EXHIBIT 10.56
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LOAN AND SECURITY AGREEMENT
by and between
KWP FINANCIAL IX, INC.
as Borrower,
and
FOOTHILL CAPITAL CORPORATION
as Lender
Dated as of December 11, 2002
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TABLE OF CONTENTS
1. DEFINITIONS AND CONSTRUCTION 1
1.1 Definitions 1
1.2 Accounting Terms 26
1.3 Code 26
1.4 Construction 27
1.5 Schedules and Exhibits 27
2. LOAN AND TERMS OF PAYMENT 27
2.1 Revolver Advances 27
2.2 Conversion to Term Loans; Required Payments 28
2.3 Borrowing Procedures and Settlements 29
2.4 Payments 29
2.5 Overadvances 31
2.6 Interest Rates: Rates, Payments, and Calculations 32
2.7 Cash Management 33
2.8 Crediting Payments 33
2.9 Designated Account 34
2.10 Maintenance of Loan Account; Loan Sub-Accounts;
Statements of Obligations 34
2.11 Fees 35
2.12 Capital Requirements 35
3. CONDITIONS; TERM OF AGREEMENT36
3.1 Conditions Precedent to the Initial Extension of
Credit 36
3.2 Conditions Precedent to a Purchase Advance 39
3.3 Conditions Subsequent to the Initial Extension of
Credit 41
3.4 Conditions Precedent to all Extensions of Credit 41
3.5 Term 42
3.6 Effect of Termination 42
3.7 Early Termination by Borrower 42
4. CREATION OF SECURITY INTEREST 43
4.1 Grant of Security Interest 43
4.2 Negotiable Collateral 43
4.3 Collection of Portfolio Loan Receivables,
Accounts, General Intangibles and Chattel Paper 43
4.4 Delivery of Additional Documentation Required 43
4.5 Power of Attorney 44
4.6 Right to Inspect 44
4.7 Control Agreements 45
4.8 Portfolio Acquisition Documents 45
4.9 Portfolio Documents 45
4.10 Borrower's Perfection 45
4.11 Custodial Possession ▇▇
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5. REPRESENTATIONS AND WARRANTIES 46
5.1 No Encumbrances 46
5.2 Eligible Portfolio Loan Receivables 46
5.3 Equipment 47
5.4 Location of Books, Inventory and Equipment 47
5.5 Portfolio Loan Receivables Records 47
5.6 Location of Chief Executive Office; FEIN 47
5.7 Due Organization and Qualification; Subsidiaries 47
5.8 Due Authorization; No Conflict 48
5.9 Litigation 49
5.10 No Material Adverse Change 49
5.11 Fraudulent Transfer 49
5.12 Employee Benefits 50
5.13 Environmental Condition 50
5.14 Brokerage Fees 50
5.15 Intellectual Property 50
5.16 Leases 50
5.17 DDAs 50
5.18 Complete Disclosure 50
5.19 Indebtedness 51
5.20 Compliance 51
5.21 Servicing 51
6. AFFIRMATIVE COVENANTS51
6.1 Accounting System 51
6.2 Collateral Reporting 51
6.3 Financial Statements, Reports, Certificates 52
6.4 Relationship with Obligors 55
6.5 Title to Property 55
6.6 Maintenance of Properties 55
6.7 Taxes 55
6.8 Insurance 55
6.9 Location of Books, Inventory and Equipment 56
6.10 Compliance with Laws 56
6.11 Leases 56
6.12 Brokerage Commissions 56
6.13 Existence 57
6.14 Environmental 57
6.15 Disclosure Updates 57
6.16 Collateral Access 57
6.17 Due Diligence 57
6.18 Separate Existence; Conduct of Business 58
6.19 Servicing Agreement 58
7. NEGATIVE COVENANTS 58
7.1 Indebtedness 58
7.2 Liens 59
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7.3 Restrictions on Fundamental Changes 59
7.4 Disposal of Assets 59
7.5 Change Name 59
7.6 Guarantee 59
7.7 Nature of Business 60
7.8 Prepayments and Amendments 60
7.9 Change of Control 60
7.10 Required Procedures 60
7.11 Modification of Portfolio Loan Receivables 60
7.12 Distributions 60
7.13 Accounting Methods 60
7.14 Investments 60
7.15 Transactions with Affiliates 60
7.16 Suspension 61
7.17 Use of Proceeds 61
7.18 Change in Location of Chief Executive Office,
Books and Records or Substantial Collateral;
Inventory and Equipment with Bailees 61
7.19 Securities Accounts 61
7.20 Financial Covenants 61
7.21 Participations 62
7.22 Compromise or Settlement of Portfolio Loan
Receivables 62
7.23 Acquisition of Real Property 62
7.24 Foreclosure (or Deed in Lieu) Regarding Portfolio
`` Collateral 62
7.25 Release of Real Property Collateral 63
7.26 Servicing Agreement 64
8. EVENTS OF DEFAULT 64
9. LENDER'S RIGHTS AND REMEDIES 66
9.1 Rights and Remedies 66
9.2 Special Rights of Lender in respect of
Portfolio Documents 68
9.3 Remedies Cumulative 69
10. TAXES AND EXPENSES 69
11. WAIVERS; INDEMNIFICATION 69
11.1 Demand; Protest 69
11.2 Lender's Non-Liability for Collateral 70
11.3 Indemnification 70
12. NOTICES. 71
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER 72
14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS 72
14.1 Assignments and Participations 72
14.2 Successors 74
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15. AMENDMENTS; WAIVERS 74
15.1 Amendments and Waivers 74
15.2 No Waivers; Cumulative Remedies 74
16. GENERAL PROVISIONS 75
16.1 Effectiveness 75
16.2 Section Headings 75
16.3 Interpretation 75
16.4 Severability of Provisions 75
16.5 Withholding Taxes 75
16.6 Amendments in Writing 76
16.7 Counterparts; Telefacsimile Execution 76
16.8 Revival and Reinstatement of Obligations 76
16.9 Integration 76
EXHIBITS AND SCHEDULES
Exhibit B-1 Form of Borrowing Base Certificate
Exhibit C-1 Form of Compliance Certificate
Schedule P-1 Permitted Liens
Schedule 5.4 Locations of Books, Inventory, Equipment
Schedule 5.6 Chief Executive Office; FEIN
Schedule 5.7(b) Capitalization of Borrower
Schedule 5.9 Litigation
Schedule 5.13 Environmental Matters
Schedule 5.15 Intellectual Property
Schedule 5.16 Leases
Schedule 5.17 Demand Deposit Accounts
Schedule 5.19 Permitted Indebtedness
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered
into as of December 11, 2002, between FOOTHILL CAPITAL CORPORATION, a California
corporation ("Lender") and KWP FINANCIAL IX, INC., a California corporation
("Borrower").
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms shall
have the following definitions:
"Account" means all of Borrower's now owned and hereafter
acquired accounts as defined by the Code, and all supporting obligations in
respect thereof.
"ACH Transactions" means any cash management or related services
(including the Automated Clearing House processing of electronic funds transfers
through the direct Federal Reserve Fedline system) provided by a Bank Product
Provider for the account of Borrower, Parent or its Subsidiaries.
"Acquisition Cost" means, with respect to an Asset as of any
date of determination, Borrower's actual documented purchase price for the
acquisition thereof, including the total consideration paid and actual payments
made by Borrower to a third party (not an Affiliate of Borrower) for legal due
diligence and direct closing costs incurred by Borrower in connection with
acquisition of such Asset, provided, that such costs are acceptable to Lender in
its discretion (confirmation of such acceptance not to be unreasonably withheld
by Lender) (but excluding any other of Borrower's legal costs and expenses, due
diligence expenses brokerage fees, loan discount "points" and other like
expenses), minus (i) in the case of Real Property, the amount, if any, by which
all rents and revenue thereon received by Borrower through such date exceeds
actual operating costs paid by Borrower through such date with respect to such
Real Property and (ii) in the case of a Portfolio Loan Receivable, the amount of
Portfolio Payment Collections received in respect of such Portfolio Loan
Receivable as of the time of such acquisition, in each case as demonstrated to
the reasonable satisfaction of Lender; provided, that the amount includable in
the Acquisition Cost of a Portfolio Loan Receivable shall not exceed the face
principal amount of such Portfolio Loan Receivable unless otherwise agreed by
Lender in its sole and absolute discretion.
"Additional Documents" has the meaning set forth in Section 4.4.
"Advances" has the meaning set forth in Section 2.1 and includes
Advances that have converted to Term Loans pursuant to Section 2.2(a).
"Affiliate" means, as applied to any Person, any other Person
who controls, is controlled by, or is under common control with, such Person.
For purposes of this definition, "control" means the possession, directly or
indirectly, of the power to direct the management and
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policies of a Person, whether through the ownership of Capital Stock, by
contract, or otherwise; provided, however, that, in any event: (a) any Person
which owns directly or indirectly 10% or more of the securities having ordinary
voting power for the election of directors or other members of the governing
body of a Person or 10% or more of the partnership or other ownership interests
of a Person (other than as a limited partner of such Person) shall be deemed to
control such Person, (b) each director (or comparable manager) of a Person shall
be deemed to be an Affiliate of such Person, and (c) each partnership or joint
venture in which a Person is a partner or joint venturer shall be deemed to be
an Affiliate of such Person.
"Agreement" means this Loan and Security Agreement, as may be
renewed, extended, modified, amended, supplemented or restated from time to
time.
"Allocated Advance Balance" means an amount, determined with
respect to an Asset that is the subject of a Purchase Advance, equal to the
amount of the Borrowing Base for such Asset as calculated on the date of such
Purchase Advance, as such amount is reduced from time to time pursuant to
Section 2.4(b)(i)(H)(1).
"Amortization Schedule" means, with respect to a Term Loan
associated with Future Assets, an amortization schedule determined by Lender in
its sole discretion and effective upon notice by Lender to Borrower pursuant to
Section 2.2(e), establishing the maximum allowed aggregate amount allowed to be
outstanding with respect to such Term Loan as of any date as specified in such
schedule.
"Applicable Laws" means all applicable laws, rules, regulations
and orders of any Governmental Authority, including without limitation Credit
Protection Laws, the Fair Labor Standards Act and the Americans With
Disabilities Act.
"Applicable Prepayment Premium" means, as of any date of
determination, an amount equal to 1.0% times the Maximum Credit Amount times the
number of days remaining until the Maturity Date, determined as of such date,
divided by 360.
"Asset" means a Portfolio Loan Receivable, Equipment or REO
Property.
"Assignee" has the meaning set forth in Section 14.1(a).
"Authorized Person" means any officer or other employee of
Borrower.
"Bank Product Agreements" means those certain agreements entered
into from time to time by Borrower, Parent or its Subsidiaries in connection
with any of the Bank Products.
"Bank Product Obligations" means all obligations, liabilities,
contingent reimbursement obligations, fees, and expenses owing by Borrower,
Parent or its Subsidiaries to any Bank Product Provider pursuant to or evidenced
by any Bank Product Agreements and irrespective of whether for the payment of
money, whether direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising pursuant to the Bank Product Agreements.
"Bank Product Provider" means ▇▇▇▇▇ Fargo or any of its
Affiliates.
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"Bank Products" means any service or facility extended to
Borrower, Parent or its Subsidiaries by any Bank Product Provider including: (a)
credit cards, (b) credit card processing services, (c) debit cards, (d) purchase
cards, (e) ACH Transactions, (f) cash management, including controlled
disbursement, accounts or services, or (g) Hedging Agreements.
"Bank Product Reserves" means, as of any date of determination,
the amount of reserves that Lender has established (based upon the relevant Bank
Product Providers' reasonable determination of the credit exposure in respect of
then extant Bank Products) for Bank Products then provided or outstanding.
"Bankruptcy Code" means the United States Bankruptcy Code, as in
effect from time to time.
"Base Rate" means the rate of interest announced within ▇▇▇▇▇
Fargo at its principal office in San Francisco as its "prime rate", with the
understanding that the "prime rate" is one of ▇▇▇▇▇ Fargo's base rates (not
necessarily the lowest of such rates) and serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto and is evidenced by the recording thereof after its announcement in such
internal publication or publications as ▇▇▇▇▇ Fargo may designate.
"Base Rate Margin" means two percent (2.00%).
"Benefit Plan" means a "defined benefit plan" (as defined in
Section 3(35) of ERISA) for which Borrower or any Subsidiary or ERISA Affiliate
of Borrower has been an "employer" (as defined in Section 3(5) of ERISA) within
the past six years.
"Board of Directors" means, with respect to Borrower or Parent,
as the case may be, the board of directors or any committee thereof duly
authorized to act on its behalf.
"Books" means Borrower's now owned or hereafter acquired books
and records, including all Portfolio Books, all Records in respect of its assets
and liabilities, all of Records relating to its business operations or financial
condition, and all of goods or General Intangibles related to such information.
