to Bankruptcy Rule 3020(b),
February 27, 1998, at 4 p.m. Eastern Time is fixed as the last day for filing
and serving written objections, comments or responses to confirmation of the
Plan (including any supporting memoranda). Any objections to confirmation of
the Plan must be in writing and must (a) specify a caption setting forth the
name of the Court, the name of the debtor, the case number and the title of the
Objection to which the response is directed, (b) state the name and address of
the objector and the amount of its claim or the nature of its interest in the
above-captioned Debtors' chapter 11 cases, (c) specify the basis and nature of
the objection and (d) be filed with the Clerk of the United States Bankruptcy
Court for the District of Delaware, 5th
2
<PAGE> 3
Floor, Marine Midland Plaza, 824 Market Street, Wilmington, Delaware 19801
together with proof of service, and served on: (i) counsel to the Debtors,
Laura Davis Jones, Esquire, Young Conaway Stargatt & Taylor, LLP, 11th Floor -
Rodney Square North, Wilmington, Delaware 19801; (ii) special counsel to the
Debtors, Robert E. Richards, Esquire, Sonnenschein Nath & Rosenthal, 8000 Sears
Tower, Chicago, Illinois 60606; (iii) Co-counsel to the Official Committee of
Unsecured Creditors, Stephen M. Mertz, Esquire Faegre & Benson LLP, 2200
Norwest Center, 90 South Seventh Street, Minneapolis, Minnesota 55402; (iv)
Co-counsel to the Official Committee of Unsecured Creditors, David B. Stratton,
Esquire, Pepper, Hamilton & Scheetz, 1201 Market Street, Suite 1401, P.O. Box
1709, Wilmington, Delaware 19801; (v) Co-counsel to the Ugly Duckling
Corporation, Christopher Bayley, Esquire, Snell & Wilmer, L.P.P., One Arizona
Center, Phoenix, Arizona 85004-0001; and (vi) Co-counsel to the Ugly Duckling
Corporation, William P. Bowden, Esquire, Ashby & Geddes, One Rodney Square,
Wilmington, Delaware 19801 on or before 4:00 p.m., Eastern Time, on February
27, 1998. Any objections not filed and served as set forth above shall be
deemed waived and shall not be considered by the Court.
PLEASE TAKE FURTHER NOTICE that the deadline for the receipt of ballots
accepting or rejecting the Plan shall be 4:00 p.m., Eastern Time, on February
27, 1998 (the "Voting Deadline"). For a ballot to be counted, it must be
actually received prior to the Voting Deadline by the balloting agent: Logan
and
3
<PAGE> 4
Company, Inc., 615 Washington Street, Second Floor, Hoboken, New Jersey 07030.
PLEASE TAKE FURTHER NOTICE that, for the purposes of voting, the amount of a
claim used to tabulate acceptance or rejection of the Plan shall be either (a)
the claim amount listed in the Debtors' schedules of liabilities, provided that
(i) such claim is not scheduled as contingent, unliquidated or disputed and
(ii) no proof of claim has been timely filed; (b) the liquidated amount
specified in a proof of claim timely filed with the Court to the extent the
proof of claim is not the subject of an objection filed by the Debtors on or
before February 6, 1998 (or in case of objections resolved pursuant to a
stipulation or order entered by the Bankruptcy Court before the Voting
Deadline, the amount set forth in such stipulation or order); or (c) the amount
temporarily allowed by the Court for voting purposes, pursuant to Bankruptcy
Rule 3018(a), after notice and a hearing prior to the Voting Deadline. If a
creditor casts a ballot, the creditor has filed a proof of claim and the
entirety of the creditor's claim is the subject of an objection filed by the
Debtors on or before February 6, 1998, the creditor's ballot shall not be
counted, as provided by Bankruptcy Rule 3018, unless temporarily allowed by the
Court for voting purposes in accordance with Bankruptcy Rule 3018 after a
motion is filed, notice is provided and a hearing is held prior to the
Confirmation Hearing. Ballots cast by creditors whose claims are not listed on
Debtors' schedules of liabilities, but who timely file proofs of claim in
unliquidated or unknown amounts that are not the subject of an objection filed
before the commencement of the Confirmation Hearing, will have their
4
<PAGE> 5
ballots counted towards satisfying the numerosity requirement of section
1126(c) of the Bankruptcy Code, but will not have their ballots counted
towards satisfying the aggregate amount provisions of that section. The
ballot instructions describe additional procedures and voting assumptions.
YOUNG CONAWAY STARGATT & TAYLOR, LLP
/s/ Laura Davis Jones
---------------------------------------------
Laura Davis Jones (No. 2436)
Robert S. Brady (No. 2847)
Edwin J. Harron (No. 3396)
11th Floor, Rodney Square North
Wilmington, Delaware 19899-0391
(302) 571-6600
Counsel for Debtors and Debtors in Possession
SPECIAL COUNSEL
SONNENSCHEIN NATH & ROSENTHAL
Robert Richards, Esq.
8000 Sears Tower
Chicago, Illinois 60606
(312) 876-8000
Dated: February 9, 1998
5
<PAGE> 6
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re:
) Chapter 11
)
) Case No. 97-1500 (JJF)
FIRST MERCHANTS ACCEPTANCE )
CORPORATION, )
)
Debtor. )
)
NOTICE OF ENTRY OF INTERIM ORDER UNDER SECTIONS 362
AND 105 OF THE BANKRUPTCY CODE ESTABLISHING
NOTIFICATION AND APPROVAL PROCEDURES FOR THE SALE OR
OTHER TRANSFER OF CERTAIN GENERAL UNSECURED CLAIMS
AND EQUITY INTERESTS AND SETTING FINAL HEARING THEREON
-------------------------------------------------------
PLEASE TAKE NOTICE that on January 21, 1998, the Court entered that
certain Interim Order Under Sections 262 and 105 of the Bankruptcy Code
Establishing Notification and Approval Procedures for the Sale or Other
Transfer of Certain General Unsecured Claims and Equity Interests (the "Interim
Order").
PLEASE TAKE FURTHER NOTICE that the Interim Order establishes the
following notification and approval procedures for the sale or other transfer
of certain general unsecured claims against and equity interests in First
Merchant Acceptance Corporation (the "Debtor"):
1. Any party or acquiring group that proposes or intends to acquire
or accumulate more than 300,000 shares of the Debtor, or add additional shares
to or so as to create such a block, must before any such transaction file with
the bankruptcy court and serve on Debtor's counsel, at the address listed below,
a notice in the form attached to the motion and titled Notice Of Intent To
Purchase, Acquire Or Sell Shares Of Common Stock Of First Merchant Acceptance
Corporation (the "Stock Trading Notice"). The transaction described in this
paragraph, however, shall not become effective until the expiration of the
time period discussed in paragraph 3 below.
2. Any party or acquiring group that proposes or intends to acquire
or sell any claims under the Debtor's 1995 subordinated reset notes and/or any
other prepetition unsecured claims against the Debtor (other than claims under
the Debtor's 1996 subordinated reset notes) must before any such transaction
file with the bankruptcy court and serve on Debtor's counsel, at the address
listed below, a notice in the form attached to the motion and titled Notice Of
Intent To Purchase, Acquire Or Otherwise Accumulate Prepetition Unsecured
Claims Against The Debtor (Other Than Claims Under The Debtor's 1996
Subordinated Reset Notes) (the "Claims Trading Notice"). The transaction
described in this paragraph, however, shall not become effective until the
expiration of the time period discussed in paragraph 3 below.
3. Upon receipt of either a Stock Trading Notice or a Claims
Trading Notice, the Debtor shall have 30 days to object to the
transaction described in the notice. If the Debtor files an objection, then
the transaction will not be effective unless approved by a final and
nonappealable order of this Court. If the Debtor does not object, then such
transaction may become effective at the expiration of such 30 day period.
Further transactions within the scope of paragraphs 1 or 2 above must be the
subject of additional notices as set forth herein with an additional 30 day
waiting period.
4. Notice to Debtor's counsel must be sent via facsimile or
overnight courier to Sonnenschein, Nath & Rosenthal, 8000 Sears Tower, Chicago,
Illinois 60606, Phone (312) 876-8000, Facsimile (312) 876-7934. Attention Robert
E. Richards, Esq.
5. The requirements set forth above are in addition to the
requirements of Federal Rule of Bankruptcy Procedure 300l(e) and applicable
securities, corporate and other laws and do not excuse compliance therewith.
PLEASE TAKE FURTHER NOTICE that any sale or other transfer in violation
of the Interim Order and not in accordance with the procedures set forth
herein shall not be effective.
