EXECUTION COPY
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
BY AND BETWEEN
XXXXXX XXXXXXXXX CAPITAL PARTNERS II, L.P.,
AS PURCHASER,
AND
CONSUMER PORTFOLIO SERVICES, INC.,
AS ISSUER
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
DATED AS OF NOVEMBER 17, 1998
TABLE OF CONTENTS
PAGE
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. PURCHASE AND SALE OF THE SECURITIES . . . . . . . . . . . . . . . . . . .20
2.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . . .20
2.2 Purchase of the Securities. . . . . . . . . . . . . . . . . . .20
2.3 Closing of Sale of the Securities . . . . . . . . . . . . . . .21
2.4 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . .21
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . .21
3.1 Organization and Good Standing. . . . . . . . . . . . . . . . .21
3.2 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . .22
3.3 Qualification . . . . . . . . . . . . . . . . . . . . . . . . .22
3.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . . .22
3.5 Due Execution and Delivery; Binding Obligations . . . . . . . .22
3.6 No Violation; Senior Subordinated Indebtedness; Senior
Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . .22
3.7 Governmental and Other Third Party Consents . . . . . . . . . .23
3.8 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . .24
3.9 Validity and Issuance of Primary Warrant Shares . . . . . . . .25
3.10 Transactions with Affiliates. . . . . . . . . . . . . . . . . .25
3.11 Financial Statements. . . . . . . . . . . . . . . . . . . . . .25
3.12 Existing Indebtedness; Liens; Investments; Guaranties;
Material Liabilities . . . . . . . . . . . . . . . . . . . . .26
3.13 Certain Changes . . . . . . . . . . . . . . . . . . . . . . . .27
3.14 Material Contracts; Automobile Contracts. . . . . . . . . . . .28
3.15 Trade Accounts Payable. . . . . . . . . . . . . . . . . . . . .29
3.16 Labor Agreements and Actions. . . . . . . . . . . . . . . . . .29
3.17 Employee Benefit Plans; ERISA . . . . . . . . . . . . . . . . .30
3.18 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
3.19 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . .31
3.20 Governmental Regulation; Margin Stock . . . . . . . . . . . . .31
3.21 Compliance with Laws; Licenses and Permits. . . . . . . . . . .31
3.22 Title to Properties and Assets. . . . . . . . . . . . . . . . .31
3.23 Intellectual Property . . . . . . . . . . . . . . . . . . . . .31
3.24 Brokers; Certain Expenses . . . . . . . . . . . . . . . . . . .32
3.25 Real Property Leases. . . . . . . . . . . . . . . . . . . . . .33
3.26 Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . .33
3.27 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .33
3.28 Books and Records . . . . . . . . . . . . . . . . . . . . . . .34
3.29 Dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
i
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
3.30 Personal Property Leases. . . . . . . . . . . . . . . . . . . .34
3.31 Employment and Agency Agreements. . . . . . . . . . . . . . . .34
3.32 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . .35
3.33 Environmental Matters . . . . . . . . . . . . . . . . . . . . .35
3.34 Public Holding Company; Investment Company. . . . . . . . . . .35
3.35 Depository and Other Accounts . . . . . . . . . . . . . . . . .35
3.36 Tax Status of Securitization Transactions . . . . . . . . . . .36
3.37 Burdensome Obligations; Future Expenditures . . . . . . . . . .36
3.38 FSA Indebtedness and Liabilities. . . . . . . . . . . . . . . .36
3.39 Charges to Net Interest Receivable. . . . . . . . . . . . . . .36
3.40 SEC Documents; Undisclosed Liabilities. . . . . . . . . . . . .36
3.41 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . .37
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . . .37
4.1 Organization and Good Standing. . . . . . . . . . . . . . . . .37
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . .37
4.3 Due Execution and Delivery; Binding Obligations . . . . . . . .37
4.4 No Violation. . . . . . . . . . . . . . . . . . . . . . . . . .38
4.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . . .38
4.6 Accredited Investor Status. . . . . . . . . . . . . . . . . . .38
4.7 Governmental Consents . . . . . . . . . . . . . . . . . . . . .38
5. CONDUCT PRIOR TO CLOSING. . . . . . . . . . . . . . . . . . . . . . . . .38
5.1 Conduct of Business Prior to Closing. . . . . . . . . . . . . .38
5.2 Access to Information and Documents . . . . . . . . . . . . . .40
5.3 Covenant to Close . . . . . . . . . . . . . . . . . . . . . . .40
6. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER. . . . . . . . . . . . . .40
6.1 Representations and Warranties; No Default. . . . . . . . . . .40
6.2 Purchase Permitted By Applicable Laws . . . . . . . . . . . . .40
6.3 No Material Adverse Changes . . . . . . . . . . . . . . . . . .41
6.4 No Judgment or Order. . . . . . . . . . . . . . . . . . . . . .41
6.5 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . .41
6.6 Delivery of Documents . . . . . . . . . . . . . . . . . . . . .41
6.7 Stanwich Transactions . . . . . . . . . . . . . . . . . . . . .41
6.8 Closing and Other Fees. . . . . . . . . . . . . . . . . . . . .42
6.9 Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . .42
6.10 Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . .42
ii
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
6.11 Certain FSA and ESFR Waivers; ESFR Fees . . . . . . . . . . . .42
6.12 Financial Projections . . . . . . . . . . . . . . . . . . . . .43
6.13 CPS Operating Plan. . . . . . . . . . . . . . . . . . . . . . .43
6.14 Board Representative. . . . . . . . . . . . . . . . . . . . . .43
6.15 Third Party Consents. . . . . . . . . . . . . . . . . . . . . .43
6.16 Documents in Satisfactory Form. . . . . . . . . . . . . . . . .43
7. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. . . . . . . . . . . . . . .44
7.1 Representations and Warranties. . . . . . . . . . . . . . . . .44
7.2 Purchase Permitted By Applicable Laws . . . . . . . . . . . . .44
7.3 No Material Judgment or Order . . . . . . . . . . . . . . . . .44
7.4 Payment for Securities. . . . . . . . . . . . . . . . . . . . .44
7.5 Stanwich Purchase Option. . . . . . . . . . . . . . . . . . . .44
8. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . .44
8.1 Payments with Respect to the Note . . . . . . . . . . . . . . .45
8.2 Information Covenants . . . . . . . . . . . . . . . . . . . . .45
8.3 Financial Covenants . . . . . . . . . . . . . . . . . . . . . .47
8.4 Performance of the Related Agreements . . . . . . . . . . . . .47
8.5 CPS Operating Plan. . . . . . . . . . . . . . . . . . . . . . .47
8.6 Agreement with FSA. . . . . . . . . . . . . . . . . . . . . . .48
8.7 Repayment of NAB Loans. . . . . . . . . . . . . . . . . . . . .48
8.8 Key-Man Life Insurance. . . . . . . . . . . . . . . . . . . . .48
8.9 Legal Existence; Franchises; Compliance with Laws . . . . . . .48
8.10 Books, Records and Inspections. . . . . . . . . . . . . . . . .49
8.11 Maintenance of Property; Insurance. . . . . . . . . . . . . . .49
8.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
8.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
8.14 Performance of Servicing Duties; Clean-Up Calls . . . . . . . .50
8.15 Maintenance of LLCP Blocked Account . . . . . . . . . . . . . .50
8.16 Communication with Accountants. . . . . . . . . . . . . . . . .50
8.17 Compliance with Leaseholds. . . . . . . . . . . . . . . . . . .50
8.18 Compliance with Material Contracts. . . . . . . . . . . . . . .50
8.19 Further Assurances. . . . . . . . . . . . . . . . . . . . . . .51
8.20 Future Information. . . . . . . . . . . . . . . . . . . . . . .51
8.21 New Senior Credit Facility. . . . . . . . . . . . . . . . . . .51
8.22 Year 2000 Compatibility . . . . . . . . . . . . . . . . . . . .53
8.23 Nasdaq Listing. . . . . . . . . . . . . . . . . . . . . . . . .53
iii
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
8.24 Stanwich Commitment . . . . . . . . . . . . . . . . . . . . . .53
9. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .54
9.1 Limitations on Indebtedness . . . . . . . . . . . . . . . . . .54
9.2 Limitations on Liens. . . . . . . . . . . . . . . . . . . . . .54
9.3 Limitations on Investments. . . . . . . . . . . . . . . . . . .55
9.4 Limitation on Restricted Payments . . . . . . . . . . . . . . .55
9.5 Subsidiaries; Changes in Business . . . . . . . . . . . . . . .56
9.6 Observance of Stanwich Subordination Provisions . . . . . . . .56
9.7 Environmental Liabilities . . . . . . . . . . . . . . . . . . .56
9.8 Amendments to Securitization Transaction Documents. . . . . . .56
9.9 Transactions With Affiliates. . . . . . . . . . . . . . . . . .56
9.10 Restriction On Fundamental Changes. . . . . . . . . . . . . . .57
9.11 Agreements Affecting Capital Stock and Indebtedness;
Amendments to Material Contracts. . . . . . . . . . . . . . . .57
9.12 Indebtedness to FSA . . . . . . . . . . . . . . . . . . . . . .58
9.13 Payment Restrictions Affecting Certain Subsidiaries . . . . . .58
9.14 No Insurance Agreement Event of Default . . . . . . . . . . . .58
10. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
10.1 Transfer Taxes. . . . . . . . . . . . . . . . . . . . . . . . .59
10.2 Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
10.3 Indemnification Procedures. . . . . . . . . . . . . . . . . . .59
10.4 Contribution. . . . . . . . . . . . . . . . . . . . . . . . . .60
11. DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . .60
11.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . .60
11.2 Acceleration. . . . . . . . . . . . . . . . . . . . . . . . . .63
11.3 Other Remedies. . . . . . . . . . . . . . . . . . . . . . . . .63
11.4 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . .63
12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
12.1 Notations . . . . . . . . . . . . . . . . . . . . . . . . . . .63
12.2 Consent to Amendments . . . . . . . . . . . . . . . . . . . . .64
12.3 Registration of Notes; Assignments. . . . . . . . . . . . . . .64
12.4 Persons Deemed Owners; Participations . . . . . . . . . . . . .64
12.5 Survival of Representations and Warranties. . . . . . . . . . .65
12.6 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . .65
iv
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
12.7 Severability. . . . . . . . . . . . . . . . . . . . . . . . . .65
12.8 Successors and Assigns. . . . . . . . . . . . . . . . . . . . .65
12.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
12.10 Accounting Terms. . . . . . . . . . . . . . . . . . . . . . . .66
12.11 Descriptive Headings; Construction and Interpretation . . . . .66
12.12 Exhibits and Disclosure Schedules . . . . . . . . . . . . . . .67
12.13 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . .67
12.14 Assignments of Note . . . . . . . . . . . . . . . . . . . . . .67
12.15 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . .67
12.16 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . .67
12.17 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . .67
12.18 WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . .68
v
EXHIBITS
Exhibit A -- Form of Senior Subordinated Primary Note
Exhibit B -- Form of Primary Warrant
Exhibit C -- Form of Registration Rights Agreement
Exhibit D -- Form of Stanwich Purchase Option
Exhibit E -- Form of Compliance Certificate
Exhibit F -- Form of Investor Rights Agreement
Exhibit G -- Form of Debt Restructure Agreement
Exhibit H -- Form of Subordination Agreement
SCHEDULES
Schedule 2.2 -- Allocation of Purchase Price
Schedule 2.4 -- Use of Proceeds
Schedule 3.2 -- Subsidiaries
Schedule 3.7 -- Consents
Schedule 3.8 -- Authorized Capital Stock
Schedule 3.10 -- Transactions with Affiliates
Schedule 3.11 -- Financial Statements
Schedule 3.12 -- Existing Indebtedness; Liens; Investments;
Guaranties
Schedule 3.13 -- Certain Changes
Schedule 3.14(a) -- Material Contracts
Schedule 3.14(b) -- Automobile Contracts
Schedule 3.15 -- Accounts Payable
Schedule 3.17 -- Employee Welfare Benefit Plans
Schedule 3.18 -- Taxes
Schedule 3.19 -- Litigation
Schedule 3.21 -- Licenses and Permits
Schedule 3.23 -- Intellectual Property
Schedule 3.25 -- Real Property Leases
Schedule 3.27 -- Insurance
Schedule 3.29 -- Dealers
Schedule 3.30 -- Personal Property Leases
Schedule 3.31 -- Employment and Agency Agreements
Schedule 3.35 -- Depository and Other Accounts
vi
ADDENDUM
Addendum Regarding Stanwich
ANNEX
Annex A -- Financial Covenants and Related Definitions
vii
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement is entered into as of November 17, 1998
(this "Agreement"), by and between Xxxxxx Xxxxxxxxx Capital Partners II, L.P., a
California limited partnership, as purchaser (the "Purchaser"), and Consumer
Portfolio Services, Inc., a California corporation (the "Company"), as issuer.
RECITALS
A. The Company previously issued and sold to the Purchaser, pursuant to a
Bridge Loan Agreement, dated as of November 2, 1998, between the Purchaser and
the Company, a Senior Bridge Note, dated November 2, 1998, in the principal
amount of $2,500,000 (the "Bridge Note"), and a Bridge Warrant to Purchase
345,000 shares of Common Stock, all on the terms and subject to the conditions
set forth therein and in the other Bridge Loan Documents. On November 10, 1998,
the Company repaid in full the outstanding principal balance of, and all accrued
interest on, the Bridge Note.
B. The Company desires further to issue and sell to the Purchaser, and
the Purchaser desires to purchase from the Company, on the terms and subject to
the conditions set forth herein, a Senior Subordinated Primary Note in the
aggregate principal amount of $25,000,000.
C. As an inducement to the Purchaser to purchase the Note being sold by
the Company hereunder, the Company desires to issue to the Purchaser a warrant
to purchase 3,105,000 shares of its Common Stock, all as contemplated therein.
D. As a further inducement to the Purchaser to purchase the Note, the
Company and certain of its Affiliates are willing to enter into the Related
Agreements, including, without limitation, an Investor Rights Agreement with the
Purchaser, or an Affiliate of the Purchaser, under which the Purchaser or its
Affiliate will be entitled to certain management and other rights in connection
with the Purchaser's investment in the Note and such warrant.
AGREEMENT
In consideration of the mutual covenants and agreements set forth herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. For the purpose of this Agreement, the following capitalized
terms shall have the meanings set forth below (PROVIDED, HOWEVER, that the
definitions used in the ESFR Agreement, when applied to the following terms as
set forth below, shall apply to such terms notwithstanding that the ESFR
Agreement is terminated at any time after the date hereof):
"AFFILIATE" shall mean, when used with reference to any specified
Person, (i) any other Person that, directly or indirectly, owns or
controls, whether beneficially or of record, or as a trustee, guardian or
other fiduciary (other than a commercial bank or trust company), five
percent (5%) or more of the Capital Stock of such specified Person having
ordinary voting power in the election of directors of such specified
Person, (ii) any other Person that, directly or indirectly, controls, is
controlled by, is under direct or indirect common control with or is
included in the Immediate Family of, such specified Person or any Affiliate
of such specified Person, (iii) any executive officer, director, joint
venturer, partner or member of such specified Person or any Person included
in the Immediate Family of any of the foregoing, (iv) any Dealer, if such
Dealer or any Affiliate of such Dealer is included in the Immediate Family
of Xxxxxxx X. Xxxxxxx, Xx., Xxxxxxx X. Xxxxxxx, Xx. or any other officer or
director of the Company, or (v) any Automobile Contract Debtor, independent
contractor, vendor, client or customer of the Company if such Automobile
Contract Debtor, independent contractor, vendor, client or customer or any
Affiliate thereof is included in the Immediate Family of Xxxxxxx X.
Xxxxxxx, Xx., Xxxxxxx X. Xxxxxxx, Xx. or any other officer or director of
the Company. For the purposes of this definition, "CONTROL," when used
with respect to any specified Person, shall mean the power to direct or
cause the direction of management or policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "CONTROLLING" and "CONTROLLED" have meanings
correlative of the foregoing. Notwithstanding the foregoing, for the
purposes of this Agreement and the Related Agreements, neither the
Purchaser nor any of its Affiliates, officers, directors, partners or
employees shall be deemed to be Affiliates of the Company.
"AGREEMENT" shall mean this Agreement, including the Exhibits,
Schedules, ANNEX A and the Addendum, in each case as amended, supplemented
or otherwise modified from time to time.
"APPLICABLE LAWS" shall mean (i) all constitutions, treaties,
statutes, laws, rules, regulations and ordinances of any Governmental
Authority applicable to the Company, its Subsidiaries or its or their
respective businesses or properties, including, without limitation, usury
laws, the federal Truth-In-Lending Act, the Equal Credit Opportunity Act,
the Fair Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt
Collection Practices Act, the Federal Trade Commission Act, the
Xxxxxxxx-Xxxx Warranty Act, Regulations B, M and Z of the Federal Reserve
Board and any other consumer credit, equal opportunity, disclosure or
repossession laws or regulations, laws relating to the discharge of
pollutants into the environment and the storage and handling of Hazardous
Materials and laws relating to franchise, building, zoning, health,
sanitation, safety or labor relations, and (ii) any orders, decisions,
rulings, judgments or decrees of any Governmental Authority applicable to
the Company, the Subsidiaries or its or their respective businesses or
properties.
2
"ARC" shall mean Xxxxx Receivables Corp., a California corporation.
"ASSET SALE" shall mean any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions) by the Company or any of its Subsidiaries of (i) any shares
of Capital Stock of the Company's Subsidiaries, or (ii) any other assets or
properties of the Company or such Subsidiaries outside of the ordinary
course of business.
"ASSIGNMENT" shall have the meaning set forth in SECTION 12.14.
"AUTOMOBILE CONTRACT" shall mean all right, title, and interest of the
Company or any of its Subsidiaries in and to each presently existing and
hereafter arising loan account, consumer loan, account, lease, installment
sale contract, contract right, Instrument, note, document, chattel paper or
general intangible, and all rights of the Company or any of its
Subsidiaries to receive payment thereunder, together with all other rights
of the Company or any of its Subsidiaries obtained in connection therewith,
and any collateral therefor, including all rights under any and all related
Automobile Security Documents.
"AUTOMOBILE CONTRACT DEBTOR" shall have the meaning set forth in ANNEX
A.
"AUTOMOBILE PRINCIPAL BALANCE" shall have the meaning set forth in
ANNEX A.
"AUTOMOBILE SECURITY DOCUMENTS" shall mean all security agreements,
chattel mortgages, deeds of trust, mortgages or other security instruments,
guaranties, sureties, and all agreements of every type and nature
(including a certificate of title) securing the obligations of an
Automobile Contract Debtor.
"BANK OF AMERICA FACILITY" shall mean the Business Loan Agreement
dated as of December 6, 1996, between Bank of America National Trust and
Savings Association and the Company, as amended by Amendment No. 1, dated
as of "_____, 1997," and as further amended by Amendment No. 2, dated as of
"_____, 1998," as further amended by Amendment No. 3, dated as of November
2, 1998, and as further amended by Amendment No. 4, dated as of November 6,
1998.
"BANKRUPTCY LAW" shall mean Title 11, U.S. Code (11 U.S.C. Section 101
ET SEQ.) or any similar federal or state law for the relief of debtors, as
amended from time to time.
"BASE PAYMENT" shall have the meaning set forth in SECTION 8.21.
"BOARD OF DIRECTORS" shall mean, with respect to any Person, the board
of directors (or similar governing body) of such Person.
3
"BRIDGE LOAN AGREEMENT" shall mean the Bridge Loan Agreement, dated as
of November 2, 1998, between the Purchaser and the Company, pursuant to
which, on the terms and subject to the conditions set forth therein, the
Company issued and sold to the Purchaser the Bridge Note and the Bridge
Warrant.
"BRIDGE LOAN DOCUMENTS" shall mean, collectively, the Bridge Loan
Agreement, the Bridge Note, the Bridge Warrant, ESFR Amendment No. 1, the
Irrevocable Instruction Letter (as such term is defined in the Bridge Loan
Agreement), the representation letter dated as of November 2, 1998,
delivered by the Company to the Purchaser, and any and all agreements,
instruments and other documents executed and/or delivered in connection
therewith, as the same may be amended, supplemented or otherwise modified
from time to time.
"BRIDGE NOTE" shall have the meaning set forth in the recitals.
"BRIDGE WARRANT" shall mean the Bridge Warrant to Purchase 345,000
Shares of Common Stock of the Company, dated November 2, 1998, issued by
the Company to the Purchaser under the Bridge Loan Agreement.
"BUSINESS DAY" shall mean any day except Saturday, Sunday and any day
which either is a legal holiday under the laws of the State of California
or is a day on which banking institutions located in such state are
authorized or obligated to close.
"CAPITAL EXPENDITURES" shall have the meaning set forth in ANNEX A.
"CAPITAL LEASE OBLIGATIONS" shall mean any obligations of the Company
and its Subsidiaries under all leases of real or personal property that are
required to be recorded as a capitalized lease on the consolidated balance
sheet of the Company and its Subsidiaries in accordance with GAAP.
"CAPITAL STOCK" shall mean, with respect to any Person, (i) if such
Person is a corporation, any and all shares, interests, participations in
profits or other equivalents (however designated) of capital stock or other
equity interests of such Person, (ii) if such Person is a limited liability
company, any and all membership units or interests, or (iii) if such Person
is a partnership, any and all partnership units or interests.
"CHANGE IN CONTROL" shall have the meaning set forth in Section 6 of
the Note.
"CLOSING" shall have the meaning specified in SECTION 2.3.
"CLOSING BALANCE SHEET" shall have the meaning set forth in SECTION
3.11(d).
"CLOSING DATE" shall have the meaning specified in SECTION 2.3.
4
"CODE" shall mean the Uniform Commercial Code, as adopted and in force
in the State of California as from time to time in effect, and the Uniform
Commercial Code of any other jurisdiction as required under Division 9103
of the California Commercial Code.
"COMMON STOCK" shall mean the common stock, no par value per share, of
the Company.
"COMPANY" shall have the meaning set forth in the preamble.
"COMPANY SEC DOCUMENTS" shall have the meaning set forth in SECTION
3.40.
"CONSENT" shall mean any consent, approval, authorization, waiver,
permit, grant, franchise, license, exemption or order of, any registration,
certificate, qualification, declaration or filing with, or any notice to,
any Person, including, without limitation, any Government Authority.
"CONVERTIBLE SECURITIES" shall have the meaning specified in
SECTION 3.8.
"CPS OPERATING PLAN" shall have the meaning specified in SECTION 6.13.
"CPSRC" shall mean CPS Receivables Corp., a California corporation.
"CREDIT ENHANCER" shall mean FSA and/or any other Person which is not
an Affiliate of the Company that issues any surety bond, letter of credit
or other credit enhancement in connection with any Securitization
Transactions.
"CREDIT TRIGGER" shall have the meaning set forth in the ESFR
Agreement.
"CUSTODIAN" shall mean any receiver, trustee, assignee, liquidation,
sequestrator or similar official under any Bankruptcy Law.
"DEALER" shall mean a dealer that has sold Goods to any Automobile
Contract Debtor pursuant to an Automobile Contract.
"DEALER AGREEMENT" shall mean an agreement between the Company and a
Dealer that governs the sale or assignment of Automobile Contracts from
such Dealer to the Company, including any provisions for assignment
(whether with or without recourse, with a repurchase obligation by the
Dealer or with a guaranty by such Dealer) contained in such Automobile
Contract or related Automobile Security Documents with respect thereto.
5
"DEALER BUYBACK" shall mean the reassignment of an Automobile Contract
to an originating Dealer as a result of a breach of a representation or
warranty of the Dealer or breach by the Automobile Contract Debtor under
any Automobile Contract acquired by the Company with recourse to such
Dealer.
"DEFAULT" shall mean any event or condition which, with the giving of
notice or the lapse of time or both, becomes an Event of Default.