"Borrower" has the meaning set forth in the preamble to this
Agreement.
"Borrower's Transaction Costs" means the sum of (a) Lender
Expenses incurred by Lender through the Closing Date plus (b) the closing fee
payable by Borrower pursuant to Section 2.11(a).
"Borrowing" means a borrowing hereunder of an Advance.
"Borrowing Base" means, as of any date of determination, in each
case with respect to an Eligible Asset:
(a) for an Existing Asset:
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(i) for a Performing Commercial Portfolio Loan
Receivable secured by Real Property, up to 75.0% of ERV
determined for such Asset;
(ii) for a Sub-Performing Commercial Portfolio Loan
Receivable secured by Real Property, up to 75.0% of ERV
determined for such Asset;
(iii) for a Non-Performing Commercial Portfolio Loan
Receivable secured by Real Property, up to 60.0% of ERV
determined for such Asset;
(iv) for REO Property, up to 60.0% of ERV determined for
such Asset; and
(v) for a Portfolio Loan Receivable not secured by Real
Property, up to 65.0% of ERV determined for such Asset;
provided, that the amount includable under this clause (a) in
the aggregate amount of the Borrowing Base determined for all
Eligible Assets that are Existing Assets shall not exceed the
sum of the Refinance Requirement plus Borrower's Transaction
Costs; plus
(b) for a Future Asset:
(i) for a Performing Commercial Loan Receivable secured
by Real Property, the lesser of (i) 80.0% of Acquisition Cost or
(ii) 75.0% of ERV, in each case determined for such
Asset;
(ii) for a Sub-Performing Commercial Loan Receivable
secured by Real Property, the lesser of (i) 80.0% of Acquisition
Cost or (ii) 75.0% of ERV, in each case determined for such
Asset;
(iii) for a Non-Performing Commercial Loan Receivable
secured by Real Property, the lesser of (i) 65.0% of Acquisition
Cost or (ii) 60.0% of ERV, in each case determined for such
Asset;
(iv) for REO Property, the lesser of (i) 65.0% of
Acquisition Cost or (ii) 60.0% of ERV, in each case determined
for such Asset; and
(v) for a Portfolio Loan Receivable not secured by Real
Property, the lesser of (i) 75.0% of Acquisition Cost or (ii)
65.0% of ERV, in each case determined for such Asset; minus
(c) the sum of (i) the Bank Product Reserves and (ii) the
aggregate amount of reserves, if any, established by Lender under
Section 2.1(b);
provided, that (a) the Borrowing Base in respect of any Eligible Asset shall not
exceed, on any date, an amount equal to 20.0% of the aggregate amount of the
Borrowing Base determined for all Eligible Assets as of such date and (b) the
amount includable in the aggregate Borrowing Base for all Eligible Assets
pursuant to clauses (a)(v) and (b)(v) preceding, as of any date, shall
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not exceed 20% of the aggregate amount of such aggregate Borrowing Base
determined as of such date.
"Borrowing Base Certificate" means a certificate in the form of
Exhibit B-1.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which national banks are authorized or required to close.
"Capital Lease" means a lease that is required to be capitalized
for financial reporting purposes in accordance with GAAP.
"Capital Stock" means (a) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, and (b) with
respect to any Person that is not a corporation, any and all partnership or
other equity interests of such Person.
"Capitalized Lease Obligation" means any Indebtedness
represented by obligations under a Capital Lease.
"Cash Equivalents" means (a) marketable direct obligations
issued or unconditionally guaranteed by the United States or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within 1 year from the date of acquisition thereof, (b)
marketable direct obligations issued by any state of the United States or any
political subdivision of any such state or any public instrumentality thereof
maturing within 1 year from the date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from either S&P or ▇▇▇▇▇'▇,
(c) commercial paper maturing no more than 1 year from the date of acquisition
thereof and, at the time of acquisition, having a rating of A-1 or P-1, or
better, from S&P or ▇▇▇▇▇'▇, and (d) certificates of deposit or bankers'
acceptances maturing within 1 year from the date of acquisition thereof either
(i) issued by any bank organized under the laws of the United States or any
state thereof which bank has a rating of A or A2, or better, from S&P or
▇▇▇▇▇'▇, or (ii) certificates of deposit less than or equal to $100,000 in the
aggregate issued by any other bank insured by the Federal Deposit Insurance
Corporation.
"Change of Control" means (a) any "person" or "group" (within
the meaning of Sections 13(d) and 14(d) of the Exchange Act), other than any
Permitted Holder (individually or collectively), becomes the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
30%, or more, of the Capital Stock of Parent or Borrower having the right to
vote for the election of members of the Board of Directors of Parent or
Borrower, (b) Borrower ceases to be a wholly owned Subsidiary of Parent or (c)
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ is not a member of the Board of Directors of Parent or
Borrower.
"Closing Certificate" means the Closing Certificate executed and
delivered by Borrower to Lender dated as of the Closing Date.
"Closing Date" means the date as of which this Agreement is
dated as specified in the preamble to this Agreement.
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"Closing Date Business Plan" means the set of Projections of
Borrower for the three (3) year period following the Closing Date (on a year by
year basis), in form and substance (including as to scope and underlying
assumptions) satisfactory to Lender.
"Code" means the Uniform Commercial Code (or any successor
statute), as in effect from time to time, of the State of California or of any
other state the laws of which are required as a result thereof to be applied in
connection with the issue of perfection or the effect of perfection of security
interests; provided that to the extent that the Code is used to define any term
herein or in any other Loan Documents and such term is defined differently in
different Articles or Divisions of the Code, the definition of such term
contained in Article or Division 9 shall govern.
"Collateral" means all of Borrower's now owned or hereafter
acquired right, title, and interest in and to each of the following:
(a) Portfolio Loan Receivables,
(b) Portfolio Notes and other Negotiable Collateral,
(c) Portfolio Documents,
(d) Portfolio Collateral,
(e) Portfolio Books,
(f) Accounts,
(g) Collections,
(h) Collection Account,
(i) Books,
(j) Equipment,
(k) General Intangibles,
(l) Inventory,
(m) Investment Property,
(n) Real Property,
(o) supporting obligations in respect of any of the foregoing,
(p) all rights, claims, actions and causes of action under
Portfolio Documents, now existing or hereafter accruing in favor of the
holder thereof, including rights of acceleration, rights to exercise
remedies, rights in respect of representations, warranties,
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covenants and indemnities and rights under guaranties or other
instruments or agreements evidencing or assuring payment or performance
thereunder,
(q) Portfolio Acquisition Documents, and all rights (including
without limitation, Borrower's rights of enforcement) thereunder,
(r) the Servicing Agreement, and all rights (including without
limitation, Borrower's rights of enforcement) thereunder,
(s) all policies of insurance (including without limitation,
casualty and hazard insurance and policies of owner's or mortgagee's
title insurance), or rights as loss payee or endorsee thereof, and
escrow agreements, all tax, insurance, security or other deposits,
including rights in respect of letters of credit evidencing or securing
any such deposit, and rights acquired by reason of condemnation or
exercise of the power of eminent domain with respect to any Portfolio
Collateral or Real Property,
(t) money or other assets of Borrower that now or hereafter come
into the possession, custody, or control of Lender or any agent or
bailee thereof, and the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance
covering any or all of the foregoing, and any and all Accounts, Books,
Equipment, General Intangibles, Inventory, Investment Property,
Negotiable Collateral, Real Property, money, deposit accounts, or other
tangible or intangible property resulting from the sale, exchange,
collection, or other disposition of any of the foregoing, or any portion
thereof or interest therein, and the proceeds thereof, and
(u) all deposit accounts, including without limitation, the
Designated Account and DDA's.
"Collateral Access Agreement" means a landlord waiver, bailee
letter or acknowledgement agreement of any lessor, lessee, warehouseman,
processor, consignee or other Person in possession of, having a Lien upon, or
having rights or interests in any Personal Property Collateral (including,
without limitation, Books), in each case, in form and substance satisfactory to
Lender.
"Collateral Agency Agreement" has the meaning set forth in
Section 4.2.
"Collateral Agent" has the meaning set forth in Section 4.2.
"Collateral Assignment of Portfolio Acquisition Documents" means
a collateral assignment between Borrower and Lender, in form and substance
satisfactory to the Lender, pursuant to which Borrower collaterally assigns and
grants a security interest to the Lender in all of Borrower's right, title and
interest in, to and under all Portfolio Acquisition Documents in respect of a
Portfolio Pool, as may be modified, amended, supplemented or restated.
"Collateral Assignment of Portfolio Collateral Documents" means
a collateral assignment between Borrower and Lender, in form satisfactory to
Lender, pursuant to which Borrower collaterally assigns and grants a security
interest to the Lender in all of Borrower's right, title and interest in, to and
under any Portfolio Collateral Documents.
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"Collateral Assignment of Servicing Agreement" means a
collateral assignment of all of Borrower's right, title, interest and rights of
enforcement under the Servicing Agreement, in form and substance satisfactory to
Lender.
"Collection Account" means account No. 4945035699 of Lender
maintained with Collection Account Bank.
"Collection Account Agreement" means that certain agreement by
and among Lender and Collection Account Bank with respect to the Collection
Account, in form and substance reasonably satisfactory to Lender, as may be
modified, amended, supplemented or restated.
"Collection Account Bank" means ▇▇▇▇▇ Fargo, ABA No. ▇▇▇▇▇▇▇▇▇,
or such other commercial bank acceptable to Lender in its discretion.
"Collections" means all of Borrower's now owned and hereafter
acquired cash, checks, notes, instruments and other items of payment, and
includes, without limitation, proceeds of cash sales, tax refunds, and payments
and prepayments of principal, interest, fees, penalties, rentals, payments under
policies of title, hazard or other insurance, payments under supporting
obligations and other payments paid or payable with respect to or in connection
with Portfolio Loan Receivables, Portfolio Collateral, Equipment, Real Property
or any other Collateral.
"Commercial Portfolio Loan Receivable" means a Portfolio Loan
Receivable with respect to which (i) the Obligor is not a natural person or (ii)
the proceeds of which were not used primarily for personal, family or household
purposes.
"Compliance Certificate" means a certificate substantially in
the form of Exhibit C-1 delivered by the chief financial officer of Borrower to
Lender.
"Continuing Director" means, with respect to the Board of
Directors of Parent or Borrower, as the case may be, (a) any member thereof who
was a director (or comparable manager) thereof on the Closing Date, and (b) any
individual who becomes a member thereof after the Closing Date if such
individual was appointed or nominated for election to such Board of Directors by
a majority of the Continuing Directors, but excluding any such individual
originally proposed for election in opposition to the Board of Directors in
office at the Closing Date in an actual or threatened election contest relating
to the election of the directors (or comparable managers) thereof (as such terms
are used in Rule 14a-11 under the Exchange Act) and whose initial assumption of
office resulted from such contest or the settlement thereof.
"Control Agreement" means a control agreement, in form and
substance satisfactory to Lender, executed and delivered by Borrower, Lender and
the applicable securities intermediary with respect to a Securities Account or
bank with respect to a deposit account.
"Credit Protection Laws" means all federal, state and local laws
in respect of the business of extending credit to borrowers, including without
limitation, the Truth in Lending Act (and Regulation Z promulgated thereunder),
Equal Credit Opportunity Act, Fair Credit Reporting
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Act, Fair Debt Collection Practices Act, ▇▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Financial Privacy
Act, Real Estate Settlement Procedures Act, Home Mortgage Disclosure Act, Fair
Housing Act, anti-discrimination and fair lending laws, laws relating to
servicing procedures or maximum charges and rates of interest, and other similar
laws, each to the extent applicable, and all applicable regulations in respect
of any of the foregoing.
"Daily Balance" means, with respect to each day during the term
of this Agreement, the amount of an Obligation owed at the end of such day.
"DDA" means any checking or other demand deposit account
maintained by Borrower.
"Default" means an event, condition, or default that, with the
giving of notice, the passage of time, or both, would be an Event of Default.
"Designated Account" means account No. 4170039804 of Borrower
maintained with Borrower's Designated Account Bank, or such other deposit
account of Borrower (located at a commercial depositary bank within the United
States acceptable to Lender) that has been designated as such, in writing, by
Borrower to Lender.
"Designated Account Bank" means ▇▇▇▇▇ Fargo, ABA No. ▇▇▇▇▇▇▇▇▇.
"Disbursement Letter" means an instructional letter executed and
delivered by Borrower to Lender regarding the initial extension of credit to be
made on or after the Closing Date, the form and substance of which is
satisfactory to Lender.
"Dollars" or "$" means United States dollars.
"EBITDA" means, with respect to a Person for any fiscal period,
consolidated net earnings (or loss), minus extraordinary gains plus interest
expense, income taxes, and depreciation and amortization for such period, as
determined in accordance with GAAP, in each case determined for such Person.