PLEASE TAKE FURTHER NOTICE that a hearing to approve the Interim Order
on a final basis will be held on February 3, 1998 at 12:00 Noon. Any objections
thereto must be in writing and served on Debtor's counsel as listed below so as
to be received by January 30, 1998 at 4:00 p.m. Only responses or objections
made in writing and timely filed and received will be considered by the Court.
Copies of the Interim Order and the motion (including exhibits) may be
obtained by contacting Sonnenschein, Nath & Rosenthal, 8000 Sears Tower,
Chicago, Illinois 60606, Phone (312) 876-8000, Facsimile (312) 876-7934,
Attention Robert E. Richards, Esq. or Young Conaway Stargatt & Taylor, LLP,
11th Floor, Rodney Square North, P.O. Box 391, Wilmington, Delaware 19899-0391,
Facsimile (312) 571-1253, Attention Laura Jones, Esq.
YOUNG CONAWAY STARGATT & TAYLOR LLP
/s/ Robert S. Brady
---------------------------------------------
Laura Davis Jones ((No. 2436)
Robert S. Brady (No. 2847)
Edwin J. Harren (No.3396)
11th Floor, Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0391
(302) 571-6600
Counsel to Debtor and Debtor in Possession
SPECIAL COUNSEL
SONNENSCHEIN NATH & ROSENTHAL
Robert E. Richards
8000 Sears Tower
Chicago, Illinois 60606
(312) 876-8000
Dated: January 22, 1998
<PAGE> 7
FORM BALLOT NO. 1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
FIRST MERCHANTS ACCEPTANCE ) Case No. 97-1500 (JJF)
CORPORATION, )
)
FIRST MERCHANTS RESIDENTIAL ) Case No. 97-1892 (JJF)
CREDIT CORPORATION, )
)
Debtors. ) Jointly Administered
BALLOT FOR ACCEPTING OR REJECTING
SECOND AMENDED JOINT CHAPTER 11 PLAN
CLASS 3 -- ALLOWED SECURED CLAIM OF
FINANCIAL SECURITY ASSURANCE, INC. AGAINST FMAC
PLEASE READ AND FOLLOW THE ENCLOSED VOTING INSTRUCTIONS
CAREFULLY BEFORE COMPLETING THE BALLOT.
PLEASE CHECK THE APPROPRIATE BOX BELOW TO INDICATE
YOUR ACCEPTANCE OR REJECTION OF THE PLAN.
THE PLAN PROPONENTS AND THE OFFICIAL COMMITTEE
OF UNSECURED CREDITORS RECOMMEND THAT YOU ACCEPT
THE PLAN BY CHECKING THE "TO ACCEPT THE PLAN" BOX IN ITEM 2.
ITEM 1. AMOUNT AND TYPE OF CLAIM
The undersigned is a creditor of First Merchants Acceptance
Corporation holding a Claim in the amount of $___________________.
ITEM 2. CLASS 3 VOTE
The holder of the Claim(s) set forth in Item 1, votes (please check
one):
[ ] To Accept the Plan [ ] To Reject the Plan
ITEM 3. By signing this Ballot, the undersigned creditor certifies
that it has been provided with and has read a copy of the
Disclosure Statement.
<PAGE> 8
ITEM 4. By signing this Ballot, the undersigned creditor hereby certifies that
it is the holder of the Claim(s) set forth in Item 1 and has full
power and authority to vote to accept or reject the Plan. The
undersigned also acknowledges that the solicitation is pursuant to the
information contained in the Disclosure Statement and the Plan.
ITEM 5. VOTE REGARDING PLAN RELEASE PROVISION (OPTIONAL).
[ ] The undersigned creditor of one or more of the Debtors, holding a
Claim in the amount set forth in Item 1, elects not to be bound by the
releases set forth in Section 8.7 of the Plan.
If you sign and return this Ballot, but do not make the above election
by marking the box in this Item 5, on and as of the Effective Date you will
have released, and will be deemed to have released, those individuals and
entities listed in Section 8.7 of the Plan in the manner indicated in Section
8.7 of the Plan.
Dated:____________________ Name of Voter:
______________________________
(Print or Type)
______________________________________________
Social Security or Federal Tax I.D. No.
Signature:
___________________________________
By:
__________________________________________
(If Appropriate)
Title:
_______________________________________
(If Appropriate)
Address:
_____________________________________
Street
_______________________________________
_____________________________________________
City, State and Zip Code
Telephone No:________________________________
Completed Ballots must be returned to:
Logan & Company, Inc.
615 Washington Street
Second Floor
Hoboken, New Jersey 07030
Ballots must be received by 4:00 p.m. Eastern Time on February 27,
1998 (the "Voting Deadline"). If a Ballot is received after the Voting
Deadline, it will not be counted.
-2-
<PAGE> 9
VOTING INSTRUCTIONS
PLEASE COMPLETE, SIGN AND DATE
THE BALLOT AND RETURN IT PROMPTLY.
YOUR BALLOT MUST BE RECEIVED BY:
BALLOT TABULATION CENTER -- FIRST MERCHANTS
C/O LOGAN & COMPANY, INC.
615 WASHINGTON STREET
HOBOKEN, NEW JERSEY 07030
BY 4:00 P.M. EASTERN TIME
ON FEBRUARY 27, 1998, OR YOUR VOTE WILL NOT BE COUNTED.
I. All capitalized terms used in the Ballot or Voting Instructions but
not otherwise defined therein shall have the meanings ascribed to them
in the Second Amended Joint Chapter 11 Plan (the "Plan").
II. The Plan can be confirmed by the Bankruptcy Court and thereby made
binding on you if it is accepted by the holders of two-thirds in
amount and more than one-half in number of Claims in each Class. In
the event the requisite acceptances are not obtained, the Bankruptcy
Court may nevertheless confirm the Plan if it finds that the Plan
accords fair and equitable treatment to the Class or Classes rejecting
it and otherwise satisfies the requirements of section 1129(b) of the
Bankruptcy Code.
III. For purposes of determining whether one-half in number of Claims in
each Class have accepted the Plan, separate Claims held by a single
creditor in a particular Class will be aggregated as if such creditor
held one Claim in such Class, and the votes related to such Claims
will be treated as a single vote to accept or reject the Plan.
IV. You must vote all of your Claims within a single Class under the Plan
to either accept or reject the Plan. Accordingly, a Ballot (or
multiple Ballots with respect to multiple Claims within a single
Class) that partially accepts and partially rejects the Plan will be
counted as a single acceptance of the Plan.
V. Please complete the Ballot, indicate acceptance or rejection of the
Plan in the box indicated and sign and return this Ballot by mail to
the tabulation agent (the "Tabulation Agent") at the address as
indicated on the enclosed pre-addressed envelope: Logan & Company,
Inc., 615 Washington Street, Second Floor, Hoboken, New Jersey 07030,
or return by hand delivery or overnight courier to: Logan & Company,
Inc., 615 Washington Street, Second Floor, Hoboken, New Jersey 07030.
Ballots must be received by 4:00 p.m., Eastern Time, on February 27,
1998 (the "Voting Deadline"). If a Ballot is received after the
Voting Deadline, it will not be counted.
VI. This Ballot does not constitute and shall not be deemed a proof of
Claim or Interest or an assertion or admission of a Claim or Interest.
VII. Only Ballots submitted by persons who hold Claims or Interests as of
the Voting Record Date, which is January 15, 1998, shall be counted.
-3-
<PAGE> 10
VIII. Only Ballots that are timely received with original signatures shall
be counted; facsimile Ballots will not be counted absent the Debtor's
written consent.
IF YOU NEED ASSISTANCE IN COMPLETING YOUR BALLOT OR HAVE ANY QUESTIONS PLEASE
CONTACT THE TABULATION AGENT, LOGAN & COMPANY, AT (201) 798- 1031.
-4-
<PAGE> 11
FORM BALLOT NO. 2
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
FIRST MERCHANTS ACCEPTANCE ) Case No. 97-1500 (JJF)
CORPORATION, )
)
FIRST MERCHANTS RESIDENTIAL ) Case No. 97-1892 (JJF)
CREDIT CORPORATION, )
)
Debtors. ) Jointly Administered
BALLOT FOR ACCEPTING OR REJECTING
SECOND AMENDED CHAPTER 11 JOINT PLAN
CLASS 4 -- ALLOWED SECURED CLAIM OF
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. AGAINST FMAC
PLEASE READ AND FOLLOW THE ENCLOSED VOTING INSTRUCTIONS
CAREFULLY BEFORE COMPLETING THE BALLOT.