"DEPOSITARY" shall have the meaning set forth in the First Union
Agreement.
"DISCLOSURE SCHEDULES" shall have the meaning specified in the
introductory paragraph of SECTION 3.
"ENVIRONMENTAL LAWS" shall mean all Applicable Laws relating to
Hazardous Materials or the protection of human health or the environment,
including all requirements pertaining to reporting, permitting,
investigating or remediating releases or threatened releases of Hazardous
Materials into the environment, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time and any successor statute, including the
rules and regulations promulgated thereunder.
"ESCROW DEPOSIT" shall have the meaning specified in SECTION 8.21.
"ESFR AGENT" shall mean State Street Bank and Trust Company, as
"Agent" for itself and for each other ESFR Lender, and any successor agent
under the ESFR Agreement.
"ESFR AGREEMENT" shall mean, collectively, that certain Residual
Interest in Securitizations Revolving Credit and Term Loan Agreement, dated
as of April 30, 1998, by and among the Company, State Street Bank and Trust
Company, as "Agent" and the "Lender," The Structured Finance High Yield
Fund, LLC, as "Lender," and The Prudential Insurance Company of America, as
"Lender," as amended by ESFR Amendment No. 1 and Amendment No. 2 and as
further amended from time to time in accordance with SECTION 9.11(a).
"ESFR AMENDMENT NO. 1" shall mean a letter amendment to the ESFR
Agreement, dated November 2, 1998, among the Company, the "Agent" and the
ESFR Lenders, amending the ESFR Agreement to provide for the incurrence of
the Indebtedness of the Company evidenced by the Bridge Note.
6
"ESFR AMENDMENT NO. 2" shall have the meaning set forth in SECTION
6.6(f).
"ESFR COMPLIANCE CERTIFICATE" shall have the meaning set forth in the
ESFR Agreement.
"ESFR INDEBTEDNESS" shall mean all Indebtedness of the Company and its
Subsidiaries under the ESFR Agreement.
"ESFR LENDERS" shall mean the "Lenders" under the ESFR Agreement.
"EVENT OF DEFAULT" shall have the meaning specified in SECTION 11.1.
"EXCESS CASH" shall mean, in any period, all cash released to the
Company or any of its Subsidiaries during such period in connection with
any Securitization Transactions.
"EXCESS WARRANT SHARES" shall have the meaning set forth in the
Primary Warrant.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, as the same
shall be in effect at the time.
"EXISTING INDEBTEDNESS" shall have the meaning set forth in SECTION
3.12.
"EXISTING LIENS" shall have the meaning set forth in SECTION 3.12.
"EXISTING STOCK PLANS" shall mean, collectively, the Company's 1991
Stock Option Plan, as amended, and the Company's 1997 Long-Term Incentive
Stock Plan.
"EXTENSION PAYMENTS" shall have the meaning set forth in SECTION 8.21.
"FINANCIAL STATEMENTS" shall have the meaning specified in
SECTION 3.11.
"FIRST UNION AGREEMENT" shall mean the Receivables Funding and
Servicing Agreement, dated as of November 24, 1997, by and among CPS
Warehouse Corp., a Delaware corporation, as the borrower, the financial
institutions listed therein, Variable Funding Capital Corporation, a
Delaware corporation, as a lender, First Union Capital Markets Corp., as
deal agent ("FIRST UNION"), First Union National Bank, as liquidity agent
and as collateral agent, and the Company, as the servicer, as amended by
7
Amendment No. 1 dated as of May 1, 1988, Amendment No. 2 dated as of July
17, 1988, Amendment No. 3 dated as of October 5, 1988, and Amendment No. 4
dated as of October 12, 1988.
"FSA" shall mean Financial Security Assurance Inc.
"GAAP" shall mean generally accepted accounting principles and
practices set forth in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants
and statements and pronouncements of the Financial Accounting Standards
Board or in such other statements by such other entity as may be approved
by a significant segment of the accounting profession that are applicable
to the circumstances as of the date hereof, applied on a consistent basis.
"GOODS" shall mean any new or used automobile or light truck,
including equipment sold or financed in connection therewith, or any other
item of personal property, each being intended principally for personal or
family use by consumers, sold, leased or otherwise encumbered under any
Automobile Contract.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, and any
state or political subdivision thereof, any entity (including, without
limitation, the SEC) exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, and
any tribunal or arbitrator(s) of competent jurisdiction, and any
self-regulatory organization.
"GUARANTEE" OR "GUARANTY" shall mean, with respect to any Person,
(i) any guarantee (other than by endorsement of negotiable instruments for
collection in the ordinary course of business), direct or indirect, of any
Indebtedness or other obligation of any other Person and (ii) any
agreement, direct or indirect, contingent or otherwise, the practical
effect of which is to assure in any way the payment or performance (or
payment of damages in the event of non-performance) of any Indebtedness or
other obligation of such other Person, including, without limitation, any
indemnification agreement, warranty and agreement to pay amounts drawn down
by letters of credit. The amount of a Guarantee shall be deemed to be the
maximum amount of the obligation guaranteed for which the guarantor could
be held liable under such Guarantee.
"HAZARDOUS MATERIALS" shall mean any substance (i) the presence of
which requires investigation or remediation under any Applicable Laws; (ii)
that is defined or becomes defined as a "hazardous waste" or "hazardous
substance" under any Applicable Laws, including the Comprehensive
Environmental Response, Compensation and
8
Liability Act (42 U.S.C. Section 9601 et seq.) or the Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 et seq.); (iii) that is toxic,
explosive, corrosive, inflammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise hazardous and is or become regulated by any
Governmental Authority; (iv) the presence of which on any real property
causes or threatens to cause a nuisance upon the real property or to
adjacent properties or poses or threatens to pose a hazard to any real
property or to the health or safety of Persons on about any real property;
or (v) without limitation, that contains gasoline or other petroleum
hydrocarbons, polychlorinated biphenyls or asbestos.
"HOLDER" shall mean any Person (including, without limitation, the
initial Purchaser) in whose name the Note (or Notes) is registered in the
register maintained by the Company pursuant to SECTION 12.3.
"IMMEDIATE FAMILY" of a Person includes such Person's spouse, and the
parents, children and siblings of such Person or his or her spouse and
their spouses and other Persons related to the foregoing by blood, adoption
or marriage within the second degree of kinship, and, with respect to
Xxxxxxx X. Xxxxxxx, Xx., Xxxxxxx X. Xxxxxxx, Xx., and any officer or
director of the Company shall also include any Person who is primarily a
personal friend rather than a business associate.
"INDEPENDENT DIRECTOR" shall mean a director of the Company who is not
an officer of the Company, nor included in the Immediate Family of any
Affiliate of the Company nor represents concentrated or family holdings of
its shares, and who, in the view of the Purchaser, is free of any
relationship with respect to the Company that would interfere with the
exercise of independent judgment. For the purposes of this Agreement,
Xxxxxxx X. Xxxxxxx, Xxxxxx X. Xxxxxxxx and Xxxxxx X. Xxxxx, each of whom is
a duly elected director of the Company as of the date hereof, shall be
deemed to be Independent Directors.
"INDEBTEDNESS" shall mean, with respect to the Company and its
Subsidiaries, without duplication, (i) any obligations, contingent or
otherwise, for borrowed money; (ii) all obligations evidenced by bonds,
notes, debentures or similar instruments; (iii) all obligations to pay the
deferred purchase price of property or services (excluding trade payables
incurred in the ordinary course of business that are not overdue by more
than sixty (60) days from its due date and that are not being contested in
good faith); (iv) all Capital Lease Obligations; (v) all obligations
secured by a Lien to which any property or assets owned by the Company or
any of its Subsidiaries is subject, whether or not the obligations secured
thereby have been assumed by the Company or any such Subsidiaries; (vi) all
obligations of the Company and its Subsidiaries, contingent or otherwise,
in respect of any letters of credit or bankers' acceptances; (vii) all
obligations under facilities for the discount or sale of receivables;
(viii) the maximum fixed repurchase price of any redeemable stock of the
Company and its Subsidiaries; and
9
(ix) all Guaranties of items which would be included within this definition
(regardless of whether such items would appear upon such balance sheet);
PROVIDED, FURTHER, that the term "Indebtedness" shall be expanded to
include any Indebtedness for Money Borrowed (as such term is defined in the
RISRS Indenture and PENS Indenture) to the extent not already covered by
clauses (i) through (ix) above.
"INDEMNIFIED PARTY" shall have the meaning specified in SECTION 10.2.
"INSTRUMENTS" shall have the same meaning as given to that term in the
Code, and shall include all negotiable instruments, notes secured by
mortgages or trust deeds, and any other writing which evidences a right to
the payment of money and is not itself a security agreement or lease, and
is of a type which is, in the ordinary course of business, transferred by
delivery with any necessary endorsement or assignment.
"INSURANCE AGREEMENT EVENT OF DEFAULT" shall have the meaning set
forth in the Insurance and Indemnity Agreements among the Company, CPSRC
and FSA, as in effect as of the date hereof.
"INTELLECTUAL PROPERTY" shall mean all (i) patents, patent
registrations, patent applications, patent disclosures and any related
continuation, continuation-in-part, divisional, reissue, reexamination,
utility, model and certificate of invention; (ii) trademarks, service
marks, trade dress, logos, trade names and corporate names, and any
registrations and applications for registration thereof; (iii) copyrights
and registrations and applications for copyrights, including, without
limitation, the Company's proprietary scoring and underwriting model;
(iv) computer software, data and documentation; (v) trade secrets,
know-how, processes and techniques, research and development, works,
financial, marketing and business data, pricing and cost information,
business and marketing plans, customer and supplier lists and any other
confidential information; (vi) all proprietary rights relating to any of
the foregoing; and (vii) copies and tangible embodiments thereof.
"INVESTMENTS" shall mean, as applied to any Person, (i) any direct or
indirect acquisition by such Person of any Capital Stock of any other
Person, or all or any substantial part of the business or assets of such
other Person, and (ii) any direct or indirect loan, advance or capital
contribution by such Person to any other Person (including, without
limitation, any Affiliate, officer, director or employee of the Company).
"INVESTOR RIGHTS AGREEMENT" shall mean an Investor Rights Agreement,
in substantially the form of EXHIBIT F, among the Company, the Purchaser,
Xxxxxxx X. Xxxxxxx, Xx., Xxxxxxx X. Xxxxxxx, Xx. and Xxxxxxx X. Xxxxx.
10
"IRC" shall mean the Internal Revenue Code of 1986, as amended, or any
successor statute.
"LICENSES AND PERMITS" shall mean, collectively, all licenses,
franchises, permits, consents, approvals, registrations, certificates and
authorizations of all Governmental Authorities necessary to the conduct of
the businesses of the Company and its Subsidiaries, including, without
limitation, all licenses issued or issuable under the finance laws in each
state in which the activities of the Company and its Subsidiaries,
respectively, would require such licensing, licenses required for the sale
or brokerage of insurance products, compliance with all bonding
requirements of any Governmental Authority and any licenses, franchises,
permits, consents, approvals, registrations, certificates and
authorizations required to be held to comply with or obtain exemptions from
the usury laws of any state.
"LIEN" shall mean any lien, pledge, mortgage, claim, covenant,
restriction, security interest, charge or encumbrance of any kind
(including, without limitation, the interest of a lessor under a Capital
Lease Obligation having substantially the same economic effect).
"LLCP BLOCKED ACCOUNT" shall have the meaning specified in
SECTION 8.15.
"LOSSES" shall have the meaning specified in SECTION 10.2.
"MARGIN REGULATIONS" shall mean Regulations G, T, U and X of the Board
of Governors of the Federal Reserve System, or any successor thereto (the
"FEDERAL RESERVE BOARD"), as amended from time to time.
"MARGIN STOCK" shall mean "margin stock" as defined in the Margin
Regulations.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" shall mean a
material adverse effect on or adverse change in, as the case may be,
(i) the business, assets, condition (financial or otherwise), properties,
results of operations and prospects of (A) the Company and any of its
Subsidiaries, individually (excluding CPS Leasing, Inc., LINC Acceptance
LLC and Samco Acceptance Corp.) or taken as a whole, or (B) CPS Leasing,
Inc., LINC Acceptance LLC and Samco Acceptance Corp. taken as a whole
(except as otherwise contemplated by the CPS Operating Plan), or (ii) the
ability of the Company to perform its obligations under this Agreement or
any Related Agreement.
"MATERIAL CONTRACTS" shall have the meaning set forth in SECTION
3.14(a).
11
"NAB LOANS" shall mean the loans or advances made by the Company to
NAB Asset Corporation and outstanding as of the date hereof in the
aggregate principal amount of $2,544,395.
"NASDAQ" shall have the meaning set forth in SECTION 8.23.
"NET AVAILABLE CASH" shall mean, with respect to any Asset Sale, all
cash payments received from such Asset Sale (including cash payments
received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
Company or any of its Subsidiaries of Indebtedness relating to the property
that is the subject of such Asset Sale or received in any other non-cash
form), in each case net of (i) all legal, title and recording Tax expenses,
commissions and other fees and expenses incurred, and all federal, state
and local Taxes required to be accrued as a liability under GAAP, as a
consequence of such Asset Sale, and (b) all payments made on any
Indebtedness which is secured by any property subject to such Asset Sale,
in accordance with the terms of any Lien upon such property, or which must
by its terms or in order to obtain a necessary Consent to such Asset Sale,
or under Applicable Laws, be repaid out of the proceeds from such Asset
Sale.
"NEW SENIOR CREDIT FACILITY" shall mean a new senior credit facility
of the Company (whether a revolving credit facility, a term loan facility
or both), the terms and provisions of which are satisfactory to the
Purchaser, entered into after the date hereof between the Company (and/or
its Subsidiaries) and a syndicate of banks or other financial institutions
acceptable to the Purchaser, under which:
(i) All Indebtedness evidenced by such new facility constitutes
Senior Indebtedness of the Company;
(ii) The Purchaser is a lender under such new facility and the
Purchaser's principal term commitment is no less than $25,000,000;
PROVIDED, HOWEVER, that if, prior to the New Senior Facility
Establishment Date, the Company has not held the Shareholder Meeting
or has held the Shareholder Meeting but failed to obtain the approval
of the shareholders to the issuance of the Excess Warrant Shares as
provided in the Primary Warrant, the Purchaser's principal term
commitment will be the lesser of (a) $25,000,000 and (b) the principal
balance of the Note outstanding immediately prior to the New Senior
Facility Establishment Date, in each case LESS the Escrow Deposit (as
contemplated by SECTION 8.21);
(iii) The Company is not permitted to borrow funds thereunder in
an amount in excess of fifty percent (50.0%) of the aggregate cash
balances in the "spread accounts" relating to Securitization
Transactions;
12
(iv) All Indebtedness evidenced thereunder is secured by first
priority valid and perfected Liens in favor of the lenders thereunder
covering all or substantially all "Collateral" (as such term is
defined in the ESFR Agreement);
(v) The Purchaser is entitled to sell to Stanwich a
participation interest in the Purchaser's commitment under such new
facility; and
(vi) The proceeds of such new facility are used by the Company
to pay in full all Indebtedness then outstanding under the ESFR
Agreement.
"NEW SENIOR FACILITY ESTABLISHMENT DATE" shall mean the date upon
which the New Senior Credit Facility shall have been established and the
Company shall have the right to borrow funds thereunder.
"NEW SENIOR FACILITY NOTE" shall mean a note, issued by the Company to
the Purchaser as a lender under the New Senior Credit Facility.
"NOTE" shall have the meaning set forth in SECTION 2.1, and shall also
include, where applicable, any additional note or notes issued by the
Company in connection with any Assignments.
"OBLIGATIONS TO PURCHASER" shall mean any and all Indebtedness,
claims, liabilities or obligations of the Company or any of its
Subsidiaries owing to the Purchaser or any Affiliate of the Purchaser (or
any assignee or transferee of the Purchaser or such Affiliate) under or
with respect to this Agreement, the Note and any other Related Agreement,
and any and all agreements, instruments or other documents heretofore or
hereafter executed or delivered in connection with any of the foregoing, of
whatever nature, character or description (including, without limitation,
any claims for rescission or other damages under federal or state
securities laws and any obligations of the Company to indemnify the
Purchaser), and whether presently existing or arising hereafter, together
with interest, premiums and fees accruing thereon and costs and expenses
(including, without limitation, attorneys' fees) of collection thereof
(including, without limitation, interest, fees, costs and expenses accruing
after the filing of a petition by or against the Company or any
Subsidiaries under the Bankruptcy Laws or any similar federal or state
statute), and any and all amendments, renewals, extensions, exchanges,
restatements, refinancings or refundings thereof.
"OPTION POOL" any Option Rights to purchase shares of Common Stock
which may be granted by the Board of Directors of the Company (or the
compensation committee thereof) to directors, officers and key employees of
the Company or of any Affiliate of the Company under a plan adopted or to
be adopted by the Board of Directors of the Company or the shareholders of
the Company, including, without limitation, the Existing Stock Plans, at an
exercise price per share that is not less than
13
the fair market value of the shares of Common Stock as of the date of
grant, as determined by the Board of Directors of the Company (or the
compensation committee thereof) in good faith and approved (i) in the case
of a grant to any officer (other than a senior executive officer) or
employee of the Company who is not a member of the Board of Directors of
the Company, by a majority vote of the Board of Directors of the Company
(or the compensation committee thereof), and (ii) in the case of any grant
to a senior executive officer or member of the Board of Directors of the
Company, by the unanimous vote of the members of the Board of Directors of
the Company (or the compensation committee thereof) who are not being
granted or receiving such Option Rights, unless such grant (and the number
of shares of Common Stock issuable upon exercise thereof) is consistent
with past grants by the Board of Directors of the Company to such member,
in which case by a majority vote of the Board of Directors (or the
compensation committee thereof) of the Company.
"OPTION RIGHTS" shall have the meaning specified in SECTION 3.8.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"PENS" shall mean the "10.50% Participating Equity Notes" due April
15, 2004, issued by the Company in the original principal amount of
$20,000,000.00 pursuant to a First Supplemental Indenture dated as of April
15, 1997, between the Company and Bankers Trust Company, as trustee
thereunder. The PENS is the first series of unsecured subordinated
debentures, notes or other evidences of indebtedness to be issued under an
Indenture, dated as of April 15, 1997 (such Indenture, as supplemented by
the First Supplemental Indenture, being collectively referred to herein as
the "PENS INDENTURE"), between the Company and Bankers Trust Company, as
trustee thereunder.
"PERMITTED INVESTMENTS" shall mean (i) any direct obligations of the
United States of America (including obligations issued or held in
book-entry form on the books of the Department of the Treasury of the
United States of America) or obligations the timely payment of the
principal of and interest on which are fully guaranteed by the United
States of America, all of which mature within three (3) months from the
date of acquisition thereof; (ii) interest-bearing demand or time deposits
that mature no more than thirty (30) days from the date of creation thereof
and that are either (a) insured by the Federal Deposit Insurance
Corporation or (b) held in any United States commercial bank having general
obligations rated at least "AA" or equivalent by Standard & Poor's
14
Corporation or Xxxxx'x Investor Service and having capital and surplus of
at least $500,000,000 or the equivalent; or (iii) certificates of deposit
that mature no more than thirty (30) days from the date of creation thereof
and that are either (a) insured by the Federal Deposit Insurance
Corporation or (b) held in any United States commercial bank having general
obligations rated at least "AA" or equivalent by Standard & Poor's
Corporation or Xxxxx'x Investor Service and having capital and surplus of
at least $500,000,000 or the equivalent.
"PERMITTED LIENS" shall mean, collectively, Liens arising by reason of
(i) any attachment, judgment, decree or order of any Governmental
Authority, so long as such Lien is being contested in good faith within
thirty (30) days of such Person's knowledge thereof and is either
adequately bonded or execution thereon has been stayed pending appeal or
review, and any appropriate legal proceedings which may have been duly
initiated for the review of such attachment, judgment, decree or order
shall not have been finally terminated or the period within which such
proceedings may be initiated shall not have expired; (ii) Taxes,
assessments or other governmental charges not yet delinquent or that are
being contested in good faith; (iii) security for payment of workers'
compensation or other insurance; (iv) security for the performance of
leases; (v) deposits to secure public or statutory obligations or in lieu
of surety or appeal bonds entered into in the ordinary course of business;
(vi) operation of law in favor of carriers, warehouse owners, landlords,
storage facilities or mechanics incurred in the ordinary course of business
for sums that are not yet delinquent or are being contested in good faith
by negotiation or by appropriate proceedings that suspend the collection
thereof and, if required by GAAP, are appropriately reserved for on the
books of such Person; (vii) any interest or title of a lessor under any
lease; and (viii) easements, rights-of-way, zoning and similar covenants
and restrictions and other similar encumbrances or title defects that, in
the aggregate, are not material in amount; PROVIDED, HOWEVER, that each of
the Liens described in the foregoing clauses (i) through (viii) inclusive
shall only constitute a Permitted Lien so long as such Lien individually
does not, and so long as all such Liens collectively do not, materially
interfere with the conduct of such Person's business.
"PERSON" shall mean any individual, trustee, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, limited liability
partnership, other business entity or Governmental Authority.
"PLEDGED NOTES" shall have the meaning set forth in the Stanwich
Subordination Agreement.
"POOLE REPLACEMENT NOTE" shall have the meaning set forth in
SECTION 6.7(b).
"PRIMARY WARRANT" shall have the meaning set forth in SECTION 2.1.
"PRIMARY WARRANT SHARES" shall mean the shares of Common Stock issued
or issuable upon exercise of the Primary Warrant.
"PURCHASE PRICE" shall have the meaning specified in SECTION 2.2.
15
"PURCHASER" shall have the meaning set forth in the preamble.
"REAL PROPERTY" shall mean any real property or "facility" (as defined
in the Resource Conversation and Recovery Act (RCRA), 42 U.S.C. Section
6901 ET SEQ.) currently or formerly owned, operated, leased or occupied by
the Company and its Subsidiaries.
"REGISTRATION RIGHTS AGREEMENT" shall have the meaning specified in
SECTION 6.6(d).
"RELATED AGREEMENTS" shall mean the Note, the Primary Warrant, the
Registration Rights Agreement, the Investor Rights Agreement, the Stanwich
Documents, ESFR Amendment No. 2, the Bridge Loan Documents and any and all
agreements, instruments and other documents contemplated hereby or thereby
or relating hereto or thereto, as the same may be amended, supplemented or
otherwise modified from time to time.
"RESTRICTED PAYMENT" shall mean, with respect to any Person, (i) any
dividend or other distribution, direct or indirect, on account of any
Capital Stock of such Person now or hereafter outstanding; (ii) any
redemption, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any Capital
Stock of such Person now or hereafter outstanding; and (iii) any payment or
prepayment of principal of, premium, if any, or interest, fees or other
charges on or with respect to, and any redemption, purchase, retirement,
defeasance, sinking fund or similar payment with respect to any
Subordinated Indebtedness (PROVIDED that any sinking fund payments required
to be made by the Company under the terms of the Existing Indebtedness
shall not constitute a Restricted Payment); PROVIDED, HOWEVER, that the
following shall not constitute a Restricted Payment so long as the Company
is Solvent and no Default or Event of Default has occurred and is
continuing or would occur as a result thereof: (a) any dividend or other
distribution, direct or indirect, on account of any Capital Stock of such
Person now or hereafter outstanding which is payable solely in shares of
Common Stock; (b) any regularly scheduled payments of principal of and/or
interest on any Subordinated Indebtedness made in accordance with the terms
and provisions of the Subordinated Agreements; (c) any sales or transfers
of Automobile Contracts (or pools thereof) between or among the Company and
its Subsidiaries in connection with any Securitization Transactions
(including, without limitation, any warehousing transactions); (d) any
purchases by the Company of its Capital Stock under the Company's Employee
Savings (401(k)) Plan;(e) any dividend or other distribution, direct or
indirect, on account of any Capital Stock (now or hereafter outstanding) of
any of the Company's Subsidiaries to the Company; or (f) the cancellation
or acquisition of any Capital Stock of the Company as payment to the
Company of the exercise price of any Option Rights or Convertible
Securities.