"Eligible Asset" means an Asset which Lender in the exercise of
its sole and absolute discretion determines to be an Eligible Asset. Without
limiting the discretion of Lender to establish other criteria of ineligibility,
an Eligible Asset shall not include the following, unless Lender in its sole and
absolute discretion elects otherwise:
(a) any Portfolio Loan Receivable that is not secured by a
valid, enforceable and properly recorded first priority Lien on Real
Property or Personal Property Collateral acceptable to Lender, pursuant
to Portfolio Collateral Documents in form and substance satisfactory to
Lender;
(b) any Portfolio Loan Receivable that does not conform to the
Required Procedures;
(c) any Portfolio Loan Receivable with respect to which such
Portfolio Loan Receivable or any related Portfolio Document does not
comply with Applicable Laws;
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DALLAS2 939606V9 53877-00012
(d) any Portfolio Loan Receivable with respect to which Lender
shall not have received a complete copy of the related Portfolio
Acquisition Documents, the form and substance of which is satisfactory
to Lender in its discretion;
(e) any Portfolio Loan Receivable secured by Real Property which
respect to which Borrower does not have a valid and enforceable, first
priority Lien in such Real Property, or with respect to which such Real
Property is subject to any encumbrances or restrictions which are not
acceptable to Lender in its sole discretion;
(f) any Portfolio Loan Receivable secured by Real Property
pursuant to a Portfolio Mortgage with respect to which the Borrower is
not the beneficiary of mortgagee's title insurance, environmental
reports or engineering reports as required by the Required Procedures,
in form and substance satisfactory to Lender;
(g) any Portfolio Loan Receivable that Borrower or Servicer has
deemed non-collectible;
(h) any Portfolio Loan Receivable that is not 100% owned by
Borrower or otherwise with respect to which any other Person owns or
claims any legal or beneficial interest;
(i) any Portfolio Loan Receivable with respect to which, at any
time after the earlier of the date that is 20 days after the date of the
Purchase Advance with respect thereto or the date when the Portfolio
Note evidencing same is available to Borrower, the Portfolio Note
evidencing same is not in the possession of Lender, or a Collateral
Agent, subject to a valid, first and exclusive security interest and
lien in favor of Lender;
(j) any Portfolio Loan Receivable owing by any Affiliate of
Borrower;
(k) any Portfolio Loan Receivable which is subject to any
offset, counterclaim or defense;
(l) any Portfolio Loan Receivable with respect to which the
Obligor thereon is in bankruptcy, has dissolved or has merged with
another entity, provided, that a Portfolio Loan Receivable with respect
to which the Obligor thereon is in bankruptcy will not be deemed
ineligible solely due to the provisions of this clause (k) if (i) the
Obligor thereon has properly and correctly scheduled such Portfolio Loan
Receivable in its schedules filed in such bankruptcy proceedings, in an
amount equal to the full amount thereof (including principal, accrued
interest, costs, fees and expenses) as reflected in the Books, and such
schedules do not reflect such amount as being contingent, disputed or
unliquidated, (ii) no Person has filed or given notice of an objection
with respect to such Portfolio Loan Receivable, the amount so scheduled
or Borrower's Lien in the Portfolio Collateral securing same and (iii)
Borrower's claim based upon such Portfolio Loan Receivable has not
otherwise been disallowed;
(m) any Portfolio Loan Receivable with respect to which Borrower
or Servicer has received notice of any claim or pending or threatened
litigation regarding the validity or enforceability thereof or the
validity, enforceability or priority of any Portfolio
LOAN AND SECURITY AGREEMENT - Page 10
DALLAS2 939606V9 53877-00012
Mortgage or other Lien on any Portfolio Collateral securing such
Portfolio Loan Receivable;
(n) any Portfolio Loan Receivable with respect to which, at any
time after the earlier of the date that is 20 days after the date of the
Purchase Advance with respect thereto or the date when any such item is
available to Borrower, any Negotiable Collateral included in the
Portfolio Collateral securing same has not been delivered to Lender;
(o) any Portfolio Loan Receivable secured by Real Property with
respect to which Lender shall not have received (A) a complete copy of
the related Portfolio Mortgage, (B) a complete copy of a mortgagee's
policy of title insurance, issued by an insurer, and in form and
substance, acceptable to Lender in its discretion, evidencing that
Borrower is beneficiary under mortgagee's title insurance insuring
Borrower's Lien therein in an amount satisfactory to Lender and assuring
that such Lien is a valid and enforceable, first priority Lien subject
only to encumbrances as are acceptable to Lender, endorsed in favor of
Lender in form and substance satisfactory to Lender, (C) public
certificates from the jurisdiction in which such Real Property is
located showing that each of Borrower and the Obligor is qualified to do
business and in good standing in such jurisdiction unless such
qualification is not required for enforcement of such Mortgage in such
jurisdiction; (D) environmental assessment reports acceptable to Lender,
together with Borrower's internal environmental assessment thereof as
summarized on Borrower's standard due diligence form, and (E) current
appraisals in form and substance satisfactory to Lender respecting such
Real Property;
(p) any Portfolio Loan Receivable secured by Real Property with
respect to which Lender has not received, within 10 days after the
acquisition of such Asset if the Acquisition Cost thereof equals or
exceeds $1,500,000 or within 20 days after the acquisition of such Asset
if the Acquisition Cost thereof is less than $1,500,000, evidence of
current property and casualty insurance covering such Real Property in
an amount not less than the Acquisition Cost thereof; provided, that
such evidence of insurance may be provided to Lender within 45 days
after Borrower's acquisition of such Asset if, on each day during such
45 day period, Borrower has a blanket policy of insurance, acceptable to
Lender and in an amount not less than $5,000,000 (or such higher or
lower amount as may be required by Lender in its discretion) which
covers any loss incurred with respect to such Real Property;
(q) any Real Property which is subject to any encumbrances or
restrictions which are not acceptable to Lender;
(r) any Real Property with respect to which Lender has not
received (A) a Mortgage, (B) a mortgagee's policy of title insurance, or
a commitment of issuance thereof, issued by an insurer, and in form and
substance, acceptable to Lender in its discretion, insuring Lender's
Lien therein in an amount satisfactory to Lender and assuring Lender
that such Lender's Lien is a valid and enforceable, first priority Lien
subject only to Permitted Liens, (C) public certificates from the
jurisdiction in which such Real Property is located showing that
Borrower is qualified to do business and in good
LOAN AND SECURITY AGREEMENT - Page 11
DALLAS2 939606V9 53877-00012
standing in such jurisdiction unless such qualification is not required
for enforcement of such Mortgage in such jurisdiction; (D) environmental
assessment reports acceptable to Lender, together with Borrower's
internal environmental assessment thereof as summarized on Borrower's
standard due diligence form, and (E) current appraisals in form and
substance satisfactory to Lender respecting such Real Property;
(s) any Asset the Acquisition Cost of which exceeds $5,000,000;
(t) any Asset with respect to which Lender has not received a
duly executed and acknowledged power of attorney in form and substance
satisfactory to Lender, modified as appropriate to conform with local
law such as to be acceptable to Lender and its counsel;
(u) any Equipment that is obsolete or not in good condition; or
(v) any Asset which Lender determines in its Permitted
Discretion is ineligible for any other reason.
Without limiting the foregoing, Lender retains the right at any time and from
time to time to modify any standards of eligibility set forth in this definition
of "Eligible Portfolio Loan Receivable" and to establish reserves against
valuation hereunder.
"Eligible Portfolio Pool" means a Proposed Portfolio Pool which
is deemed acceptable by Lender in its sole and absolute discretion.
"Eligible Purchase Agreement" means a Purchase Agreement between
Borrower and an Eligible Seller that is in form and substance satisfactory to
Lender in its sole and absolute discretion.
"Eligible Seller" means a Seller that is acceptable to Lender in
its sole and absolute discretion.
"Environmental Actions" means any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgment, letter, or other communication from any
Governmental Authority, or any third party involving violations of Environmental
Laws or releases of Hazardous Materials from (a) any assets, properties, or
businesses of Borrower or any predecessor in interest, (b) from adjoining
properties or businesses, or (c) from or onto any facilities which received
Hazardous Materials generated by Borrower or any predecessor in interest.
"Environmental Law" means any applicable federal, state,
provincial, foreign or local statute, law, rule, regulation, ordinance, code,
binding and enforceable guideline, binding and enforceable written policy, or
rule of common law now or hereafter in effect and in each case as amended, or
any judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, to the extent binding on
Borrower, relating to the environment, employee health and safety, or Hazardous
Materials, including CERCLA; RCRA; the Federal Water Pollution Control Act, 33
USC Section 1251 et seq; the Toxic Substances
LOAN AND SECURITY AGREEMENT - Page 12
DALLAS2 939606V9 53877-00012
Control Act, 15 USC, Section 2601 et seq; the Clean Air Act, 42 USC Section 7401
et seq.; the Safe Drinking Water Act, 42 USC. Section 3803 et seq.; the Oil
Pollution Act of 1990, 33 USC. Section 2701 et seq.; the Emergency Planning and
the Community Right-to-Know Act of 1986, 42 USC. Section 11001 et seq.; the
Hazardous Material Transportation Act, 49 USC Section 1801 et seq.; and the
Occupational Safety and Health Act, 29 USC. Section 651 et seq. (to the extent
it regulates occupational exposure to Hazardous Materials); any state and local
or foreign counterparts or equivalents, in each case as amended from time to
time.
"Environmental Liabilities and Costs" means all liabilities,
monetary obligations, Remedial Actions, losses, damages, punitive damages,
consequential damages, treble damages, costs and expenses (including all
reasonable fees, disbursements and expenses of counsel, experts, or consultants,
and costs of investigation and feasibility studies), fines, penalties,
sanctions, and interest incurred as a result of any claim or demand by any
Governmental Authority or any third party, and which relate to any Environmental
Action.
"Environmental Lien" means any Lien in favor of any Governmental
Authority for Environmental Liabilities and Costs.
"Equipment" means all of Borrower's now owned or hereafter
acquired right, title, and interest with respect to equipment as defined by the
Code, including without limitation, equipment, machinery, machine tools, motors,
furniture, furnishings, fixtures, vehicles (including motor vehicles), tools,
parts, goods (other than consumer goods, farm products, or Inventory), wherever
located, including all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute thereto.
"ERISA Affiliate" means (a) any Person subject to ERISA whose
employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any Person subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
"ERV" means, with respect to an Asset as of any date of
determination, the amount of Collections that Lender estimates will be received
from and after such date on, and from the sale of, such Asset, as determined by
Lender in its sole and absolute discretion, provided, that (a) in no event shall
ERV of a Portfolio Loan Receivable exceed the aggregate unpaid principal,
accrued interest and fees payable by the Obligor thereon and (b) to the extent
any ERV is calculated based upon Collections projected to be received more than
twenty-four (24) months following such date of determination, the amount of such
Collections shall be discounted to the date of such determination utilizing a
discount rate equal to 10.5%.
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DALLAS2 939606V9 53877-00012
"ERV Projection" means, with respect to an Asset, a detailed
projection, as of the last day of a calendar month, reflecting Borrower's
projection of ERV for such Asset as of such date.
"Event of Default" has the meaning set forth in Section 8.
"Exchange Act" means the Securities Exchange Act of 1934, as in
effect from time to time.
"Existing Asset" means an Asset that was owned by Borrower on
November 30, 2002 and continues to be owned by Borrower on the Closing Date.
"FEIN" means Federal Employer Identification Number.
"Funding Date" means the date on which a Borrowing occurs.
"Future Asset" means an Asset acquired by Borrower after
November 30, 2002.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
"General Intangibles" means all general intangibles as defined
by the Code and includes, without limitation, all of Borrower's now owned or
hereafter acquired right, title, and interest with respect to general
intangibles (including payment intangibles, contract rights, rights to payment,
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, software, literature, reports,
catalogs, money, deposit accounts, insurance premium rebates, tax refunds, and
tax refund claims), and any and all supporting obligations in respect thereof,
and any other personal property other than goods, Accounts, Investment Property
and Negotiable Collateral.
"Governing Documents" means, with respect to any Person, the
certificate or articles of incorporation, by-laws, and other organizational
documents of such Person.
"Governmental Authority" means any federal, state, local, or
other governmental or administrative body, instrumentality, department, or
agency or any court, tribunal, administrative hearing body, arbitration panel,
commission, or other similar dispute-resolving panel or body.
"Guarantor" means Parent and any other Person that executes and
delivers a Guaranty.
"Guaranty" means a guaranty agreement, in form and substance
satisfactory to Lender, executed and delivered by Guarantor in favor of Lender,
pursuant to which a Guarantor shall guarantee the prompt payment and performance
of the Obligations; provided, that Parent's liability under its Guaranty for
payment of the unpaid principal amount of the Obligations shall
LOAN AND SECURITY AGREEMENT - Page 14
DALLAS2 939606V9 53877-00012
be limited to $10,000,000 plus unpaid accrued interest thereon and Lender
Expenses, as more particularly provided therein.