PLEASE CHECK THE APPROPRIATE BOX BELOW TO INDICATE
YOUR ACCEPTANCE OR REJECTION OF THE PLAN.
THE PLAN PROPONENTS AND THE OFFICIAL COMMITTEE
OF UNSECURED CREDITORS RECOMMEND THAT YOU ACCEPT
THE PLAN BY CHECKING THE "TO ACCEPT THE PLAN" BOX IN ITEM 2.
ITEM 1. AMOUNT AND TYPE OF CLAIM
The undersigned is a creditor of First Merchants Acceptance
Corporation holding a Claim in the amount of $___________________.
ITEM 2. CLASS 4 VOTE
The holder of the Claim(s) set forth in Item 1, votes (please check
one):
[ ] To Accept the Plan [ ] To Reject the Plan
ITEM 3. By signing this Ballot, the undersigned creditor certifies
that it has been provided with and has read a copy of the
Disclosure Statement.
<PAGE> 12
ITEM 4. By signing this Ballot, the undersigned creditor hereby certifies that
it is the holder of the Claim(s) set forth in Item 1 and has full
power and authority to vote to accept or reject the Plan. The
undersigned also acknowledges that the solicitation is pursuant to the
information contained in the Disclosure Statement and the Plan.
ITEM 5. VOTE REGARDING PLAN RELEASE PROVISION (OPTIONAL).
[ ] The undersigned creditor of one or more of the Debtors,
holding a Claim in the amount set forth in Item 1, elects not
to be bound by the releases set forth in Section 8.7 of the
Plan.
If you sign and return this Ballot, but do not make the above election
by marking the box in this Item 5, on and as of the Effective Date you will
have released, and will be deemed to have released, those individuals and
entities listed in Section 8.7 of the Plan in the manner indicated in Section
8.7 of the Plan.
Dated:____________________ Name of Voter:
______________________________
(Print or Type)
______________________________________________
Social Security or Federal Tax I.D. No.
Signature:
___________________________________
By:
__________________________________________
(If Appropriate)
Title:
_____________________________________
(If Appropriate)
Address:
Street ______________________________________
______________________________________________
City, State and Zip Code
Telephone No:_________________________________
Completed Ballots must be returned to:
Logan & Company, Inc.
615 Washington Street
Second Floor
Hoboken, New Jersey 07030
Ballots must be received by 4:00 p.m. Eastern Time on February 27,
1998 (the "Voting Deadline"). If a Ballot is received after the Voting
Deadline, it will not be counted.
-2-
<PAGE> 13
VOTING INSTRUCTIONS
PLEASE COMPLETE, SIGN AND DATE
THE BALLOT AND RETURN IT PROMPTLY.
YOUR BALLOT MUST BE RECEIVED BY:
BALLOT TABULATION CENTER -- FIRST MERCHANTS
C/O LOGAN & COMPANY, INC.
615 WASHINGTON STREET
HOBOKEN, NEW JERSEY 07030
BY 4:00 P.M. EASTERN TIME
ON FEBRUARY 27, 1998, OR YOUR VOTE WILL NOT BE COUNTED.
I. All capitalized terms used in the Ballot or Voting Instructions but
not otherwise defined therein shall have the meanings ascribed to them
in the Second Amended Joint Chapter 11 Plan (the "Plan").
II. The Plan can be confirmed by the Bankruptcy Court and thereby made
binding on you if it is accepted by the holders of two-thirds in
amount and more than one-half in number of Claims in each Class. In
the event the requisite acceptances are not obtained, the Bankruptcy
Court may nevertheless confirm the Plan if it finds that the Plan
accords fair and equitable treatment to the Class or Classes rejecting
it and otherwise satisfies the requirements of section 1129(b) of the
Bankruptcy Code.
III. For purposes of determining whether one-half in number of Claims in
each Class have accepted the Plan, separate Claims held by a single
creditor in a particular Class will be aggregated as if such creditor
held one Claim in such Class, and the votes related to such Claims
will be treated as a single vote to accept or reject the Plan.
IV. You must vote all of your Claims within a single Class under the Plan
to either accept or reject the Plan. Accordingly, a Ballot (or
multiple Ballots with respect to multiple Claims within a single
Class) that partially accepts and partially rejects the Plan will be
counted as a single acceptance of the Plan.
V. Please complete the Ballot, indicate acceptance or rejection of the
Plan in the box indicated and sign and return this Ballot by mail to
the tabulation agent (the "Tabulation Agent") at the address as
indicated on the enclosed pre-addressed envelope: Logan & Company,
Inc., 615 Washington Street, Second Floor, Hoboken, New Jersey 07030,
or return by hand delivery or overnight courier to: Logan & Company,
Inc., 615 Washington Street, Second Floor, Hoboken, New Jersey 07030.
Ballots must be received by 4:00 p.m., Eastern Time, on February 27,
1998 (the "Voting Deadline"). If a Ballot is received after the
Voting Deadline, it will not be counted.
VI. This Ballot does not constitute and shall not be deemed a proof of
Claim or Interest or an assertion or admission of a Claim or Interest.
VII. Only Ballots submitted by persons who hold Claims or Interests as of
the Voting Record Date, which is January 15, 1998, shall be counted.
-3-
<PAGE> 14
VIII. Only Ballots that are timely received with original signatures shall
be counted; facsimile Ballots will not be counted absent the Debtor's
written consent.
IF YOU NEED ASSISTANCE IN COMPLETING YOUR BALLOT OR HAVE ANY QUESTIONS PLEASE
CONTACT THE TABULATION AGENT, LOGAN & COMPANY, AT (201) 798- 1031.
-4-
<PAGE> 15
FORM BALLOT NO. 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, )
)
FIRST MERCHANTS RESIDENTIAL ) Case No. 97-1892 (JJF)
CREDIT CORPORATION, )
)
Debtors. ) Jointly Administered
BALLOT FOR ACCEPTING OR REJECTING
SECOND AMENDED JOINT CHAPTER 11 PLAN
CLASS 5 -- ALLOWED MISCELLANEOUS SECURED CLAIMS
PLEASE READ AND FOLLOW THE ENCLOSED VOTING INSTRUCTIONS
CAREFULLY BEFORE COMPLETING THE BALLOT.
PLEASE CHECK THE APPROPRIATE BOX BELOW TO INDICATE
YOUR ACCEPTANCE OR REJECTION OF THE PLAN.
THE PLAN PROPONENTS AND THE OFFICIAL COMMITTEE
OF UNSECURED CREDITORS RECOMMEND THAT YOU ACCEPT
THE PLAN BY CHECKING THE "TO ACCEPT THE PLAN" BOX IN ITEM 2.
ITEM 1. AMOUNT AND TYPE OF CLAIM
The undersigned is a creditor of First Merchants Acceptance
Corporation holding a Claim in the amount of $___________________.
The undersigned is a creditor of First Merchants Residential Credit
Corporation holding a Claim in the amount of $___________________.
ITEM 2. CLASS 5 VOTE
The holder of the Claim(s) set forth in Item 1, votes (please check
one):
[ ] To Accept the Plan [ ] To Reject the Plan
ITEM 3. By signing this Ballot, the undersigned creditor certifies
that it has been provided with and has read a copy of the
Disclosure Statement.
<PAGE> 16
ITEM 4. By signing this Ballot, the undersigned creditor hereby certifies
that it is the holder of the Claim(s) set forth in Item 1 and has
full power and authority to vote to accept or reject the Plan.
The undersigned also acknowledges that the solicitation is
pursuant to the information contained in the Disclosure Statement
and the Plan.
ITEM 5. VOTE REGARDING PLAN RELEASE PROVISION (OPTIONAL).
[ ] The undersigned creditor of one or more of the Debtors,
holding a Claim in the amount set forth in Item 1, elects not
to be bound by the releases set forth in Section 8.7 of the
Plan.
If you sign and return this Ballot, but do not make the above election
by marking the box in this Item 5, on and as of the Effective Date you will
have released, and will be deemed to have released, those individuals and
entities listed in Section 8.7 of the Plan in the manner indicated in Section
8.7 of the Plan.
Dated:____________________ Name of Voter: _______________________________
(Print or Type)
______________________________________________
Social Security or Federal Tax I.D. No.
Signature: ___________________________________
By: __________________________________________
(If Appropriate)
Title: _______________________________________
(If Appropriate)
Address: _____________________________________
Street
______________________________________________
City, State and Zip Code
Telephone No:________________________________
Completed Ballots must be returned to:
Logan & Company, Inc.
615 Washington Street
Second Floor
Hoboken, New Jersey 07030
Ballots must be received by 4:00 p.m. Eastern Time on February 27,
1998 (the "Voting Deadline"). If a Ballot is received after the Voting
Deadline, it will not be counted.
