EXECUTION COPY
THE SECURITY REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT IN
COMPLIANCE WITH THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH STATE
SECURITIES LAWS OR PURSUANT TO AN EXEMPTION OR QUALIFICATION THEREFROM.
CONSUMER PORTFOLIO SERVICES, INC.
SENIOR SUBORDINATED NOTE
$5,000,000.00 Irvine, California
As of April 15, 1999
FOR VALUE RECEIVED, Consumer Portfolio Services, Inc., a California
corporation (the "Borrower" or the "Company"), hereby promises to pay to the
order of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Capital Partners II, L.P., a California limited
partnership ("LLCP" or the "Purchaser"), and/or any registered assigns
(collectively, with LLCP, the "Holder"), the sum of Five Million Dollars
($5,000,000.00) in immediately available funds and in lawful money of the United
States of America, all as provided below. This Senior Subordinated Note (this
"Note"), due on the Maturity Date (as such term is defined below), is being
issued in connection with the transactions contemplated by that certain
Securities Purchase Agreement dated as of April 15, 1999 (as it may be further
amended, supplemented or otherwise modified from time to time, the "April 1999
Securities Purchase Agreement") between the Company and LLCP.
The Indebtedness evidenced by this Note, including the payment of
principal of, premium, if any, and interest on this Note, shall be subordinate
and subject in right of payment, to the extent and in the manner set forth in
Section 11 hereof, to the prior payment in full of all Senior Indebtedness, and
shall rank pari passu in right of payment with all Senior Subordinated
Indebtedness, including without limitation, that certain Amended and Restated
Senior Subordinated Primary Note (the "Amended November 1998 Note") issued
pursuant to that certain at certain Securities Purchase Agreement dated as of
November 17, 1998 by and between the Company and LLCP, as amended by that
certain First Amendment to Securities Purchase Agreement dated as of April 15,
1999 (as so amended and as it may be further amended, supplemented or otherwise
modified from time to time, "Amended November 1998 Securities Purchase
Agreement.").
1. Definitions. All capitalized terms used and not otherwise defined
herein shall have the meanings given to such terms in the April 1999 Securities
Purchase Agreement, or, if not used in the April 1999 Securities Purchase
Agreement, the meanings given to them in the Amended November 1998 Securities
Purchase Agreement.
2. Payment of Interest; Default Rate.
(a) Subject to Section 2(b) hereof, the Borrower shall pay interest
on the unpaid principal balance of this Note from and including April 15, 1999
at a rate per annum equal to 14.50%. Interest shall be payable monthly in
arrears on the last Business Day of each calendar month (or portion thereof),
commencing on April 30, 1999 (each an "Interest Payment Date"). Interest shall
be computed on the basis of the actual number of days elapsed over a 360-day
year, including the first day and excluding the last day.
(b) If at any time (i) the Borrower fails to make any payment of
principal as and when due (whether at stated maturity, upon acceleration or
required prepayment or otherwise), (ii) the Borrower fails to make any payment
of interest, premium, if any, fees, costs, expenses or other amounts due
hereunder within one (1) Business Day after the date when due, or (iii) any
other Default or Event of Default has occurred and is continuing, then, in
addition to the rights and remedies available to the Holder under the April 1999
Securities Purchase Agreement, the other agreements, instruments and documents
contemplated thereby or related thereto and Applicable Laws, the outstanding
principal balance of, premium, if any, and accrued and unpaid interest on this
Note shall bear interest at a rate per annum equal to 16.50% (the "Default
Rate") from the date on which such Event of Default is deemed to have first
occurred (as provided in Section 11.1 of the April 1999 Securities Purchase
Agreement) until such time as such Event of Default is cured or waived.
3. Payment of Principal. The Borrower shall pay in full the entire
outstanding principal balance of this Note, together with all premium, if any,
accrued and unpaid interest on, and all other amounts due under this Note on the
earlier to occur (the "Maturity Date") of (a) the New Senior Facility
Establishment Date and (b) August 31, 2003.