"Hazardous Materials" means (a) substances that are defined or
listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Hazardous Substances Indemnity Agreement" means that certain
Hazardous Substances Indemnity Agreement, dated as of even date herewith,
between Borrower and Lender.
"Hedging Agreement" means any and all transactions, agreements,
or documents now existing or hereafter entered into between Borrower, Parent or
its Subsidiaries and a Bank Product Provider, which provide for an interest
rate, credit, commodity or equity swap, cap, floor, collar, forward foreign
exchange transaction, currency swap, cross currency rate swap, currency option,
or any combination of, or option with respect to, these or similar transactions,
for the purpose of hedging Borrower's, Parent's or its Subsidiaries' exposure to
fluctuations in interest or exchange rates, loan, credit exchange, security or
currency valuations or commodity prices.
"Indebtedness" means, with respect to any Person, (a) all
obligations for borrowed money of such Person, (b) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments and
all reimbursement or other obligations in respect of letters of credit, bankers
acceptances, interest rate swaps, or other financial products, (c) all
obligations or liabilities of others secured by a Lien on any asset of such
Person, irrespective of whether such obligation or liability is assumed, (d) all
obligations of such Person for the deferred purchase price of assets (other than
trade debt incurred in the ordinary course of business and repayable in
accordance with customary trade practices), (e) any obligation of such Person
guaranteeing or intended to guarantee (whether directly or indirectly
guaranteed, endorsed, co-made, discounted, or sold with recourse) any obligation
of any other Person, (f) asset securitizations and synthetic leases, (g)
Capitalized Lease Obligations, and (h) all net indebtedness, liabilities and
obligations under Hedging Agreements.
"Indemnified Liabilities" has the meaning set forth in Section
11.3.
"Indemnified Person" has the meaning set forth in Section 11.3.
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DALLAS2 939606V9 53877-00012
"Initial Purchase Advance" means the initial Purchase Advance
made by Lender under this Agreement, to be used in part by Borrower to finance
payment of the Refinance Requirement.
"Insolvency Proceeding" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any other
state or federal bankruptcy or insolvency law, assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
creditors, or proceedings seeking reorganization, arrangement, or other similar
relief.
"Intangible Assets" means, with respect to any Person, that
portion of the book value of all of such Person's assets that would be treated
as intangibles under GAAP.
"Interest Coverage Ratio" means, with respect to a Person for
any period, the ratio of (i) EBITDA for such period to (ii) Net Interest Expense
to the extent paid or required to be paid in cash, for such period, in each case
determined for such Person.
"Inventory" means all inventory as defined by the Code,
including without limitation all of Borrower's now owned or hereafter acquired
right, title, and interest with respect to inventory, including goods held for
sale or lease or to be furnished under a contract of service, goods that are
leased by Borrower as lessor, goods that are furnished by Borrower under a
contract of service, and raw materials, work in process, or materials used or
consumed in Borrower's business.
"Investment" means, with respect to any Person, any investment,
loan, guarantee, advance or capital contribution by such Person in, to or with
respect to any other Person or its Affiliates (excluding (a) commission, travel,
and similar advances to officers and employees of such Person made in the
ordinary course of business and (b) purchases or other acquisitions for
consideration of Indebtedness or Stock, and any other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Investment Property" means all of Borrower's now owned or
hereafter acquired right, title, and interest with respect to "investment
property" as that term is defined in the Code, and any and all supporting
obligations in respect thereof.
"IRC" means the Internal Revenue Code of 1986, as in effect from
time to time.
"K-W Properties" means K-W Properties, a California corporation
and wholly owned Subsidiary of Parent, and owner of 100% of the Capital Stock of
Borrower.
"Lender" has the meaning set forth in the preamble to this
Agreement.
"Lender Expenses" means all (a) costs or expenses (including
taxes, and insurance premiums) required to be paid by Borrower under any of the
Loan Documents that are paid or incurred by Lender, (b) fees or charges paid or
incurred by Lender in connection with Lender's transactions with Borrower,
including, fees or charges for photocopying, notarization, couriers and
messengers, telecommunication, public record searches (including tax lien,
litigation, and lien searches and including searches with the patent and
trademark office, the
LOAN AND SECURITY AGREEMENT - Page 16
DALLAS2 939606V9 53877-00012
copyright office, or the department of motor vehicles), filing, recording,
publication, appraisal (including periodic Collateral appraisals or business
valuations to the extent of the fees and charges contained in this Agreement),
Real Property surveys, Real Property title policies and endorsements, and
environmental audits, (c) costs and expenses incurred by Lender in the
disbursement of funds to Borrower (by wire transfer or otherwise), (d) charges
paid or incurred by Lender resulting from the dishonor of checks, (e) reasonable
costs and expenses paid or incurred by Lender to correct any default or enforce
any provision of the Loan Documents, or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, preparing for sale, or
advertising to sell the Collateral, or any portion thereof, irrespective of
whether a sale is consummated, or of traveling to Borrower's offices to inspect
or otherwise monitor Borrower's operations, (f) audit fees and expenses of
Lender related to audit examinations of the Books to the extent of the fees and
charges contained in this Agreement, (g) reasonable costs and expenses of third
party claims or any other suit paid or incurred by Lender in enforcing or
defending the Loan Documents or in connection with the transactions contemplated
by the Loan Documents or Lender's relationship with Borrower or any guarantor of
the Obligations, (h) Lender's reasonable fees and expenses (including attorneys
fees) incurred in advising, structuring, drafting, reviewing, administering, or
amending the Loan Documents, and (i) Lender's reasonable fees and expenses
(including attorneys fees) incurred in terminating, enforcing (including
attorneys fees and expenses incurred in connection with a "workout," a
"restructuring," or an Insolvency Proceeding concerning Borrower or in
exercising rights or remedies under the Loan Documents), or defending the Loan
Documents, irrespective of whether suit is brought, or in taking any Remedial
Action concerning the Collateral, and (j) any fees or expenses reasonably
incurred by Lender in connection with the Servicing Agreement, or any other
agreement that Lender, Borrower or Servicer enters into with any replacement
servicer.
"Lender-Related Person" means Lender, Lender's Affiliates, and
the officers, directors, employees, and agents of Lender.
"Lender's Account" means an account at a bank designated by
Lender from time to time as the account into which Borrower shall make all
payments to Lender under this Agreement and the other Loan Documents; unless and
until Lender notifies Borrower to the contrary, Lender's Account shall be that
certain deposit account bearing account No. 323-266193 and maintained by Lender
with The Chase Manhattan Bank, 4 New York Plaza, 15th Floor, New York, New York
10004, ABA No. ▇▇▇▇▇▇▇▇▇.
"Lender's Liens" means the Liens granted by Borrower to Lender
and any Bank Product Provider under this Agreement or the other Loan Documents.
"Lien" means any interest in an asset securing an obligation
owed to, or a claim by, any Person other than the owner of the asset, whether
such interest shall be based on the common law, statute, or contract, whether
such interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, conditional
sale or trust receipt, or from a lease, consignment, or bailment for security
purposes and also including reservations, exceptions, encroachments,
LOAN AND SECURITY AGREEMENT - Page 17
DALLAS2 939606V9 53877-00012
easements, rights-of-way, covenants, conditions, restrictions, leases, and other
title exceptions and encumbrances affecting Real Property.
"Loan Account" has the meaning set forth in Section 2.10(a).
"Loan Sub-Account" has the meaning set forth in Section 2.10(b).
"Loan Documents" means this Agreement, the Bank Product
Agreements, the Collection Account Agreement, the Collateral Agency Agreement
(if any), the Control Agreements (if any), the Disbursement Letter, each
Guaranty, the Servicing Agreement and any replacement servicing agreement
entered into after the date hereof, the Collateral Assignment of Servicing
Agreement, the Collateral Assignment of Portfolio Acquisition Documents,
Subordination Agreements, if any, respecting Indebtedness of Borrower, each
Validity Guaranty, each of the Parent Pledge Agreements, the Hazardous
Substances Indemnity Agreement, any note or notes executed by Borrower in
connection with this Agreement and payable to Lender, and any other agreement
entered into, now or in the future, by Borrower or and Lender, or any Guarantor,
in connection with this Agreement.
"Material Adverse Change" means (a) a material adverse change in
the business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) of Borrower or Parent, (b) a material
impairment of Borrower's or Parent's ability to perform its obligations under
the Loan Documents to which it is a party or of Lender's ability to enforce the
Obligations or realize upon the Collateral, or (c) a material impairment of the
enforceability or priority of the Lender's Liens with respect to the Collateral
as a result of an action or failure to act on the part of Borrower.
"Maturity Date" means December 11, 2005.
"Maximum Credit Amount" means $30,000,000.
"Mortgage" means a mortgage or deed of trust executed and
delivered by Borrower to or for the benefit of the Lender, granting a Lien on
Real Property to secure payment and performance of the Obligations, as may be
modified, renewed, extended, amended, supplemented or restated with the consent
of the Lender.
"Negotiable Collateral" means all of Borrower's now owned and
hereafter acquired right, title and interest in or with respect to Portfolio
Notes and other instruments, promissory notes, drafts, or similar documents or
agreements, chattel paper, letters of credit, letter of credit rights, and any
and all supporting obligations in respect of any of the foregoing.
"Net Interest Expense" means, with respect to any Person for any
period, gross interest expense of such Person and its Subsidiaries for such
period determined in conformity with GAAP (including, without limitation,
interest expense paid to Affiliates of such Person), less (i) the sum of (A)
interest income for such period and (B) gains for such period on Hedging
Agreements (to the extent not included in interest income above and to the
extent not deducted in the calculation of such gross interest expense), plus
(ii) the sum of (A) losses for such period on Hedging Agreements (to the extent
not included in such gross interest expense) and (B) the
LOAN AND SECURITY AGREEMENT - Page 18
DALLAS2 939606V9 53877-00012
upfront costs or fees for such period associated with Hedging Agreements (to the
extent not included in gross interest expense), each determined on a
consolidated basis and in accordance with GAAP for such Person and its
Subsidiaries.
"Non-Performing Commercial Portfolio Loan Receivable" means a
Commercial Portfolio Loan Receivable that is not a Performing Commercial
Portfolio Loan Receivable or a Sub-Performing Commercial Portfolio Loan
Receivable.
"Obligated Party" means each of Borrower, Parent any other
Person from time to time a party to any guaranty of the Obligations, and
"Obligated Parties" means all of such Persons, collectively; provided, that a
Person is not an Obligated Party solely by reason of signing a Validity
Guaranty.
"Obligations" means (a) all Advances, Term Loans, debts,
principal, interest (including any interest that, but for the provisions of the
Bankruptcy Code, would have accrued), premiums, liabilities (including all
amounts charged to the Loan Account pursuant hereto), obligations, fees,
charges, costs, Lender Expenses (including any fees or expenses that, but for
the provisions of the Bankruptcy Code, would have accrued), lease payments,
guaranties, covenants, and duties of any kind and description owing by Borrower
to Lender pursuant to or evidenced by the Loan Documents and irrespective of
whether for the payment of money, whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, and
including all interest not paid when due and all Lender Expenses that Borrower
is required to pay or reimburse by the Loan Documents, by law, or otherwise and
(b) all Bank Product Obligations. Any reference in this Agreement or in the Loan
Documents to the Obligations shall include all amendments, changes, extensions,
modifications, renewals replacements, substitutions, and supplements, thereto
and thereof, as applicable, both prior and subsequent to any Insolvency
Proceeding.
"Obligor" means a Person obligated on a Portfolio Loan
Receivable.
"Originator" means a Person who is the original obligee on a
Portfolio Loan Receivable.
"Overadvance" has the meaning set forth in Section 2.5.
"Parent" means ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Inc., a Delaware corporation.
"Parent Pledge Agreement" means a pledge and security agreement
executed between K-W Properties and Lender pursuant to which K-W Properties
shall grant to Lender a security interest, pledge, lien and collateral
assignment in and to all Capital Stock of Borrower owned or acquired by K-W
Properties, as security for the Obligations, in each such case in form and
substance satisfactory to Lender.
"Participant" has the meaning set forth in Section 14.1(d).
"Performing Commercial Portfolio Loan Receivable" means, as of
any date of determination, a Commercial Portfolio Loan Receivable with respect
to which (i) if such Commercial Portfolio Loan Receivable is not a Restructured
Loan, (a) such Commercial
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DALLAS2 939606V9 53877-00012
Portfolio Loan Receivable has not previously been classified at any time as a
Sub-Performing Commercial Portfolio Loan Receivable or a Non-Performing
Commercial Portfolio Loan Receivable, (b) at least two (2) of the three (3) most
recent scheduled payments during the preceding ninety (90) days was timely paid
on or before its scheduled payment date and (c) at least 80% of the scheduled
payments during the past twelve (12) calendar months was timely paid on or
before its scheduled payment date, or (ii) if such Commercial Portfolio Loan
Receivable is a Restructured Loan, (a) at least three (3) scheduled payments
have been made since the date such Commercial Portfolio Loan Receivable became a
Restructured Loan and (b) all scheduled payments coming due since the date such
Commercial Portfolio Loan Receivable became a Restructured Loan have been timely
paid on or before the respective scheduled payment dates thereof.