-2-
<PAGE> 17
VOTING INSTRUCTIONS
PLEASE COMPLETE, SIGN AND DATE
THE BALLOT AND RETURN IT PROMPTLY.
YOUR BALLOT MUST BE RECEIVED BY:
BALLOT TABULATION CENTER -- FIRST MERCHANTS
C/O LOGAN & COMPANY, INC.
615 WASHINGTON STREET
HOBOKEN, NEW JERSEY 07030
ATTN: KATE LOGAN
BY 4:00 P.M. EASTERN TIME
ON FEBRUARY 27, 1998, OR YOUR VOTE WILL NOT BE COUNTED.
I. All capitalized terms used in the Ballot or Voting Instructions but
not otherwise defined therein shall have the meanings ascribed to them
in the Second Amended Joint Chapter 11 Plan (the "Plan").
II. The Plan can be confirmed by the Bankruptcy Court and thereby made
binding on you if it is accepted by the holders of two-thirds in
amount and more than one-half in number of Claims in each Class. In
the event the requisite acceptances are not obtained, the Bankruptcy
Court may nevertheless confirm the Plan if it finds that the Plan
accords fair and equitable treatment to the Class or Classes rejecting
it and otherwise satisfies the requirements of section 1129(b) of the
Bankruptcy Code.
III. For purposes of determining whether one-half in number of Claims in
each Class have accepted the Plan, separate Claims held by a single
creditor in a particular Class will be aggregated as if such creditor
held one Claim in such Class, and the votes related to such Claims
will be treated as a single vote to accept or reject the Plan.
IV. You must vote all of your Claims within a single Class under the Plan
to either accept or reject the Plan. Accordingly, a Ballot (or
multiple Ballots with respect to multiple Claims within a single
Class) that partially accepts and partially rejects the Plan will be
counted as a single acceptance of the Plan.
V. Please complete the Ballot, indicate acceptance or rejection of the
Plan in the box indicated and sign and return this Ballot by mail to
the tabulation agent (the "Tabulation Agent") at the address as
indicated on the enclosed pre-addressed envelope: Logan & Company,
Inc., 615 Washington Street, Second Floor, Hoboken, New Jersey 07030,
or return by hand delivery or overnight courier to: Logan & Company,
Inc., 615 Washington Street, Second Floor, Hoboken, New Jersey 07030.
Ballots must be received by 4:00 p.m., Eastern Time, on February 27,
1998 (the "Voting Deadline"). If a Ballot is received after the
Voting Deadline, it will not be counted.
VI. This Ballot does not constitute and shall not be deemed a proof of
Claim or Interest or an assertion or admission of a Claim or Interest.
VII. Only Ballots submitted by persons who hold Claims or Interests as of
the Voting Record Date, which is January 15, 1998, shall be counted.
- 3 -
<PAGE> 18
VIII. Only Ballots that are timely received with original signatures shall
be counted; facsimile Ballots will not be counted absent the Debtor's
written consent.
IF YOU NEED ASSISTANCE IN COMPLETING YOUR BALLOT OR HAVE ANY QUESTIONS
PLEASE CONTACT THE TABULATION AGENT, LOGAN & COMPANY, AT (201) 798- 1031.
- 4 -
<PAGE> 19
FORM BALLOT NO. 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, )
)
FIRST MERCHANTS RESIDENTIAL ) Case No. 97-1892 (JJF)
CREDIT CORPORATION, )
)
Debtors. ) Jointly Administered
BALLOT FOR ACCEPTING OR REJECTING
SECOND AMENDED JOINT CHAPTER 11 PLAN
CLASS 6 -- ALLOWED CONVENIENCE CLAIMS AGAINST FMAC
PLEASE READ AND FOLLOW THE ENCLOSED VOTING INSTRUCTIONS
CAREFULLY BEFORE COMPLETING THE BALLOT.
PLEASE CHECK THE APPROPRIATE BOX BELOW TO INDICATE
YOUR ACCEPTANCE OR REJECTION OF THE PLAN.
THE PLAN PROPONENTS AND THE OFFICIAL COMMITTEE
OF UNSECURED CREDITORS RECOMMEND THAT YOU ACCEPT
THE PLAN BY CHECKING THE "TO ACCEPT THE PLAN" BOX IN ITEM 2.
ITEM 1. AMOUNT AND TYPE OF CLAIM
The undersigned is a creditor of First Merchants Acceptance
Corporation holding a Claim in the amount of $___________________.
CLASS 7A-2 ELECTION: The Plan provides that any holder of a Class 6
Allowed Convenience Claim against FMAC may voluntarily elect to be
included in Subclass 7A-2 rather than Class 6. Subclass 7A-2
Creditors will receive deferred payments and 57% of the equity in the
reorganized company. If you wish to make this election and waive the
right to be treated as a Class 6 creditor, please check the following
box:
<PAGE> 20
The undersigned hereby elects to [ ]
have its claim treated as a
Subclass 7A-2 Claim under the
Plan and waives the right to be
treated as a Class 6 creditor.
ITEM 2. CLASS 6 VOTE OR CLASS 7A-2 VOTE
The holder of the Claim(s) set forth in Item 1, votes (please check
one):
[ ] To Accept the Plan [ ] To Reject the Plan
ITEM 3. By signing this Ballot, the undersigned creditor certifies
that it has been provided with and has read a copy of the
Disclosure Statement.
ITEM 4. By signing this Ballot, the undersigned creditor hereby certifies
that it is the holder of the Claim(s) set forth in Item 1 and has
full power and authority to vote to accept or reject the Plan.
The undersigned also acknowledges that the solicitation is
pursuant to the information contained in the Disclosure Statement
and the Plan.
ITEM 5. VOTE REGARDING PLAN RELEASE PROVISION (OPTIONAL).
[ ] The undersigned creditor of one or more of the Debtors,
holding a Claim in the amount set forth in Item 1, elects not
to be bound by the releases set forth in Section 8.7 of the
Plan.
If you sign and return this Ballot, but do not make the above election
by marking the box in this Item 5, on and as of the Effective Date you will
have released, and will be deemed to have released, those individuals and
entities listed in Section 8.7 of the Plan in the manner indicated in Section
8.7 of the Plan.
Dated:____________________ Name of Voter: _______________________________
(Print or Type)
______________________________________________
Social Security or Federal Tax I.D. No.
Signature: ___________________________________
By: __________________________________________
(If Appropriate)
Title: _______________________________________
(If Appropriate)
Address: _____________________________________
Street
-2-
<PAGE> 21
______________________________________________
City, State and Zip Code
Telephone No.:________________________________
Broker Where Shares Are Held:_________________
If you are a registered holder, completed Ballots must be returned to
Logan & Company, Inc., 615 Washington Street, Second Floor, Hoboken New Jersey
07030.
IF YOU RECEIVE A RETURN ENVELOPE ADDRESSED TO A BROKER, BANK, NOMINEE
OR PROXY INTERMEDIARY, YOU MUST RETURN YOUR BALLOT TO YOUR BROKER, BANK,
NOMINEE OR PROXY INTERMEDIARY EARLY ENOUGH FOR YOUR VOTE TO BE PROCESSED AND
THEN FORWARDED BY THE BROKER, BANK, NOMINEE OR PROXY INTERMEDIARY TO THE
BALLOTING AGENT BY THE VOTING DEADLINE. THEREFORE, PLEASE ALLOW ADDITIONAL
TIME.
Ballots must be received by 4:00 p.m. Eastern Time on February 27,
1998 (the "Voting Deadline"). If a Ballot is received after the Voting
Deadline, it will not be counted.
- 3 -
<PAGE> 22
VOTING INSTRUCTIONS
PLEASE COMPLETE, SIGN AND DATE
THE BALLOT AND RETURN IT PROMPTLY.
YOUR BALLOT MUST BE RECEIVED BY:
BALLOT TABULATION CENTER -- FIRST MERCHANTS
C/O LOGAN & COMPANY, INC.
615 WASHINGTON STREET
HOBOKEN, NEW JERSEY 07030
BY 4:00 P.M. EASTERN TIME
ON FEBRUARY 27, 1998, OR YOUR VOTE WILL NOT BE COUNTED.
I. All capitalized terms used in the Ballot or Voting Instructions but
not otherwise defined therein shall have the meanings ascribed to them
in the Second Amended Joint Chapter 11 Plan (the "Plan").