4. Optional Prepayments.
(a) Except as provided in Section 5 and Section 6 below, the
Borrower shall make no payment of the principal balance of this Note on or prior
to April 15, 2001 (except on the New Senior Facility Establishment Date as
provided for in Section 3, or as provided in subsection (c) below). Thereafter,
this Note may be voluntarily prepaid, at the option of the Borrower, in whole or
in part, as follows: (i) at 103.0% of the principal amount being prepaid at any
time after April 15, 2001, and on or prior to April 15, 2002; (ii) at 101.5% of
the principal amount being prepaid at any time on or after April 15, 2002 and on
or prior to October 31, 2002; and (iii) at 100.0% of the principal amount being
prepaid at any time on or after November 1, 2002. (Each percentage set forth
above is referred to herein as the "Prepayment Percentage"
2
applicable to any prepayment.) Any prepayment of the Note under this Section 4
shall also include all accrued and unpaid interest on the outstanding principal
balance of this Note through and including the date of prepayment.
(b) The Borrower shall give the Holder written notice of each
voluntary prepayment not less than thirty (30) nor more than ninety (90) days
prior to the date of prepayment. Such notice shall specify the principal amount
of this Note to be prepaid on such date. Notice of prepayment having been given
as aforesaid, a payment in an amount equal to (i) the Prepayment Percentage
applicable to such prepayment, if any, multiplied by (ii) the principal amount
of the Note specified in such prepayment notice shall become due and payable on
such prepayment date, together with all accrued and unpaid interest on the
outstanding principal balance of this Note through and including the date of
prepayment.
(c) Notwithstanding the provisions of subsection (a) above, if
fulfillment of the Stanwich Investment Obligation, as defined in that certain
Investment Agreement and Continuing Guaranty dated as of the date hereof and
referred to in the April 1999 Securities Purchase Agreement, results in receipt
of net proceeds to the Company of at least $5,000,000 prior to July 31, 1999,
the Company shall offer to prepay the Note in the manner set forth in subsection
(b), provided, however, that Holder may, in its sole discretion decline to
accept the prepayment in writing at any time prior to the date it is to be made.
5. Mandatory Prepayments. In addition to the mandatory prepayments
required to be made by the Company pursuant to Section 6 (and provided that, to
the extent any ESFR Indebtedness remains outstanding at the time any such
prepayment is required to be made, such prepayment would constitute an ESFR
Permitted Payment), the Company shall make mandatory prepayments with respect to
this Note as follows:
(a) Asset Sale Prepayments. If at any time the Company intends to
consummate any Asset Sale, it shall, within ten (10) Business Days prior to the
proposed date of consummation, notify the Holder in writing of the proposed
Asset Sale (including, without limitation, the subject matter and the material
terms thereof and the proposed date of consummation). Promptly following the
Holder's receipt of such written notice, the Holder will furnish to the Company
a written notice directing the Company either (i) to apply all Net Available
Cash derived from such Asset Sale to prepay outstanding Indebtedness under the
Note or (ii) hold such Net Available Cash in a separate interest-bearing account
pending further directions from the Holder. If the Holder directs the Company to
prepay such Indebtedness pursuant to clause (i) above, the Company shall make
such prepayment within three (3) Business Days following the date of
consummation of such Asset Sale. Any Net Available Cash held in a separate
interest-bearing account pursuant to clause (ii) above shall not be deemed to
have been applied as a prepayment to any Indebtedness under the Note unless and
until paid to the Holder pursuant to specific directions furnished by the Holder
to the Company. This Section 5(b) shall not apply to (A) the sale by the Company
of the Capital Stock of CPS Leasing, Inc., LINC Acceptance LLC and Samco
Acceptance Corp., as contemplated by the CPS Operating Plan, (B) the sale or
other disposition of the Company's interest in NAB Asset Corp., or (C) sales of
any tangible personal property of the Company that do not exceed $50,000 in the
aggregate in any
3
fiscal year of the Company; provided, however, that in each of clauses (A), (B)
and (C), the Company reinvests the proceeds of such sales in the operations of
its business.