"Permitted Discretion" means a determination made in the
exercise of reasonable (from the perspective of a secured asset-based lender in
the same or similar circumstances) business judgment.
"Permitted Dispositions" means (a) the use or transfer of money
or Cash Equivalents (not constituting proceeds of Collateral) by Borrower in a
manner that is not prohibited by the terms of this Agreement or the other Loan
Documents, (b) the licensing by Borrower, on a non-exclusive basis, of patents,
trademarks, copyrights, and other intellectual property rights in the ordinary
course of Borrower's business, (c) the sale by Borrower in the ordinary course
of business of Equipment or other tangible assets that are inoperable or
obsolete and (d) sale and transfer of Portfolio Loan Receivables, provided that
(i) such sale is on a non-recourse basis, (ii) Borrower gives Lender prior or
contemporaneous notice of such sale, (iii) such sale is for cash in an amount
not less than ERV thereof, and (iv) all such cash proceeds are disbursed
directly to Lender, for the account of Borrower, for application to the
Obligations as provided by Section 2.4 of this Agreement.
"Permitted Distributions" means a distribution by Borrower to
Parent, provided, that immediately upon giving effect to such distribution (i)
no Default or Event of Default has occurred and continues in existence and (ii)
the aggregate amount of all such distributions, as of any date of determination,
shall not exceed an amount equal to the amount, if any, made available to
Borrower pursuant to Section 2.4(b)(i)(H)(2)(bb), as of such date.
"Permitted Holder" means each of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇▇, Colony Investors, III, L.P., ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Strategic
Partners Fund, L.P., Heartland Advisors, Inc. and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, and
Elkhorn Partners Limited Partnership, respectively.
"Permitted Liens" means (a) Liens held by Lender, for the
benefit of itself or any Bank Product Provider, (b) Liens for unpaid taxes that
either (i) are not yet delinquent, or (ii) do not constitute an Event of Default
hereunder and are the subject of Permitted Protests, (c) Liens set forth on
Schedule P-1, (d) the interests of lessors under operating leases, (e) Liens
arising by operation of law in favor of warehousemen, landlords, carriers,
mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course
of business of Borrower and not in connection with the borrowing of money, and
which Liens either (i) are for sums not yet delinquent, or (ii) are the subject
of Permitted Protests, (f) Liens arising from deposits made in connection with
obtaining worker's compensation or other unemployment insurance, (g) Liens or
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DALLAS2 939606V9 53877-00012
deposits to secure performance of bids, tenders, or leases incurred in the
ordinary course of business of Borrower and not in connection with the borrowing
of money, (h) Liens granted as security for surety or appeal bonds in connection
with obtaining such bonds in the ordinary course of business of Borrower, (i)
Liens resulting from any judgment or award that is not an Event of Default
hereunder and (j) with respect to any Real Property, easements, rights of way,
and zoning restrictions that do not materially interfere with or impair the use
or operation thereof by Borrower.
"Permitted Protest" means the right of Borrower to protest any
Lien (other than any such Lien that secures the Obligations), taxes (other than
payroll taxes or taxes that are the subject of a United States federal tax
lien), or rental payment, provided that (a) a reserve with respect to such
obligation is established on the Books in such amount as is required under GAAP,
(b) any such protest is instituted promptly and prosecuted diligently by
Borrower in good faith, and (c) Lender is reasonably satisfied that, while any
such protest is pending, there will be no impairment of the enforceability,
validity, or priority of any of the Lender's Liens.
"Person" means natural persons, corporations, limited liability
companies, limited partnerships, general partnerships, limited liability
partnerships, joint ventures, trusts, land trusts, business trusts, or other
organizations, irrespective of whether they are legal entities, and governments
and agencies and political subdivisions thereof.
"Personal Property Collateral" means all Collateral other than
Real Property.
"Portfolio Acquisition Documents" means each Purchase Agreement
and all other agreements, certificates, and other documents which are executed
in connection therewith.
"Portfolio Agreement" collectively means, at any time, any loan
agreement or other agreement (other than a Portfolio Note), including renewals,
extensions, modifications, amendments thereof, executed and delivered by an
Obligor to or for the benefit of an Originator, or any subsequent transferee
thereof, providing for or otherwise governing a Portfolio Loan Receivable and
evidencing, or otherwise providing for, such Obligor's obligation to repay same.
"Portfolio Books" means, in respect of a Portfolio Loan
Receivable, all books and records in respect thereof.
"Portfolio Collateral" means any and all property, whether
personal property (including without limitation accounts, chattel paper,
instruments, documents, deposit accounts, contract rights, general intangibles,
inventory or equipment) or real estate, or both, whether owned by an Obligor or
any other Person, that secures an Obligor's obligations under a Portfolio Loan
Receivable, and all supporting obligations in respect thereof.
"Portfolio Collateral Documents" means all Portfolio Mortgages,
security agreements, pledge agreements, assignments and other agreements
providing for or evidencing any lien, mortgage, security interest, assignment or
other interest in Portfolio Collateral as security for a Portfolio Loan
Receivable, and any agreements, instruments and documents executed by an Obligor
or other third party, or by an obligor in respect of a supporting obligation in
connection with a Portfolio Loan Receivable, and any warranty of validity or
other agreement
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DALLAS2 939606V9 53877-00012
providing for or evidencing assurance with respect to the existence,
authenticity or genuineness of any Portfolio Collateral or Portfolio Collateral
Documents.
"Portfolio Documents" means all Portfolio Notes, Portfolio
Agreements and Portfolio Collateral Documents.
"Portfolio Loan Receivable" means all rights to payment of
indebtedness and obligations (including without limitation, unpaid principal,
accrued interest, costs, fees, expenses and indemnity obligations) owing by an
Obligor in respect of a loan or loans or other financial accommodations made or
extended by an Originator to or for the benefit of such Obligor, including
without limitation all rights (including enforcement rights) under or pursuant
to all related Portfolio Documents in respect thereof, and all supporting
obligations in connection therewith, which rights to payment, together with all
related Portfolio Documents and Portfolio Books, have been acquired by Borrower,
pursuant to Portfolio Acquisition Documents.
"Portfolio Mortgage" means any mortgage or deed of trust
executed and delivered by an Obligor or other Person, granting a Lien on Real
Property to secure a Portfolio Loan Receivable, as may be modified, extended or
amended in accordance with the Required Procedures.
"Portfolio Note" means a promissory note or other instrument
executed by an Obligor evidencing a Portfolio Loan Receivable.
"Portfolio Payment Collections" means Collections constituting
payments by Obligors in respect of Portfolio Loan Receivables.
"Portfolio Pool" means a portfolio of Portfolio Loan Receivables
purchased by Borrower pursuant to a Purchase Agreement.
"Projections" means, with respect to Borrower, forecasted (a)
balance sheets, (b) profit and loss statements, and (c) cash flow statements,
all prepared on a basis consistent with Parent's historical financial
statements, together with appropriate supporting details and a statement of
underlying assumptions.
"Proposed Portfolio Pool" means a portfolio of loans purchased,
or to be purchased, by Borrower pursuant to a Purchase Agreement, and which is
proposed to Lender for eligibility as an Eligible Portfolio Pool.
"Protective Advance" means a payment of ordinary and customary
expenses incurred by Borrower to preserve and protect the value of an Asset,
provided that such expenses are approved by Lender in its sole discretion.
"Purchase Advance" means an Advance for the purpose of financing
a portion of the purchase price payable, or refinancing a portion of the
purchase price previously paid, by Borrower pursuant to an Eligible Purchase
Agreement in connection with the purchase by Borrower of an Eligible Portfolio
Pool.
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DALLAS2 939606V9 53877-00012
"Purchase Agreement" means an agreement executed and delivered
by Borrower and a Seller which provides for the absolute sale, transfer and
conveyance to Borrower by such Seller, and the purchase and acceptance by
Borrower from such Seller, of 100% of the legal and beneficial title to a
Portfolio Pool, and all related Portfolio Documents and Portfolio Books.
"Purchased Portfolio" means the aggregate of all Portfolio
Pools.
"Real Property" means, with respect to a Person, any estates or
interests in real property now owned or hereafter acquired by such Person and
the improvements thereto, including without limitation, in the case of Borrower,
REO Property.
"Record" means information that is inscribed on a tangible
medium or which is stored in an electronic or other medium and is retrievable in
perceivable form.
"Refinance Requirement" means, in reference to the Existing
Assets comprising the Portfolio Pool that supports the Initial Purchase Advance,
an amount equal to the aggregate amount required to be paid to any Persons in
consideration of a full and complete release and discharge by such Persons of
all obligations, indebtedness and claims against Borrower and all Liens in
property of Borrower, provided, that such amount is itemized to Lender in
reasonable detail and is acceptable to Lender in its sole discretion.
"Release Price" means, for an Asset as of any date of
determination, the ERV determined as of such date for such Asset.
"Remedial Action" means all actions taken to (a) clean up,
remove, remediate, contain, treat, monitor, assess, evaluate, or in any way
address Hazardous Materials in the indoor or outdoor environment, (b) prevent or
minimize a release or threatened release of Hazardous Materials so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment, (c) perform any pre-remedial studies,
investigations, or post-remedial operation and maintenance activities, or (d)
conduct any other actions authorized by 42 USC Section 9601.
"REO Property" means Real Property acquired and owned by
Borrower as a result of foreclosure or acceptance by Borrower of a deed in lieu
of foreclosure, or similar transaction, whether previously constituting
Portfolio Collateral or otherwise, together with all of Borrower's now owned or
hereafter acquired interests in the improvements thereon, the fixtures attached
thereto and the easements appurtenant thereto.
"Required Procedures" means procedures with respect to the
acquisition and servicing of Portfolio Loan Receivables, as attached to the
Closing Certificate, together with such changes and modifications thereto from
time to time as shall have been approved in writing by Lender, in Lender's sole
and absolute discretion.
"Restructured Loan" means a Portfolio Loan Receivable with
respect to which the payment terms have been modified by agreement between
Borrower and the Obligor on such Portfolio Loan Receivable pursuant to written
agreement in amendment of the Portfolio Agreements and Portfolio Note evidencing
same.
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DALLAS2 939606V9 53877-00012
"Revolver Usage" means, as of any date of determination, the
aggregate unpaid amount of Advances that have not been converted to Term Loans
pursuant to Section 2.2(a) as of such date.
"SEC" means the United States Securities and Exchange Commission
and any successor thereto.
"Securities Account" means a "securities account" as that term
is defined in the Code.
"Seller" means a Person who sells and transfers to Borrower a
Portfolio Pool pursuant to a Purchase Agreement.
"Senior Debt to ERV Ratio" means, as of any date, the ratio of
(a) the unpaid balance of Advances to (b) aggregate ERV for Eligible Assets, in
each case determined as of such date.
"Senior Debt to ERV Ratio Requirement" means 75.0%.
"Service Fee" means the "Service Fee" payable by Borrower to
Servicer pursuant to, and as defined by, the Servicing Agreement.
"Servicer" means KWP Servicer LLC, a Delaware limited liability
company and wholly owned Subsidiary of Parent, or any other Person that assumes
the functions of servicing Portfolio Loan Receivables with the prior written
consent of Lender.
"Servicer Account" means account No 153491951460 maintained by
Servicer in Servicer's name at ▇▇▇▇▇ Fargo, ABA No. ▇▇▇▇▇▇▇▇▇.
"Servicing Agreement" means a servicing agreement executed and
delivered by Borrower and Parent, in form and substance satisfactory to Lender.
"Servicing Costs" means costs, in each case in an amount with
respect to an Asset which is not materially in excess of originally budgeted
costs included in Borrower's initial ERV Projection for such Asset or which
otherwise is acceptable to Lender, consisting of attorneys fees and out of
pocket costs paid by Borrower or Servicer to attorneys, incurred by Borrower or
Servicer in enforcement of the Purchased Portfolio, or any portion thereof, and
actual disbursements in payment of direct court costs incurred by Servicer or
Borrower in respect of filing fees, service or other process fees, garnishment
fees and other direct court costs in connection with judicial enforcement of
payment of the Purchased Portfolio, or any portion thereof, provided, that
Servicing Costs excludes any of the foregoing amounts paid to any Affiliate or
employee of Borrower or Servicer.
"Settlement Date" means, during a calendar month (i) the third
(3rd) Business Day after receipt by Lender of the Borrowing Base Certificate
required by Section 6.2(b) and (ii) any date on which those Collections which
constitute proceeds of an Asset received and deposited to
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DALLAS2 939606V9 53877-00012
the Collection Account after the Allocated Advance Balance with respect to such
Asset has been reduced to $0 exceed $100,000.