II. The Plan can be confirmed by the Bankruptcy Court and thereby made
binding on you if it is accepted by the holders of two-thirds in
amount and more than one-half in number of Claims in each Class. In
the event the requisite acceptances are not obtained, the Bankruptcy
Court may nevertheless confirm the Plan if it finds that the Plan
accords fair and equitable treatment to the Class or Classes rejecting
it and otherwise satisfies the requirements of section 1129(b) of the
Bankruptcy Code.
III. For purposes of determining whether one-half in number of Claims in
each Class have accepted the Plan, separate Claims held by a single
creditor in a particular Class will be aggregated as if such creditor
held one Claim in such Class, and the votes related to such Claims
will be treated as a single vote to accept or reject the Plan.
IV. You must vote all of your Claims within a single Class under the Plan
to either accept or reject the Plan. Accordingly, a Ballot (or
multiple Ballots with respect to multiple Claims within a single
Class) that partially accepts and partially rejects the Plan will be
counted as a single acceptance of the Plan.
V. Please complete the Ballot, indicate acceptance or rejection of the
Plan in the box indicated and sign and return this Ballot by mail to
the tabulation agent (the "Tabulation Agent") at the address as
indicated on the enclosed pre-addressed envelope: Logan & Company,
Inc., 615 Washington Street, Second Floor, Hoboken, New Jersey 07030,
or return by hand delivery or overnight courier to: Logan & Company,
Inc., 615 Washington Street, Second Floor, Hoboken, New Jersey 07030,
or to your broker, bank or proxy intermediary. Please use the
pre-addressed envelope enclosed herewith. Ballots must be
received by 4:00 p.m., Eastern Time, on February 27, 1998 (the "Voting
Deadline"). If a Ballot is received after the Voting Deadline, it
will not be counted.
VI. This Ballot does not constitute and shall not be deemed a proof of
Claim or Interest or an assertion or admission of a Claim or Interest.
VII. Only Ballots submitted by persons who hold Claims or Interests as of
the Voting Record Date, which is January 15, 1998, shall be counted.
- 4 -
<PAGE> 23
VIII. Only Ballots that are timely received with original signatures shall
be counted; facsimile Ballots will not be counted absent the Debtor's
written consent.
IF YOU NEED ASSISTANCE IN COMPLETING YOUR BALLOT OR HAVE ANY QUESTIONS PLEASE
CONTACT THE TABULATION AGENT, LOGAN & COMPANY, AT (201) 798- 1031.
- 5 -
<PAGE> 24
FORM BALLOT NO. 5
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
FIRST MERCHANTS ACCEPTANCE ) Case No. 97-1500 (JJF)
CORPORATION, )
)
FIRST MERCHANTS RESIDENTIAL ) Case No. 97-1892 (JJF)
CREDIT CORPORATION, )
)
Debtors. ) Jointly Administered
BALLOT FOR ACCEPTING OR REJECTING
SECOND AMENDED JOINT CHAPTER 11 PLAN
SUBCLASS 7A-1 -- ALLOWED UNSECURED CLAIMS AGAINST FMAC
PLEASE READ AND FOLLOW THE ENCLOSED VOTING INSTRUCTIONS
CAREFULLY BEFORE COMPLETING THE BALLOT.
PLEASE CHECK THE APPROPRIATE BOX BELOW TO INDICATE
YOUR ACCEPTANCE OR REJECTION OF THE PLAN.
THE PLAN PROPONENTS AND THE OFFICIAL COMMITTEE
OF UNSECURED CREDITORS RECOMMEND THAT YOU ACCEPT
THE PLAN BY CHECKING THE "TO ACCEPT THE PLAN" BOX IN ITEM 2.
ITEM 1. AMOUNT AND TYPE OF CLAIM
The undersigned is a creditor of First Merchants Acceptance
Corporation holding a Claim in the amount of $___________________.
ITEM 2. SUBCLASS 7A-1 VOTE
The holder of the Claim(s) set forth in Item 1, votes (please check one):
[ ] To Accept the Plan [ ] To Reject the Plan
ITEM 3. By signing this Ballot, the undersigned creditor certifies
that it has been provided with and has read a copy of the
Disclosure Statement.
<PAGE> 25
ITEM 4. By signing this Ballot, the undersigned creditor hereby certifies that
it is the holder of the Claim(s) set forth in Item 1 and has full
power and authority to vote to accept or reject the Plan. The
undersigned also acknowledges that the solicitation is pursuant to the
information contained in the Disclosure Statement and the Plan.
ITEM 5. VOTE REGARDING PLAN RELEASE PROVISION (OPTIONAL).
[ ] The undersigned creditor of one or more of the Debtors,
holding a Claim in the amount set forth in Item 1, elects not
to be bound by the releases set forth in Section 8.7 of the Plan.
If you sign and return this Ballot, but do not make the above election
by marking the box in this Item 5, on and as of the Effective Date you will
have released, and will be deemed to have released, those individuals and
entities listed in Section 8.7 of the Plan in the manner indicated in Section
8.7 of the Plan.
Dated:____________________ Name of Voter:
______________________________
(Print or Type)
______________________________________________
Social Security or Federal Tax I.D. No.
Signature:
___________________________________
By:
__________________________________________
(If Appropriate)
Title:
_____________________________________
(If Appropriate)
Address:
Street _____________________________________
______________________________________________
City, State and Zip Code
Telephone No:_________________________________
Broker Where Shares Are Held:_________________
If you are a registered holder, completed Ballots must be returned to
Logan & Company, Inc., 615 Washington Street, Second Floor, Hoboken
New Jersey 07030.
IF YOU RECEIVED A RETURN ENVELOPE ADDRESSED TO A BROKER, BANK, NOMINEE
OR PROXY INTERMEDIARY, YOU MUST RETURN YOUR BALLOT TO YOUR BROKER, BANK,
NOMINEE OR PROXY INTERMEDIARY EARLY ENOUGH FOR YOUR VOTE TO BE PROCESSED AND
THEN FORWARDED BY THE BROKER, BANK, NOMINEE OR PROXY INTERMEDIARY TO THE
BALLOTING AGENT BY THE VOTING DEADLINE. THEREFORE, PLEASE ALLOW ADDITIONAL
TIME.
Ballots must be received by 4:00 p.m. Eastern Time on February 27, 1998 (the
"Voting Deadline"). If a Ballot is received after the Voting Deadline, it will
not be counted.
-2-
<PAGE> 26
VOTING INSTRUCTIONS
PLEASE COMPLETE, SIGN AND DATE
THE BALLOT AND RETURN IT PROMPTLY.
YOUR BALLOT MUST BE RECEIVED BY:
BALLOT TABULATION CENTER -- FIRST MERCHANTS
C/O LOGAN & COMPANY, INC.
615 WASHINGTON STREET
HOBOKEN, NEW JERSEY 07030
BY 4:00 P.M. EASTERN TIME
ON FEBRUARY 27, 1998, OR YOUR VOTE WILL NOT BE COUNTED.
I. All capitalized terms used in the Ballot or Voting Instructions but
not otherwise defined therein shall have the meanings ascribed to them
in the Second Amended Joint Chapter 11 Plan (the "Plan").
II. The Plan can be confirmed by the Bankruptcy Court and thereby made
binding on you if it is accepted by the holders of two-thirds in
amount and more than one-half in number of Claims in each Class. In
the event the requisite acceptances are not obtained, the Bankruptcy
Court may nevertheless confirm the Plan if it finds that the Plan
accords fair and equitable treatment to the Class or Classes rejecting
it and otherwise satisfies the requirements of section 1129(b) of the
Bankruptcy Code.
III. For purposes of determining whether one-half in number of Claims in
each Class have accepted the Plan, separate Claims held by a single
creditor in a particular Class will be aggregated as if such creditor
held one Claim in such Class, and the votes related to such Claims
will be treated as a single vote to accept or reject the Plan.
IV. You must vote all of your Claims within a single Class under the Plan
to either accept or reject the Plan. Accordingly, a Ballot (or
multiple Ballots with respect to multiple Claims within a single
Class) that partially accepts and partially rejects the Plan will be
counted as a single acceptance of the Plan.
V. Please complete the Ballot, indicate acceptance or rejection of the
Plan in the box indicated and sign and return this Ballot by mail to
the tabulation agent (the "Tabulation Agent") at the address as
indicated on the enclosed pre-addressed envelope: Logan & Company,
Inc., 615 Washington Street, Second Floor, Hoboken, New Jersey 07030,
or return by hand delivery or overnight courier to: Logan & Company,
Inc., 615 Washington Street, Second Floor, Hoboken, New Jersey 07030
or to your broker, bank or proxy intermediary. Please use the
pre-addressed envelope enclosed herewith. Ballots must be received by
4:00 p.m., Eastern Time, on February 27, 1998 (the "Voting Deadline").