(b) Excess Cash Prepayments. For each twelve (12) month period
ending on July 31st of any fiscal year of the Company, commencing with the
twelve (12) month period ending July 31, 2000, the Company shall prepay the
outstanding principal balance of the Note, together with all accrued and unpaid
interest thereon, in an amount equal to 25.0% of the Excess Cash for such twelve
(12) month period. Such mandatory prepayment shall be paid by the Company to the
Holder not later than November 1st immediately following the end of such twelve
(12) month period (the first payment of which shall be due and payable no later
than November 1, 2000) and, concurrently with such payment, the Company shall
deliver to the Holder an officer's certificate, signed by the Chief Financial
Officer of the Company, which shows in reasonable detail the calculation of such
Excess Cash.
(c) Mandatory Prepayment From Proceeds of Key Man Life Insurance.
The Company shall, within one (1) Business Day of the receipt thereof, apply the
proceeds from any key-man life insurance policy maintained as required by
Section 8.8 of the Amended November 1998 Securities Purchase Agreement to,
first, the payment of all accrued interest on this Note, through the date of
such payment, and, second, to the prepayment of the principal amount of this
Note. Any proceeds after the payment in full as provided above shall be and
remain the property of the Company.
The mandatory prepayments provided for in this Section 5 shall be paid at
100.0% of the principal amount required to be prepaid, plus premium, if any, and
accrued and unpaid interest, all as provided for above. To the extent that any
payment required by this Section 5 is not made because such payment does not
constitute an ESFR Permitted Payment, the obligation to make such payment shall
be deferred until such time as the ESFR Indebtedness is no longer outstanding or
such payment becomes an ESFR Permitted Payment, and such payment shall be made
on the next following Business Day. To the extent any mandatory prepayment is
required to be made pursuant to this Section 5 at any time at which the Amended
November 1998 Note remains outstanding and contains provisions requiring a
similar mandatory prepayment of the Amended November 1998 Note, the aggregate
amount required to be paid pursuant to this Section 5 shall be allocated between
the prepayment of this Note and the prepayment of the Amended November 1998
Note, pro rata in accordance with their respective outstanding principal
amounts, and such prepayments shall be deemed to satisfy the obligations of the
Company under both this Section 5 and the similar provisions of the Amended
November 1998 Note.
6. Change in Control Prepayment. The Holder may require the Borrower to
prepay this Note, in whole or in part as requested by the Holder, at any time
during the 90-day period following the consummation of a transaction which
constitutes a Change in Control (as such term is defined below), at the
prepayment amounts set forth below (and provided that, to the extent any ESFR
Indebtedness remains outstanding at the time any such prepayments is required to
be made, such prepayment would constitute an ESFR Permitted Payment). For the
purposes of this Note, a "Change in Control" shall mean:
4
(i) Any transaction or other event (including, without
limitation, any merger, consolidation, sale or other transfer of stock or
voting rights with respect thereto, issuance of stock, death or other
transaction or event) by virtue of which ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇. fails to
own, directly or indirectly through one or more of his Affiliates, at
least 2,250,000 shares of Common Stock (as adjusted from time to time, the
"Base ▇▇▇▇▇▇▇ Shares"), after giving effect to any shares of Common Stock
that may be acquired upon exercise of any Option Rights owned or held by
▇▇. ▇▇▇▇▇▇▇ as of the date hereof, but without giving effect to any stock
splits or similar events occurring after the date hereof; provided,
however, that (A) the Base ▇▇▇▇▇▇▇ Shares shall increase by the number of
shares of Common Stock acquired by ▇▇. ▇▇▇▇▇▇▇ (whether by purchase,
exercise of Option Rights granted after the date hereof, bequest,
inheritance, gift or otherwise) at any time after the date hereof, (B)
shares of Common Stock owned by ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇. shall not be
deemed to be owned by ▇▇. ▇▇▇▇▇▇▇ for purposes of this clause (i) (other
than shares of Common Stock owned by ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇. which are
subject to certain Option Rights in favor of ▇▇. ▇▇▇▇▇▇▇), (C) the Base