"Solvent" means, with respect to any Person on a particular
date, that such Person is not insolvent (as such term is defined in the Uniform
Fraudulent Transfer Act and Applicable Law).
"Subordinated Debt" means Indebtedness of a Person which has
maturities and terms, and which is subordinated to payment of the Obligations
pursuant to a Subordination Agreement.
"Subordination Agreement" means a subordination agreement, in
form and substance satisfactory to Lender, executed and delivered by a Person,
Lender and the holder of Subordinated Debt, providing for (i) subordination to
the Obligations of Indebtedness owing to such holder, (ii) subordination to the
Lender's Liens of any and all Liens securing such Indebtedness and (iii) such
other matters in respect thereof, including without limitation limitations in
respect of the exercise of remedies against such Person or such Person's
property as may be required by Lender.
"Sub-Performing Commercial Portfolio Loan Receivable" means, as
of any date of determination, a Commercial Portfolio Loan Receivable, other than
a Performing Commercial Portfolio Loan Receivable with respect to which (i) if
such Commercial Portfolio Loan Receivable is not a Restructured Loan, (a) such
Commercial Portfolio Loan Receivable has not previously been classified at any
time as a Non-Performing Commercial Portfolio Loan Receivable, (b) at least one
(1) of the required scheduled payments during the preceding 180 days was timely
paid on or before its scheduled payment date and (c) at least 50% of the
required scheduled payments during the past twelve (12) calendar months was
timely paid on or before its scheduled payment date, or (ii) if such Commercial
Portfolio Loan Receivable is a Restructured Loan, (a) 100% of the required
scheduled payments during the preceding 90 days have been timely paid on or
before their respective scheduled due dates and (b) at least 80% of the required
scheduled payments have been timely paid during the preceding period of twelve
(12) calendar months or, if such Commercial Portfolio Loan Receivable became a
Restructured Loan during the preceding twelve (12) calendar months, the period
since the date such Commercial Portfolio Loan Receivable became a Restructured
Loan, as the case may be.
"Subsidiary" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly or
indirectly owns or controls the shares of Capital Stock having ordinary voting
power to elect a majority of the board of directors (or appoint other comparable
managers) of such corporation, partnership, limited liability company, or other
entity.
"Tangible Net Worth" means, with respect to a Person as of any
date of determination, the result of (a) total stockholder's equity, minus (b)
the sum of (i) all Intangible Assets, (ii) all prepaid expenses, and (iii) all
amounts due from its Affiliates plus (c) the principal amount of Subordinated
Debt outstanding as of such date, in each case determined with respect to such
Person.
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DALLAS2 939606V9 53877-00012
"Taxes" has the meaning set forth in Section 16.5.
"Term Loan" has the meaning set forth Section 2.2(a).
"Term Loan Usage" means, as of any date of determination, the
aggregate unpaid principal balance of all Term Loans.
"Term Triggering Date" means each of the following: (a) with
respect to Advances based on a Borrowing Base for an Existing Asset, the Closing
Date and (b) with respect to Advances based on a Borrowing Base for a Future
Asset: (i) any date after the Closing Date on which Revolver Usage (determined
after giving effect to any Advance made or to be made on such date) equals or
exceeds $5,000,000 and (iii) any date that is 180 days after the most recent
Term Triggering Date.
"Termination Date" means the earliest to occur of (a) the
Maturity Date, (b) the date Borrower terminates this Agreement as referenced in
Section 3.7, (c) the date Lender terminates its obligations under this Agreement
pursuant to Section 9.1 or (d) the date this Agreement is otherwise terminated
for any reason pursuant to the terms of this Agreement.
"United States" means the United States of America.
"Updated Business Plan" means an update to the Closing Date
Business Plan as necessary to reflect acquisition by Borrower of a Portfolio
Pool, in writing and in form and substance satisfactory to the Lender.
"Validity Guarantor" means each of (i) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, an
individual residing in Maricopa County, Arizona, (ii) ▇▇▇▇ ▇. ▇▇▇▇▇, an
individual residing in Los Angeles County, California and (iii) ▇▇▇▇▇▇▇ ▇▇▇▇, an
individual residing in Los Angeles County, California.
"Validity Guaranty" means a validity guaranty executed and
delivered by Validity Guarantor in form and substance satisfactory to the
Lender.
"Voidable Transfer" has the meaning set forth in Section 16.8.
"▇▇▇▇▇ Fargo" means ▇▇▇▇▇ Fargo Bank, National Association, a
national banking association.
1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrower and its Subsidiaries on a
consolidated basis unless the context clearly requires otherwise.
1.3 Code. Any terms used in this Agreement that are defined in the Code
shall be construed and defined as set forth in the Code unless otherwise defined
herein. All Code definitions referenced in Section 1.1 or this Section 1.3 are
incorporated herein by reference.
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DALLAS2 939606V9 53877-00012
1.4 Construction. Unless the context of this Agreement or any other
Loan Document clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the term "including" is
not limiting (and means "including, without limitation"), and the term "or" has,
except where otherwise indicated, the inclusive meaning represented by the
phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and
similar terms in this Agreement or any other Loan Document refer to this
Agreement or such other Loan Document, as the case may be, as a whole and not to
any particular provision of this Agreement or such other Loan Document, as the
case may be. Section, subsection, clause, schedule, and exhibit references
herein are to this Agreement unless otherwise specified. Any reference in this
Agreement or in the other Loan Documents to any agreement, instrument, or
document shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements,
thereto and thereof, as applicable (subject to any restrictions on such
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements set forth herein). Any
reference herein to any Person shall be construed to include such Person's
successors and assigns. Any requirement of a writing contained herein or in the
other Loan Documents shall be satisfied by the transmission of a Record and any
Record transmitted shall constitute a representation and warranty as to the
accuracy and completeness of the information contained therein.
1.5 Schedules and Exhibits. All of the schedules and exhibits attached
to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 Revolver Advances
(a) Subject to the terms and conditions of this
Agreement, and during the term of this Agreement, Lender agrees to make advances
("Advances") to Borrower solely for the purposes allowed by Section 7.17,
provided, that:
(i) the Purchase Advance in respect of any Portfolio
Pool shall not exceed the sum of the Borrowing Base for each
Eligible Asset in such Portfolio Pool,
(ii) the aggregate unpaid balance of all Advances at any
time outstanding shall not exceed the lesser or (A) the sum of
the Borrowing Base for all Eligible Assets or (B) the Maximum
Credit Amount and
(iii) the aggregate unpaid balance of Advances at any
time outstanding that have not been converted to a Term Loan
pursuant to Section 2.2(a) shall not exceed an amount equal to
the Maximum Credit Amount less the Term Loan Usage.
(b) Anything to the contrary in this Section 2.1
notwithstanding, Lender shall have the right to establish reserves in such
amounts, and with respect to such matters, as Lender in its Permitted Discretion
shall deem necessary or appropriate, against the Borrowing Base, including
reserves with respect to (i) sums that Borrower is required to pay (such as
taxes,
LOAN AND SECURITY AGREEMENT - Page 27
DALLAS2 939606V9 53877-00012
assessments, insurance premiums, or, in the case of leased assets, rents or
other amounts payable under such leases) and has failed to pay under any Section
of this Agreement or any other Loan Document, and (ii) amounts owing by Borrower
to any Person to the extent secured by a Lien on, or trust over, any of the
Collateral (other than any existing Permitted Lien set forth on Schedule P-1
which is specifically identified thereon as entitled to have priority over the
Lender's Liens), which Lien or trust, in the Permitted Discretion of Lender
likely would have a priority superior to the Lender's Liens (such as Liens or
trusts in favor of landlords, warehousemen, carriers, mechanics, materialmen,
laborers, or suppliers, or Liens or trusts for ad valorem, excise, sales, or
other taxes where given priority under Applicable Law) in and to such item of
the Collateral. Lender will endeavor to inform Borrower of any such reserves
within 5 Business Days after establishing same, provided, that Lender shall no
liability for any delay or failure in doing so and any delay or failure to do so
shall not impair any of Lender's rights or Borrower's obligations under the Loan
Documents.
(c) Lender shall have no obligation to make Advances on
or after the Maturity Date. Lender shall have no obligation to make Advances
hereunder to the extent such Advances would cause the outstanding Advances to
exceed the amount of Advances allowed to be outstanding by this Agreement.
(d) Amounts borrowed pursuant to this Section may be
repaid and, subject to the terms and conditions of this Agreement, reborrowed at
any time during the term of this Agreement.
2.2 Conversion to Term Loans; Required Payments
(a) On each Term Triggering Date, all outstanding
Advances shall be converted to an amortizing term loan (each a "Term Loan").
(b) Borrower shall make payments on each Term Loan in
the amount, if any, required to reduce the unpaid balance thereof, after giving
effect to applications of Collections as provided by Section 2.4(b)(i)(H), to
the following amounts on the following dates, as applicable:
(i) with respect to a Term Loan comprised by Advances
with respect to an Existing Asset:
(A) on the date that is the first anniversary of
the Term Triggering Date for such Term Loan, an amount
equal to or less than 75% of the original principal
balance thereof on such Term Triggering Date,
(B) on the date that is the second anniversary
of the Term Triggering Date for such Term Loan, an
amount equal to or less than 25% of the original
principal balance thereof on such Term Triggering Date,
and
(C) on the date that is the third anniversary of
the Term Triggering Date for such Term Loan, $0; and
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DALLAS2 939606V9 53877-00012
(ii) with respect to a Term Loan comprised by Advances
with respect to a Future Asset, an amount equal to or less than
the amounts, on each applicable date, as required by the
Amortization Schedule for such Term Loan.
(c) Borrower shall immediately pay to Lender the amount,
if any, by which any Term Loan exceeds the aggregate amount of the Borrowing
Base for each Asset included in the Portfolio Pool associated with such Term
Loan.
(d) The outstanding unpaid principal balance and all
accrued and unpaid interest under the Term Loans shall be due and payable on the
earlier of the Maturity Date or the date of termination of this Agreement,
whether by its terms, by prepayment, or by acceleration. Nothing contained
herein is intended to limit repayment of a Term Loan as a result of the
application of Collections in accordance with this Agreement.
(e) On or after the Term Triggering Date for a Term Loan
comprised by Advances with respect to a Future Asset, Lender in its sole
discretion shall designate and establish the Amortization Schedule for such Term
Loan by written notice to Borrower, therein specifying the maximum allowed
aggregate amount allowed to be outstanding as of any date.
2.3 Borrowing Procedures and Settlements
(a) Procedure for Borrowing. Each Borrowing shall be
made by a request by an Authorized Person delivered to Lender (which notice must
be received by Lender no later than 10:00 a.m. (California time) on the Business
Day that is the requested Funding Date specifying (i) the amount of such
Borrowing, and (ii) the requested Funding Date, which shall be a Business Day.
At Lender's election, in lieu of delivering the above-described request in
writing, any Authorized Person may give Lender telephonic notice of such request
by the required time, with such telephonic notice to be confirmed in writing
within 24 hours of the giving of such notice.
(b) Making of Advances. If Lender has received a timely
request for a Borrowing in accordance with the provisions hereof, and subject to
the satisfaction of the applicable terms and conditions set forth herein, Lender
shall make the proceeds of such Advance available to Borrower on the applicable
Funding Date by transferring immediately available funds equal to such proceeds
to Borrower's Designated Account.
2.4 Payments
(a) Payments by Borrower. Except as otherwise expressly
provided herein, all payments by Borrower shall be made to Lender's Account and
shall be made in immediately available funds, no later than 11:00 a.m.
(California time) on the date specified herein. Any payment received by Lender
later than 11:00 a.m. (California time) shall be deemed to have been received on
the following Business Day and any applicable interest or fee shall continue to
accrue until such following Business Day.
(b) Application and Reversal of Payments.