If a Ballot is received after the Voting Deadline, it will not be
counted.
VI. This Ballot does not constitute and shall not be deemed a proof of
Claim or Interest or an assertion or admission of a Claim or Interest.
VII. Only Ballots submitted by persons who hold Claims or Interests as of
the Voting Record Date, which is January 15, 1998, shall be counted.
-3-
<PAGE> 27
VIII. Only Ballots that are timely received with original signatures shall
be counted; facsimile Ballots will not be counted absent the Debtor's
written consent.
IF YOU NEED ASSISTANCE IN COMPLETING YOUR BALLOT OR HAVE ANY QUESTIONS PLEASE
CONTACT THE TABULATION AGENT, LOGAN & COMPANY, AT (201) 798- 1031.
-4-
<PAGE> 28
FORM BALLOT NO. 6
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
FIRST MERCHANTS ACCEPTANCE ) Case No. 97-1500 (JJF)
CORPORATION, )
)
FIRST MERCHANTS RESIDENTIAL ) Case No. 97-1892 (JJF)
CREDIT CORPORATION, )
)
Debtors. ) Jointly Administered
BALLOT FOR ACCEPTING OR REJECTING
SECOND AMENDED JOINT CHAPTER 11 PLAN
SUBCLASS 7A-2 -- ALLOWED UNSECURED CLAIMS AGAINST FMAC
PLEASE READ AND FOLLOW THE ENCLOSED VOTING INSTRUCTIONS
CAREFULLY BEFORE COMPLETING THE BALLOT.
PLEASE CHECK THE APPROPRIATE BOX BELOW TO INDICATE
YOUR ACCEPTANCE OR REJECTION OF THE PLAN.
THE PLAN PROPONENTS AND THE OFFICIAL COMMITTEE
OF UNSECURED CREDITORS RECOMMEND THAT YOU ACCEPT
THE PLAN BY CHECKING THE "TO ACCEPT THE PLAN" BOX IN ITEM 2.
ITEM 1. AMOUNT AND TYPE OF CLAIM
The undersigned is a creditor of First Merchants Acceptance
Corporation holding a Claim in the amount of $___________________.
CLASS 6 CONVENIENCE CLASS ELECTION: The Plan provides that any holder
of an Allowed Subclass 7A-2 Claim, other than the holder of a Claim
related to or arising out of the 1995 Subordinated Reset Notes, may
voluntarily elect to be treated as a Class 6 creditor rather than a
Subclass 7A-2 creditor by agreeing to reduce the amount of its
Unsecured Claim to $1,000.00 and be paid FIFTY PER CENT (50%) of its
reduced Unsecured Claim in cash on the Effective Date or as soon as
practicable after such Claim becomes allowed. If you wish to make
this election and waive the right to be treated as a Subclass 7A-2
creditor, please check the following box:
<PAGE> 29
The undersigned hereby elects to
voluntarily reduce the amount of its
Subclass 7A-2 unsecured claim to
$1,000.00 and to have its reduced
unsecured claim treated as a Class 6 [ ]
Claim under the Plan and be paid
$500.00 in cash promptly after the
Effective Date in full satisfaction of
its claim. By making this election,
the undersigned hereby certifies that
its claim does not arise out of or
related to a 1995 Subordinated Reset
Note.
ITEM 2. CLASS 7A-2 VOTE OR CLASS 6 VOTE
The holder of the Claim(s) set forth in Item 1, votes (please check one):
[ ] To Accept the Plan [ ] To Reject the Plan
ITEM 3. By signing this Ballot, the undersigned creditor certifies
that it has been provided with and has read a copy of the
Disclosure Statement.
ITEM 4. By signing this Ballot, the undersigned creditor
hereby certifies that it is the holder of the Claim(s) set
forth in Item 1 and has full power and authority to vote to
accept or reject the Plan. The undersigned also acknowledges
that the solicitation is pursuant to the information contained
in the Disclosure Statement and the Plan.
ITEM 5. VOTE REGARDING PLAN RELEASE PROVISION (OPTIONAL).
[ ] The undersigned creditor of one or more of the Debtors,
holding a Claim in the amount set forth in Item 1, elects not
to be bound by the releases set forth in Section 8.7 of the Plan.
If you sign and return this Ballot, but do not make the above election
by marking the box in this Item 5, on and as of the Effective Date you will
have released, and will be deemed to have released, those individuals and
entities listed in Section 8.7 of the Plan in the manner indicated in Section
8.7 of the Plan.
Dated:____________________ Name of Voter:
______________________________
(Print or Type)
______________________________________________
Social Security or Federal Tax I.D. No.
Signature:
___________________________________
-2-
<PAGE> 30
By:
_____________________________________
(If Appropriate)
Title:
_____________________________________
(If Appropriate)
Address:
Street _____________________________________
______________________________________________
City, State and Zip Code
Telephone No:_________________________________
Broker Where Shares Are Held:_________________
If you are a registered holder, completed Ballots must be returned to
Logan & Company, Inc., 615 Washington Street, Second Floor, Hoboken, New
Jersey 07030.
IF YOU RECEIVED A RETURN ENVELOPE ADDRESSED TO A BROKER, BANK, NOMINEE
OR PROXY INTERMEDIARY, YOU MUST RETURN YOUR BALLOT TO YOUR BROKER, BANK,
NOMINEE OR PROXY INTERMEDIARY EARLY ENOUGH FOR YOUR VOTE TO BE PROCESSED AND
THEN FORWARDED BY THE BROKER, BANK, NOMINEE OR PROXY INTERMEDIARY TO THE
BALLOTING AGENT BY THE VOTING DEADLINE. THEREFORE, PLEASE ALLOW ADDITIONAL
TIME.
Ballots must be received by 4:00 p.m. Eastern Time on February 27,
1998 (the "Voting Deadline"). If a Ballot is received after the Voting
Deadline, it will not be counted.
-3-
<PAGE> 31
VOTING INSTRUCTIONS
PLEASE COMPLETE, SIGN AND DATE
THE BALLOT AND RETURN IT PROMPTLY.
YOUR BALLOT MUST BE RECEIVED BY:
BALLOT TABULATION CENTER -- FIRST MERCHANTS
C/O LOGAN & COMPANY, INC.
615 WASHINGTON STREET
HOBOKEN, NEW JERSEY 07030
ATTN: KATE LOGAN
BY 4:00 P.M. EASTERN TIME
ON FEBRUARY 27, 1998, OR YOUR VOTE WILL NOT BE COUNTED.
I. All capitalized terms used in the Ballot or Voting Instructions but
not otherwise defined therein shall have the meanings ascribed to them
in the Second Amended Joint Chapter 11 Plan (the "Plan").
II. The Plan can be confirmed by the Bankruptcy Court and thereby made
binding on you if it is accepted by the holders of two-thirds in
amount and more than one-half in number of Claims in each Class. In
the event the requisite acceptances are not obtained, the Bankruptcy
Court may nevertheless confirm the Plan if it finds that the Plan
accords fair and equitable treatment to the Class or Classes rejecting
it and otherwise satisfies the requirements of section 1129(b) of the
Bankruptcy Code.
III. For purposes of determining whether one-half in number of Claims in
each Class have accepted the Plan, separate Claims held by a single
creditor in a particular Class will be aggregated as if such creditor
held one Claim in such Class, and the votes related to such Claims
will be treated as a single vote to accept or reject the Plan.
IV. You must vote all of your Claims within a single Class under the Plan
to either accept or reject the Plan. Accordingly, a Ballot (or
multiple Ballots with respect to multiple Claims within a single
Class) that partially accepts and partially rejects the Plan will be
counted as a single acceptance of the Plan.
V. Please complete the Ballot, indicate acceptance or rejection of the
Plan in the box indicated and sign and return this Ballot by mail to
the tabulation agent (the "Tabulation Agent") at the address as
indicated on the enclosed pre-addressed envelope: Logan & Company,
Inc., 615 Washington Street, Second Floor, Hoboken, New Jersey 07030,
or return by hand delivery or overnight courier to: Logan & Company,
Inc., 615 Washington Street, Second Floor, Hoboken, New Jersey 07030,
or to your broker, bank or proxy intermediary. Please use the
pre-addressed envelope enclosed herewith. Ballots must be received by
4:00 p.m., Eastern Time, on February 27, 1998 (the "Voting Deadline").
If a Ballot is received after the Voting Deadline, it will not be
counted.
VI. This Ballot does not constitute and shall not be deemed a proof of
Claim or Interest or an assertion or admission of a Claim or Interest.