▇▇▇▇▇▇▇ Shares shall be reduced by the number of shares of Common Stock
held by Stanwich which constitute Base ▇▇▇▇▇▇▇ Shares that are sold or
pledged by Stanwich after the date hereof, provided that ▇▇. ▇▇▇▇▇▇▇ does
not, directly or indirectly, solicit, initiate, engage in or encourage in
any manner whatsoever any discussions, or participate in any other
activities, relating to such sale or pledge, (D) the Base ▇▇▇▇▇▇▇ Shares
shall be reduced by shares of Common Stock included therein that are
subject to Option Rights which expire at any time after the date hereof;
and (E) the Base ▇▇▇▇▇▇▇ Shares shall not be affected by (x) any shares of
Common Stock purchased by ▇▇. ▇▇▇▇▇▇▇ on the open market after the date
hereof or (y) any shares of Common Stock purchased by ▇▇. ▇▇▇▇▇▇▇ on the
open market after the date hereof and thereafter sold by ▇▇. ▇▇▇▇▇▇▇ on
the open market; or
(ii) (A) The termination (whether voluntary or involuntary) of
the employment of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇. as the President and Chief
Executive Officer of the Company with significant daily senior management
responsibilities; or (B) the termination (whether voluntary or
involuntary) of the employment of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ as the Chief Financial
Officer of the Company with significant daily senior management
responsibilities, provided that no Change in Control shall be deemed to
occur under this clause (ii) (B) if, within ninety (90) days after the
termination of the employment of ▇▇. ▇▇▇▇▇, the Board of Directors of the
Company shall have appointed a new Chief Financial Officer of the Company
who is acceptable to the Purchaser; or
(iii) Any sale, lease, transfer, assignment or other
disposition of all or substantially all of the assets of the Borrower
(excluding assets sold in connection with an asset securitization
transaction or whole loan sale in the ordinary course of the Company's
business) or any of its Subsidiaries.
In the case of a Change in Control in respect of clauses (i) or (ii)
above, the Company shall prepay an amount equal to 101.0% of the principal
amount being prepaid, plus accrued and unpaid interest through and including the
date of prepayment, and in the case of a Change in Control in respect of clause
(iii) above, the Company shall prepay an amount equal to
5
100.0% of the principal amount being prepaid, plus accrued and unpaid interest
through and including the date of prepayment. The Borrower shall notify the
Holder of the date on which a Change in Control has occurred within one (1)
Business Day after such date and shall, in such notification, inform the Holder
of the Holder's right to require the Borrower to prepay this Note as provided in
this Section 6 and of the date on which such right shall terminate. If the
Holder elects to require the Borrower to prepay this Note pursuant to this
Section 6, it shall furnish written notice to the Borrower advising the Borrower
of such election and the amount of principal of this Note to be prepaid. The
Borrower shall prepay this Note in accordance with this Section 6 and such
written notice within one (1) Business Day after its receipt of such written
notice. To the extent that any payment required by this Section 6 is not made
because such payment does not constitute an ESFR Permitted Payment, the
obligation to make such payment shall be deferred until such time as the ESFR
Indebtedness is no longer outstanding or such payment becomes an ESFR Permitted
Payment, and such payment shall be made on the next following Business Day.
7. Holder Entitled to Certain Benefits Under the April 1999 Securities
Purchase Agreement. This Note is the "April 1999 Note" issued pursuant to the
April 1999 Securities Purchase Agreement. The Holder of this Note is entitled to
the rights and benefits under this Note and the April 1999 Securities Purchase
Agreement.
8. Manner of Payment. Payments of principal, interest and other amounts
due under this Note shall be made no later than 12:00 p.m. (noon) (Los Angeles
time) on the date when due and in lawful money of the United States of America
(by wire transfer in funds immediately available at the place of payment) to
such account as the Holder may designate in writing to the Borrower and, if to
LLCP, to: Bank of America, Century City, Private Banking, ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇; ABA No. ▇▇▇▇▇▇▇▇▇; Account No. 11546-03239;
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ (or such other place of payment that LLCP may
designate in writing to the Borrower). Any payments received after 12:00 p.m.