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DALLAS2 939606V9 53877-00012
(i) All Collections deposited to the Collection Account
shall be held by Lender as cash Collateral and on each
Settlement Date shall be disposed of as follows:
(A) first, to pay any Lender Expenses then due
to Lender under the Loan Documents, until paid in full,
(B) second, to pay any fees then due to Lender
under the Loan Documents until paid in full,
(C) third, to pay any interest then due in
respect of the Advances until paid in full,
(D) fourth, so long as no Event of Default has
occurred and is continuing, and at Lender's election, to
pay amounts then due and owing by Borrower, Parent or
its Subsidiaries in respect of Bank Products, until paid
in full,
(E) fifth, so long as no Event of Default has
occurred and is continuing, disbursed to Borrower in an
amount up to the amount of Servicing Costs which have
been paid by Borrower (but which have not been
reimbursed from proceeds of Portfolio Collateral or
amounts pursuant to this clause (E)),
(F) sixth, so long as no Event of Default has
occurred and is continuing, disbursed to Borrower in an
amount up to the amount of Protective Advances which
have been paid by Borrower (but which have not been
reimbursed from proceeds of Portfolio Collateral or
amounts pursuant to this clause (F)),
(G) seventh, so long as no Event of Default has
occurred and is continuing, disbursed to Borrower to pay
the Service Fee, provided, that the aggregate amount
made available pursuant to this clause (G), determined
as of any date, shall not exceed 5% of the aggregate
amount of Collections which have been deposited to the
Collection Account as of such date,
(H) eighth, so long as no Event of Default has
occurred and is continuing, with respect to Collections
that are proceeds of an Asset,
(1) to reduce the Allocated Advance
Balance with respect to such Asset until
such Allocated Advance Balance is
reduced to $0, and
(2) after the Allocated Advance Balance
with respect to such Asset is reduced to
$0,
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DALLAS2 939606V9 53877-00012
(aa) 50.0% of the amount of such
Collections to reduce the Obligations,
to be applied in Lender's discretion,
and
(bb) the balance of such Collections
disbursed to Borrower,
(I) ninth, if an Event of Default has occurred
and is continuing, ratably (i) to pay the principal of
all Advances until paid in full, and (ii) to Lender, to
be held by Lender, for the benefit of the applicable
Bank Product Providers, as cash collateral in an amount
up to the amount of the Bank Products Reserve
established prior to the occurrence of, and not in
contemplation of, the subject Event of Default until
Borrower's, Parent's and its Subsidiaries' obligations
in respect of the then extant Bank Products have been
paid in full or the cash collateral amount has been
exhausted,
(J) tenth, to pay any other Obligations
(including Bank Product Obligations) until paid in full,
and
(K) eleventh, to Borrower (to be wired to the
Designated Account) or such other Person entitled
thereto under Applicable Law.
Subject to the terms of this Agreement, on each Settlement Date,
amounts to be made available to Borrower pursuant to clauses (A)
through (J) of this Section 2.4(b)(i) shall be applied to the
unpaid balance of the Advances and the amount thereof advanced
to Borrower as an Advance pursuant to Section 2.1.
(ii) For purposes of the foregoing, "paid in full" means
payment of all amounts owing under the Loan Documents according
to the terms thereof, including loan fees, service fees,
professional fees, interest (and specifically including interest
accrued after the commencement of any Insolvency Proceeding),
default interest, interest on interest, and expense
reimbursements, whether or not the same would be or is allowed
or disallowed in whole or in part in any Insolvency Proceeding.
(iii) In the event of a direct conflict between the
priority provisions of this Section 2.4 and other provisions
contained in any other Loan Document, it is the intention of the
parties hereto that such priority provisions in such documents
shall be read together and construed, to the fullest extent
possible, to be in concert with each other. In the event of any
actual, irreconcilable conflict that cannot be resolved as
aforesaid, the terms and provisions of this Section 2.4 shall
control and govern.
2.5 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Lender pursuant to Section 2.1 is greater than
the maximum amount allowed to be outstanding as set forth in Section 2.1, (an
"Overadvance"), Borrower immediately shall pay
LOAN AND SECURITY AGREEMENT - Page 31
DALLAS2 939606V9 53877-00012
to Lender, in cash, the amount of such excess, which amount shall be used by
Lender to reduce the Obligations in accordance with the priorities set forth in
Section 2.4(b). Without limiting the foregoing, Borrower hereby promises to pay
the Obligations (including principal, interest, fees, costs, and expenses) in
Dollars in full to Lender as and when due and payable under the terms of this
Agreement and the other Loan Documents.
2.6 Interest Rates: Rates, Payments, and Calculations
(a) Interest Rates. Except as provided in clause (b)
below, all Obligations (except for Bank Product Obligations not charged to the
Loan Account) that have been charged to the Loan Account pursuant to the terms
hereof shall bear interest on the Daily Balance thereof at a per annum rate
equal to the lesser of (i) the Base Rate plus the Base Rate Margin or (ii) the
maximum rate of interest allowed by Applicable Law.
(b) Default Rate. Upon the occurrence and during the
continuation of an Event of Default, all Obligations (except for Bank Product
Obligations) that have been charged to the Loan Account pursuant to the terms
hereof shall bear interest on the Daily Balance thereof at a per annum rate
equal to four percentage points (4.0%) above the per annum rate otherwise
applicable hereunder.
(c) Payment. Interest and all other fees payable
hereunder shall be due and payable, in arrears, on the first day of each month
at any time when Obligations are outstanding. Borrower hereby authorizes Lender,
from time to time without prior notice to Borrower, to charge such interest and
fees, all Lender Expenses (as and when incurred), the fees and costs provided
for in Section 2.11 (as and when accrued or incurred), and all other payments as
and when due and payable under any Loan Document (including any amounts due and
payable to any Bank Product Provider in respect of Bank Products) to Borrower's
Loan Account, which amounts thereafter constitute Advances hereunder and shall
accrue interest at the rate then applicable to Advances hereunder. Any interest
not paid when due shall be compounded by being charged to Borrower's Loan
Account and shall thereafter constitute Advances hereunder and shall accrue
interest at the rate then applicable to Advances.
(d) Computation. All interest and fees chargeable under
the Loan Documents shall be computed on the basis of a 360-day year for the
actual number of days elapsed. In the event the Base Rate is changed from time
to time hereafter, the rates of interest hereunder based upon the Base Rate
automatically and immediately shall be increased or decreased by an amount equal
to such change in the Base Rate.
(e) Intent to Limit Charges to Maximum Lawful Rate. In
no event shall the interest paid or payable under this Agreement, plus any other
amounts (including under Section 2.11) paid or payable as compensation for the
use, forbearance or detention of money in connection herewith, exceed the
maximum amount permissible under any Applicable Law that a court of competent
jurisdiction shall, in a final determination, deem applicable. Borrower and
Lender, in executing and delivering this Agreement, intend legally to agree upon
the rate or rates of interest and manner of payment stated within it; provided,
however, that anything contained herein to the contrary notwithstanding, if said
rate or rates of interest or manner of payment exceeds the maximum allowable
under Applicable Law, then, ipso facto, as of the date of this
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DALLAS2 939606V9 53877-00012
Agreement, Borrower is and shall be liable only for the payment of such maximum
as allowed by law, and payment received from Borrower in excess of such legal
maximum, whenever received, shall be applied to reduce the principal balance of
the Obligations to the extent of such excess.
2.7 Cash Management
(a) Lender shall establish and maintain cash management
services of a type and on terms satisfactory to Lender at the Collection Account
Bank. Borrower and Servicer shall request in writing and otherwise take such
reasonable steps to ensure that all Obligors forward payment of the amounts owed
by them directly to Servicer.
(b) For so long as Lender has not notified Servicer and
Borrower to the contrary, Collections received by Servicer may be deposited by
Servicer into the Servicer Account, provided, that Borrower shall cause Servicer
to transfer to the Collection Account (or to such other account as may be
designated by Lender to Servicer), promptly and in any event no later than the
first Business Day after the date of receipt thereof, an amount equal to the
amount of Collections received by Servicer on each day. Lender may revoke
Servicer's authority to deposit Collections to the Servicer Account by written
notice to Servicer and Borrower at any time in Lender's discretion.
(c) Upon written notice to Borrower from Lender at any
time when an Event of Default is in existence, Borrower shall instruct Obligors
in writing, and otherwise take such reasonable steps to ensure, that all
payments by such Obligors shall be directed and delivered to a lockbox or
lockbox service as may be directed by Lender, and deposit or cause to be
deposited promptly, and in any event no later than the first Business Day after
the date of receipt thereof, all Collections to the Collection Account.
(d) Collection Account Bank shall establish and maintain
the Collection Account Agreement with Lender, in form and substance acceptable
to Lender. The Collection Account Agreement shall provide, among other things,
that (i) all items of payment deposited in the Collection Account and proceeds
thereof are held by the Collection Account Bank for Lender or as
bailee-in-possession for Lender, (ii) the Collection Account Bank has no rights
of setoff or recoupment or any other claim against the Collection Account, other
than for payment of its service fees and other charges directly related to the
administration of the Collection Account and for returned checks or other items
of payment, and (iii) the Collection Account Bank will forward by periodic
sweep, at Lender's direction on each Settlement Date, all amounts in the
Collection Account to Lender's Account.
(e) The Collection Account shall be a cash collateral
account, with all cash, checks and similar items of payment from time to time
deposited thereto, and all balances therein, being included within the
Collateral securing payment of the Obligations, and in which Borrower is deemed
to have granted a Lien to Lender.
2.8 Crediting Payments. The receipt of any payment item by Lender
(whether from transfers to Lender by the Collection Account Bank pursuant to the
Collection Account Agreement or otherwise) shall not be considered a payment on
account unless such payment item
LOAN AND SECURITY AGREEMENT - Page 33
DALLAS2 939606V9 53877-00012
is a wire transfer of immediately available federal funds made to the Lender's
Account or unless and until such payment item is honored when presented for
payment. Should any payment item not be honored when presented for payment, then
Borrower shall be deemed not to have made such payment and interest shall be
calculated accordingly. Anything to the contrary contained herein
notwithstanding, any payment item shall be deemed received by Lender only if it
is received into the Lender's Account on a Business Day on or before 11:00 a.m.
(California time). If any payment item is received into the Lender's Account on
a non-Business Day or after 11:00 a.m. (California time) on a Business Day, it
shall be deemed to have been received by Lender as of the opening of business on
the immediately following Business Day.
2.9 Designated Account. Lender is authorized to make the Advances under
this Agreement based upon telephonic or other instructions received from anyone
purporting to be an Authorized Person, or without instructions if pursuant to
Section 2.6(c). Borrower agrees to establish and maintain the Designated Account
with the Designated Account Bank for the purpose of receiving the proceeds of
the Advances requested by Borrower and made by Lender hereunder. Unless
otherwise agreed by Lender and Borrower, any Advance requested by Borrower and
made by Lender hereunder shall be disbursed to the Designated Account.
2.10 Maintenance of Loan Account; Loan Sub-Accounts; Statements of
Obligations.
(a) Lender shall maintain an account on its books in the
name of Borrower (the "Loan Account") on which Borrower will be charged with all
Advances made by Lender to Borrower or for Borrower's account, and with all
other payment Obligations (except for Bank Product Obligations) hereunder or
under the other Loan Documents, including, accrued interest, fees and expenses,
and Lender Expenses. In accordance with Section 2.8, the Loan Account will be
credited with all payments received by Lender from Borrower or for Borrower's
account, including all amounts received in the Lender's Account from the
Collection Account.
(b) Within the Loan Account, Lender will maintain a
separate sub-account (the "Loan Sub-Account") with respect to each Term Loan on
which Lender will credit payments applied to Advances pursuant to Section
2.4(b)(i)(H) to the extent such payments result from Collections which are
proceeds of Assets associated with such Term Loan.
(c) Lender shall render statements to Borrower regarding
the Loan Account (and Loan Sub-Accounts), including Advances, applications to
Advances and the unpaid balance of Advances (and the unpaid balance of Advances
in respect of Loan Sub-Accounts, including those that comprise a Term Loan), and
including an itemization of all charges and expenses constituting Lender
Expenses. SUCH STATEMENTS SHALL BE CONCLUSIVELY PRESUMED TO BE CORRECT AND
ACCURATE AND CONSTITUTE AN ACCOUNT STATED BETWEEN BORROWER AND LENDER UNLESS,
WITHIN 30 DAYS AFTER BORROWER'S RECEIPT THEREOF, BORROWER SHALL DELIVER TO
LENDER WRITTEN OBJECTION THERETO SPECIFYING AND DESCRIBING IN REASONABLE DETAIL
ANY MATTER THEREIN WHICH BORROWER BELIEVES TO BE INACCURATE OR INCORRECT.
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DALLAS2 939606V9 53877-00012
2.11 Fees. Borrower shall pay to Lender the following fees and charges,
which fees and charges shall be non-refundable when paid (irrespective of
whether this Agreement is terminated thereafter):
(a) Closing Fee. On the Closing Date, Borrower shall pay
to Lender a closing fee in the amount of $300,000.
(b) Minimum Interest Payment. On (i) the first day of
each calendar month and (ii) the date of final payment of the Obligations (in
the case of this clause (ii), however, prorated for the period from the first
day of the calendar month in which such payment occurs through the date of such
payment), Borrower will pay to Lender an amount equal to the amount, if any, by
which $56,250 exceeds the aggregate amount of accrued interest on the
Obligations for the preceding calendar month pursuant to Section 2.6.
(c) Unused Line Fee. On (i) the first day of each
calendar month beginning on August 1, 2003 (in the case of the payment due on
August 1, 2003, however, prorated for the period from July 11, 2003 to July 31,
2003) and continuing during the term of this Agreement on a monthly basis and
(ii) the date of final payment of the Obligations (in the case of this clause
(ii), however, prorated for the period from the first day of the calendar month
in which such payment occurs through the date of such payment), an unused line
fee in an amount equal to one-quarter of one percent (.25%) per annum times the
result of (a) the Maximum Credit Amount, less (b) the sum of the average Daily
Balance of Advances that were outstanding during the immediately preceding
month.