16
"RISRS" shall mean the "Rising Interest Subordinated Redeemable
Security Due 2006" issued by the Company in the original principal amount
of $20,000,000, pursuant to a First Supplemental Indenture dated as of
December 15, 1995, between the Company and Xxxxxx Trust and Savings Bank,
as trustee thereunder. The RISRS is the first series of unsecured
subordinated debentures, notes or other evidences of indebtedness to be
issued under the Indenture dated as of December 15, 1995, between the
Company and Xxxxxx Trust and Savings Bank, as trustee (such Indenture, as
supplemented by the First Supplemental Indenture, being collectively
referred to herein as the "RISRS INDENTURE"), between the Company and
Bankers Trust Company, as trustee thereunder.
"SEC" shall mean the Securities and Exchange Commission, or any
successor agency.
"SECURITIES" shall have the meaning specified in SECTION 2.1.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder, all as the same shall
be in effect at the time.
"SECURITIZATION TRANSACTION DOCUMENTS" shall mean all agreements,
instruments and other documents now existing or hereafter entered into in
connection with the consummation of Securitization Transactions.
"SECURITIZATION TRANSACTIONS" shall have the meaning set forth in
ANNEX A.
"SENIOR INDEBTEDNESS" shall mean the principal amount of, premium, if
any, and interest on (i) any Indebtedness, whether now outstanding or
hereafter created, incurred, assumed or guaranteed, unless in the
instrument creating or evidencing such Indebtedness or pursuant to which
such Indebtedness is outstanding it is provided that such Indebtedness is
subordinate in right of payment or rights upon liquidation to any other
Indebtedness of the Company and (ii) refundings, renewals, extensions,
modifications, restatements, and increases of any such Indebtedness.
"SENIOR SUBORDINATED INDEBTEDNESS" shall mean, collectively, the
RISRS, the PENS, the Stanwich Senior Subordinated Debt, the Indebtedness
evidenced by the Note and any other Indebtedness of the Company heretofore
or hereafter consented to in writing by the Purchaser and which ranks PARI
PASSU with the RISRS, the PENS, the Stanwich Senior Subordinated Debt and
the Indebtedness evidenced by the Note, PROVIDED, HOWEVER, that such other
Indebtedness is evidenced or governed by provisions that are satisfactory
to the Purchaser, in each case as amended, supplemented, modified,
refinanced, renewed, replaced, restructured or exchanged from time to time
in accordance with SECTION 9.11(A).
"SHAREHOLDER MEETING" shall have the meaning specified in
SECTION 8.21.
17
"SOLVENT" shall mean, with respect to any Person, that (i) the total
present fair salable value of such Person's assets on a going concern basis
is in excess of the total amount of such Person's liabilities, including
contingent liabilities; (ii) such Person is able to pay its liabilities and
contingent liabilities as they become due; and (iii) such Person does not
have unreasonably small capital to carry on such Person's business as
theretofore operated and as proposed to be operated.
"STANWICH" shall mean Stanwich Financial Services Corp., a Rhode
Island corporation. The term "Stanwich" shall also mean, where applicable,
Stanwich Partners, Inc.
"STANWICH COMMITMENT" shall have the meaning set forth in SECTION
8.24.
"STANWICH CONSULTING AGREEMENT" shall mean the Consulting Agreement
dated February 14, 1996, between the Company and Stanwich.
"STANWICH DEBT AGREEMENTS" shall mean, collectively, all agreements,
instruments and other documents, whether now existing or hereafter entered
into, evidencing or governing any Stanwich Indebtedness, including, without
limitation, (i) the 1997 Stanwich Notes, (ii) the 1998 Stanwich Notes,
(iii) the Stanwich Replacement Note, (iv) the Poole Replacement Note, (v)
the Stanwich Commitment, (vi) the Stanwich Debt Restructure Agreement and
(vii) the Stanwich Subordination Agreement, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with
SECTION 9.11(a).
"STANWICH DEBT RESTRUCTURE AGREEMENT" shall have the meaning set forth
in SECTION 6.7(b).
"STANWICH DOCUMENTS" shall mean the Stanwich Purchase Option and the
Stanwich Debt Agreements, as the same may be amended, supplemented or
otherwise modified from time to time in accordance with SECTION 9.11(a).
"STANWICH INDEBTEDNESS" shall mean, collectively, any and all
Indebtedness of the Company or its Subsidiaries or both owing to Stanwich
or any of its shareholders, officers, directors, employees or Affiliates
(other than the Company and its Subsidiaries), including, without
limitation: (i) the seven (7) "Partially Convertible Subordinated 9%
Notes" dated June 12, 1997 (the "1997 STANWICH NOTES"), issued by the
Company to Stanwich in the aggregate principal amount of $15,000,000; (ii)
the Convertible Promissory Note dated August 13, 1998, issued by the
Company to Stanwich in the principal amount of $500,000, the Convertible
Promissory Note dated August 21, 1998, issued by the Company to Stanwich in
the principal amount of $425,000, and the Convertible Promissory Note dated
September 2, 1998, issued by the Company to Stanwich in the principal
amount of $3,075,000 (collectively, the "1998
18
STANWICH NOTES"); (iii) the Promissory Note dated August 13, 1998, issued
by the Company to Xxxx X. Xxxxx ("XXXXX") in the aggregate principal amount
of $1,000,000 (the "POOLE NOTE"); and (iv) the Stanwich Replacement Note
and the Poole Replacement Note being issued by the Company and delivered at
the Closing pursuant to SECTION 6.7(b), in each of clauses (i) through (iv)
above as amended, supplemented, modified, refinanced, renewed, replaced,
restructured or exchanged from time to time in accordance with SECTION
9.11(a).
"STANWICH PURCHASE OPTION" shall mean a Securities Option Agreement,
in substantially the form of EXHIBIT D, among the Company, the Purchaser
and Stanwich.
"STANWICH REPLACEMENT NOTE" shall have the meaning set forth in
SECTION 6.7(b).
"STANWICH SENIOR SUBORDINATED DEBT" shall mean all Stanwich
Indebtedness outstanding under the "Pledged Notes" (as such term is defined
in the Stanwich Subordination Agreement); PROVIDED, HOWEVER, that any
Stanwich Indebtedness that is released from the relevant pledge shall be
expressly made subordinate to the same extent as the Stanwich Indebtedness
that is not evidenced by the Pledged Notes.
"STANWICH SUBORDINATION AGREEMENT" shall have the meaning set forth in
SECTION 6.7(d).
"SUBORDINATED AGREEMENTS" shall mean, collectively, the RISRS
Indenture, the PENS Indenture, all Stanwich Debt Agreements and all other
agreements, instruments and other documents evidencing or governing any
Indebtedness of the Company or any of its Subsidiaries, whether now
existing or hereafter entered into, that expressly provides that such
Indebtedness is subordinate in right of payment or rights upon liquidation
to any other Indebtedness of the Company, together with any and all related
agreements, instruments and other documents between or among the Company,
any of its Subsidiaries and/or the Subordinated Lenders, in each case as
amended, supplemented or otherwise modified from time to time in accordance
with SECTION 9.11(a).
"SUBORDINATED INDEBTEDNESS" shall mean Indebtedness that is not Senior
Indebtedness, as such Indebtedness may be refinanced, renewed, replaced,
restructured or exchanged from time to time in accordance with SECTION
9.11(a).
"SUBORDINATED LENDERS" shall mean the lenders of Subordinated
Indebtedness (including, without limitation, Stanwich).
"SUBSIDIARY" and "SUBSIDIARIES" shall mean, with respect to any
Person, any other Person of which more than fifty percent (50%) of the
total voting power of Capital Stock entitled to vote (without regard to the
occurrence of any contingency) in the
19
election directors (or other Persons performing similar functions) are at
the time directly or indirectly owned by such first Person. Unless
otherwise indicated, the term "SUBSIDIARY" refers to a Subsidiary of the
Company.
"TAX" or "TAXES" shall mean any present and future income, excise,
sales, use, stamp or franchise taxes and any other taxes, fees, duties,
levies, withholdings or other charges of any nature whatsoever imposed by
any taxing authority, whether federal, state, local or foreign, together
with any interest and penalties and additions to tax.
"THIRD PARTY INTELLECTUAL PROPERTY RIGHTS" shall have the meaning
specified in SECTION 3.23(a).
"USAP AUDIT" shall mean an audit conducted according to the
requirements and standards set forth in the Uniform Single Attestation
Program promulgated by the Mortgage Bankers Association of America.
2. PURCHASE AND SALE OF THE SECURITIES.
2.1 AUTHORIZATION. The Company has authorized the issuance, sale and
delivery to the Purchaser of (a) a Senior Subordinated Primary Note in the
aggregate principal amount of $25,000,000, in substantially the form of
EXHIBIT A (as the same may be amended, supplemented, modified, renewed,
refinanced or restructured from time to time, the "Note"), and (b) a warrant to
purchase 3,105,000 shares of Common Stock; PROVIDED, HOWEVER, that in lieu of
issuing a warrant to purchase only 3,105,000 shares of Common Stock, the Company
will issue to the Purchaser a single primary warrant to purchase 3,450,000
shares of Common Stock, in substantially the form of EXHIBIT B (as the same may
be amended, supplemented or otherwise modified from time to time, the "Primary
Warrant"), to evidence the right to purchase the 3,105,000 shares of Common
Stock and, in connection with the surrender by the Purchaser of the Bridge
Warrant at the Closing pursuant to SECTION 7.4, the issuance of the 345,000
shares of Common Stock purchasable upon exercise of the Bridge Warrant. The
Note, including the payment of principal of, premium, if any, and interest on
the Note, shall be subordinate and subject in right of payment and rights upon
liquidation, to the extent and in the manner set forth therein, to the prior
payment in full of all Senior Indebtedness and shall rank PARI PASSU in right of
payment with all Senior Subordinated Indebtedness. The Note and the Primary
Warrant are collectively referred to herein as the "Securities."
2.2 PURCHASE OF THE SECURITIES. At the Closing, subject to the terms and
conditions contained herein, and in reliance upon the representations,
warranties, covenants and agreements contained herein, the following
transactions shall be consummated: (a) the Company shall issue and sell to the
Purchaser, and the Purchaser shall purchase from the Company, the Note, and
(b) the Company shall issue and sell to the Purchaser, and the Purchaser shall
purchase from the Company, the Primary Warrant. The aggregate purchase price to
be paid by the Purchaser shall be $25,000,000 (the "Purchase Price"), which will
be
20
paid in accordance with SECTION 2.3 and allocated between the Note and the
Primary Warrant in the manner set forth on SCHEDULE 2.2. The Company and the
Purchaser shall use such allocation of the Purchase Price for all federal, state
and local tax purposes.
2.3 CLOSING OF SALE OF THE SECURITIES. The closing of the issuance, sale
and delivery of the Securities to be purchased by the Purchaser under this
Agreement (the "Closing") shall take place at the offices of Xxxxxxx & XxXxxxxx,
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx 00000, on the date
hereof or as soon as practicable thereafter immediately following the
satisfaction or waiver of the conditions precedent set forth in SECTION 6 and
SECTION 7 (the "Closing Date"). At the Closing, the Company shall deliver to
the Purchaser each of the Note and the Primary Warrant, duly executed by the
Company, in each case against payment of that portion of the Purchase Price
allocated thereto as provided for in SCHEDULE 2.2. The Purchase Price shall be
paid by (a) transfer of the amount provided for in SCHEDULE 2.4 in immediately
available funds to such bank as the Company may request (which request shall be
made in writing at least one (1) Business Day prior to the Closing Date) for
credit to an account designated by the Company in such request, PROVIDED that
such request shall be consistent with the purposes set forth in SCHEDULE 2.4,
and (b) pursuant to SECTION 7.4, surrender of the Bridge Warrant for
cancellation by the Company.
2.4 USE OF PROCEEDS. The proceeds to be received by the Company from the
issuance and sale of the Securities shall be used solely for the purposes set
forth in SCHEDULE 2.4 (and applied in accordance with the terms therein). The
Company will not, directly or indirectly, use any of the proceeds from the issue
and sale of the Note for the purpose, whether immediate, incidental or ultimate,
of purchasing or carrying any Margin Stock or maintaining or extending credit to
others for such purpose or for any other purpose that violates the Margin
Regulations. If requested by the Purchaser, the Company will promptly furnish
to the Purchaser a statement in conformity with the requirements of Federal
Reserve Form U-1 referred to in the Margin Regulations.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Purchaser that, except as set forth in the
disclosure schedules (the "Disclosure Schedules"), the following statements are
true and correct as of the date hereof:
3.1 ORGANIZATION AND GOOD STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, and has all requisite power and authority to own or lease and
operate its properties, to carry on its business as now being conducted and as
proposed to be conducted, to enter into this Agreement and each of the Related
Agreements, to issue, sell and deliver the Securities to be issued by it
hereunder and to consummate the transactions contemplated hereby and by the
Related Agreements.
3.2 SUBSIDIARIES. SCHEDULE 3.2 sets forth, as to each Subsidiary, its
name, the jurisdiction of its incorporation, the number of outstanding shares of
its Capital Stock and the
21
number of such outstanding shares owned by the Company and its Subsidiaries.
Each such Subsidiary is a corporation duly organized, validly existing and, if
applicable, in good standing under the laws of the jurisdiction of its
incorporation and has all requisite power and authority to own or lease and
operate its properties, to carry on its business as now conducted and as
proposed to be conducted. All of the outstanding Capital Stock of each such
Subsidiary has been duly authorized and is validly issued, fully paid and
non-assessable, and is owned by the Company or its Subsidiaries as specified in
SCHEDULE 3.2, in each case free and clear of any Liens and of any other
restrictions (including any restrictions on the right to vote, sell or otherwise
dispose of such Capital Stock) except as set forth on SCHEDULE 3.2.
3.3 QUALIFICATION. The Company and each of its Subsidiaries is duly
qualified or licensed and in good standing as foreign corporations duly
authorized to do business in each jurisdiction in which the character of the
properties owned or the nature of the activities conducted makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed could not have a Material Adverse Effect.
3.4 AUTHORIZATION. The execution, delivery and performance of this
Agreement and of each of the Related Agreements, the issuance, sale and delivery
of the Securities and the consummation of the other transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of the Company and, if required, its Subsidiaries.
3.5 DUE EXECUTION AND DELIVERY; BINDING OBLIGATIONS. This Agreement has
been duly executed and delivered by the Company. This Agreement is, and at the
time of the Closing each of the Related Agreements will be, a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or conveyance or similar laws
relating to or limiting creditors' rights generally or by equitable principles
relating to enforceability and except as rights of indemnity or contribution may
be limited by federal or state securities or other laws or the public policy
underlying such laws.
3.6 NO VIOLATION; SENIOR SUBORDINATED INDEBTEDNESS; SENIOR INDEBTEDNESS.
(a) The execution, delivery and performance by the Company of this
Agreement and each of the Related Agreements, and the consummation of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance, sale and delivery of the Securities), do not and will not violate
(i) the charter or bylaws of the Company or any of its Subsidiaries, as amended
through the date hereof; (ii) any Applicable Laws; or (iii) any term of any
lease, credit agreement, indenture, note, mortgage, instrument or other
agreement to which the Company or any of its Subsidiaries is a party or by which
any of its or their properties or assets are bound. Neither the Company nor any
of its Subsidiaries is currently in violation of (A) its charter or bylaws, as
amended through the date hereof, (B) any term of any material lease, credit
agreement, note, instrument or other agreement (including, without
22
limitation, any agreements executed in connection with any Securitization
Transactions) to which it is a party or (C) to the best knowledge of the
Company, any Applicable Laws.
(b) No "default" or "event of default" has occurred and is continuing
under any agreement, instrument or other document to which the Company or any of
its Subsidiaries is a party which evidences or governs any Indebtedness of the
Company or its Subsidiaries, as the case may be (other than such "defaults" or
"events of default" as have been duly waived by the appropriate Person on or
prior to the date hereof), including, without limitation, the Bridge Loan
Documents. Without limiting the generality of the foregoing, the Company was in
full compliance with all of its covenants (financial and otherwise) contained in
such agreements, instruments and other documents at September 30, 1998, and
October 31, 1998.
(c) The Indebtedness evidenced by the Note ranks PARI PASSU with the
RISRS, the PENS and the Stanwich Senior Subordinated Debt. As of the Closing
Date, all Stanwich Indebtedness other than the Stanwich Senior Subordinated Debt
ranks junior, and is subordinate in right to payment and rights upon
liquidation, to the Indebtedness evidenced by the Note. As of the Closing Date,
there is no existing agreement, indenture, instrument or other document to which
the Company or any of its Subsidiaries is a party or by which it or they are
bound that requires the subordination in right of payment or rights upon
liquidation of any Obligations to Purchaser to the repayment of any other
Indebtedness of the Company or any of its Subsidiaries (other than the ESFR
Agreement and the Bank of America Facility), nor are any Obligations to
Purchaser subordinate in right of payment or rights upon liquidation to any
other Indebtedness of the Company or its Subsidiaries (other than the ESFR
Agreement and the Bank of America Facility and trade payables of the Company).
(d) No Credit Trigger or Insurance Agreement Event of Default has
occurred and is continuing under any agreement delivered in connection with any
Securitization Transactions.
3.7 GOVERNMENTAL AND OTHER THIRD PARTY CONSENTS. Except for the Consents
which have already been duly obtained or made, none of the Company, any of its
Subsidiaries or any Affiliate of the Company is required to obtain any Consent,
or required to make any declaration or filing (other than the filing of a
Form 8-K) with, (i) any Governmental Authority or (ii) any trustee, credit
enhancer, rating agency or other party to any Securitization Transaction in
connection with the execution and delivery of this Agreement or any Related
Agreement or the issuance, sale and delivery of the Securities hereunder, or for
the purpose of maintaining in full force and effect any Licenses and Permits
(except where the failure to maintain any License and Permit could not have a
Material Adverse Effect). SCHEDULE 3.7 sets forth a true and correct list of
all Consents which have been obtained or made, each of which is in full force
and effect. The time within which any administrative or judicial appeal,
reconsideration, rehearing or other review of any such Consent may be taken or
instituted has lapsed, and no such appeal, reconsideration or rehearing or other
review has been taken or instituted.
23
3.8 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
30,000,000 shares of Common Stock and 10,000,000 shares of serial preferred
stock, par value $1.00 per share. As of the date hereof, (i) 15,658,501 shares
of Common Stock were issued and outstanding (including shares of restricted
Common Stock); (ii) no shares of serial preferred stock of the Company were
issued and outstanding; (iii) 4,200,000 shares of Common Stock were reserved for
issuance under the Existing Stock Plans, of which options to purchase 419,200
shares are available for future grants, options to purchase 1,428,400 shares
have been exercised, options to purchase 2,352,400 shares are outstanding and
options to purchase 693,370 shares are exercisable; (iv) an aggregate of
2,412,229 shares of Common Stock were reserved for issuance upon conversion of
the PENS and of the Stanwich Indebtedness; and (e) an aggregate of 345,000
shares of Common Stock were reserved for issuance upon conversion of the Bridge
Warrant. All of the issued and outstanding shares of Capital Stock of the
Company have been duly authorized and validly issued, are fully paid and
nonassessable, and are free of any preemptive or other similar rights to
subscribe for or to purchase any such Capital Stock. Except (A) for the PENS
and the Stanwich Indebtedness, (B) as contemplated by this Agreement and the
Related Agreements and (C) as disclosed in SCHEDULE 3.8, there are: (v) no
outstanding securities or obligations of any Person convertible into or
exchangeable for any shares of Capital Stock of the Company (collectively,
"Convertible Securities"); (w) no outstanding warrants, rights or options to
subscribe for or purchase, or obligations to issue, any shares of Capital Stock
of the Company or any Convertible Securities of the Company (collectively,
"Option Rights"); (x) no voting trusts or other agreements or undertakings with
respect to the voting of the Capital Stock of the Company; (y) no obligations on
the part of the Company to purchase or redeem any outstanding shares of its
Capital Stock, any Convertible Securities or any Option Rights; and (z) no
agreements granting any Person any rights of first offer or first refusal,
registration rights or "drag-along," "tag-along" or similar rights with respect
to any transfer of any Capital Stock of the Company, any Convertible Securities
or any Option Rights. All such shares of Capital Stock, Convertible Securities
and Option Rights have been issued and offered without violation of any
applicable federal or state securities law. No shares of Capital Stock of the
Company will become issuable to any Person pursuant to any "anti-dilution"
provisions of any issued and outstanding securities of the Company on account of
the issuance of the Securities, the exercise of the Primary Warrant or the
application of the "anti-dilution" provisions contained in the Primary Warrant.
(b) The Company has not incurred, and will not incur, any charges to
its statement of operations in connection with the repricing on or about
October 22, 1998, of outstanding stock options issued under its Existing Stock
Plans.
3.9 VALIDITY AND ISSUANCE OF PRIMARY WARRANT SHARES. The Primary Warrant
Shares, when issued, delivered and paid for pursuant to the terms of the Primary
Warrant, will be duly and validly issued, fully paid and nonassessable.
24
3.10 TRANSACTIONS WITH AFFILIATES.
(a) Except as set forth in SCHEDULE 3.10, during the period
commencing January 1, 1996 and ending December 31, 1997, no shareholder,
employee, officer, director or Affiliate of the Company or any of its
Subsidiaries or, to the best knowledge of the Company, Affiliate of any such
Person, and no member of the Immediate Family of any such Person, has engaged in
any transaction or relationship with the Company or any of its Subsidiaries
involving amounts in excess of $60,000 (other than the payment of compensation
to such Persons in the ordinary course of business).
(b) Except as set forth in SCHEDULE 3.10, since January 1, 1998, no
shareholder, employee, officer, director or Affiliate of the Company or any of
its Subsidiaries or, to the best knowledge of the Company, Affiliate of any such
Person, and no member of the Immediate Family of any such Person, has engaged in
any transaction or relationship with the Company or any of its Subsidiaries
(other than the payment of compensation to such Persons in the ordinary course
of business).
(c) SCHEDULE 3.10 sets forth a true, complete and accurate
description of the terms of each transaction or relationship required to be set
forth on SCHEDULE 3.10.
(d) No Subsidiary of the Company loans or advances funds to any of
its officers, directors, employees or, if any, minority shareholders.
(e) This SECTION 3.10 does not apply to transactions or relationships
involving (i) sales or transfers of Automobile Contracts (or interests therein)
between or among the Company and its Subsidiaries in connection with any
Securitization Transactions (including, without limitation, any warehousing
transactions) or (ii) any Investments disclosed on SCHEDULE 3.12.
3.11 FINANCIAL STATEMENTS; DISCLOSURE.
(a) SCHEDULE 3.11 set forth a true and correct list of the Company
SEC Documents and monthly board packages previously furnished by the Company to
the Purchaser, including the financial statements (and related notes thereto)
and other financial information disclosed therein (collectively, the "Financial
Statements"). The Financial Statements have been prepared in accordance with
GAAP applied on a consistent basis (except that, with respect to the monthly
board packages, the Dealer acquisition fees reflected in the financial
statements included therein have not been accounted for in accordance with GAAP)
and fairly present the consolidated and consolidating financial position and
results of operations of the Company and its Subsidiaries as of the dates and
for the periods indicated therein. Except as set forth in SCHEDULE 3.11, since
September 30, 1998, there has not been any Material Adverse Change.
25
(b) All financial statements and other financial information not
included in the Financial Statements and previously furnished by or on behalf of
the Company, its Subsidiaries or any of their representatives or agents to the
Purchaser in connection with this Agreement and the transactions contemplated
hereby adequately reflect the financial position and results of operations of
the Company and its Subsidiaries, as applicable, as of the dates and for the
period indicated therein, and do not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements herein
or therein contained not misleading.