(noon) (Los Angeles time) shall be deemed to have been received on the next
succeeding Business Day. Any payments due hereunder which are due on a day which
is not a Business Day shall be payable on the first succeeding Business Day and
such extension of time shall be included in the computation.
9. Maximum Lawful Rate of Interest. The rate of interest payable under
this Note shall in no event exceed the maximum rate permissible under applicable
law. If the rate of interest payable on this Note is ever reduced as a result of
this Section 9 and at any time thereafter the maximum rate permitted under
applicable law exceeds the rate of interest provided for in this Note, then the
rate provided for in this Note shall be increased to the maximum rate provided
for under applicable law for such period as is required so that the total amount
of interest received by the Holder is that which would have been received by the
Holder but for the operation of the first sentence of this Section 9.
10. ▇▇▇▇▇▇▇▇'s Waivers. The Borrower hereby waives presentment for
payment, demand, protest, notice of protest and notice of dishonor hereof, and
all other notices of any kind to which it may be entitled under applicable law
or otherwise.
6
11. Note Subordinated to Senior Indebtedness; Subrogation.
(a) The Indebtedness evidenced by this Note, including the payment
of principal of, premium, if any, and other amounts on this Note, is hereby
expressly made subordinate and subject in right of payment, to the extent and in
the manner set forth in this Section 11, to the prior payment in full of all
Senior Indebtedness, and shall rank pari passu in right of payment with all
Senior Subordinated Indebtedness.
(b) Until all Senior Indebtedness shall have been paid in full, the
Holder shall be permitted to retain only the following payments of principal and
interest paid by the Company with respect to this Note (all such payments being
referred to herein as "Permitted Payments"), and all such payments that do not
constitute Permitted Payments will be turned over by the Holder to the holder or
holders of Senior Indebtedness or any agent therefor (a "Senior Agent") for the
benefit of the holder or holders of Senior Indebtedness:
(i) principal payments on this Note, whether (A) on the
Maturity Date, or (B) as provided for herein (including, without
limitation, pursuant to Section 4 (Optional Prepayments), Section 5
(Mandatory Prepayments) or Section 6 (Change in Control Prepayments)
hereof) or as required in the April 1999 Securities Purchase Agreement;
provided, however, that all such principal payments are subject to the
restrictions set forth in Section 11(c) and Section 11(d) hereof; and
(ii) payments of interest with respect to this Note, so long
as no default has occurred and is then continuing with respect to the
payment of principal of or interest on the Senior Indebtedness (for such
purposes, any such default which has been cured by payment or which has
been waived shall not be deemed to be continuing).
(c) From and after receipt by the Company of a written notice (a
"Default Notice") from the holder or holders of not less than fifty-one percent
(51.0%) in principal amount of the outstanding Senior Indebtedness or any agent
therefor (a "Senior Agent") specifying that a default in the payment of any
obligation on any Senior Indebtedness when due, whether at the stated maturity
of any such payment or by declaration of acceleration, call for redemption,
mandatory repurchase, payment or prepayment or otherwise (a "Senior Payment
Default") has occurred, the Company may not make any principal payments
described in Section 11(b)(i) to the Holder, and the Holder may not accelerate
the Maturity Date until the first to occur of the following:
(i) such Senior Payment Default is cured; or
(ii) such Senior Payment Default is waived by the holder or
holders of such Senior Indebtedness or the Senior Agent; or
(iii) the expiration of one hundred eighty (180) days after
the date the Default Notice is received by the Company, if the maturity of
such Senior Indebtedness has not been accelerated at such time or the
holder or holders of not less than fifty-one
7
percent (51.0%) in principal amount of the outstanding Senior Indebtedness
or any Senior Agent shall not have exercised any judicial or non-judicial
remedy with respect to any collateral securing such Senior Indebtedness at
such time, and the provisions of this Section 11 otherwise permit the
payment at such time.