VII. Only Ballots submitted by persons who hold Claims or Interests as of
the Voting Record Date, which is January 15, 1998, shall be counted.
-4-
<PAGE> 32
VIII. Only Ballots that are timely received with original signatures shall
be counted; facsimile Ballots will not be counted absent the Debtor's
written consent.
IF YOU NEED ASSISTANCE IN COMPLETING YOUR BALLOT OR HAVE ANY QUESTIONS PLEASE
CONTACT THE TABULATION AGENT, LOGAN & COMPANY, AT (201) 798- 1031.
-5-
<PAGE> 33
FORM BALLOT NO. 7
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
FIRST MERCHANTS ACCEPTANCE ) Case No. 97-1500 (JJF)
CORPORATION, )
)
FIRST MERCHANTS RESIDENTIAL ) Case No. 97-1892 (JJF)
CREDIT CORPORATION, )
)
Debtors. ) Jointly Administered
BALLOT FOR ACCEPTING OR REJECTING
SECOND AMENDED JOINT CHAPTER 11 PLAN
CLASS 7B -- ALLOWED UNSECURED CLAIMS AGAINST FMRCC
PLEASE READ AND FOLLOW THE ENCLOSED VOTING INSTRUCTIONS
CAREFULLY BEFORE COMPLETING THE BALLOT.
PLEASE CHECK THE APPROPRIATE BOX BELOW TO INDICATE
YOUR ACCEPTANCE OR REJECTION OF THE PLAN.
THE PLAN PROPONENTS AND THE OFFICIAL COMMITTEE
OF UNSECURED CREDITORS RECOMMEND THAT YOU ACCEPT
THE PLAN BY CHECKING THE "TO ACCEPT THE PLAN" BOX IN ITEM 2.
ITEM 1. AMOUNT AND TYPE OF CLAIM
The undersigned is a creditor of First Merchants Residential Credit
Corporation holding a Claim in the amount of $___________________.
ITEM 2. CLASS 7B VOTE
The holder of the Claim(s) set forth in Item 1, votes (please check
one):
[ ] To Accept the Plan [ ] To Reject the Plan
ITEM 3. By signing this Ballot, the undersigned creditor certifies
that it has been provided with and has read a copy of the
Disclosure Statement.
<PAGE> 34
ITEM 4. By signing this Ballot, the undersigned creditor hereby certifies
that it is the holder of the Claim(s) set forth in Item 1 and has
full power and authority to vote to accept or reject the Plan.
The undersigned also acknowledges that the solicitation is
pursuant to the information contained in the Disclosure Statement
and the Plan.
ITEM 5. VOTE REGARDING PLAN RELEASE PROVISION (OPTIONAL).
[ ] The undersigned creditor of one or more of the Debtors,
holding a Claim in the amount set forth in Item 1, elects not
to be bound by the releases set forth in Section 8.7 of the
Plan.
If you sign and return this Ballot, but do not make the above election
by marking the box in this Item 5, on and as of the Effective Date you will
have released, and will be deemed to have released, those individuals and
entities listed in Section 8.7 of the Plan in the manner indicated in Section
8.7 of the Plan.
Dated:____________________ Name of Voter: _______________________________
(Print or Type)
______________________________________________
Social Security or Federal Tax I.D. No.
Signature: ___________________________________
By: __________________________________________
(If Appropriate)
Title: _______________________________________
(If Appropriate)
Address: _____________________________________
Street
______________________________________________
City, State and Zip Code
Telephone No:_________________________________
Completed Ballots must be returned to:
Logan & Company, Inc.
615 Washington Street
Second Floor
Hoboken, New Jersey 07030
Ballots must be received by 4:00 p.m. Eastern Time on February 27,
1998 (the "Voting Deadline"). If a Ballot is received after the Voting
Deadline, it will not be counted.
-2-
<PAGE> 35
VOTING INSTRUCTIONS
PLEASE COMPLETE, SIGN AND DATE
THE BALLOT AND RETURN IT PROMPTLY.
YOUR BALLOT MUST BE RECEIVED BY:
BALLOT TABULATION CENTER -- FIRST MERCHANTS
C/O LOGAN & COMPANY, INC.
615 WASHINGTON STREET
HOBOKEN, NEW JERSEY 07030
ATTN: KATE LOGAN
BY 4:00 P.M. EASTERN TIME
ON FEBRUARY 27, 1998, OR YOUR VOTE WILL NOT BE COUNTED.
I. All capitalized terms used in the Ballot or Voting Instructions but
not otherwise defined therein shall have the meanings ascribed to them
in the Second Amended Joint Chapter 11 Plan (the "Plan").
II. The Plan can be confirmed by the Bankruptcy Court and thereby made
binding on you if it is accepted by the holders of two-thirds in
amount and more than one-half in number of Claims in each Class. In
the event the requisite acceptances are not obtained, the Bankruptcy
Court may nevertheless confirm the Plan if it finds that the Plan
accords fair and equitable treatment to the Class or Classes rejecting
it and otherwise satisfies the requirements of section 1129(b) of the
Bankruptcy Code.
III. For purposes of determining whether one-half in number of Claims in
each Class have accepted the Plan, separate Claims held by a single
creditor in a particular Class will be aggregated as if such creditor
held one Claim in such Class, and the votes related to such Claims
will be treated as a single vote to accept or reject the Plan.
IV. You must vote all of your Claims within a single Class under the Plan
to either accept or reject the Plan. Accordingly, a Ballot (or
multiple Ballots with respect to multiple Claims within a single
Class) that partially accepts and partially rejects the Plan will be
counted as a single acceptance of the Plan.
V. Please complete the Ballot, indicate acceptance or rejection of the
Plan in the box indicated and sign and return this Ballot by mail to
the tabulation agent (the "Tabulation Agent") at the address as
indicated on the enclosed pre-addressed envelope: Logan & Company,
Inc., 615 Washington Street, Second Floor, Hoboken, New Jersey 07030,
or return by hand delivery or overnight courier to: Logan & Company,
Inc., 615 Washington Street, Second Floor, Hoboken, New Jersey 07030.
Ballots must be received by 4:00 p.m., Eastern Time, on February 27,
1998 (the "Voting Deadline"). If a Ballot is received after the
Voting Deadline, it will not be counted.
VI. This Ballot does not constitute and shall not be deemed a proof of
Claim or Interest or an assertion or admission of a Claim or Interest.
VII. Only Ballots submitted by persons who hold Claims or Interests as of
the Voting Record Date, which is January 15, 1998, shall be counted.
- 3 -
<PAGE> 36
VIII. Only Ballots that are timely received with original signatures shall
be counted; facsimile Ballots will not be counted absent the Debtor's
written consent.
IF YOU NEED ASSISTANCE IN COMPLETING YOUR BALLOT OR HAVE ANY QUESTIONS PLEASE
CONTACT THE TABULATION AGENT, LOGAN & COMPANY, AT (201) 798- 1031.
- 4 -
<PAGE> 37
FORM BALLOT NO. 8
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
FIRST MERCHANTS ACCEPTANCE ) Case No. 97-1500 (JJF)
CORPORATION, )
)
FIRST MERCHANTS RESIDENTIAL ) Case No. 97-1892 (JJF)
CREDIT CORPORATION, )
)
Debtors, ) Jointly Administered
BALLOT FOR ACCEPTING OR REJECTING
SECOND AMENDED JOINT CHAPTER 11 PLAN
CLASS 8A -- INTERESTS IN FMAC
PLEASE READ AND FOLLOW THE ENCLOSED VOTING INSTRUCTIONS
CAREFULLY BEFORE COMPLETING THE BALLOT.
PLEASE CHECK THE APPROPRIATE BOX BELOW TO INDICATE
YOUR ACCEPTANCE OR REJECTION OF THE PLAN.
THE PLAN PROPONENTS AND THE OFFICIAL COMMITTEE
OF UNSECURED CREDITORS RECOMMEND THAT YOU ACCEPT
THE PLAN BY CHECKING THE "TO ACCEPT THE PLAN" BOX IN ITEM 2.
ITEM 1. AMOUNT AND TYPE OF CLAIM
The undersigned is an interestholder in First Merchants Acceptance
Corporation holding _____________ shares.
ITEM 2. CLASS 8A VOTE
The holder of the interest(s) set forth in Item 1, votes (please check
one):
[ ] To Accept the Plan [ ] To Reject the Plan
ITEM 3. By signing this Ballot, the undersigned interestholder certifies
that it has been provided with and has read a copy of the
Disclosure Statement.