(c) Neither the Company nor any of its Subsidiaries is contemplating
the filing of a petition under the Bankruptcy Law or the liquidation of all or
any major portion of its assets or properties, except as contemplated by the CPS
Operating Plan, and neither the Company nor any of its Subsidiaries is aware of
any Person contemplating the filing of any petition against it under the
Bankruptcy Law.
(d) The Company has furnished to the Purchaser a PRO FORMA balance
sheet of the Company and its Subsidiaries projected as of the Closing Date (the
"Closing Balance Sheet") and adjusted to give effect to the transactions
contemplated by this Agreement. Such Closing Balance Sheet presents fully and
fairly in all material respects the PRO FORMA consolidated financial position of
the Company and its Subsidiaries as of the Closing Date, and properly gives
effect in all material respects to the application of the PRO FORMA adjustments
described therein and contemplated herein.
3.12 EXISTING INDEBTEDNESS; LIENS; INVESTMENTS; GUARANTIES; MATERIAL
LIABILITIES.
(a) SCHEDULE 3.12 sets forth a true and correct list, and describes,
as of the date or dates indicated therein:
(i) all existing Indebtedness of the Company and its
Subsidiaries (collectively,"Existing Indebtedness");
(ii) all existing security interests and other Liens in respect
of any property or assets of the Company and its Subsidiaries other
than Permitted Liens (collectively, "Existing Liens");
(iii) all outstanding Investments (other than Investments made
under any pooling and servicing agreement or insurance agreement with
respect to any Securitization Transaction) of the Company and its
Subsidiaries; and
(iv) all existing Guarantees of the Company and its
Subsidiaries.
(b) Neither the Company nor any of its Subsidiaries has any
liabilities or obligations, whether accrued, absolute, contingent or otherwise
(whether individually or in the aggregate), except for (i) liabilities and
obligations reflected in the Financial Statements and the
26
related notes thereto; (ii) trade payables and other accrued expenses incurred
in the ordinary course of business; and (iii) liabilities and obligations which,
either individually or in the aggregate, have not had and could not have a
Material Adverse Effect.
(c) As of the date hereof, the aggregate outstanding principal
balance of the NAB Loans is $2,544,395.
3.13 CERTAIN CHANGES. Except as set forth on SCHEDULE 3.13, since
September 30, 1998, there has not been:
(a) any damage or destruction to, or loss of, any asset of the
Company or any of its Subsidiaries, whether or not covered by insurance, which
could have a Material Adverse Effect;
(b) any waiver by the Company or any of its Subsidiaries of a
valuable right or of a material debt owed to it, other than those arising in the
ordinary course of business in connection with the Company's servicing and
collection activities relating to Automobile Contracts;
(c) any satisfaction or discharge of any Lien or payment of any
obligation by the Company or any of its Subsidiaries outside of the ordinary
course of business;
(d) any material change or amendment to any Automobile Contract,
Dealer Agreement or Material Contract by which the Company, any of its
Subsidiaries or any of its or their respective properties or assets is bound or
subject, other than those arising in the ordinary course of business in
connection with the Company's servicing and collection activities relating to
Automobile Contracts;
(e) any material adverse change in the assets, liabilities, condition
(financial or otherwise) or operations of the Company or any of its
Subsidiaries;
(f) any change in the contingent obligations of the Company or any of
its Subsidiaries, by way of Guarantees or otherwise;
(g) any declaration or payment of any dividend or other distribution
of assets of the Company to its shareholders, or the adoption or consideration
of any plan or arrangement with respect thereto;
(h) any resignation or termination of the employment of any director,
officer or key employee of the Company or any of its Subsidiaries;
(i) any Investment by the Company or any of its Subsidiaries in the
Capital Stock of any Person;
27
(j) any offer, issuance or sale of any shares of Capital Stock of the
Company or any Option Rights or Convertible Securities, other than the Bridge
Warrant;
(k) any change in the Company's credit guidelines and policies,
charge-off policies or accounting methods, procedures or policies;
(l) any incurrence of any Indebtedness by the Company or any of its
Subsidiaries, other than the Indebtedness evidenced by the Bridge Note;
(m) any agreement or commitment to do any of the foregoing;
(n) any deterioration in the quality of the portfolio of Automobile
Contracts owned by the Company or any of its Subsidiaries; or
(o) any other event or condition of any character which could have a
Material Adverse Effect.
3.14 MATERIAL CONTRACTS; AUTOMOBILE CONTRACTS.
(a) SCHEDULE 3.14(a) sets forth a true and complete list of all
material contracts, agreements, commitments or arrangements, whether oral or
written, of the Company and any of its Subsidiaries, including, without
limitation, all servicing agreements, sub-servicing agreements, leases (whether
real property or personal property), pooling and servicing agreements,
agreements entered into in connection with any Securitization Transactions,
underwriting agreements, dealer affiliation agreements, employment and other
agreements with management, joint venture agreements, partnership agreements,
agreements, instruments and other documents evidencing Indebtedness (including,
without limitation, the ESFR Agreement and the Subordinated Agreements) and all
other material agreements and commitments (including, without limitation, all
agreements, commitments or arrangements involving, in any instance, any
obligation of the Company or any of its Subsidiaries to pay an amount in excess
of $100,000, or the breach or termination of which could have a Material Adverse
Effect) (all such contracts, agreements, commitments and arrangements being
collectively referred to herein as the "Material Contracts"). Each Material
Contract is legal, valid, binding and enforceable against the parties thereto in
accordance with its terms and is in full force and effect as of the date hereof.
The Company and its Subsidiaries (as applicable) and, to the best knowledge of
the Company, all third parties to the Material Contracts are in substantial
compliance with the terms thereof, and no default or event of default by the
Company or, to the best knowledge of the Company, any such third party, exists
thereunder.
(b) Each Automobile Contract arose from the sale or lease of Goods,
was originated by the Company or any of its Subsidiaries, or by a Dealer or
other Person and subsequently purchased by the Company or such Subsidiary, and
is a BONA FIDE and valid deferred payment obligation of the Automobile Contract
Debtor, providing for the retention of a
28
first lien or security interest in the underlying Goods to secure payment of the
obligation evidenced thereby, and is binding and enforceable against the
Automobile Contract Debtor in accordance with its terms, and neither the Company
nor any of its Subsidiaries knows of any fact which impairs or will impair the
validity of any such Automobile Contract, except where the failure of any
Automobile Contracts, individually or in the aggregate, to be BONA FIDE, valid,
binding or enforceable or the impairment of any Automobile Contracts,
individually or in the aggregate, could not have a Material Adverse Effect. The
Automobile Contracts and related Automobile Security Documents are free of any
claim for credit, deduction, discount, allowance, defense (including the defense
of usury), dispute, counterclaim or setoff which, individually or in the
aggregate, could have a Material Adverse Effect. Each Automobile Contract is
free of any Lien in favor of any Person other than the Company. Each Automobile
Contract correctly sets forth the payment terms between the Company and the
Automobile Contract Debtor, including the interest rate applicable thereto. To
the best knowledge of the Company, the signatures of all Automobile Contract
Debtors are genuine and each Automobile Contract Debtor had the legal capacity
to enter into and execute such documents on the date thereof. There is only one
original counterpart of the Automobile Contract executed by the Automobile
Contract Debtor (with the possible exception of one duplicate original
counterpart which, if in existence, is in the Contract Debtor's sole
possession). SCHEDULE 3.14(b) sets forth true and correct portfolio performance
reports.
3.15 TRADE ACCOUNTS PAYABLE. Except to the extent disputed in good faith
by the Company, all trade accounts payable of the Company and its Subsidiaries
were incurred in the ordinary course of business and are valid. SCHEDULE 3.15
sets forth a true and complete list of all trade accounts payable of the Company
and its Subsidiaries as of the date hereof, reflecting agings per trade account
payable in categories of 30, 60, 90 and more than 90 days after the date of
invoice.
3.16 LABOR AGREEMENTS AND ACTIONS. Neither the Company nor any of its
Subsidiaries is bound by or subject to any written or oral, express or implied,
contract, commitment or arrangement with any labor union, and no labor union has
requested or sought to represent any of the employees, representatives or agents
of the Company or any such Subsidiaries. There is no strike or other labor
dispute, including, without limitation, any unfair labor practice, charge or
other proceeding before the National Labor Relations Board, involving the
Company pending or, to the best knowledge of the Company, threatened. Neither
the Company nor any of its Subsidiaries is aware of any labor organization
activity involving the employees of the Company or any of its Subsidiaries, or
of any officer or key employee, or any group of officers or key employees, that
intends to terminate his or her employment with the Company. The Company has no
knowledge of any fact or circumstance which could, with the passage of time or
otherwise, cause this representation and warranty to be no longer true and
correct. Each of the Company and its Subsidiaries is in compliance with all
provisions of the Fair Labor Standards Act, all state wage and hour laws and all
workers compensation laws, except where the failure to be in compliance could
not have a Material Adverse Effect.
29
3.17 EMPLOYEE BENEFIT PLANS; ERISA. All pension, retirement, bonus, profit
sharing, stock option, employee and other benefit or welfare plans or
arrangements maintained by the Company or any of its Subsidiaries, or to which
the Company or any of its Subsidiaries contributes or is required to contribute,
to the extent required, comply with the provisions of and have been administered
and maintained in compliance with the provisions of ERISA and all other
Applicable Laws. Neither the Company nor any of its Subsidiaries (a) maintains,
and in the past has never maintained, any "employee pension benefit plan" within
the meaning of Section 3(2) of ERISA or (b) contributes to, and in the past has
never contributed to, any "multiemployer plan," as defined in
Section 4001(a)(3) of ERISA. There are no unpaid liabilities of the Company or
any of its Subsidiaries with respect to, and no unfunded benefits (whether
vested or not) under, any "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA) maintained by the Company or any of its Subsidiaries,
other than unpaid liabilities with respect to the Company's Employee Savings
(401(k) Plan) that do not exceed $50,000 in the aggregate and which are
reflected on the Closing Balance Sheet in accordance with GAAP, and any such
liabilities incurred after the Closing Date will be incurred only in the
ordinary course of business and properly reflected in the financial statements
of the Company in accordance with GAAP. SCHEDULE 3.17 sets forth a list of all
"employee welfare benefit plans" of the Company.
3.18 TAXES. Each of the Company and its Subsidiaries has timely filed
within required time periods, including permitted extensions, all federal, state
and other Tax returns required to have been filed and has paid all Taxes which
were due and payable prior to the date hereof, other than Taxes that are being
contested in good faith and for which reserves have been properly established on
the Closing Balance Sheet. Each of the Company and its Subsidiaries has
withheld and paid all Taxes required to be withheld and paid in connection with
amounts paid or owing to any employee, creditor, shareholder or other third
party. Except as set forth in SCHEDULE 3.18, (a) neither the Company nor any of
its Subsidiaries has been advised that any Tax returns of the Company or any of
its Subsidiaries have been or are being audited by any Governmental Authority,
(b) there are no agreements, waivers or other arrangements providing for an
extension of time with respect to the assessment of any Taxes or deficiency
against the Company or any of its Subsidiaries, (c) there are no actions, suits,
proceedings or claims now pending against the Company or any of its Subsidiaries
in respect of any Taxes or assessments, and (d) there is no pending or, to the
best knowledge of the Company, threatened investigation of the Company or any
Subsidiaries by any Governmental Authority relating to any Taxes or assessments,
or any claims for additional taxes or assessments asserted by any Governmental
Authority. Neither the Company nor any of its Subsidiaries is a party to or
bound by any tax sharing, tax indemnity or tax allocation agreement or other
similar arrangement.
3.19 LITIGATION. Except as set forth on SCHEDULE 3.19 and except with
respect to Automobile Contracts, there are no (a) actions, suits, proceedings or
investigations pending or threatened before any Governmental Authority against
or affecting the Company or any of its Subsidiaries or Affiliates or (b) orders,
decrees, judgments, injunctions or rulings of any Governmental Authority against
the Company or any of its Subsidiaries or Affiliates. All
30
claims pending against the Company or any of its Subsidiaries under or with
respect to any Automobile Contracts do not exceed $500,000 in the aggregate.
There is no action, suit or other proceeding pending or threatened which
questions the validity of this Agreement, the Note or the other Related
Agreements or any action taken or to be taken pursuant hereto or thereto, or
which could, individually or in the aggregate, have a Material Adverse Effect.
3.20 GOVERNMENTAL REGULATION; MARGIN STOCK. Neither the Company nor any of
its Subsidiaries is subject to the Investment Company Act of 1940, as amended,
or to any Applicable Laws limiting its ability to incur Indebtedness or to
create Liens on any of its properties or assets to secure such Indebtedness.
Neither the Company nor any of its Subsidiaries is engaged principally, or as
one of its important activities, in the business of extending credit for the
purposes of purchasing or carrying Margin Stock. The value of all Margin Stock
held by the Company and its Subsidiaries constitutes less than 5.0% of the
value, as determined in accordance with the Margin Regulations, of all assets of
the Company and its Subsidiaries.
3.21 COMPLIANCE WITH LAWS; LICENSES AND PERMITS. Each of the Company and
its Subsidiaries is in compliance in all material respects with all Applicable
Laws. SCHEDULE 3.21 sets forth a true and complete list of all Licenses and
Permits held by the Company and its Subsidiaries in connection with the conduct
of their businesses, and such Licenses and Permits constitute all of the
Licenses and Permits required under Applicable Laws to conduct their respective
businesses as now conducted and as proposed to be conducted, except where the
failure to hold the same could not have a Material Adverse Effect. All of
Licenses and Permits are validly issued and in full force and effect, and the
Company and its Subsidiaries have fulfilled and performed all of their
obligations with respect thereto and have full power and authority to operate
thereunder.
3.22 TITLE TO PROPERTIES AND ASSETS; LIENS. Each of the Company and its
Subsidiaries has good and marketable title to all of its properties and assets,
and none of such properties or assets is subject to any Liens except for the
Existing Liens and for Permitted Liens. Each of the Company and its
Subsidiaries enjoys quiet possession under all leases to which they are parties
as lessees, and all of such leases are valid, subsisting and in full force and
effect. None of such leases contains any provision restricting the incurrence
of indebtedness by the lessee or any unusual or burdensome provision materially
adversely affecting the current and proposed operations of the Company and its
Subsidiaries.
3.23 INTELLECTUAL PROPERTY.
(a) Each of the Company and its Subsidiaries owns, or is licensed or
otherwise possesses legally enforceable rights to use, all Intellectual Property
that is used in the conduct of its business as currently conducted and as
proposed to be conducted, except where the failure to own, license or possess
the same could not have a Material Adverse Effect. SCHEDULE 3.23 lists (i) all
patents, patent applications, trademarks, servicemarks, trademark and
31
servicemark applications, copyrights and trade names owned or held by the
Company or any of its Subsidiaries and used in the conduct of its or their
businesses, including the jurisdictions in which each such Intellectual Property
right has been issued or registered or in which any such application for such
issuance or registration has been filed; (ii) all material written licenses,
sublicenses and other agreements to which the Company or any of its Subsidiaries
is a party and pursuant to which any Person (other than employees of the Company
in the course of their employment) is authorized to use any such Intellectual
Property rights; and (iii) all material written licenses, sublicenses and other
agreements to which the Company or any of its Subsidiaries is a party and
pursuant to which the Company or any of its Subsidiaries is authorized to use
any third party patents, trademarks or copyrights, including computer software
("Third Party Intellectual Property Rights") which are used in the businesses of
the Company or the Subsidiaries or which form a part of any product or service
of the Company or its Subsidiaries, all of which are in full force and effect.
The Company has made available to the Purchaser correct and complete copies of
all such patents, registrations, applications, licenses and agreements and
related documentation, all as amended to date. Neither the Company nor any of
its Subsidiaries has agreed to indemnify any Person for or against any
infringement, misappropriation or other conflict with respect to any item of
Intellectual Property that the Company owns or uses. Neither the Company nor
any of its Subsidiaries is a party to any oral license, sublicense or agreement
which, if reduced to written form, would be required to be listed in
SCHEDULE 3.23 under the terms of this SECTION 3.23.
(b) Neither the Company nor any of its Subsidiaries will be, as a
result of the execution and delivery of this Agreement or the performance of the
Company's obligations under this Agreement, in breach of any license, sublicense
or other agreement relating to the Intellectual Property or Third Party
Intellectual Property Rights.
(c) Neither the Company nor any of its Subsidiaries has been named in
any suit, action or other proceeding which involves a claim of infringement of
any Intellectual Property rights of any third party. Except as disclosed in
SCHEDULE 3.23, the performance of the services offered by the Company and its
Subsidiaries do not infringe on any Intellectual Property right of any other
Person, and to the best knowledge of the Company, the Intellectual Property
rights of the Company and its Subsidiaries are not being infringed by
activities, products or services of any third party.
3.24 BROKERS; CERTAIN EXPENSES. Neither the Company nor any of its
Subsidiaries has paid or is obligated to pay any fee or commission to any
broker, finder, investment banker or other intermediary in connection with this
Agreement, any Related Agreement or any of the transactions contemplated hereby
or thereby. Except for the monthly fixed advisory fee required to be paid by
the Company under the Stanwich Consulting Agreement, neither the Company nor any
of its Subsidiaries is bound by any agreement or commitment for the provision of
investment banking or financial advisory services with respect to any proposed
recapitalization, issuance of debt or equity securities or other transactions
involving the
32
Company or any of its Subsidiaries or the provision of any other investment
banking or financial advisory services to the Company or any of its
Subsidiaries.
3.25 REAL PROPERTY LEASES. SCHEDULE 3.25 sets forth a true and complete
list of all real property leases, subleases and licenses pursuant to which the
Company or any of its Subsidiaries is a lessor, lessee, sublessor, sublessee,
licensor or licensee of real property, including the term thereof, any extension
and renewal options, and the rent payable thereunder. The Company has delivered
to the Purchaser correct and complete copies of the same (as amended to date).
With respect to each such lease, sublease and license, except as set forth on
SCHEDULE 3.25:
(a) Such lease, sublease and license is legal, valid, binding and
enforceable against the parties thereto;
(b) no party thereto is in breach or default, and no event has
occurred which, with notice or lapse of time, would constitute a breach or
default or permit termination, modification, or acceleration thereunder;
(c) there are no disputes, oral agreements or forbearance programs in
effect;
(d) neither the Company nor any of its Subsidiaries, as the case may
be, has assigned, transferred, conveyed, mortgaged, deeded in trust or
encumbered any interest therein, except as contemplated by the ESFR Agreement;
(e) there are no restrictions therein which prohibit the issuance of
the Securities, prohibit or restrict any merger, sale of assets or other event
which could cause any Change in Control, or otherwise restrict or prohibit any
other financings by the Company, including, without limitation, any public or
private debt or equity financings; and
(f) All parking lots located on any real property subject thereto are
in compliance with Applicable Laws, including, without limitation, zoning
requirements.
3.26 POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of the Company or any of its Subsidiaries.
3.27 INSURANCE. SCHEDULE 3.27 sets forth a true and complete list of all
liability and other insurance policies insuring the Company and its Subsidiaries
against losses arising out of or related to the businesses of the Company and
its Subsidiaries (and accurately describes the coverage carried and expiration
dates of such policies). Each of the Company and its Subsidiaries is covered by
insurance in scope and amount customary and reasonable for the businesses in
which it is engaged and will be so covered after consummation of the
transactions contemplated hereby. The insurance policies listed on SCHEDULE
3.27 constitute insurance protection against all liability, claims and risks
occurring in the ordinary course of business
33
customarily included within comprehensive liability coverage and at amounts and
levels customarily maintained for a business of this type. All such policies
are in full force and effect.
3.28 BOOKS AND RECORDS. The minute books and other similar records of the
Company and its Subsidiaries contain true and complete records of all actions
taken at any meetings of the Board of Directors of the Company or any committees
thereof and shareholders of the Company and its Subsidiaries and of all written
consents executed in lieu of the holding of any such meetings. The books and
records of the Company accurately reflect in all respects the assets,
liabilities, business, financial condition and results of operations of the
Company and have been maintained in accordance with good business, accounting
and bookkeeping practices.
3.29 DEALERS. SCHEDULE 3.29 sets forth a true and complete list of all
Dealers. No Dealer accounts for more than five percent (5.0%) of the aggregate
Amount Financed (as defined in ANNEX A) under Automobile Contracts purchased by
the Company during the calendar year ended December 31, 1997 and the ten (10)
month period ended October 31, 1998.
3.30 PERSONAL PROPERTY LEASES. SCHEDULE 3.30 sets forth a true and
complete list and description of all agreements (or group of related agreements)
for the lease of personal property requiring payments by the Company or its
Subsidiaries over the remaining life of the lease of $10,000 or more. Neither
the Company nor its Subsidiaries has breached any agreement pertaining to, is in
default with respect to, or is overdue in payment of, any amounts owing under
any lease agreement disclosed on SCHEDULE 3.30, except where any such breach (or
breaches) or default (or defaults), individually or in the aggregate, could not
have a Material Adverse Effect. No such lease agreement contains any provisions
which restrict or prohibit (a) the issuance of the Securities, (b) any other
financings by the Company or any Subsidiaries, including, without limitation any
public or private debt or equity financings or (c) other than ordinary
restrictions on assignment, any merger, sale of assets or other event which
could cause a Change in Control.
3.31 EMPLOYMENT AND AGENCY AGREEMENTS. SCHEDULE 3.31 sets forth a true and
complete list of all employment, agency, independent contractor or sales
representative agreements, golden parachute agreements and non-competition or
non-solicitation agreements to which the Company or any of its Subsidiaries is a
party, true and complete copies of which have been provided to the Purchaser.
Each such agreement is in writing, is a valid and binding agreement enforceable
in accordance with its terms, and no party to any such agreement is in breach
of, or in default with respect to, its obligations under such agreement nor is
the Company or any of its Subsidiaries aware of any facts or circumstances which
might give rise to a breach or default thereunder.
3.32 SOLVENCY. After giving effect to the transactions contemplated in
this Agreement and each of the Related Agreements, each of the Company and its
Subsidiaries (other than Samco Acceptance Corp.) has a positive net worth and is
Solvent. No transfer of property is being made and no obligation is being
incurred in connection with the transactions contemplated
34
by this Agreement and the Related Agreements with the intent to hinder, delay or
defraud either present or future creditors of the Company or any of its
Subsidiaries.
3.33 ENVIRONMENTAL MATTERS. Neither the Company nor any of its
Subsidiaries has ever caused or permitted any Hazardous Materials to be disposed
of on or under any Real Property, and no Real Property has ever been used (by
the Company and/or any Subsidiary or, to the best knowledge of the Company, by
any other Person) as (a) a disposal site or permanent storage site for any
Hazardous Materials or (b) a temporary storage site for any Hazardous Materials.
Each of the Company or its Subsidiaries has been issued and is in compliance
with all material Licenses and Permits relating to environmental matters and
necessary or desirable for its business, and has filed all notifications and
reports relating to chemical substances, air emissions, underground storage
tanks, effluent discharges and Hazardous Materials waste storage, treatment and
disposal required in connection with the operation of its businesses, the
failure to have or comply with which, individually or in the aggregate, has had
or could have a Material Adverse Effect. All Hazardous Materials used or
generated by the Company or any of its Subsidiaries or any business merged into
or otherwise acquired by the Company or any of its Subsidiaries have been
generated, accumulated, stored, transported, treated, recycled and disposed of
in compliance with all Environmental Laws, the violation of which has any
reasonable likelihood of having a Material Adverse Effect. Neither the Company
nor any of its Subsidiaries has any liabilities with respect to Hazardous
Materials, and to the best knowledge of the Company, no facts or circumstances
exist which could give rise to liabilities with respect to the violation
(whether by the Company or any other Person) of any Environmental Laws and/or
Hazardous Materials which could have any Material Adverse Effect.