(d) So long as any ESFR Indebtedness remains outstanding, the
Company may not make any principal payments on this Note except (i) the Company
may pay any or all of the outstanding principal amount of this Note on the New
Senior Facility Establishment Date if, but only if, arrangements have been made
which are reasonably satisfactory to the ESFR Agent to concurrently borrow funds
under the New Senior Credit Facility established on the New Senior Facility
Establishment Date to pay in full all ESFR Indebtedness then outstanding
substantially concurrently with such principal payment (it being expressly
contemplated that such payment may be effected immediately prior to the
borrowing by the Company of such funds under the New Senior Credit Facility to
the extent that the Holder uses the proceeds from such repayment to purchase a
New Senior Facility Note immediately prior to the payment in full of all
Indebtedness then outstanding under the ESFR Agreement), and (ii) the Company
may make any principal payment required by Section 5(d) hereof (Mandatory
Prepayment From Proceeds of Key Man Life Insurance).
(e) Upon a payment or distribution to creditors of the Company in a
liquidation, dissolution, or winding up of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its properties or an assignment for the benefit of creditors or any
marshaling of the Company's assets and liabilities:
(i) the holder or holders of Senior Indebtedness shall be
entitled to receive payment of the full amount of the Senior Indebtedness
before the Holder is entitled to receive any payment on account of the
principal of, premium, if any, or interest on this Note; and
(ii) any payment by, or distribution of assets of, the Company
of any kind or character, whether in cash, property or securities (other
than securities of the Company as reorganized or readjusted or securities
of the Company or any other corporation provided for by a plan of
reorganization or readjustment the payment of which is subordinate, at
least to the extent provided in this Section 11 with respect to this Note,
to the payment of all Senior Indebtedness, provided that the right of the
holders of Senior Indebtedness are not impaired by such reorganization or
readjustment) to which the Holder would be entitled except for the
provisions of this Section 11 shall be paid or delivered by the Person
making such payment or distribution, whether a trustee in bankruptcy, a
receiver or liquidating trustee or otherwise, directly to the holder or
holders of Senior Indebtedness or any Senior Agent, ratably according to
the aggregate amounts remaining unpaid on account of the Senior
Indebtedness held or represented by each, to the extent necessary to make
payment in full of all Senior Indebtedness remaining unpaid after giving
effect to any concurrent payment or distribution to the holder or holders
of Senior Indebtedness, before any payment or distribution is made to the
Holder; and
8
(iii) in the event, notwithstanding the foregoing, any payment
by, or distribution of assets of, the Company of any kind or character,
whether in cash, property or securities (other than securities of the
Company as reorganized or readjusted or securities of the Company or any
other corporation provided for by a plan of reorganization or readjustment
the payment of which is subordinate, at least to the extent provided in
this Section 11 with respect to this Note, to the payment of all Senior
Indebtedness, provided that the rights of the holders of Senior
Indebtedness are not impaired by such reorganization or readjustment)
shall be received by the Holder before all Senior Indebtedness is paid in
full, such payment or distribution shall be paid over to the holder or
holders of such Senior Indebtedness or any Senior Agent, ratably as
aforesaid, for application to the payment of all Senior Indebtedness
remaining unpaid until all such Senior Indebtedness shall have been paid
in full, after giving effect to any concurrent payment or distribution to
the holders of such Senior Indebtedness.
(f) The Holder acknowledges that the holders of Senior Indebtedness
and the Holder, respectively, are entitled to exercise certain rights and powers
with respect to the Company from time to time, whether before or after an
occurrence of an Event of Default, and the exercise of any such right or power
by one creditor may preclude the exercise of a similar right or power by one or
more other creditors (any such right or power being herein called an "Exclusive
Power"). To the extent that any holder or holders of Senior Indebtedness or any
Senior Agent actually exercises any Exclusive Power, the Holder agrees to
refrain from exercising any substantially similar Exclusive Power to the extent
necessary to permit the holder or holders of Senior Indebtedness to benefit from
their actions.
(g) No amendment, modification, extension, replacement, restatement
or substitution of Senior Indebtedness, or of any agreement or note now or
hereafter in effect pertaining to such Senior Indebtedness, shall nullify,
impair, limit, alter or modify the provisions of this Section 11.