<PAGE> 38
ITEM 4. By signing this Ballot, the undersigned interestholder hereby certifies
that it is the holder of the Interest(s) set forth in Item 1 and has
full power and authority to vote to accept or reject the Plan. The
undersigned also acknowledges that the solicitation is pursuant to the
information contained in the Disclosure Statement and the Plan.
ITEM 5. VOTE REGARDING PLAN RELEASE PROVISION (OPTIONAL).
[ ] The undersigned interestholder of one or more of the Debtors, holding
the number of shares set forth in Item 1, elects not to be bound by the
releases set forth in Section 8.7 of the Plan.
If you sign and return this Ballot, but do not make the above election by
marking the box in this Item 5, on and as of the Effective Date you will have
released, and will be deemed to have released, those individuals and entities
listed in Section 8.7 of the Plan in the manner indicated in Section 8.7 of the
Plan.
Dated: Name of Voter:
________________ __________________________________
(Print or Type)
________________________________________________
Social Security or Federal Tax I.D. No.
Signature:
______________________________________
By:
_____________________________________________
(If Appropriate)
Title:
__________________________________________
(If Appropriate)
Address:
Street _________________________________________
________________________________________________
City, State and Zip Code
Telephone No:_________________________________
Broker Where Shares Are Held:_________________
If you are a registered holder, completed Ballots must be returned to
Logan & Company, Inc., 615 Washington Street, Second Floor, Hoboken, New
Jersey 07030.
IF YOU RECEIVED A RETURN ENVELOPE ADDRESSED TO A BROKER, BANK, NOMINEE
OR PROXY INTERMEDIARY, YOU MUST RETURN YOUR BALLOT TO YOUR BROKER, BANK,
NOMINEE OR PROXY INTERMEDIARY EARLY ENOUGH FOR YOUR VOTE TO BE PROCESSED AND
THEN FORWARDED BY THE BROKER, BANK, NOMINEE OR PROXY INTERMEDIARY TO THE
BALLOTING AGENT BY THE VOTING DEADLINE. THEREFORE, PLEASE ALLOW ADDITIONAL
TIME.
Ballots must be received by 4:00 p.m. Eastern Time on February 27, 1998
(the "Voting Deadline"). If a Ballot is received after the Voting Deadline, it
will not be counted.
-2-
<PAGE> 39
VOTING INSTRUCTIONS
PLEASE COMPLETE, SIGN AND DATE
THE BALLOT AND RETURN IT PROMPTLY.
YOUR BALLOT MUST BE RECEIVED BY:
BALLOT TABULATION CENTER -- First Merchants
c/o Logan & Company, Inc.
615 Washington Street
Hoboken, New Jersey 07030
Attn: Kate Logan
BY 4:00 P.M. EASTERN TIME
ON FEBRUARY 27, 1998, OR YOUR VOTE WILL NOT BE COUNTED.
I. All capitalized terms used in the Ballot or Voting Instructions but not
otherwise defined therein shall have the meanings ascribed to them in the
Second Amended Joint Chapter 11 Plan (the "Plan").
II. The Plan can be confirmed by the Bankruptcy Court and thereby made binding
on you if it is accepted by the holders of two-thirds in amount and more
than one-half in number of Claims in each class. In the event the
requisite acceptances are not obtained, the Bankruptcy Court may
nevertheless confirm the Plan if it finds that the Plan accords fair and
equitable treatment to the Class or Classes rejecting it and otherwise
satisfies the requirements of section 1129(b) of the Bankruptcy Code.
III. For purposes of determining whether one-half in number of Claims in each
Class have accepted the Plan, separate Claims held by a single creditor in
a particular Class will be aggregated as if such creditor held one Claim
in such Class, and the votes related to such Claims will be treated as a
single vote to accept or reject the Plan.
IV. You must vote all of your Claims within a single Class under the Plan to
either accept or reject the Plan. Accordingly, a Ballot (or multiple
Ballots with respect to multiple Claims within a single Class) that
partially accepts and partially rejects the Plan will be counted as a
single acceptance of the Plan.
V. Please complete the Ballot, indicate acceptance or rejection of the Plan
in the box indicated and sign and return this Ballot by mail to the
tabulation agent (the "Tabulation Agent") at the address as indicated on
the enclosed pre-addressed envelope: Logan & Company, Inc. 615 Washington
Street, Second Floor, Hoboken, New Jersey 07030, or return by hand
delivery or overnight courier to: Logan & Company, Inc., 615 Washington
Street, Second Floor, Hoboken, New Jersey 07030 or to your broker, bank or
proxy intermediary. Please use the pre-addressed envelope enclosed
herewith. Ballots must be received by 4:00 p.m., Eastern Time,
on February 27, 1998 (the "Voting Deadline"). If a Ballot is received
after the Voting Deadline, it will not be counted.
VI. This Ballot does not constitute and shall not be deemed a proof of Claim
or Interest or an assertion or admission of a Claim or Interest.
VII. Only Ballots submitted by persons who hold Claims or Interests as of the
Voting Record Date, which is January 15, 1998, shall be counted.
<PAGE> 40
VIII. Only Ballots that are timely received with original signatures shall be
counted; facsimile Ballots will not be counted absent the Debtor's written
consent.
IF YOU NEED ASSISTANCE IN COMPLETING YOUR BALLOT OR HAVE ANY QUESTIONS PLEASE
CONTACT THE TABULATION AGENT, LOGAN & COMPANY, AT (201) 798-1031.
-4-
<PAGE> 41
OFFICIAL COMMITTEE OF UNSECURED CREDITORS
OF FIRST MERCHANTS ACCEPTANCE CORPORATION
TO: ALL UNSECURED CREDITORS OF FIRST MERCHANTS ACCEPTANCE
CORPORATION
RE: In re First Merchants Acceptance Corporation
BKY. Case No. 97-1500 (JJF)
In re First Merchants Residential Credit Corporation
BKY. Case No. 97-1892 (JJF)
Ladies and Gentlemen:
This letter is written to you on behalf of the Official Committee of
Unsecured Creditors of First Merchants Acceptance Corporation (the "Committee")
and is being sent to you a conjunction with the distribution of the following
documents:
1. Second Amended Joint Plan Under Chapter 11 of the United States
Bankruptcy Code (the "Plan");
2. Joint Disclosure Statement of Debtors in Connection With Solicitation
of Ballots With Respect to Second Amended Joint Plan Under Chapter
11 of the United States Bankruptcy Code (the "Disclosure Statement");
3. Notice of Order (i) Approving Joint Disclosure Statement of Debtors
in Connection With Solicitation of Ballots With Respect to Joint
Plan Under Chapter 11 of the United States Bankruptcy Code, (ii)
Fixing the Time for the Filing of Acceptances or Rejections of
Plan and Objections to Confirmation of the Plan and (iii) Scheduling
a Hearing on Confirmation of Plan (the "Notice"): and
4. Ballot for Accepting or Rejecting Second Amended Joint Chapter 11
Plan (the "Ballot")
The Disclosure Statement was approved by the United States District Court for
the District of Delaware (the "Court") as containing adequate information.
The Plan is jointly proposed by First Merchants Acceptance Corporation ("FMAC")
and First Merchants Residential Credit Corporation ("FMRCC").
FMAC voluntarily commenced its Chapter 11 case by filing a petition on
July 11, 1997. FMRCC voluntarily commenced its Chapter 11 case by filing a
petition on September 9, 1997. The Committee has been negotiating with FMAC and
other parties in interest concerning treatment of unsecured creditors under the
proposed Plan since shortly after the commencement of the FMAC case. The Plan
represents the culmination of these extensive negotiations.
The Committee urges you to read the Plan and Disclosure Statement
carefully before you vote to accept or reject the Plan. The Committee has voted
to support the Plan.
The Committee believes that acceptance of the Plan is in the best
interests of
<PAGE> 42
FMAC's unsecured creditors, and the Committee recommends that you vote to
accept the Plan. However, you should make your own determination whether to
accept or reject the Plan after reading and giving consideration to the
Plan and Disclosure Statement and in consultation with your own advisors
and professionals.
It is important that you vote on the Plan by completing and mailing
your Ballot form in accordance with the instructions sent to you with the
Ballot. Ballots must be received by Logan & Company, Inc., 615 Washington
Street, Second Floor, Hoboken, NJ 07030 on or before 4:00 p.m. eastern time,
February 27, 1998--the deadline fixed by the Court as the last day for your
Ballot to be counted.
If you should have any questions, please feel free to contact the
Committee's co-counsel--Stephen M. Mertz of Faegre & Benson LLP-- at
612/336-3418 or by facsimile at 612/336-3026.
THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS OF FIRST
MERCHANTS ACCEPTANCE
CORPORATION
By
-----------------------------
Its Chairperson