3.34 PUBLIC HOLDING COMPANY; INVESTMENT COMPANY. Neither the Company nor
any of its Subsidiaries is a "holding company" or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company", as such terms are defined in the Public Utility
Holding Company Act of 1935. The Company is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
3.35 DEPOSITORY AND OTHER ACCOUNTS. SCHEDULE 3.35 sets forth a true and
complete list of all banks and other financial institutions and depositories at
which the Company and its Subsidiaries maintains (or has caused to be
maintained) or will maintain deposit accounts, spread accounts, yield supplement
reserve accounts, operating accounts, trust accounts, trust receivable accounts
or other accounts of any kind or nature into which funds of the Company
(including funds in which the Company maintains a contingent or residual
interest) or any such Subsidiary are deposited from time to time, and such
SCHEDULE 3.35 correctly identifies the name and address of each depository, the
name in which each account is held, the purpose of the account and the account
number. The Company will promptly notify the Purchaser and supplement
SCHEDULE 3.35 as new accounts are established, and the Purchaser is hereby
authorized to attach such supplements to such Schedule delivered by the Company.
35
3.36 TAX STATUS OF SECURITIZATION TRANSACTIONS. None of the trusts created
by or on behalf of the Company in connection with any Securitization
Transactions are, or will be, classified as an association taxable as a
corporation under the IRC or is, or will be, otherwise taxed as a separate
entity for federal income tax purposes.
3.37 BURDENSOME OBLIGATIONS; FUTURE EXPENDITURES. Neither the Company nor
any of its Subsidiaries is a party to or bound by any agreement (including,
without limitation, the Material Contracts listed on SCHEDULE 3.14(a)),
instrument, deed or lease or is subject to any charter, bylaw or other
restriction, commitment or requirement which, in the opinion of its management,
is so unusual or burdensome that in the foreseeable future it could have, or
cause or create a material risk of having or causing, a Material Adverse Effect.
Neither the Company nor any of its Subsidiaries anticipates that the future
expenditures, if any, by the Company and its Subsidiaries needed to meet the
provisions of any Applicable Laws will be so burdensome as to have or cause, or
create a material risk of having or causing, a Material Adverse Effect.
3.38 FSA INDEBTEDNESS AND LIABILITIES. None of the Company, any of its
Subsidiaries or any trust maintained in connection with any Securitization
Transactions occurring prior to the Closing Date has any Indebtedness to FSA (or
any Affiliate of FSA) pursuant to any agreement, commitment or arrangement to
which FSA is a party, other than Indebtedness incurred in connection with
Securitization Transactions of the type which the Company believes is customary
in similar securitization transactions insured by FSA, the assets of which
consist solely of Automobile Contracts.
3.39 CHARGES TO NET INTEREST RECEIVABLE. Neither the Company nor any of
its Subsidiaries has taken, or is required by the terms of SFAS 125 to take, any
charge with respect to any portion of the Net Interest Receivables.
3.40 SEC DOCUMENTS; UNDISCLOSED LIABILITIES. The Company has filed all
required registration statements, prospectuses, reports, schedules, forms,
statements and other documents (including exhibits and all other information
incorporated therein) with the SEC since December 31, 1993 (the "Company SEC
Documents"). As of their respective dates, the Company SEC Documents complied
with the requirements of the Securities Act or the Exchange Act, as the case may
be, applicable to the Company SEC Documents, and none of the Company SEC
Documents, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company
included in the Company SEC Documents comply as to form, as of their respective
dates of filing with the SEC, in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP (except, in the case
of unaudited statements, as permitted by Form 10-Q and the SEC) applied on a
consistent basis during the periods involved and fairly present the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations
36
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Such financial statements
reflect appropriate reserves established for all Automobile Contracts and
general ledger accounts in accordance with GAAP. All material information
regarding the "Year 2000" issue is fully and adequately disclosed in the
Company's SEC Documents.
3.41 DISCLOSURE. After due inquiry of the directors, executive officers
and employees of the Company having knowledge of the matters represented,
warranted or stated herein, no representation, warranty or other statement made
by or on behalf of the Company, its Subsidiaries or its or their respective
representatives and agents to the Purchaser, whether written or oral, whether
included in any materials provided to the Purchaser prior to the date hereof or
included in this Agreement or any Related Agreement or in any Exhibit or
Schedule or in any other document or instrument delivered at any time prior to
the Closing, is, or will be, untrue with respect to any material fact or omits,
or will omit, to state a material fact necessary in order to make the statement
made herein or therein, in light of the circumstances in which such statement
was made, not misleading. The information contained in each of the management
questionnaires completed by certain officers and directors of the Company and
delivered to the Purchaser in connection with the transactions contemplated by
this Agreement is true and correct.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants to the Company that the following statements are true
and complete as of the date hereof.
4.1 ORGANIZATION AND GOOD STANDING. The Purchaser is a limited
partnership formed and validly existing under the laws of the State of
California, and has all requisite power and authority to enter into this
Agreement and each Related Agreement to which it is a party and to consummate
the transactions contemplated hereby.
4.2 AUTHORIZATION. The execution, delivery and performance of this
Agreement and of each of the Related Agreements to which the Purchaser is a
party, and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by all necessary action on the part of the Purchaser.
4.3 DUE EXECUTION AND DELIVERY; BINDING OBLIGATIONS. This Agreement has
been duly executed and delivered by the Purchaser. This Agreement is, and at
the time of the Closing each of the Related Agreements to which the Purchaser is
a party will be, a legal, valid and binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or conveyance or similar laws relating to or
limiting creditors' rights generally or by equitable principles relating to
enforceability and except as rights of indemnity or contribution may be limited
by federal or state securities or other laws or the public policy underlying
such laws.
37
4.4 NO VIOLATION. The execution, delivery and performance by the
Purchaser of this Agreement and each of the Related Agreements to which the
Purchaser is a party, and the consummation of the transactions contemplated
hereby, do not violate (a) the limited partnership agreement of the Purchaser as
in effect on the date hereof, (b) any law, statute, rule or regulation
applicable to the Purchaser, (c) any order, ruling, judgment or decree of any
Governmental Authority binding on the Purchaser or (d) any term of any material
indenture, mortgage, lease, agreement or instrument to which the Purchaser is a
party.
4.5 INVESTMENT INTENT. The Purchaser is acquiring the Securities for its
own account, for investment purposes, and not with a view to or for sale in
connection with any distribution thereof. The Purchaser understands that the
Securities have not been registered under the Securities Act or registered or
qualified under any state securities law in reliance upon specific exemptions
therefrom, which exemptions may depend upon, among other things, the bona fide
nature of the Purchaser's investment intent as expressed herein.
4.6 ACCREDITED INVESTOR STATUS. The Purchaser is an "accredited investor"
(as such term is defined in Rule 501 of Regulation D under the Securities Act).
By reason of its business and financial experience, the Purchaser has such
knowledge, sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the investment in the
Securities, has the capacity to protect its own interests and is able to bear
the economic risk of such investment. The Purchaser has had an opportunity to
review the books and records of the Company and to ask questions of
representatives of the Company concerning the terms and conditions of the
transactions contemplated by this Agreement.
4.7 GOVERNMENTAL CONSENTS. The execution and delivery by the Purchaser of
this Agreement and each of the Related Agreements to which it is a party, and
the consummation by the Purchaser of the transactions contemplated hereby, do
not and will not require any Consent of any Governmental Authority.
5. CONDUCT PRIOR TO CLOSING.
5.1 CONDUCT OF BUSINESS PRIOR TO CLOSING. Without the prior written
consent of the Purchaser, from and after the date of this Agreement until the
Closing, the Company shall, and shall cause each of its Subsidiaries to, conduct
its business in the ordinary course. Notwithstanding the foregoing and except
as contemplated hereby, the Company shall not, and shall not permit any of its
Subsidiaries to:
(a) waive or release any right or any debt owed to it;
(b) satisfy or discharge any Lien or pay any obligation;
(c) change or amend any contract or arrangement by which the Company
or any Subsidiary or any of their properties or assets is bound or subject;
38
(d) effect any act or omission which could have a Material Adverse
Effect;
(e) create any contingent obligation, by way of guarantees or
otherwise;
(f) declare or pay any dividend or other distribution or payment in
cash, stock or property in respect of shares of its Capital Stock, or adopt or
consider any plan or arrangement with respect thereto or make any direct or
indirect redemption, retirement, purchase or other acquisition of any of its
Capital Stock or split, combine or reclassify its outstanding shares of Capital
Stock;
(g) issue any shares of Capital Stock or any Option Rights or
Convertible Securities (other than shares of Common Stock issued upon the
exercise of (i) stock options issued under the Existing Stock Plans and (ii)
Convertible Securities and Option Rights set forth on SCHEDULE 3.8);
(h) (i) increase the compensation of any officer or key employee;
(ii) adopt any new employee benefit plan; or (iii) enter into any new employment
or consulting agreement;
(i) (i) incur any Indebtedness; (ii) transfer, lease, license, sell,
mortgage, pledge, dispose of, or encumber any asset of the Company with a value
exceeding $10,000 individually, and $50,000 in the aggregate; (iii) purchase or
acquire any business or any securities or assets of a business; (iv) enter into
any joint venture or partnership; (v) settle any material litigation or waive or
relinquish any material right or benefit; or (vi) accelerate payments on any
Indebtedness;
(j) make any Capital Expenditures in excess of $25,000 in the
aggregate;
(k) fail to preserve intact the business organization of the Company
and each of its Subsidiaries, fail to keep available the services of their
operating personnel, or fail to preserve the goodwill of those having business
relationships with the Company or its Subsidiaries, including, without
limitation, customers;
(l) fail to maintain its books and records in accordance with GAAP;
or
(m) take any action which would be prohibited by any of the Related
Agreements determined as if the transactions contemplated by this Agreement had
been consummated.
In addition, the Company shall notify the Purchaser in writing of the
occurrence of any Material Adverse Effect or breach of the representations and
warranties of the Company under this Agreement within one (1) day following the
occurrence thereof.
39
5.2 ACCESS TO INFORMATION AND DOCUMENTS. From and after the date of this
Agreement until the Closing, the Company and each of its Subsidiaries shall give
the Purchaser and its representatives and agents full access during normal
business hours to the properties, documents, books and records of the Company
and each of its Subsidiaries, and shall furnish the Purchaser with such
information concerning the Company and each of its Subsidiaries as the Purchaser
may request.
5.3 COVENANT TO CLOSE. Each of the Company and the Purchaser shall use
its best efforts to consummate the transactions contemplated by this Agreement
pursuant to the terms hereof. Without limiting the generality of the foregoing,
the Company shall use its best efforts to obtain all Consents from third
parties which are required to be obtained in connection with the consummation of
each of the transactions contemplated by this Agreement, including, without
limitation, any Consents of the holders of any Indebtedness of the Company or of
its Subsidiaries for the purpose of ensuring the incurrence by the Company of
the Indebtedness evidenced by the Note.
6. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER. The obligation of the
Purchaser to consummate the transactions contemplated hereby, including, without
limitation, to purchase the Note, is subject to the satisfaction, prior to or at
the Closing, of the conditions set forth in this SECTION 6; PROVIDED, HOWEVER,
that any or all of such conditions may be waived, in whole or in part, by the
Purchaser in its sole and absolute discretion:
6.1 REPRESENTATIONS AND WARRANTIES; NO DEFAULT. Each of the
representations and warranties made by the Company contained in this Agreement
shall be true and correct in all material respects as of the date made, and
shall be true and correct in all material respects as of the Closing Date, with
the same effect as if made on and as of the Closing Date, the Company shall have
performed or satisfied each of its covenants, agreements and obligations
hereunder to be performed or satisfied by it on or prior to the Closing Date,
and there shall not exist on the Closing Date any Default or Event of Default.
The Company shall have delivered to the Purchaser an officers' certificate,
signed by the President and Chief Executive Officer and the Senior Vice
President and Chief Financial Officer of the Company, dated as of the Closing
Date, to such effect and to the effect that each of the applicable conditions
set forth in this SECTION 6 has been satisfied and fulfilled.
6.2 PURCHASE PERMITTED BY APPLICABLE LAWS. The consummation of the
transactions contemplated by this Agreement shall not be prohibited by or
violate any Applicable Laws and shall not subject any party to any Tax, penalty
or liability, under or pursuant to any Applicable Laws, and shall not be
enjoined (temporarily or permanently) under, or prohibited by or contrary to,
any injunction, order or decree. Without limiting the generality of the
foregoing, the consummation of the transactions contemplated hereby shall
otherwise comply with all applicable requirements of federal and state
securities laws.
40
6.3 NO MATERIAL ADVERSE CHANGES. Since September 30, 1998, there shall
not have occurred any Material Adverse Change.
6.4 NO JUDGMENT OR ORDER. There shall not be any judgment, ruling or
order of any Governmental Authority which, in the judgment of the Purchaser,
would prohibit the delivery of the Securities or subject the Purchaser to any
penalty if the Securities were to be delivered hereunder.
6.5 OPINION OF COUNSEL. The Purchaser shall have received an opinion
letter of Xxxx & Xxxxx, special counsel to the Company, dated as of the Closing
Date and addressed to the Purchaser, in form and substance satisfactory to the
Purchaser.
6.6 DELIVERY OF DOCUMENTS. The Company shall have delivered to the
Purchaser the following documents:
(a) This Agreement, duly executed by the Company, together with the
Disclosure Schedules (PROVIDED that the Purchaser will deliver SCHEDULE 2.2);
(b) The Note, duly executed by the Company;
(c) The Primary Warrant, duly executed by the Company;
(d) A Registration Rights Agreement, in substantially the form of
EXHIBIT C (the "Registration Rights Agreement"), duly executed by the Company;
(e) The Investor Rights Agreement, duly executed by the Company,
Xxxxxxx X. Xxxxxxx, Xx., Xxxxxxx X. Xxxxxxx, Xx. and Xxxxxxx X. Xxxxx;
(f) A second amendment to the ESFR Agreement, in form and substance
satisfactory to the Purchaser ("ESFR Amendment No. 2"), duly executed by the
Company and the ESFR Lenders, pursuant to which, among other things, the ESFR
Lenders consent to or permit the incurrence by the Company of the Indebtedness
evidenced by the Note; and
(g) A Secretary's Certificate of the Company, duly executed by the
Secretary and the President and Chief Executive Officer of the Company, in form
and substance satisfactory to the Purchaser.
6.7 STANWICH TRANSACTIONS.
(a) The Company shall have delivered to the Purchaser the Stanwich
Purchase Option, duly executed by Stanwich and the Company.
41
(b) The Company shall have delivered to the Purchaser, in form and
substance satisfactory to the Purchaser and duly executed by the Company,
Stanwich and Poole, as the case may be: (i) a debt restructure agreement, in
substantially the form of EXHIBIT G (the "Stanwich Debt Restructure Agreement");
(ii) copies of the "Stanwich Replacement Note" and the "Poole Replacement Note"
(as such terms are defined in the Stanwich Debt Restructure Agreement); and
(iii) the "Consolidated Registration Rights Agreement" (as such term is defined
in the Stanwich Debt Restructure Agreement);
(c) The Company shall have delivered to the Purchaser the Addendum to
this Agreement, duly executed by Xxxxxxxx, with respect to the covenants and
obligations of Stanwich under SECTION 8.24; and
(d) The Company shall have delivered to the Purchaser a Subordination
Agreement, in substantially the form of EXHIBIT H (the "Stanwich Subordination
Agreement"), duly executed by Xxxxxxxx, Poole, the Purchaser and the Company.
6.8 CLOSING AND OTHER FEES. The Company shall have paid to the Purchaser,
in immediately available funds, a non-refundable, non-accountable closing fee of
$700,000.00 (which closing fee may be withheld by the Purchaser from the
proceeds of the Note and which withholding shall constitute payment in full of
the Company's obligation with respect to such closing fee), and all costs and
expenses provided for in SECTION 12.15.
6.9 DUE DILIGENCE. The Purchaser shall have completed its due diligence
review of the Company, the Subsidiaries and their respective Affiliates to the
Purchaser's satisfaction.
6.10 CLOSING DATE. The Closing Date shall occur on or before November 18,
1998.
6.11 CERTAIN FSA AND ESFR WAIVERS; ESFR FEES.
(a) The Company shall have delivered to the Purchaser a waiver, in
form and substance reasonably satisfactory to the Purchaser, duly executed by
FSA, under which FSA waives the Insurance Agreement Event of Default occurring
as of September 30, 1998;
(b) The Company shall have delivered to the Purchaser a waiver, in
form and substance reasonably satisfactory to the Purchaser, duly executed by
FSA, under which FSA waives the Insurance Agreement Event of Default occurring
as of October 31, 1998;
(c) The Company shall have delivered to the Purchaser a waiver or
consent, in form and substance reasonably satisfactory to the Purchaser, duly
executed by the ESFR Agent and the ESFR Lenders (such condition precedent may
satisfied if such waiver or consent is included in ESFR Amendment No. 2); and
42
(d) The Company shall have delivered to the Purchaser written
evidence of payment by the Company to the ESFR Agent of the fees and expenses
required to be paid by the Company under ESFR Amendment No. 2.
6.12 FINANCIAL PROJECTIONS. The Company shall have delivered to the
Purchaser financial projections of the Company and its Subsidiaries for the
three (3) year period ending December 31, 2001, as previously approved by the
Purchaser, accompanied by an officer's certificate specifying, among other
things, the assumptions on which such financial projections are based, duly
executed by the Chief Financial Officer of the Company, in form and substance
satisfactory to the Purchaser.
6.13 CPS OPERATING PLAN. The Company shall have delivered to the Purchaser
an operating plan, in reasonable detail and on terms acceptable to the Purchaser
(the "CPS Operating Plan"), accompanied by an officer's certificate, duly
executed by the Chief Financial Officer of the Company, in form and substance
satisfactory to the Purchaser.
6.14 BOARD REPRESENTATIVE. The Company shall have caused a representative
of the Purchaser, who shall be designated by the Purchaser prior to the Closing,
to have been duly elected or appointed as a member of the Board of Directors of
the Company prior to or as of the Closing.
6.15 THIRD PARTY CONSENTS. The Company and each of its Subsidiaries shall
have obtained all Consents required to be obtained in connection with the
transactions contemplated by this Agreement (including, without limitation, the
Consents contemplated by SECTION 5.3), including, without limitation, any
Consent under the Bank of America Facility, and the Purchaser shall have
approved the terms and conditions thereof.
6.16 DOCUMENTS IN SATISFACTORY FORM. All proceedings taken by the Company
and any of its Subsidiaries in connection with the transactions contemplated by
this Agreement, all agreements, instruments and other documents specifically
referenced in this SECTION 6, and all other agreements, instruments and other
documentation which the Purchaser may request in connection with the
transactions contemplated by this Agreement, shall be in form and substance
satisfactory to the Purchaser, all such documents, where appropriate, to be
counterpart originals and/or certified by proper authorities, corporate
officials and other Persons. Without limiting the generality of the foregoing,
such arrangements shall have been made as may be requested by the Purchaser to
ensure that the proceeds from the sale of the Note are applied in the manner set
forth in SCHEDULE 2.4, including, without limitation, provision for the direct
payment of the obligations of the Company to be paid from such proceeds as
provided in SECTION 12.15, the withholding of fees payable to the Purchaser as
provided in SECTION 12.15 and the segregation of funds to be paid to third
parties concurrent with or following the Closing.
7. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligation of the
Company to consummate the transactions contemplated hereby is subject to the
satisfaction,
43
prior to the Closing, of the conditions set forth in this SECTION 7; PROVIDED,
HOWEVER, that any or all of such conditions may be waived, in whole or in part,
by the Company in its sole and absolute discretion:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Purchaser contained in this Agreement shall be true and correct in all
material respects at and as of the Closing Date after giving effect to the
transactions contemplated by this Agreement, as if made on and as of such date,
and the Purchaser shall have performed or satisfied all of its covenants and
agreements hereunder to be performed or satisfied on or prior to the Closing
Date.
7.2 PURCHASE PERMITTED BY APPLICABLE LAWS. The consummation of the
transactions contemplated by this Agreement shall not be prohibited by or
violate any Applicable Laws and shall not subject any party to any Tax, penalty
or liability, under or pursuant to any Applicable Laws, and shall not be
enjoined (temporarily or permanently) under, or prohibited by or contrary to,
any injunction, order or decree. Without limiting the generality of the
foregoing, the consummation of the transactions contemplated hereby shall
otherwise comply with all applicable requirements of federal and state
securities laws.
7.3 NO MATERIAL JUDGMENT OR ORDER. There shall not be any judgment,
ruling or order of any Governmental Authority which, in the reasonable judgment
of the Company, would prohibit the delivery of the Securities or subject the
Company or its Subsidiaries to any material penalty if the Securities were to be
delivered hereunder.
7.4 PAYMENT FOR SECURITIES. The Purchaser shall have (a) paid the
Purchase Price as required by SECTION 2.3 and (b) surrendered the Bridge Warrant
for cancellation by the Company.
7.5 STANWICH PURCHASE OPTION. The Purchaser shall deliver to the Company
the Stanwich Purchase Option, duly executed by the Purchaser.
8. AFFIRMATIVE COVENANTS. The Company covenants and agrees that, so long as
any Obligations to Purchaser remain outstanding or the Purchaser owns or has the
right to acquire at any time, directly or indirectly, five percent (5%) or more
of the issued and outstanding Common Stock, the Company shall perform, comply
with and observe the covenants set forth in this SECTION 8.
8.1 PAYMENTS WITH RESPECT TO THE NOTE. The Company shall pay all
principal of, premium, if any, interest and other amounts due pursuant to the
terms of the Note on the dates and in the manner provided for therein including,
without limitation, all mandatory prepayments of principal of and interest on
the Note as specifically required under the terms of the Note.