(h) For purposes of this Section 11, Senior Indebtedness shall
include all fees, expenses and costs incurred by or on behalf of the holder or
holders of Senior Indebtedness or the Senior Agent in connection with such
Senior Indebtedness.
(i) Notices to holders of Senior Indebtedness shall be made to each
holder of Senior Indebtedness or, if the holders of Senior Indebtedness have
appointed a Senior Agent, then to such Senior Agent, and shall be made in the
manner specified in the document evidencing such ▇▇▇▇▇▇'s Senior Indebtedness if
such a manner is so specified therein.
(j) Subject to the payment in full of all Senior Indebtedness, the
Holder shall be subrogated to the rights of the holder or holders of Senior
Indebtedness to receive payments or distributions of cash, property or
securities of the Company applicable to such Senior Indebtedness until all
amounts owing on this Note shall be paid in full, and, as between the Company,
its creditors other than holders of Senior Indebtedness and the Holder, no such
payment or distribution made to the holder or holders of Senior Indebtedness by
virtue of this Section 11 which otherwise would have been made to the Holder
shall be deemed to be a payment by the
9
Company on account of any Senior Indebtedness, it being understood that the
provisions of this Section 11 are and are intended solely for the purpose of
defining the relative rights of the Holder, on the one hand, and the holder or
holders of Senior Indebtedness, on the other hand.
(k) Nothing contained in this Section 11 or elsewhere in this Note
is intended to or shall impair, as between the Company, its creditors other than
the holders of Senior Indebtedness and the Holder, the obligations of the
Company, which are absolute and unconditional, to pay to the Holder the
principal of, premium, if any, and interest on this Note as and when the same
shall become due and payable in accordance with the terms hereof and in the
April 1999 Securities Purchase Agreement, or is intended to or shall affect the
relative rights of the Holder, on the one hand, and creditors of the Company
other than the holders of Senior Indebtedness, on the other hand, nor shall
anything herein or therein prevent the Holder from exercising all rights and
remedies otherwise permitted by Applicable Laws upon default under this Note or
the April 1999 Securities Purchase Agreement, subject to the rights, if any,
under this Section 11 of the holders of Senior Indebtedness in respect of cash,
property or securities of the Company received upon the exercise of any such
remedy.
(l) Upon any payment or distribution of assets of the Company
referred to in this Section 11, the Holder shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which any such
dissolution, winding up, liquidation or reorganization proceeding affecting the
affairs of the Company is pending or upon a certificate of the trustee in
bankruptcy, receiver, assignee for the benefit of creditors, liquidating trustee
or agent or other person making any payment or distribution, delivered to the
Holder, for the purpose of ascertaining the Persons entitled to participate in
such payment or distribution, the holders of the Senior Indebtedness and other
indebtedness of the Company, the amount thereof or payable thereon, the amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Section 11.
12. Assignment and Transfer. Subject to Applicable Laws, the Holder 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 entire outstanding principal balance of
this Note or any portion thereof (but not less than $1,000,000 in principal
amount in any single assignment (unless such lesser amount represents the entire
outstanding principal balance hereof)). Upon surrender of this Note at the
Company's principal executive office for registration of any such assignment or
transfer, accompanied by a duly executed instrument of transfer, 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 in the name of the assignee or assignees and bearing
the legend set forth on the face of this Note, and this Note shall promptly be
canceled. Each assignment or transfer of this Note, in whole or in part, shall
be registered on the register maintained by the Borrower pursuant to Section
12.3 of the April 1999 Securities Purchase Agreement immediately following the
surrender of this Note. If the entire outstanding principal balance of this Note
is not being assigned, the Borrower shall issue to the Holder hereof, within
three (3) Business Days of the date of surrender hereof, a new note which
evidences the portion of such outstanding principal balance not being assigned.
If this Note is divided into one or more Notes and is held at any time by more
than one Holder, any payments of principal of, or
10
premium, if any, on this Note, and any payments of interest or other amounts
which are not sufficient to pay all interest or other amounts due thereunder,
shall be made pro rata with respect to all such Notes in accordance with the
outstanding principal amounts thereof, respectively.