8.2 INFORMATION COVENANTS. The Company shall furnish to the Purchaser:
44
(a) Within ninety (90) days after the end of each fiscal year of the
Company, (i) the audited consolidated and consolidating balance sheets of the
Company and its Subsidiaries at the end of such year, and (ii) the related
audited consolidated and consolidating statements of income, shareholders'
equity and cash flows for such fiscal year, setting forth in comparative form
with respect to such financial statements figures for the previous fiscal year,
all in reasonable detail, together with the opinion thereon of independent
public accountants selected by the Company and reasonably satisfactory to the
Purchaser (it being understood that the current accountants of the Company are
satisfactory to the Purchaser), which opinion shall be unqualified and shall
state that such financial statements have been prepared in accordance with GAAP
applied on a basis consistent with that of the preceding fiscal year (except for
changes, if any, which shall be specified and approved by the Purchaser in
advance of the delivery of such opinion) and that the audit by such accountants
in connection with such financial statements has been made in accordance with
generally accepted auditing standards; PROVIDED, HOWEVER, that such accountants'
certification may be limited to the consolidated financial statements, in which
case the consolidating financial statements shall be certified by the Chief
Financial Officer of the Company;
(b) (i) Within forty-five (45) days after the end of each of the
first three (3) quarterly accounting periods in each fiscal year of the Company,
(A) the unaudited consolidated and consolidating balance sheets of the Company
and its Subsidiaries as at the end of such period, and (B) the related unaudited
consolidated and consolidating statements of income and cash flows for such
period and for the period from the beginning of the current fiscal year to the
end of such period, all in reasonable detail and signed by the Chief Financial
Officer of the Company; (ii) no later than the ninth business day of each
calendar month, a copy of the ESFR Compliance Certificate required to be
delivered to each ESFR Lender pursuant to Section 5.1(b)(x) of the ESFR
Agreement, together with a statement, signed by the Chief Financial Officer of
the Company, certifying that no event or condition which constitutes a Default
or Event of Default exists; (iii) no later than the seventh Business Day of each
calendar month, a copy of the Pool Summary report (as such term is defined in
the ESFR Agreement) required to be delivered to each ESFR Lender pursuant to
Section 5.1(b)(y) of the ESFR Agreement; and (iv) within thirty (30) days after
the end of each calendar month, a copy of the Company's monthly financial
statement package for the immediately preceding month, including, without
limitation, (A) a balance sheet as of the end of such preceding month, (B)
related unaudited statements of income and cash flows for such preceding month,
setting forth in comparative form with respect to such financial statements
figures for the month immediately preceding such month and for the corresponding
period in the prior year, (C) financial ratios, (D) a headcount analysis, (E) an
executive summary report, (F) an originations report and (G) portfolio
performance data, in each of clauses (A) through (G) in form acceptable to the
Purchaser;
(c) Together with the financial statements delivered pursuant to
SECTION 8.2(a), (i) a copy of the statement required to be delivered to each
ESFR Lender pursuant to Section 5.1(c) of the ESFR Agreement, and (ii) a
statement, signed by the Chief Financial Officer of the Company, to the effect
that he has reviewed the provisions of this Agreement and
45
has no knowledge of any event or condition which constitutes a Default or Event
of Default or, if he has such knowledge, specifying the nature and period of
existence thereof;
(d) Promptly (but not later than three (3) Business Days) upon it
becoming available, a copy of the Company's annual USAP Audit;
(e) Promptly (but not later than three (3) Business Days) upon their
becoming available, copies of all filings by the Company or any of its
Subsidiaries, or by any party in connection with any Securitization
Transactions, with the SEC, or any periodic or special reports filed with any
other Governmental Authority, and copies of any material notices and other
material communications from the SEC or from any other Governmental Authority
which specifically relate to the Company or any of its Subsidiaries;
(f) Promptly (but not later than three (3) Business Days) upon
receipt thereof, copies of all audit reports and management letters, if any,
submitted to the Company or any of its Subsidiaries by independent public
accountants in connection with each interim or special audit of the books of the
Company or any of its Subsidiaries made by such accountants and copies of all
financial statements, reports, notices and proxy statements, if any, sent by the
Company to its shareholders;
(g) Immediately, notice of: (i) the institution or commencement of
any action, suit, proceeding or investigation by or against or affecting the
Company, any of its Subsidiaries or any of its or their respective assets,
including, without limitation, any action, suit, proceeding or investigation
involving the SEC or Nasdaq; (ii) any litigation or proceeding instituted by or
against the Company or any of its Subsidiaries, or any judgment, award, decree,
order or determination relating to any litigation or proceeding involving the
Company or any of its Subsidiaries; (iii) the imposition or creation of any Lien
against any asset of the Company or any of its Subsidiaries; (iv) any reportable
event under XXXXX, together with a statement of the Chief Executive Officer,
Chief Financial Officer and/or Controller of the Company as to the details
thereof and a copy of its notice thereof to the PBGC; (v) any known release or
threat of release of Hazardous Materials on or onto any Real Property or the
incurrence of any expense or loss in connection therewith or upon the Company's
obtaining knowledge of any investigation, action or the incurrence of any
expense or loss by any Governmental Authority in connection with the containment
or removal of any Hazardous Materials for which expense or loss the Company may
be liable or potentially responsible (all such notices shall describe the nature
of any lawsuit);
(h) Immediately upon receipt or issuance by the Company or any of its
Subsidiaries, copies of all reports, covenant compliance certificates, budgets,
projections, requests for waivers, notices of default, requests for amendments
or other material correspondence issued in connection with or relating to any
agreements, instruments or other documents evidencing or governing any
Subordinated Indebtedness and, to the extent not inconsistent with any
confidentiality provisions, any agreement to which any Credit Enhancer
46
(including, without limitation, FSA or any Affiliate of FSA) is a party and any
other agreement to which the Company or any of its Subsidiaries is now or
hereafter a party relating to Indebtedness;
(i) No later than the ninth business day of each calendar month, a
certificate of the Chief Financial Officer and the Secretary of the Company, in
substantially the form of EXHIBIT E (a "Compliance Certificate"), duly completed
and setting forth the calculations required to establish compliance with the
financial covenants set forth in ANNEX A; and
(j) Within ninety (90) days after the end of each fiscal year of the
Company, an analysis that supports the appropriate balance sheet reserves
established against the "on-balance sheet" Automobile Contracts, signed by the
Chief Financial Officer of the Company.
In addition to the financial information described above, the Company
will also furnish or cause to be furnished or made available to the Purchaser
such other information regarding the business, affairs and condition of the
Company and its Subsidiaries as the Purchaser may from time to time reasonably
request.
The documents and other information which are required to be delivered to
the ESFR Lenders under the ESFR Agreement and, under this SECTION 8.2, to the
Purchaser shall be delivered to the Purchaser in accordance with the terms of
this SECTION 8.2, notwithstanding that such documents or other information is no
longer required to be delivered to the ESFR Lenders or the ESFR Agreement is
amended in accordance with SECTION 9.11(a) or terminated after the date hereof.
8.3 FINANCIAL COVENANTS. The Company shall, on a consolidated basis with
its Subsidiaries, maintain the financial covenants set forth in ANNEX A.
8.4 PERFORMANCE OF THE RELATED AGREEMENTS. The Company covenants to
perform, comply with and observe all of its obligations under each of the
Related Agreements to which it is a party.
8.5 CPS OPERATING PLAN. The Company shall, and shall cause its
Subsidiaries to, implement the CPS Operating Plan in accordance with its terms
and provisions and on the time table set forth therein. Without limiting the
generality of the foregoing, the Company shall (a) sell, dissolve or otherwise
dispose of its entire interest in CPS Leasing, Inc., Samco Acceptance Corp. and
LINC Acceptance LLC within the time table set forth therein and (b) restrict
future cash flows from the Company to its Subsidiaries, all in accordance with
the terms of the CPS Operating Plan.
8.6 AGREEMENT WITH FSA.
47
(a) Within ten (10) Business Days following the Closing Date, the
Company shall (i) enter into an agreement with FSA with respect to the first
Securitization Transaction to be completed by the Company following the Closing
Date, in form and substance reasonably satisfactory to the Purchaser, providing
for, among other things, no more than a 3.0% initial cash deposit (increasing to
no greater than a 21.0% cash deposit) in the "Spread Account" relating to such
first Securitization Transaction; (ii) use its best efforts to enter into an
agreement with FSA with respect to the second Securitization Transaction to be
completed by the Company following the Closing Date, in form and substance
reasonably satisfactory to the Purchaser, providing for, among other things, no
more than a 3.0% initial cash deposit (increasing to no greater than a 21.0%
cash deposit) in the "Spread Account" relating to such second Securitization
Transaction; and (iii) enter into an agreement with FSA, in form and substance
reasonably satisfactory to the Purchaser, providing for a "AAA"-rated
securitization structure effective through March 31, 1999, allowing for at least
$450,000,000 in cumulative Securitization Transactions.
(b) The Company shall complete its first Securitization Transaction
following the Closing Date prior to or on November 30, 1998, pursuant to the
agreement with FSA referred to in SECTION 8.6(a)(i), in an aggregate amount of
not less than $300,000,000 of Automobile Contract originations.
8.7 REPAYMENT OF NAB LOANS. The Company shall cause the NAB Loans to be
repaid in full on or prior to December 31, 1998.
8.8 KEY-MAN LIFE INSURANCE. On or prior to December 31, 1998, the Company
shall procure a key-man life insurance policy, from a financially sound and
reputable insurance company, on the life of Xxxxxxx X. Xxxxxxx, Xx., the
President and Chief Executive Officer of the Company, in an amount equal to
$10,000,000, and shall cause the Purchaser to be named as the sole loss payee on
such insurance policy. The Company shall be obligated to maintain such
insurance policy so long as any Obligations to Purchaser remain outstanding.
8.9 LEGAL EXISTENCE; FRANCHISES; COMPLIANCE WITH LAWS. The Company shall,
and shall cause its Subsidiaries to, (a) maintain its corporate existence and
business; (b) maintain all properties which are reasonably necessary for the
conduct of such business, now or hereafter owned, in good repair, working order
and condition; (c) take all actions necessary to maintain and keep in full force
and effect all of its Licenses and Permits; and (d) comply in all material
respects with all Applicable Laws in respect of the conduct of its business and
the ownership of its properties in the states in which it conducts its business;
PROVIDED, HOWEVER, that nothing in this SECTION 8.9 shall be interpreted to
restrict or in any manner affect the Company's or any of its Subsidiaries'
ability to elect to discontinue any line of business or to discontinue doing
business in any state if the Board of Directors of the Company or of such
Subsidiary, as the case may be, deems such discontinuance to be in its or their
best interests.
48
8.10 BOOKS, RECORDS AND INSPECTIONS. The Company shall, and shall cause
each of its Subsidiaries to, keep proper books of record and account in which
full, true and complete entries in conformity with GAAP and all requirements of
Applicable Laws shall be made of all dealings and transactions in relation to
its business and activities. The Company shall, and shall cause each of its
Subsidiaries to, permit officers and designated representatives and/or agents of
the Purchaser to visit and inspect any of the properties of the Company or such
Subsidiaries, and to examine the books of account of the Company or such
Subsidiaries and discuss the affairs, finances and accounts of the Company or
such Subsidiaries with, and be advised as to the same by, its officers and
independent accountants, all at such reasonable times and intervals and to such
reasonable extent as the Purchaser may request.
8.11 MAINTENANCE OF PROPERTY; INSURANCE. The Company shall, and shall
cause each of its Subsidiaries to, maintain with financially sound and reputable
insurance companies insurance in at least such amounts, of such character and
against at least such risks as is usually maintained by companies of established
repute engaged in the same or a similar business in the same general area. Such
insurance shall include, without limitation, fire and extended coverage, public
liability, property damage, workers' compensation, flood insurance (if the
Purchaser determines that such insurance is required by Applicable Laws),
earthquake loss insurance (if required by the Purchaser in its discretion),
business interruption insurance (either for loss of revenues or for additional
expenses), and insurance insuring for errors and omissions. In addition, the
Company shall procure within thirty (30) days after the Closing Date, and
maintain thereafter, one or more insurance policies providing at least
$10,000,000 in insurance coverage for director liability, including coverage for
claims under federal and state securities laws.
8.12 TAXES. The Company shall, and shall cause each of its Subsidiaries
to, pay and discharge when due all Taxes, except as contested in good faith and
by appropriate proceedings if adequate reserves (in the good faith judgment of
the management of the Company) have been established with respect thereto.
8.13 ERISA. The Company shall, and shall cause its Subsidiaries to,
deliver to the Purchaser, promptly, but in no event more than two (2) Business
Days after any executive officer of the Company or any Subsidiary obtains
knowledge of the occurrence of any "reportable event", as such term is defined
in Section 4043 of ERISA, or "prohibited transaction", as such term is defined
in Section 4975 of the IRC in connection with any plan or trust sponsored by the
Company or any Subsidiary, a written notice specifying the nature of such
reportable event or prohibited transaction, what action has been taken, is being
taken or is proposed to be taken with respect thereto and a copy of any notice
delivered to the PBGC or any excise tax return filed with the Internal Revenue
Service with respect thereto, and, when known, any further action taken or
threatened by the Internal Revenue Service, the Department of Labor or the PBGC
with respect thereto.
49
8.14 PERFORMANCE OF SERVICING DUTIES; CLEAN-UP CALLS. The Company shall,
and shall cause ARC and CPSRC to, comply with the provisions of its charter
documents and bylaws and with the terms of the pooling and servicing agreements,
instrument and other documents relating to any Securitization Transactions, and
perform the duties of servicer in compliance with the terms thereof. To the
extent that the Company, ARC or CPSRC has or shall have the right or ability to
make a "CLEAN-UP" call under any Securitization Transaction, the Company, ARC or
CPSRC will not take any such action if it would not be permitted by the terms of
Section 5.9 of the ESFR Agreement.
8.15 MAINTENANCE OF LLCP BLOCKED ACCOUNT. If the ESFR Agreement is
terminated at any time following the date hereof, the Company covenants and
agrees that it will (a) establish a blocked account arrangement (the "LLCP
BLOCKED ACCOUNT") with the Purchaser, on terms and conditions satisfactory to
the Purchaser and with a bank acceptable to the Purchaser, to, among other
things, collect payments due to the Company of proceeds from any "Spread
Accounts" relating to Securitization Transactions, and (b) execute and deliver,
and cause all necessary Persons to execute and deliver, all such agreements,
instruments or other documents as may be necessary (or deemed necessary by the
Purchaser) to ensure that such trustee or paying agent is directed to make
payments due to the Company from such "Spread Accounts" directly into the LLCP
Blocked Account. The Company agrees that it will cooperate with the Purchaser
to establish payment procedures that are substantially similar to the procedures
established under or in connection with the ESFR Agreement.
8.16 COMMUNICATION WITH ACCOUNTANTS. The Company authorizes the Purchaser
to communicate directly with the Company's independent certified public
accountants, and authorizes such accountants to disclose to the Purchaser any
and all financial statements and other supporting financial documents and
schedules as the Purchaser may request.
8.17 COMPLIANCE WITH LEASEHOLDS. The Company shall, and shall cause each
of its Subsidiaries to, make all payments and otherwise perform all of its
obligations under all leases of real property to which the Company or any such
Subsidiary is a party, keep such leases in full force and effect and not permit
such leases to expire, lapse or be terminated (or any rights to renew such
leases to be forfeited or canceled), notify the Purchaser of any default by any
party thereto and cooperate with the Purchaser in all respects to cure any such
default.
8.18 COMPLIANCE WITH MATERIAL CONTRACTS. The Company shall, and shall
cause each of its Subsidiaries to, perform, comply with and observe all terms
and provisions of each Material Contract (including, without limitation, any
Subordinated Debt Agreements) to be performed, complied with or observed by it,
maintain each Material Contract in full force and effect, enforce each Material
Contract in accordance with its terms and take all actions to such end as the
Purchaser may request from time to time. Upon the request of the Purchaser, the
Company shall, and shall cause each of its Subsidiaries to, make such demands or
requests for information and reports or action of each other party to each
Material Contract as the Company shall be entitled to make under such Material
Contract. Without limiting the generality of the
50
foregoing, the Company shall, and shall cause each of its Subsidiaries to, take
and cause to be taken all actions necessary to enforce its rights under any
employment agreements, non-competition, non-solicitation and/or confidentiality
agreements to which the Company or any such Subsidiary is a party and file any
action or lawsuit to enforce the same within thirty (30) days of its becoming
aware that any violation of any of the same has occurred.
8.19 FURTHER ASSURANCES. From time to time after the date hereof, the
Company will execute and deliver, and will cause any of its Subsidiaries and any
other Persons to execute and deliver, such additional instruments, certificates
and documents, and will take all such actions, as the Purchaser may reasonably
request, for the purposes of implementing or effectuating the provisions of this
Agreement, the Note or any other Related Agreement. Upon exercise by the
Purchaser of any power, right, privilege or remedy pursuant to this Agreement or
any Related Agreement which requires any Consent, the Company will execute and
deliver, and will cause any of its Subsidiaries and any other Persons to execute
and deliver, all applications, certifications, instruments and other documents
and papers that may be required to be obtained for such Consent.
8.20 FUTURE INFORMATION. All data, certificates, reports, statements,
documents and other information furnished by or on behalf of the Company, any of
its Subsidiaries or any of its or their respective representatives or agents to
the Purchaser in connection with this Agreement, the Related Agreements or the
transactions contemplated hereby and thereby, at the time the information is so
furnished, shall not contain any untrue statement of a material fact, shall be
complete and correct in all material respects to the extent necessary to give
the Purchaser sufficient and accurate knowledge of the subject matter thereof,
and shall not omit to state a material fact necessary in order to make the
statements contained therein not misleading in light of the circumstances under
which such information is furnished.
8.21 NEW SENIOR CREDIT FACILITY.
(a) The Company shall, on or prior to December 31, 1999, enter into
the New Senior Credit Facility, pay all Indebtedness then outstanding under the
ESFR Agreement and cause the termination of the ESFR Agreement and the release
and reconveyance of all Liens created or existing in favor of the ESFR Agent
and/or the ESFR Lenders under the ESFR Agreement; PROVIDED, HOWEVER, that the
Company shall use its reasonable best efforts to perform and complete all such
matters, and cause the New Senior Facility Establishment Date to occur, as soon
as practicable.
(b) At least twenty (20) days prior to the proposed New Senior
Facility Establishment Date, the Company shall notify the Purchaser in writing
that it intends to enter into the New Senior Credit Facility, stating the
material terms thereof and the closing date, and will furnish to the Purchaser
at such time copies of the agreements, instruments and other documents that will
evidence or govern the New Senior Credit Facility. In addition, if the Company
shall not have established an escrow account pursuant to SECTION 5(a) of the
Note
51
prior to the date of such written notice, the Company shall, at least fifteen
(15) days prior to the proposed New Senior Facility Establishment Date,
establish a separate interest-bearing escrow account with a bank or other
financial institution, as escrow agent, on terms and conditions satisfactory to
the Purchaser, and deposit therein an aggregate amount (the "Escrow Deposit")
equal to (i) $2,419,985.51 (the "Base Payment"), PLUS (ii) all accrued and
unpaid interest on this Note through and including the proposed New Senior
Facility Establishment Date, PLUS (iii) the premium of $419,790.00 referred to
in SECTION 5(a) of the Note. The terms and conditions of such escrow shall
include, without limitation, that: (A) the Escrow Deposit shall remain in the
escrow account until the next annual meeting of shareholders of the Company (the
"Shareholder Meeting") held for the purposes of, among other things, approving
the issuance by the Company of the Excess Warrant Shares, (B) if, at the
Shareholder Meeting, the shareholders approve the issuance of the Excess Warrant
Shares, the Escrow Deposit shall be released to the Company, and (C) if, at the
Shareholder Meeting, the shareholders fail to approve the issuance of the Excess
Warrant Shares, the Escrow Deposit shall be released to the Purchaser. In
addition, if, at the Shareholder Meeting, the shareholders fail to approve the
issuance of the Excess Warrant Shares, the Purchaser's principal term commitment
under the New Senior Credit Facility will be the lesser of (x) $25,000,000 and
(y) the principal balance of the Note outstanding immediately prior to the New
Senior Facility Establishment Date, in each case LESS the Escrow Deposit.
(c) From and after June 1, 1999 and until the occurrence of the New
Senior Facility Establishment Date, the Company agrees to pay to the Purchaser
in cash, with respect to each calendar month (or portion thereof) set forth
below, an extension payment (the "Extension Payment") in the amount set forth
opposite such calendar month:
Extension
Calendar Month Ending: Payment
---------------------- -------
June 30, 1999 . . . . . . . . . . . . . . . . . $10,000
July 31, 1999 . . . . . . . . . . . . . . . . . 20,000
August 31, 1999 . . . . . . . . . . . . . . . . 30,000
September 30, 1999 . . . . . . . . . . . . . . 40,000
October 31, 1999 . . . . . . . . . . . . . . . 50,000
November 30, 1999 . . . . . . . . . . . . . . . 60,000
December 31, 1999 . . . . . . . . . . . . . . . 70,000
Each Extension Payment shall be due and payable on the Interest Payment
Date (as defined in the Note) relating to the applicable calendar month (or
portion thereof). The Extension Payment due with respect to the calendar month
during which the New Senior Facility Establishment Date shall occur shall be
prorated (based upon the number of days prior to the New Senior Facility
Establishment Date).
52
(d) The Company shall not, and shall not permit any of its
Subsidiaries to, take any action which would restrict or otherwise prohibit the
occurrence of the New Senior Facility Establishment Date or the establishment of
the New Senior Credit Facility.
8.22 YEAR 2000 COMPATIBILITY. No later than March 31, 1999, the Company
and its Subsidiaries shall have taken all such actions that are necessary to
ensure that the computer-based systems used by the Company and its Subsidiaries
in the conduct of their respective businesses operate with respect to, and
effectively process, data (which includes dates) after December 31, 1999, and
the Company shall, at the request of the Purchaser, demonstrate to the
Purchaser's reasonable satisfaction the Company's compliance with this SECTION
8.22.
8.23 NASDAQ LISTING. The Company shall do or cause to be done all things
necessary to maintain the listing of its Common Stock on the Nasdaq National
Market System ("Nasdaq") (or, if the Company so elects, maintain a listing of
its Common Stock on the New York Stock Exchange).
8.24 STANWICH COMMITMENT.
(a) Stanwich hereby commits to make an investment in the Company, or
will cause an independent third party (I.E., a Person that is not an Affiliate
of, or related to, the Company, Stanwich or any of its shareholders) to make an
investment in the Company, within 120 days following the Closing Date, of not
less than $15,000,000 (whether in the form of debt or equity); PROVIDED,
HOWEVER, that the aggregate net cash proceeds from such investment shall be no
less than $14,400,000 (the provisions of this SECTION 8.24, together with any
agreements, instruments or other documents containing such terms and conditions,
being referred to herein as the "Stanwich Commitment"). The terms and
conditions of the Stanwich Commitment shall be approved by a majority of the
disinterested members of the Board of Directors of the Company, subject to the
terms of this SECTION 8.24; PROVIDED, HOWEVER, that if any such third party
makes such investment in the form of Senior Indebtedness or Senior Subordinated
Indebtedness (which includes Indebtedness evidenced by the Note), the terms and
conditions of the Stanwich Commitment shall also be approved by the Purchaser
(such approval not to be unreasonably withheld). If Stanwich (or any of its
Affiliates) makes such investment in the form of Indebtedness, such Indebtedness
shall be expressly made subordinate to the same extent as Stanwich Indebtedness
other than Stanwich Indebtedness evidenced by the Pledged Notes.
Notwithstanding anything to the contrary, the Stanwich Commitment shall be
subject to the limitations set forth in SECTION 9.1.
(b) If any Pledged Notes are released from the applicable pledge,
Stanwich shall, within five (5) Business Days thereafter, execute and deliver
such agreements, instruments and other documents, and take such actions, at the
request of the Purchaser, to cause the Indebtedness outstanding under such
released Pledged Notes to be expressly made subordinate to the same extent as
Stanwich Indebtedness other than Stanwich Indebtedness evidenced by the Pledged
Notes.
53
(c) It is expressly acknowledged by the Company and Stanwich that the
Purchaser is a third party beneficiary of the agreements and commitments of
Stanwich provided for in this SECTION 8.24.
9. NEGATIVE COVENANTS. In addition, the Company covenants and agrees that, so
long as any Obligations to Purchaser remain outstanding or, with respect to
SECTION 9.7 through SECTION 9.12, the Purchaser owns or has the right to
acquire, directly or indirectly, five percent (5%) or more of the issued and
outstanding Common Stock, the Company shall perform, comply with and observe the
covenants set forth in this SECTION 9.
9.1 LIMITATIONS ON INDEBTEDNESS. The Company shall not, and shall not
permit any of its Subsidiaries to, create, incur, assume or become or remain
liable in respect of any Indebtedness, except:
(a) Obligations to Purchaser;
(b) Existing Indebtedness, including any refinancings, renewals,
replacements, restructurings or exchanges thereof, but subject to SECTION
9.11(a);
(c) Unsecured Subordinated Indebtedness that is expressly made
subordinate in right of payment and rights upon liquidation to all Senior
Indebtedness and Senior Subordinated Indebtedness (including, without
limitation, the Indebtedness evidenced by the Note), in an aggregate amount not
to exceed the Consolidated Net Worth (as defined in the RISRS Indenture) of the
Company at any time outstanding; PROVIDED, HOWEVER, that such unsecured
Subordinated Indebtedness is created or incurred on then-current "market" terms
and conditions applicable to similarly issued subordinated indebtedness;
(d) Indebtedness in the form of Capital Lease Obligations used to
finance the acquisition, construction or improvement of assets of the Company or
any of its Subsidiaries in an aggregate amount not to exceed $5,000,000; and
(e) Indebtedness under the New Senior Credit Facility.
9.2 LIMITATIONS ON LIENS. The Company shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist, any mortgage, lien, charge or encumbrance on, or security interest in,
or pledge of, or conditional sale or other title retention agreement with
respect to, any real or personal property (tangible or intangible, now existing
or hereafter acquired), except:
(a) Existing Liens;
(b) Permitted Liens;
54
(c) Financing statements filed by any Credit Enhancer (including,
without limitation, FSA) against the Company or any Subsidiary in connection
with any Securitization Transactions;
(d) Any attachment or judgment Lien not constituting an Event of
Default; and
(e) Any Lien constituting a renewal, extension or replacement of any
Existing Lien, PROVIDED that the principal amount of any Indebtedness or other
obligation secured by such renewal, extension or replacement Lien does not
exceed the principal amount of the Indebtedness or other obligation renewed,
extended or replaced.
9.3 LIMITATIONS ON INVESTMENTS. The Company shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, make or own any
Investment, EXCEPT:
(a) Permitted Investments;
(b) The Investments and Guarantees set forth on SCHEDULE 3.12;
(c) The Investments described in the CPS Operating Plan;
(d) Automobile Contracts;
(e) Loans and advances to employees of the Company in an amount not
to exceed $1,250,000 in the aggregate at any time outstanding; PROVIDED,
HOWEVER, that (i) such amount shall not exceed $1,000,000 in the aggregate at
any time outstanding during the period commencing on the sixth month anniversary
of the Closing Date and ending on the first year anniversary of the Closing
Date; and (ii) such amount shall not exceed $750,000 in the aggregate at any
time outstanding after the first year anniversary of the Closing Date; and
(f) Indemnification agreements in favor of Credit Enhancers or
underwriters executed in connection with Securitization Transactions.
9.4 LIMITATION ON RESTRICTED PAYMENTS. The Company shall not, and shall
not permit any of its Subsidiaries to, directly or indirectly, make any
Restricted Payment.
9.5 SUBSIDIARIES; CHANGES IN BUSINESS. The Company shall not, and shall
not permit any of its Subsidiaries to, create any additional Subsidiaries
(PROVIDED, HOWEVER, that the Company may from time to time create wholly owned,
"bankruptcy remote special purpose" Subsidiaries for the sole purpose of
entering into Securitization Transactions). After giving effect to the terms of
the CPS Operating Plan, the Company shall not, and shall not permit its
Subsidiaries to, engage in any business other than the purchasing, selling and
servicing of Automobile Contracts.
55
9.6 OBSERVANCE OF STANWICH SUBORDINATION PROVISIONS. The Company shall
not make, or cause or permit to be made, any payments in respect of any Stanwich
Indebtedness in contravention of any of the subordination provisions applicable
to such Stanwich Indebtedness.
9.7 ENVIRONMENTAL LIABILITIES. The Company shall not, and shall not
permit any of its Subsidiaries to, violate any material Environmental Laws or
other requirement of law, rule or regulation regarding Hazardous Materials.
Without limiting the generality of the foregoing, the Company shall not, and
shall not permit any of its Subsidiaries to, dispose of any Hazardous Materials
into or onto, or from, any Real Property, nor allow any Lien imposed pursuant to
any Environmental Laws to be imposed or to remain on such Real Property, except
for Liens being contested in good faith by appropriate proceedings and for which
adequate reserves have been established and are being maintained on the books of
the Company or its Subsidiaries, as the case may be.
9.8 AMENDMENTS TO SECURITIZATION TRANSACTION DOCUMENTS. The Company shall
not, and shall not permit any of its Subsidiaries to, amend, modify or change
(or consent to any such amendment, modification or change), in any manner
adverse to the interests of the Purchaser, any of the provisions set forth in
the Securitization Transaction Documents without the prior written consent of
the Purchaser. Without limiting the generality of the foregoing, the Company
shall not, and shall not permit any of its Subsidiaries to, consent or agree,
without the prior written consent of the Purchaser, to any increase in the
amount on deposit in any "Spread Accounts" so as to maintain the rating of the
related Securitization Transaction.
9.9 TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not
permit any of its Subsidiaries to, enter into any transaction with any officer,
director, employee or Affiliate of the Company at any time on terms that are
less favorable to the Company or such Subsidiary, as the case may be, than those
that might be obtained in an arm's length transaction at such time from a Person
who is not an officer, director, employee or Affiliate of the Company. Any
transaction between the Company, on the one hand, and any Affiliate of the
Company, on the other hand, shall be unanimously approved in advance by all of
the members of the Board of Directors of the Company who are not interested in
the transaction; PROVIDED, HOWEVER, that no such Board approval shall be
required with respect to sales of Automobile Contracts made by the Company to
its Subsidiaries, or by its Subsidiaries to the Company, in the ordinary course
of its business so long as such sales are made on terms that are no less
favorable to the Company than those that might be obtained in an arm's length
transaction with a Person who is not an Affiliate of the Company. This SECTION
9.9 shall not apply to (a) any transactions (or series of related transactions)
between the Company and any officer, director, employee or Affiliate thereof
which involve less than $10,000 (and less than $25,000 to any one Person) or an
aggregate of $100,000 in any rolling twelve (12) month period, (b) any
transactions between the Company and CARS USA, Inc. so long as such transactions
are on terms that are no less favorable to the Company than those that might be
obtained in an arm's length transaction from a Person who is not an Affiliate or
otherwise related to the Company, (c) no more than two (2) independent
transactions in any rolling twelve (12) month period between the Company and any
56
officer, director, employee or Affiliate thereof, each of which involves $10,000
or more, but less than $100,000, if each such transaction is approved by a
majority of the members of the Board of Directors of the Company who are not
interested in the transaction, (d) any transaction (or series of related
transactions) between the Company and any officer, director, employee or
Affiliate thereof that involves $100,000 or more, if such transaction is
unanimously approved by the members of the Board of Directors of the Company who
are not interested in the transaction, (e) payments by the Company to Stanwich
in accordance with the terms of the Stanwich Consulting Agreement, and any
renewal or extension thereof which is approved by the Board of Directors of the
Company, PROVIDED that the term of any such renewal or extension expires no
later than December 31, 1999 and payments to be made by the Company under any
such renewal or extension do not exceed the payments required to be made under
the Stanwich Consulting Agreement as of the date hereof, or (f) compensation
payable by the Company to Xxxxxxx X. Xxxxxxx, Xx., the Chairman of the Company,
and Poole, the Vice Chairman of the Company, at the annual rate of $125,000 and
$75,000, respectively.
9.10 RESTRICTION ON FUNDAMENTAL CHANGES. Without the Purchaser's prior
written consent, the Company shall not, and shall not permit any of its
Subsidiaries to, (a) make any change in its business objectives, purposes,
structure or operations that could in any way adversely affect the repayment of
the Obligations to Purchaser or have a Material Adverse Effect; (b) amend its
charter or bylaws, as applicable; (c) sell, lease, transfer or otherwise dispose
of, in one transaction or a series of transactions, all or a significant portion
of its assets, other than dispositions of assets in the ordinary course of
business consistent with past practice; (d) enter into any merger, acquisition,
consolidation, reorganization or recapitalization; or (e) liquidate, wind up or
dissolve.
9.11 AGREEMENTS AFFECTING CAPITAL STOCK AND INDEBTEDNESS; AMENDMENTS TO
MATERIAL CONTRACTS.
(a) The Company shall not, and shall not permit any of its
Subsidiaries to, without the prior written consent of the Purchaser, (i) enter
into any voting agreement, voting trust, irrevocable proxy or other agreement
affecting the voting rights of shares of the Capital Stock of the Company (other
than revocable proxies in connection with meetings of shareholders of the
Company) or its Subsidiaries, except as contemplated by this Agreement or any
Related Agreement; (ii) refinance, renew, replace, restructure or exchange any
Existing Indebtedness (other than the replacement of the ESFR Agreement with the
New Senior Credit Facility and the replacement or renewal of the two existing
warehouse lines of credit); or (iii) amend, supplement or otherwise modify, or
waive, any term or provision of any agreement, instrument or other document
evidencing or governing any Indebtedness of the Company or any of its
Subsidiaries (including, without limitation, the ESFR Agreement, the
Indebtedness under the Bank of America Facility, any other Senior Indebtedness,
the RISRS Indenture, the PENS Indenture, any Stanwich Debt Agreements or any
other Subordinated Agreements).
57
(b) The Company shall not, and shall not permit any of its
Subsidiaries to, cancel or terminate any Material Contract (or consent to or
accept any cancellation or termination thereof), amend or otherwise modify any
Material Contract or give any consent, waiver or approval thereunder, waive any
breach of or default under any Material Contract, or take any action in
connection with any Material Contract that would impair the value of the
interests or rights of the Company thereunder or that would impair the interest
or rights of the Purchaser hereunder or under this Agreement or any Related
Agreement.
9.12 INDEBTEDNESS TO FSA. The Company shall not, and shall not permit any
of its Subsidiaries to, have outstanding at any time Indebtedness for the
payment of money of any kind or nature (whether matured or unmatured or
contingent or non-contingent) to FSA or any Affiliate of FSA pursuant to any
agreement to which FSA is a party, other than Indebtedness (whether matured or
unmatured or contingent or non-contingent) in connection with Securitization
Transactions of the type which is consistent with past practice and which the
Company reasonably believes is customary in securitization transactions insured
by FSA, the assets of which consist solely of Automobile Contracts.
9.13 PAYMENT RESTRICTIONS AFFECTING CERTAIN SUBSIDIARIES. The Company
shall not, and shall not permit any of its Subsidiaries (other than "bankruptcy
remote special purpose" Subsidiaries formed in connection with any
Securitization Transactions) to, enter into or permit to exist any agreement,
instrument or other document which, directly or indirectly, prohibits or
restricts in any manner, or would have the effect of prohibiting or restricting
in any manner, the ability of any such Subsidiary to (a) pay dividends or make
other distributions in respect of its Capital Stock owned by the Company or any
other such Subsidiary, (b) pay or repay any Indebtedness owed to the Company or
any other such Subsidiary, (c) make loans or advances to the Company or (d)
transfer any of its properties or assets to the Company or any other such
Subsidiary.
9.14 NO INSURANCE AGREEMENT EVENT OF DEFAULT. The Company shall not permit
to exist, and shall cause its Subsidiaries not to permit to exist, any Insurance
Agreement Event of Default (or other event or condition which has a
substantially similar meaning to such term) which is not waived by FSA or any
other Credit Enhancer within the period ending on the earlier to occur of (a)
the "Distribution Date" (as such term is defined in the Securitization
Transaction Documents) and (b) the fifteenth day following the end of the
calendar month during which such Insurance Agreement Event of Default shall
occur.
10. INDEMNIFICATION.
10.1 TRANSFER TAXES. The Company shall pay all stamp, transfer and other
similar Taxes (together in each case with interest and penalties, if any)
payable or determined to be payable in connection with the execution and
delivery of this Agreement or the issuance and sale of the Note and the Primary
Warrant and shall hold harmless the Purchaser from and
58
against any and all liabilities with respect to or resulting from any delay in
paying, or omission to pay, such Taxes.
10.2 LOSSES. Whether or not the transactions contemplated by this
Agreement are consummated, the Company shall indemnify and hold harmless the
Purchaser and its Affiliates, employees, partners, officers, directors,
representatives, agents, attorneys, successors and assigns (the "Indemnified
Parties") from and against any and all losses, claims, damages, liabilities,
expenses and costs, including, without limitation, attorneys' fees and other
fees and expenses incurred in, and the costs of preparing for, investigating or
defending any matter (collectively, "Losses"), incurred by such Indemnified
Party in connection with or arising from any breach of any warranty or the
inaccuracy of any representation made by the Company or the failure of the
Company to fulfill any of its agreements or undertakings under this Agreement or
any Related Agreement (or any other document or instrument executed herewith or
pursuant hereto). The Company shall either pay directly all Losses which it is
required to pay hereunder or reimburse any Indemnified Party within ten (10)
days after any request for such payment. The obligations of the Company to the
Indemnified Parties under this SECTION 10 shall be separate obligations to each
Indemnified Party, and the liability of the Company to such Indemnified Parties
hereunder shall not be extinguished solely because any Indemnified Party is not
entitled to indemnity hereunder. The obligations of the Company to the
Indemnified Parties under this SECTION 10 shall survive (a) the payment of the
Note (whether at maturity, by prepayment or acceleration or otherwise), (b) any
transfer of the Note or any interest therein, (c) the termination of this
Agreement or any Related Agreement and (d) the exercise and/or sale of the
Primary Warrant (or any portion thereof) or the sale of the Primary Warrant
Shares.
10.3 INDEMNIFICATION PROCEDURES. Any Person entitled to indemnification
under this SECTION 10 shall (a) give prompt written notice to the Company of any
claim with respect to which it seeks indemnification and (b) permit the Company
to assume the defense of such claim with counsel selected by the Company and
reasonably acceptable to such Person; PROVIDED, HOWEVER, that any Person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such Person unless (i) the
Company has agreed to pay such fees or expenses; (ii) the Company has failed to
notify such Person in writing within ten (10) days of its receipt of such
written notice of claim that it will assume the defense of such claim and employ
counsel reasonably satisfactory to such Person; or (iii) in the judgment of any
such Person, based upon the written advice of counsel, a conflict of interest
may exist between such Person and the Company with respect to such claims (in
which case, if the Person notifies the Company in writing that such Person
elects to employ separate counsel at the expense of the Company, the Company
shall not have the right to assume the defense of such claim on behalf of such
Person). The Company will not be subject to any liability for any settlement
made without its consent (but such consent may not be unreasonably withheld).
No Indemnified Party may, without the consent (which consent will not be
unreasonably withheld) of the Company, consent to entry of any judgment or enter
into any settlement which does not include as an
59
unconditional term thereof the giving by the claimant or plaintiff to the
Company of a release from all liability in respect of such claim or litigation.
10.4 CONTRIBUTION. If the indemnification provided for in this SECTION 10
is unavailable to the Purchaser or any other Indemnified Party in respect of any
Losses, then the Company, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by the Indemnified Party as a result of
such Losses, in such proportion as is appropriate to reflect the relative fault
of the Company, on the one hand, and such Indemnified Party on the other hand,
in connection with the actions, statements or omissions which resulted in such
Losses, as well as any other relevant equitable considerations. The relative
fault of the Company, on the one hand, and such Indemnified Party on the other
hand, shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
taken by, or relates to information supplied by, either the Company or such
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent any such action, statement or
omission. The parties agree that it would not be just and equitable if
contribution pursuant to this SECTION 10.4 were determined by PRO RATA
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
11. DEFAULTS AND REMEDIES.
11.1 EVENTS OF DEFAULT. An "Event of Default" occurs if:
(a) The Company shall (i) fail to pay as and when due (whether at
stated maturity, upon acceleration or required prepayment or otherwise) any
principal on the Note, or (ii) fail to pay any interest, premium, if any, fees,
costs, expenses or other amounts payable under this Agreement, the Note or any
other Related Agreement within one (1) Business Day after the date due
thereunder; or
(b) The Company shall breach or fail to perform, comply with or
observe any agreement, covenant or obligation required to be performed by it
under this Agreement or any Related Agreement (other than as provided in SECTION
11.1(a)) and, if such breach or failure may be cured, such breach or failure
shall not have been remedied within ten (10) Business Days after any officer of
the Company or any of its Subsidiaries becomes aware or should have become aware
of such failure or breach; or
(c) Any representation or warranty made by the Company under,
relating to or in connection with this Agreement or any Related Agreement shall
be false or misleading when made; or
60
(d) The Company or any of its Subsidiaries (i) shall default in the
payment (whether at stated maturity, upon acceleration or required prepayment or
otherwise), beyond any period of grace provided therefor, of any principal of or
interest on any other Indebtedness with a principal amount in excess of
$100,000, or (ii) shall commit any breach of or default under any term of any
agreement, indenture or instrument evidencing or governing any other
Indebtedness, if the effect of such breach or default is to cause, or to permit
the holder or holders of such other Indebtedness to cause (upon the giving of
notice or the passage of time or both), such other Indebtedness to become or be
declared due and payable, or required to be prepaid, redeemed, purchased or
defeased (or an offer of prepayment, redemption, purchase or defeasance is made)
prior to its stated maturity, unless such breach or default has been waived
within ten (10) days following such breach or default by the Person or Persons
entitled to give such waiver; or
(e) Any material provision of any Related Agreement shall, for any
reason, cease to be valid or enforceable in accordance with its terms, or shall
be repudiated, revoked, renounced or terminated, including by operation of law;
or
(f) There shall be commenced against the Company or any of its
Subsidiaries an involuntary case seeking the liquidation or reorganization of
such Person under the Bankruptcy Code or any similar proceeding under any other
Applicable Law or an involuntary case or proceeding seeking the appointment of a
Custodian or to take possession of all or a substantial portion of its property
or to operate all or a substantial portion of its business, and any of the
following events occur: (i) any such Person consents to the institution of the
involuntary case or proceeding; (ii) the petition commencing the involuntary
case or proceeding is not timely controverted; (iii) the petition commencing the
involuntary case or proceeding remains undismissed and unstayed for a period of
sixty (60) days; or (iv) an order for relief shall have been issued or entered
therein; or
(g) The Company or any of its Subsidiaries shall institute a
voluntary case seeking liquidation or reorganization under the Bankruptcy Code
or any similar proceeding under any other Applicable Law, or shall consent
thereto; or shall consent to the conversion of an involuntary case to a
voluntary case; or shall file a petition, answer a complaint or otherwise
institute any proceeding seeking, or shall consent or acquiesce to the
appointment of, a Custodian or to take possession of all or a substantial
portion of its property or to operate all or a substantial portion of its
business; or shall make a general assignment for the benefit of creditors; or
shall generally not pay its debts as they become due; or the Board of Directors
of
61
any such Person (or any committee thereof) adopts any resolution or otherwise
authorizes action to approve any of the foregoing; or
(h) The Company or any of its Subsidiaries shall suffer any money
judgments, writs, warrants of attachment or other orders that involve an amount
or value in excess of $100,000, and such judgments, writs, warrants or other
orders shall continue unsatisfied and unstayed for a period of thirty (30) days;
or
(i) There shall occur a Material Adverse Change; or
(j) There shall occur a Change in Control; or
(k) There shall occur any "Special Redemption Event" (as defined in
the RISRS Indenture); or
(l) The "LLCP Representative" (as such term is defined in the
Investor Rights Agreement) shall be removed from the Board of Directors of the
Company or, at any future election of directors, the LLCP Representative shall
not be elected to such Board, and in each such case the Company shall not have
caused any other LLCP Representative designated by LLCP to be elected or
appointed as a member of such Board within five (5) days after LLCP shall have
designated such other LLCP Representative (PROVIDED, HOWEVER, that the voluntary
resignation of an LLCP Representative shall not be deemed to constitute an Event
of Default under this clause (l)).
The foregoing Events of Default shall be deemed to have occurred,
respectively, and any adjustments in the interest rate under the Note or other
remedies available to the Purchaser hereunder or thereunder shall begin to
apply, at the following times: (i) in the case of the clause (a) above, as of
12:00 p.m. (noon) (Los Angeles time) on the day on which such payment is due but
has not been paid; (ii) in the case of clause (b) above, as of the close of
business on such tenth Business Day, if such breach or failure shall not have
been cured, or as of the close of business on the day on which such breach or
violation occurs, if such breach or failure cannot be cured; (iii) in the case
of clause (c) above, as of the close of business on the day on which the Company
first became aware, or should have become aware, that such representation or
warranty was false or misleading when made; (iv) in the case of clause (d)(i)
above, as of the close of business on the day on which such payment of principal
or interest is due, or in the case of clause (d)(ii), as of the close of
business on the tenth day following such breach or default if such breach or
default has not been waived by the Person or Persons entitled to give such
waiver; (v) in the case of clause (e) above, as of the close of business on the
day such provision ceases to be enforceable or is repudiated, revoked, renounced
or terminated; (vi) in the case of clause (h) above, as of the close of business
on the last day of such thirty (30) day period if such judgment, writ, warrant
or other order remains unsatisfied or unstayed; (vii) in
62
the case of clauses (f) and (g) above, immediately prior to the occurrence of
any of the events enumerated therein; (viii) in the case of clause (i) above,
immediately upon the occurrence of the Material Adverse Change occurs; (ix) in
the case of clauses (j) or (k) above, immediately upon the occurrence of the
Change in Control or the "Special Redemption Event," as the case may be; and (x)
in the case of clause (l) above, as of the close of business on the last day of
such five (5) day period if the Board of Directors shall not have elected or
appointed such other LLCP Representative to such Board.
11.2 ACCELERATION. If any Event of Default (other than an Event of Default
specified in clause (f) or (g) of SECTION 11.1) occurs and is continuing, the
Purchaser may, by written notice to the Company, declare all outstanding
principal of, and accrued and unpaid interest on, the Note to be due and
payable. Upon any such declaration of acceleration, such principal and interest
shall become immediately due and payable. If an Event of Default specified in
clause (f) or (g) of SECTION 11.1 occurs, all outstanding principal of, and
accrued and unpaid interest on, the Note shall become immediately due and
payable without any declaration or other act on the part of the Purchaser. The
Company hereby waives all presentment for payment, demand, protest, notice of
protest and notice of dishonor, and all other notices of any kind to which it
may be entitled under Applicable Law or otherwise.
11.3 OTHER REMEDIES. If any Default or Event of Default shall occur and be
continuing, the Purchaser may proceed to protect and enforce its rights and
remedies under this Agreement and any Related Agreement by exercising all rights
and remedies available under this Agreement, any Related Agreement or Applicable
Laws (including, without limitation, the Code), either by suit in equity or by
action at law, or both, whether for the collection of principal of or interest
on the Note, to enforce the specific performance of any covenant or other term
contained in this Agreement or any Related Agreement. No remedy conferred in
this Agreement upon the Purchaser is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy conferred herein or now or hereafter existing at
law or in equity or by statute or otherwise.
11.4 WAIVER OF PAST DEFAULTS. The Purchaser may, by written notice to the
Company, waive any Default or Event of Default and its consequences with respect
to this Agreement, the Note or any other Related Agreement; PROVIDED, HOWEVER,
that no such waiver will extend to any subsequent or other Default or Event of
Default or impair any rights of the Purchaser which may arise as a result of
such Default or Event of Default.
12. MISCELLANEOUS.
12.1 NOTATIONS. Before disposing of the Notes or any portion thereof, the
Purchaser shall make a notation thereon (or on a schedule attached thereto) of
the amount of all principal payments previously made by the Company with respect
thereto.
63
12.2 CONSENT TO AMENDMENTS. No amendment, supplement or other modification
to this Agreement or any Related Agreement shall be effective unless the same
shall be in writing and signed by the Purchaser, and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, if, and only if, the Company shall have obtained the prior
written consent of the Purchaser to such action or omission. No course of
dealing between the Company or its Subsidiaries, on the one hand, and the
Purchaser (or any other Holder), on the other hand, nor any delay in exercising
any rights hereunder or under the Note or any other Related Agreement shall
operate as a waiver of any rights of the Purchaser (or any other Holder).
12.3 REGISTRATION OF NOTES; ASSIGNMENTS. The Company shall maintain at its
principal executive office a register in which it shall register the Note (or
Notes) and any Assignments thereof. Upon surrender at the Company's principal
executive office of the Note for registration of any Assignment, the Company
shall, at its expense and within three (3) Business Days of such surrender,
execute and deliver one or more new notes of like tenor in the requested
principal denominations and register such new note or notes in the register to
be maintained by the Company. At the option of the Purchaser, the Note may be
exchanged for one or more new notes of like tenor in the requested principal
denominations.
12.4 PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment for
registration of any Assignment, the Company may treat the Person in whose name
any Note is registered as the owner and Holder of such Note for all purposes
whatsoever, and the Company shall not be affected by notice to the contrary.