13. Loss, Theft, Destruction or Mutilation of this Note. Upon receipt of
evidence reasonably satisfactory to the Borrower of the loss, theft, destruction
or mutilation of this Note and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity agreement or other indemnity
reasonably satisfactory to the Borrower or, in the case of any such mutilation,
upon surrender and cancellation of such mutilated Note, the Borrower shall make
and deliver within three (3) Business Days a new Note, of like tenor, in lieu of
the lost, stolen, destroyed or mutilated Note.
14. Costs of Collection. The Borrower agrees to pay all costs and
expenses, including the fees and expenses of any attorneys, accountants and
other experts retained by the Holder, which are expended or incurred by the
Holder in connection with (a) the enforcement of this Note or the collection of
any sums due hereunder, whether or not suit is commenced; (b) any actions for
declaratory relief in any way related to this Note; (c) the protection or
preservation of any rights of the Holder under this Note; (d) any actions taken
by the Holder in negotiating any amendment, waiver, consent or release of or
under this Note; (e) any actions taken in reviewing the Borrower's or any of its
Subsidiaries' financial affairs if an Event of Default has occurred or the
Holder has determined in good faith that an Event of Default may likely occur,
including, without limitation, the following actions: (i) inspect the facilities
of the Borrower and any of its Subsidiaries or conduct audits or appraisals of
the financial condition of the Borrower and any of its Subsidiaries; (ii) have
an accounting firm chosen by the Holder review the books and records of the
Borrower and any of its Subsidiaries and perform a thorough and complete
examination thereof; (iii) interview the Borrower's and each of its
Subsidiaries' employees, accountants, customers and any other individuals
related to the Borrower or its Subsidiaries which the Holder believes may have
relevant information concerning the financial condition of the Borrower and any
of its Subsidiaries; and (iv) undertake any other action which the Holder
believes is necessary to assess accurately the financial condition and prospects
of the Borrower and any of its Subsidiaries; (f) the Holder's participation in
any refinancing, restructuring, bankruptcy or insolvency proceeding involving
the Borrower, any of its Subsidiaries or any other Affiliate of the Borrower;
(g) verifying or perfecting any security interest granted to the Holder; (h) any
effort by the Holder to protect, assemble, complete, collect, sell, liquidate or
otherwise dispose of any collateral, including in connection with any case under
Bankruptcy Law; or (i) any refinancing or restructuring of this Note, including,
without limitation, any restructuring in the nature of a "work out" or in any
insolvency or bankruptcy proceeding.
15. Extension of Time. The Holder, at its option, may extend the time for
payment of this Note, postpone the enforcement hereof, or grant any other
indulgences without affecting or diminishing the Holder's right to recourse
against the Borrower, which right is expressly reserved.
11
16. Governing Law; Interpretation. In all respects, including all matters
of construction, validity and performance, this Note 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 choice of law or conflicts
of law principles. The Company and LLCP have each been represented by counsel in
the negotiation and drafting of this Note and neither the Company nor LLCP nor
their respective counsel shall be deemed the drafter of this Note for purposes
of construing the provisions of this Note, and all provisions of this Note shall
be construed in accordance with their fair meaning, and not strictly for or
against the Company or the Holder.
17. 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 STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE COMPANY AND THE HOLDER 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 COMPANY AND THE HOLDER (BY ACCEPTANCE HEREOF) 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 NOTE, THE APRIL 1999 SECURITIES PURCHASE AGREEMENT
AND/OR ANY OTHER RELATED AGREEMENT OR THE TRANSACTIONS COMPLETED HEREBY OR
THEREBY.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
12
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
and delivered by its duly authorized representatives on the date first above
written.
CONSUMER PORTFOLIO SERVICES, INC., a
California corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
President and Chief Executive Officer
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Senior Vice President and Chief
Financial Officer
Agreed to and Accepted by:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ CAPITAL PARTNERS, INC.,
a California corporation
On behalf of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ CAPITAL
PARTNERS II, L.P., a California limited
partnership
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Chief Executive Officer
13