Subject to the preceding sentence, the Purchaser may from time to time grant
participations in all or any part of the Note to any Person on such terms and
conditions as may be determined by the Purchaser in its sole and absolute
discretion. Notwithstanding anything to the contrary contained herein or
otherwise, nothing in this Agreement or in any Related Agreement or otherwise
shall confer upon the participant any rights in this Agreement or any other
Related Agreement, and the Purchaser shall retain all rights with respect to the
administration, waiver, amendment and enforcement of, compliance with and
consent to the terms and provisions of this Agreement and the Related Documents,
and the Purchaser may, without the consent of the participant, give or withhold
its consent or agreement to any amendments to or modifications of this Agreement
or any Related Agreement or any waiver of any of the provisions hereof or
thereof or any consents in respect hereof or thereof, or exercise or refrain
from exercising any other rights or remedies which the Purchaser may have under
this Agreement, any Related Agreement or otherwise, except that the Purchaser
will not give its agreement, without the prior written consent of the
participant (which consent shall be given or affirmatively withheld not later
than three (3) Business Days after the Purchaser's request therefor), (a) to
reduce the principal of or rate of interest on the Note or (b) to postpone the
date fixed for payment of principal of or interest on the Indebtedness evidenced
by the Note. If the participant does not timely reply to the Purchaser's
request for such consent, the participant shall be deemed to have consented to
such agreement and the Purchaser may take such action in such manner as the
Purchaser determines in the exercise of its independent business judgment.
64
12.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
warranties, covenants and agreements contained herein, or made in writing by or
on behalf of the Company pursuant to or in connection herewith, shall survive
the execution and delivery of this Agreement, the issuance, sale and delivery of
the Securities, the repayment of the Note and the exercise of the Primary
Warrant, and any due diligence or other investigation made by or on behalf of
the Purchaser.
12.6 ENTIRE AGREEMENT. This Agreement, together with the Exhibits,
Schedules and ANNEX A, the Note and the other Related Agreements constitute the
full and entire agreement and understanding between the Purchaser and the
Company relating to the subject matter hereof and thereof, and supersede all
prior oral and written, and all contemporaneous oral, agreements and
understandings relating to the subject matter hereof, including, without
limitation, the letter agreements dated September 29, 1998 and October 29, 1998,
by and between the Company and the Purchaser.
12.7 SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
12.8 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of,
and be binding upon, the parties and their respective successors and permitted
assigns. The Purchaser may assign to any Person this Agreement and any or all
of its rights hereunder without the consent of the Company, and the assignee
thereof shall be entitled to all of the rights so assigned to the same extent as
if such assignee were an original party hereof.
12.9 NOTICES. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given if transmitted by telecopier with
receipt acknowledged, or upon delivery, if delivered personally or by recognized
commercial courier with receipt acknowledged, or upon the expiration of 72 hours
after mailing, if mailed by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
(i) If to the Purchaser, at:
c/o Levine Xxxxxxxxx Capital Partners, Inc.
000 Xxxxx Xxxxx Xxxxx, Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx, President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
65
WITH A COPY TO:
Xxxxxxx & XxXxxxxx
000 Xxxx Xxxxxx Xxxxx
Xxxxx 0000
Xxxxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxx, Esq.
Telecopy: (000) 000-0000
(ii) If to the Company, at:
Consumer Portfolio Services, Inc.
00000 Xxxxxx Xxxxxx Xxxx
Xxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx, Xx., President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
WITH A COPY TO:
Xxxx & Xxxxx
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or at such other address or addresses as the Purchaser or the Company, as the
case may be, may specify by written notice given in accordance with this
SECTION 12.9.
12.10 ACCOUNTING TERMS. For purposes of this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to them by
GAAP and all accounting determinations hereunder or pursuant hereto shall be
made, and all financial statements required to be delivered by the Company and
its Subsidiaries hereunder shall be prepared in accordance with GAAP.
12.11 DESCRIPTIVE HEADINGS; CONSTRUCTION AND INTERPRETATION. The
descriptive headings of this Agreement are for convenience of reference only and
do not constitute a part of this Agreement and are not to be considered in
construing or interpreting this Agreement. All section, preamble, recital,
exhibit, schedule, annex, addendum, clause and party references are to this
Agreement unless otherwise stated. No party, nor its counsel, shall be deemed
the drafter of this Agreement for purposes of construing the provisions of this
Agreement, and all
66
provisions of this Agreement shall be construed in accordance with their fair
meaning, and not strictly for or against any party.
12.12 EXHIBITS AND DISCLOSURE SCHEDULES. The Exhibits and the
Schedules are incorporated herein and shall be an integral part of this
Agreement.
12.13 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
12.14 ASSIGNMENTS OF NOTE. Subject to Applicable Laws, the Purchaser
may, at any time and from time to time and without the consent of the Company,
assign or transfer to one or more Persons the Note or any portion thereof (an
"Assignment"), pursuant to the terms of the Note. After any Assignment of the
Note or any portion thereof, the Holder or Holders that hold at least a majority
in aggregate principal amount of the Note (or Notes) outstanding shall
thereafter have the sole and exclusive right to enforce the rights of the
Purchaser under this Agreement, including, without limitation, the right to
consent to or waive any of the provisions of this Agreement.
12.15 FEES AND EXPENSES. The Company shall pay all actual and
estimated out-of-pocket costs and expenses of every type and nature (including,
without limitation, fees and expenses of counsel, accounting fees and expenses,
fees and expenses related to any due diligence investigation and all other
deal-related costs and expenses) incurred by or on behalf of the Purchaser in
connection with the preparation, negotiation, execution and delivery of this
Agreement, the Note, the Primary Warrant and the other Related Agreements and
the consummation of the transactions contemplated hereby (which costs and
expenses may be withheld by the Purchaser from the proceeds of the Note) and, as
directed by the Purchaser, the Company shall reimburse third party providers
directly for any of such costs and expenses (which withholding and, as the case
may be, such direct reimbursement, shall constitute payment in full of the
Company's obligation with respect to such costs and expenses).
12.16 GOVERNING LAW. In all respects, including all matters of
construction, validity and performance, this Agreement and the rights and
obligations arising hereunder shall be governed by, and construed and enforced
in accordance with, the laws of the State of California applicable to contracts
made and performed in such state, without regard to the choice of law or
conflicts of law principles thereof.
12.17 PUBLICITY. Each party will consult with the other before
issuing, and provide each other the opportunity to review, comment upon and
concur with and use reasonable efforts to agree on, any press release or other
public statement with respect to the transactions contemplated by this
Agreement, and shall not issue any such press release or make such other public
announcement prior to such consultation, except as either party may determine is
required under Applicable Laws or by obligations pursuant to any listing
agreement with any
67
national securities exchange or Nasdaq. The parties agree that the initial
press release to be issued with respect to the transactions contemplated by this
Agreement shall be in the form heretofore agreed to by the parties.
12.18 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE LAWS TO
APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE
RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, AND
UNDERSTANDING THEY ARE WAIVING A CONSTITUTIONAL RIGHT, THE PARTIES WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE
ANY DISPUTE, WHETHER IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO, THIS SECURITIES PURCHASE AGREEMENT AND/OR
ANY RELATED AGREEMENT OR THE TRANSACTIONS COMPLETED HEREBY OR THEREBY.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
68
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their duly authorized representatives as of the date first
written above.
PURCHASER
XXXXXX XXXXXXXXX CAPITAL PARTNERS, INC.,
a California corporation
On behalf of XXXXXX XXXXXXXXX CAPITAL
PARTNERS II, L.P., a California limited
partnership
By: /s/ Xxxxxx X. Xxxxxxxxx
-------------------------------------
Xxxxxx X. Xxxxxxxxx
Chief Executive Officer
COMPANY
CONSUMER PORTFOLIO SERVICES, INC.,
a California corporation
By: /s/ Xxxxxxx X. Xxxxxxx, Xx.
--------------------------------
Xxxxxxx X. Xxxxxxx, Xx.
President and Chief Executive Officer
By: /s/ Xxxxxxx X. Xxxxx
--------------------------------
Xxxxxxx X. Xxxxx
Senior Vice President and Chief
Financial Officer
69
ADDENDUM REGARDING STANWICH
The undersigned has reviewed this Agreement and understands its terms and
conditions. Furthermore, the undersigned hereby agrees to the terms of, and to
be bound by, the provisions of SECTION 8.24 of this Agreement as if the
undersigned were a party to this Agreement for all purposes.
STANWICH FINANCIAL SERVICES CORP.,
a Rhode Island corporation
By: /s/ Xxxxxxx X. Xxxxxxx, Xx.
-----------------------------------------------
Name: Xxxxxxx X. Xxxxxxx, Xx.
---------------------------------------------
Title: President
--------------------------------------------
70
ANNEX A
FINANCIAL COVENANTS AND RELATED DEFINITIONS
(a) MAXIMUM MONTHLY RECEIVABLE ORIGINATIONS.
For each calendar month, commencing with the calendar month ending December
31, 1998 through the calendar month ending December 31, 1999, the monthly
average of Automobile Contract originations by the Company and its Subsidiaries
over the three (3) month period ending at the end of such calendar month shall
not exceed $70,000,000.
(b) MAXIMUM MONTHLY OPERATING EXPENSES.
For each calendar month, commencing with the calendar month ending December
31, 1998 through the calendar month ending December 31, 1999, the monthly
average of Operating Expenses incurred by the Company and its Subsidiaries over
the three (3) month period ending at the end of such calendar month shall not
exceed $6,000,000.
(c) MAXIMUM CAPITAL EXPENDITURES.
From and after the Closing Date, the Company and its Subsidiaries shall not
incur Capital Expenditures during any fiscal year in excess of the amount set
forth opposite such period below:
Maximum Capital
Fiscal Year Ended Expenditures
---------------------------------------------- -------------------------
December 31, 1998 . . . . . . . . . . . . . . $3,500,000
Each fiscal year thereafter . . . . . . . . . $1,500,000
(d) MINIMUM QUARTERLY NET INCOME.
From and after the Closing Date, the Company and its Subsidiaries shall
achieve Net Income of equal to or greater than $0 for each fiscal quarter.
(e) MAXIMUM PAYABLES OVER 60 DAYS PAST DUE.
The Company and its Subsidiaries shall not permit the sum of all trade
payables which are sixty (60) days past due at the end of any given month to
exceed $500,000.
Annex A - 1
(f) SECURITIZATION CREDIT TRIGGERS.
The Servicer shall not permit the Average Delinquency Ratio, the Cumulative
Default Rate or the Cumulative Net Loss Rate of any Securitization Transaction
to exceed the levels opposite the monthly periods set forth below:
MONTHS FROM AVERAGE
CLOSING THE DELINQUENCY CUMULATIVE CUMULATIVE NET
SECURITIZATION RATIO DEFAULT RATE LOSS RATE
---------------- -------------- --------------- ----------------
1 - 3 10.00% 3.33% 2.00%
4 - 6 10.00% 8.33% 5.00%
7 - 9 10.00% 11.67% 7.00%
10 - 12 10.00% 15.00% 9.00%
13 - 15 10.00% 18.33% 11.00%
16 - 18 10.00% 21.67% 13.00%
19 - 21 10.00% 24.25% 14.55%
22 - 24 10.00% 26.67% 16.00%
25 - 27 10.00% 28.75% 17.25%
28 - 30 10.00% 30.42% 18.25%
31 - 33 10.00% 32.08% 19.25%
34 - 36 10.00% 33.41% 20.05%
37 - 39 10.00% 34.58% 20.75%
40 - 42 10.00% 35.25% 21.15%
43 - 45 10.00% 35.83% 21.50%
46 - 48 10.00% 36.44% 21.86%
49 - 51 10.00% 36.78% 22.07%
52 - 54 10.00% 36.99% 22.20%
55 - 57 10.00% 37.10% 22.26%
58 - 60 10.00% 37.13% 22.28%
(g) AMOUNT IN REPOSSESSION
The aggregate amount attributable to repossessed automobiles (where such
repossessions were by or at the Company's or at its Subsidiary's direction)
shall not exceed five percent (5%) of the aggregate Gross Principal Balance of
all Automobile Contracts owned or serviced by the Company or its Subsidiaries.
(h) AMOUNT OF DEFERRAL OR EXTENSION
The aggregate number of accounts with respect to which the Company grants a
deferral or extension in any month shall not exceed two percent (2%) of the
aggregate number of
Annex A - 2
Automobile Contracts owned or serviced by the Company or its Subsidiaries as of
that month's end.
(i) AMOUNT OF CUMULATIVE DEFERRAL OR EXTENSION
The cumulative number of accounts with respect to which the Company and its
Subsidiaries have granted a deferral or extension shall not exceed eighteen
percent (18.0%) of the aggregate number of Automobile Contracts owned or
serviced by the Company and its Subsidiaries as of that month's end.
(j) DEFINITIONS. For purposes of this ANNEX A only, the following capitalized
terms shall have the meanings set forth below. To the extent that any such
capitalized terms are also defined in SECTION 1 of the Securities Purchase
Agreement, the meanings set forth below shall govern for purposes of this ANNEX
A:
"AGGREGATE PRINCIPAL BALANCE" shall mean, with respect to any Determination
Date and any Securitization Transaction, the sum of the Automobile Principal
Balances (computed as of the end of the related Collection Period) for all
Automobile Contracts (other than (i) any Liquidated Contract and (ii) Purchased
Contract).
"AMOUNT FINANCED" shall mean, with respect to an Automobile Contract, the
aggregate amount advanced under such Automobile Contract toward the purchase
price of the Financed Vehicle and any related costs, including amounts advanced
in respect of accessories, insurance premiums, service and warranty contracts,
other items customarily financed as part of retail automobile installment sale
contracts or promissory notes, and related costs.
"AUTOMOBILE CONTRACT DEBTOR" shall mean, with respect to any Automobile
Contract, any purchaser or co-purchaser of any Financed Vehicle and any other
Person who owes payments under such Automobile Contract.
"AUTOMOBILE CONTRACTS" shall mean retail installment sale contracts for a
Financed Vehicle which are owned by the Company or its Subsidiaries.
"AUTOMOBILE PRINCIPAL BALANCE" shall mean, with respect to any Automobile
Contract, as of the close of business on the last day of a Collection Period,
the Amount Financed minus the sum of the following amounts without duplication:
(i) in the case of a Rule of 78's Automobile Contracts, that portion of all
Scheduled Payments actually received on or prior to such day allocable to
principal using the actuarial or constant yield method; (ii) in the case of a
Simple Interest Receivable, that portion of all Scheduled Payments actually
received on or prior to such day allocable to principal using the Simple
Interest Method; (iii) any payment of the Purchase Amount with respect to the
Automobile Contract allocable to principal; (iv) any Cram Down Loss in respect
of such Automobile Contract; and (v) any prepayment in full or any
Annex A - 3
partial prepayment applied to reduce the Automobile Principal Balance of the
Automobile Contract.
"AVERAGE DELINQUENCY RATIO" shall mean, with respect to any Securitization
Transaction and any Determination Date, the arithmetic average of the
Delinquency Ratios for such Determination Date and the two immediately preceding
Determination Dates.
"CAPITAL EXPENDITURES" shall mean, with respect to any period, the
aggregate of all expenditures (whether paid in cash or accrued) of the Company
and its Subsidiaries made during such period, including all Capital Lease
Obligations for property, plant and equipment (other than repairs), other fixed
assets and improvements, or for replacements, substitutions or additions
thereto, that are required to be capitalized on the consolidated balance sheet
of the Company in accordance with GAAP.
"COLLATERAL COVERAGE RATIO" shall mean, with respect to any period, a
fraction, expressed as a percentage, the numerator which is equal to aggregate
cash balance in all cash collateral accounts or other escrow or reserve accounts
established in connection with any Securitization Transaction, and the
denominator of which is equal to the principal balance of the Note.
"COLLECTION PERIOD" shall mean (i) with respect to the first Payment Date,
the period commencing at the close of business on the Initial Cut-Off Date and
ending at the close business on the last day of the then current month, and (ii)
with respect to each Subsequent Payment Date, the preceding calendar month. Any
amount stated "as of the close of business of the last day of a Collection
Period" shall give effect to the following calculations as determined as of the
end of the day on such last day: (i) all applications of collections and
(ii) all distributions.
"CRAM DOWN LOSSES" shall mean, with respect to an Automobile Contract, if a
court of appropriate jurisdiction in an insolvency proceeding shall have issued
an order reducing the amount owed on an Automobile Contract or otherwise
modifying or restructuring Scheduled Payments to be made on an Automobile
Contract, an amount equal to such reduction in the net present value (using as
the discount rate the lower of the contract rate or the rate of interest
specified by the court in such order) of the Scheduled Payments as so modified
or restructured. A "Cram Down Loss" shall be deemed to have occurred on the
date such order is entered.
"CUMULATIVE DEFAULT RATE" shall mean, with respect to any Securitization
Transaction and with respect to any Determination Date, the fraction, expressed
as a percentage, the numerator of which is equal to the Aggregate Principal
Balance of all Automobile Contracts which became Defaulted Contracts from the
Cut-Off Date as of the close of business at the end of the related Collection
Period and the denominator of which is equal to the sum of (a) the original
Aggregate Principal Balance of all Automobile Contracts as of the Cut-Off Date
plus (b) the Aggregate Principal Balance of all Subsequent Contracts conveyed to
such Securitization
Annex A - 4
Transaction (determined as of the respective Subsequent Cut-Off Dates)
through the last day of the related Collection Period.
"CUMULATIVE NET LOSS RATE" shall mean, with respect to any
Securitization Transaction and with respect to any Determination Date, the
fraction, expressed as a percentage, the numerator of which is equal to the
amount, if any, by which (a) the sum of (i) the Automobile Principal Balance
of all Automobile Contracts which became Liquidated Contracts as of the end
of the related Collection Period since the Cut-Off Date, plus accrued and
unpaid interest thereon at the applicable Annual Percentage Rate to the end
of the related Collection Period, plus (ii) the aggregate of all Cram Down
Losses that occurred as of the end of the related Collection Period since the
Cut-Off Date, exceeds (b) the Net Liquidation Proceeds received as of the end
of the related Collection Period since the Cut-Off Date in respect of all
Liquidated Contracts and the denominator of which is equal to the sum of (i)
the original Aggregate Principal Balance of all Automobile Contracts as of
the Cut-Off Date plus (ii) the Aggregate Principal Balance of all Subsequent
Contracts conveyed to such Securitization Transaction (determined as of the
respective Subsequent Cut-Off Dates) through the last day of the related
Collection Period.
"CUT-OFF DATE" shall mean the date upon which (i) money received under
Automobile Contracts sold in any Securitization Transactions becomes payable to
the trustee or similar Person with respect to the relevant Securitization
Transaction Documents (including, without limitation, principal prepayments
relating to scheduled payments), and (ii) all Net Liquidation Proceeds received
with respect to such Automobile Contracts.
"DEFAULTED CONTRACTS" shall mean any Automobile Contracts with respect to
which (i) any Automobile Contract Debtor has failed to make more than 90% of a
Scheduled Payment of more than ten dollars for 180 days or more, (ii) the
Servicer has repossessed the Financed Vehicle (and any applicable redemption
period has expired), or (iii) the Servicer has determined in good faith that
payments under the Automobile Contracts are not likely to be resumed.
"DELINQUENCY AMOUNT" shall mean, with respect to any Securitization
Transaction, as of any Determination Date, the sum of the Automobile Principal
Balance and Unearned Interest with respect to all Automobile Contracts with
respect to which any Automobile Contract Debtor has failed to make more than 90%
of a Scheduled Payment of more than ten dollars for 30 days or more as of the
close of business on the last day of the related Collection Period or that
became a Purchased Contract as of the close of business on the last day of the
related Collection Period and with respect to which as of such date an
Automobile Contract Debtor has failed to make more than 90% of a Scheduled
Payment of more than ten dollars for 30 days or more.
DELINQUENCY RATIO" shall mean, with respect to any Securitization
Transaction, as of any Determination Date, the fraction (expressed as a
percentage) computed by dividing (a) the Delinquency Amount by (b) the sum of
the (i) Aggregate Principal Balance and (ii) Unearned Interest with respect to
all Automobile Contracts as of the close of business on the last day of the
related Collection Period.
Annex A - 5
"DETERMINATION DATE" shall mean the earlier of (i) the seventh Business Day
of each calendar month and (ii) the fifth Business Day preceding the related
Payment Date.
"FINANCED VEHICLE" shall mean a new or used automobile, light truck, van or
minivan, together with all accessions thereto, securing any Automobile Contract
Debtor's indebtedness under an Automobile Contract.
"GROSS PRINCIPAL BALANCE" shall mean the outstanding principal balance of
the Automobile Contracts plus Unearned Interest.
"INITIAL CUT-OFF DATE" shall mean the first Cut-Off Date of any
Securitization Transactions.
"LIQUIDATED CONTRACTS" shall mean any Automobile Contract (i) which has
been liquidated by the Servicer through the sale of the Financed Vehicle or
(ii) for which the related Financed Vehicle has been repossessed and 120 days
have elapsed since the date of such repossession or (iii) as to which an
Automobile Contract Debtor has failed to make more than 90% of a Scheduled
Payment of more than ten dollars for 180 or more days as of the end of a
Collection Period or (iv) with respect to which proceeds have been received
which, in the Servicer's judgment, constitute the final amounts recoverable in
respect of such Automobile Contract.
"NET INCOME" shall mean, with respect to any period, net income after
provision for income taxes for such period, as determined in accordance with
GAAP and reported on the financial statements for such period.
"NET LIQUIDATION PROCEEDS" shall mean, with respect to any Securitization
Transaction, as to any Liquidated Contract, all amounts realized with respect to
such Automobile Contract net of (i) reasonable expenses incurred by the Servicer
in connection with the collection of such Automobile Contract and the
repossession and disposition of the Financed Vehicle and (ii) amounts that are
required to be refunded to the Automobile Contract Debtor on such Automobile
Contract; PROVIDED, HOWEVER, that the Net Liquidation Proceeds with respect to
any Automobile Contract shall in no event be less than zero.
"OPERATING EXPENSES" shall mean, with respect to any period, expenses for
such period, as determined in accordance with GAAP and reported on the financial
statements for such period, excluding the following expense items for such
period: (i) Securitization Transaction expenses, (ii) provision for credit
losses, (iii) interest, (iv) depreciation, (v) amortization and (vi) provision
for income taxes.
"PAYMENT DATE" shall mean, with respect to each Collection Period, the 15th
day of the following calendar month, or if such day is not a Business Day, the
immediately following Business Day.
Annex A - 6
"PURCHASED CONTRACT" shall mean an Automobile Contract purchased as of the
close of business on the last day of a Collection Period by the Servicer.
"SCHEDULED PAYMENT" shall mean, with respect to any Collection Period for
any Automobile Contract, the amount set forth in such Automobile Contract as
required to be paid by the Automobile Contract Debtor in such Collection Period
(without giving effect to deferments of payments or any rescheduling of payments
in any insolvency or similar proceedings).
"SECURITIZATION TRANSACTIONS" shall mean any past, present or future
transactions completed or to be completed by the Company and its Subsidiaries
involving the pooling and sale of Automobile Contracts.
"SERVICING PORTFOLIO" shall mean all Automobile Contracts currently being
serviced by the Servicer.
"SUBSEQUENT CONTRACTS" shall mean Automobile Contracts sold to any existing
Securitization Transactions existing at the time of such sale after the Initial
Cut-Off Date with respect to that Securitization Transaction.
"SUBSEQUENT CUT-OFF DATES" shall mean any Cut-Off Date after the Initial
Cut-Off Date with respect to any Securitization Transaction.
"SERVICER" shall mean the Company, as the servicer of Automobile Contracts,
and each successor Servicer.
"UNEARNED INTEREST" shall mean, with respect to any Automobile Contract as
of any Determination Date, all interest on such Automobile Contract which is
unpaid as of such Determination Date, whether or not such interest is due.
Annex A - 7