(d) Loan Administration Fee. On (i) the first day of
each calendar month during the term of this Agreement and (ii) the date of final
payment of the Obligations (in the case of this clause (ii), however, prorated
for the period from the first day of the calendar month in which such payment
occurs through the date of such payment), Borrower shall pay to Lender a loan
administration fee in the amount of $2,000.
(e) Underwriting Fee. With respect to each Portfolio
Pool proposed to Lender for a Purchase Advance, Borrower shall pay to Lender,
prior to any Advance in respect of such Portfolio Pool, an underwriting fee in
the amount of $1,000 per day per Person, plus, out of pocket expenses associated
with underwriting and due diligence associated with such Portfolio Pool.
(f) Audit, Appraisal and Valuation Charges. Borrower
shall pay to Lender audit, appraisal and valuation fees and charges as follows
(i) a fee of $850 per day, per auditor, plus out-of-pocket expenses for each
financial audit of Borrower performed by personnel employed by Lender, and (ii)
the actual charges and expenses paid or incurred by Lender, or any third Persons
engaged by Lender, to perform financial audits of Borrower, to appraise the
Collateral, or any portion thereof, or to assess Borrower's business valuation.
2.12 Capital Requirements. If, after the date hereof, Lender determines
that (i) the adoption of or change in any law, rule, regulation or guideline
regarding capital requirements for banks or bank holding companies, or any
change in the interpretation or application thereof by any Governmental
Authority charged with the administration thereof, or (ii) compliance by
LOAN AND SECURITY AGREEMENT - Page 35
DALLAS2 939606V9 53877-00012
Lender or its parent bank holding company with any guideline, request, or
directive of any such entity regarding capital adequacy (whether or not having
the force of law), the effect of reducing the return on Lender's or such holding
company's capital as a consequence of Lender's obligations hereunder to a level
below that which Lender or such holding company could have achieved but for such
adoption, change, or compliance (taking into consideration Lender's or such
holding company's then existing policies with respect to capital adequacy and
assuming the full utilization of such entity's capital) by any amount deemed by
Lender to be material, then Lender may notify Borrower thereof. Following
receipt of such notice, Borrower agrees to pay Lender on demand the amount of
such reduction of return of capital as and when such reduction is determined,
payable within 90 days after presentation by Lender of a statement in the amount
and setting forth in reasonable detail Lender's calculation thereof and the
assumptions upon which such calculation was based (which statement shall be
deemed true and correct absent manifest error). In determining such amount,
Lender may use any reasonable averaging and attribution methods.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to the Initial Extension of Credit. The
obligation of Lender to make the initial Advance is subject to the fulfillment,
to the satisfaction of Lender, of each of the conditions precedent set forth
below:
(a) the Closing Date shall occur on or before December 31, 2002;
(b) Lender shall have received each of the following documents,
in form and substance satisfactory to Lender, duly executed, and each
such document shall be in full force and effect:
(i) this Agreement,
(ii) the Guaranty,
(iii) each Validity Guaranty,
(iv) each of the Parent Pledge Agreements, each duly
executed, in form and substance satisfactory to Lender,
(v) the Servicing Agreement,
(vi) the Collateral Assignment of Servicing Agreement,
acknowledged by Servicer,
(vii) the Required Procedures,
(viii) Borrower's Closing Date Business Plan;
(ix) the Collection Account Agreement,
(x) the Collateral Agency Agreement,
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DALLAS2 939606V9 53877-00012
(xi) the Control Agreements,
(xii) the Hazardous Substances Indemnity Agreement,
(xiii) with respect to all Real Property, the following,
in each case with respect to such Real Property and in form and
substance satisfactory to the Lender: (1) a Mortgage, in proper
form for recording in the jurisdiction in which such Real
Property is located, (2) a fully paid mortgagee's policy of
title insurance, or commitment to issue same, issued by an
insurer acceptable to Lender and insuring the Lien of such
Mortgage as a valid and enforceable, first priority Lien in an
amount not less than the fair market value thereof, and subject
to no encumbrances other than those, if any, as may be
acceptable to Lender in its sole discretion, (3) an
environmental site assessment report, prepared by a credentialed
environmental consultant acceptable to the Lender, (4) a
boundary survey, certified to the Lender and prepared by a
surveyor acceptable to the Lender, and (5) such other
information, documentation, opinions, and certifications with
respect to any such parcel of Real Property as may be reasonably
requested by the Lender;
(xiv) copies of the Governing Documents of each
Obligated Party, K-W Properties and Servicer, in each case as
amended, modified, or supplemented to the Closing Date,
certified by its secretary or other Authorized Person acceptable
to Lender;
(xv) a certificate from the secretary of each Obligated
Party, K-W Properties and the sole member of Servicer,
respectively, attesting to the resolutions of its Board of
Directors authorizing its execution, delivery, and performance
(or in the case of the sole member of Servicer, Servicer's
execution, delivery and performance) of the Loan Documents to
which it is a party and authorizing specific officers to execute
the same;
(xvi) a certificate of status with respect to each
Obligated Party, K-W Properties and Servicer, respectively,
dated within 10 days of the Closing Date, such certificate to be
issued by the appropriate officer of its jurisdiction of
organization, which certificate shall indicate that it is in
good standing in such jurisdiction;
(xvii) certificates of status with respect to each
Obligated Party, K-W Properties and Servicer, respectively, each
dated within 10 days of the Closing Date, such certificates to
be issued by the appropriate officer of the states of each
jurisdiction (other than its jurisdiction of organization) in
which its failure to be duly qualified or licensed would
constitute a Material Adverse Change, which certificates shall
indicate that it is in good standing in such jurisdictions;
(xviii) releases and terminations of all security
interests, liens and encumbrances on the Collateral, together
such UCC-3 termination or partial release statements in
connection therewith as may be required by Lender;
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DALLAS2 939606V9 53877-00012
(xix) a certificate of insurance, together with the
endorsements thereto, as are required by Section 6.8, the form
and substance of which shall be satisfactory to Lender;
(xx) Borrower consents and agrees that Lender or
Lender's representatives or agents may enter onto any premises
where any of Borrower's Collateral is located at any time to
inspect the Collateral, or to take possession of or remove any
or all of the Collateral from such premises or to exhibit for
sale and/or conduct one or more sales of the Collateral on such
premises, and Borrower will not in any manner hinder, interfere,
or prevent any of the foregoing;
(xxi) an opinion of Borrower's and Parent's counsel in
form and substance satisfactory to Lender; and
(xxii) the Closing Certificate;
(c) Lender shall have filed all financing statements as required
to perfect its security interest in the Personal Property Collateral,
and shall have received searches, or other evidence satisfactory to
Lender, reflecting the filing thereof;
(d) Lender shall have received satisfactory evidence that
all tax returns required to be filed by Borrower or Parent have been
timely filed and all taxes upon Borrower or Parent or their respective
properties, assets, income, and franchises (including Real Property
taxes and payroll taxes) have been paid prior to delinquency, except
such taxes that are the subject of a Permitted Protest;
(e) Lender shall have completed its business, legal, and
collateral due diligence, including a collateral audit and review of
Borrower's and Parent's books and records and verification of Borrower's
and Parent's representations and warranties to Lender under the Loan
Documents, the results of which shall be satisfactory to Lender;
(f) Lender shall have received completed reference checks with
respect to Borrower's senior management, the results of which are
satisfactory to Lender in its sole discretion;
(g) Each Obligated Party shall have received all licenses,
approvals or evidence of other actions required by any Governmental
Authority in connection with the execution and delivery of the Loan
Documents to which it is a party or in connection with the consummation
of the transactions contemplated hereby and thereby;
(h) Parent shall have received all licenses, approvals or
evidence of other actions required by any Governmental Authority in
connection with lawfully performing its functions and duties as
Servicer;
(i) Borrower's and Servicer's reporting systems shall be
satisfactory to Lender;
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DALLAS2 939606V9 53877-00012
(j) Lender shall have received interim financial statements for
Parent for the nine month period ending September 30, 2002, in form and
substance satisfactory to Lender;
(k) Lender shall have received financial information in respect
of Guarantor and personal financial information for each Validity
Guarantor, in each case form and substance satisfactory to Lender;
(l) Borrower's capital structure shall be satisfactory to Lender
including, without limitation, stockholders equity (including paid in
capital and retained earnings) in an aggregate amount not less than
$1,100,000;
(m) Borrower shall have implemented procedures satisfactory to
Lender that will insure proper cut-off and reconciliation as of each
month between the accounts receivable aging report, general ledger and
client summary reports; and
(n) Borrower shall have paid all Lender Expenses incurred in
connection with the transactions evidenced by this Agreement; and
all other documents and legal matters in connection with the transactions
contemplated by this Agreement shall have been delivered, executed, or recorded
and shall be in form and substance satisfactory to Lender.
3.2 Conditions Precedent to a Purchase Advance. In addition to all other
conditions provided by Sections 3.1, 3.3 and 3.4, the obligation of the Lender
to make a Purchase Advance in respect of any Portfolio Pool is subject to the
fulfillment, to the satisfaction of the Lender, of each of the conditions
precedent set forth below:
(a) the Lender shall have completed its business, legal and
collateral due diligence in respect of such Portfolio Pool, the results
of which shall be satisfactory to the Lender, and such Portfolio Pool
shall be an Eligible Portfolio Pool;
(b) the Lender shall have received the following:
(i) copies of each of the Portfolio Acquisition
Documents in respect of such Portfolio Pool, which shall be in
form and substance satisfactory to the Lender in its reasonable
discretion, together with a certificate of the Secretary of
Borrower certifying that each such document a true, correct, and
complete copy thereof;
(ii) a Collateral Assignment of Portfolio Acquisition
Documents in respect of the Purchase Agreement in connection
with each Portfolio Pool supporting the Purchase Advance,
(iii) a copy of the Portfolio Note evidencing such
Portfolio Loan Receivable and all related Portfolio Collateral
Documents and, with respect to each Portfolio Mortgage included
in any Portfolio Collateral securing any Portfolio Loan
Receivable, the Lender shall also have received the following,
in
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DALLAS2 939606V9 53877-00012
each case with respect to the Real Property covered by such
Portfolio Mortgage and in form and substance satisfactory to the
Lender: (1) a Collateral Assignment of Portfolio Collateral
Documents, in each case in proper form for recording in the
jurisdiction in which such Real Property is located, (2) a copy
of a fully paid mortgagee's policy of title insurance issued by
an insurer acceptable to Lender and evidencing that Borrower is
beneficiary of mortgagee's title insurance insuring the Lien of
such Portfolio Mortgage as a valid and enforceable, first
priority Lien in an amount not less than the fair market value
of such Real Property, and improvements thereon, subject to no
encumbrances other than those, if any, as may be acceptable to
Lender in its sole discretion, together with an endorsement
thereof in favor of the Lender, (3) an environmental site
assessment report with respect to such Real Property, prepared
by a credentialed environmental consultant acceptable to the
Lender, (4) a boundary survey of such Real Property, prepared by
a surveyor acceptable to the Lender, certified to Borrower and,
if required by the Lender, to the Lender, and (5) such other
information, documentation, opinions, and certifications with
respect to such Real Property as may be reasonably requested by
the Lender, provided, that with the consent of Lender and
subject to Section 3.3, Borrower may defer delivery of the items
required by clauses (1) through (5) preceding for a period not
exceeding thirty (30) days after the date of such Purchase
Advance;
(iv) if requested by Lender, a search report reflecting
the results of a lien, tax and judgment search conducted with
respect to the Seller of such Portfolio Pool and, if requested
by the Lender, also with respect to any previous owner of such
Portfolio Pool, or any portion thereof, in each appropriate
filing office as may be required by the Lender, and such report
shall be satisfactory to the Lender;
(v) an Updated Business Plan and a current ERV
Projection for such Portfolio Pool, in each case in form and
substance satisfactory to the Lender;
(vi) a certificate executed by an authorized officer of
each of Borrower and Servicer, certifying that each of Borrower
and Servicer has all licenses, approvals or evidence of other
actions required by any Governmental Authority in connection
with ownership and servicing of such Portfolio Pool;
(vii) with respect to Real Property, each of the items
described in Section 3.1(b)(iv);
(viii) a Disbursement Letter in respect of such Advance;
(c) (1) if such Purchase Advance is to be used to finance a
portion of the purchase price payable by Borrower for the purchase of
such Portfolio Pool, the Lender shall be satisfied that upon funding
such Purchase Advance in accordance with the Disbursement Letter with
respect thereto, the purchase contemplated by such Purchase Documents
will be consummated and Borrower will acquire the property to be
purchased by Borrower thereunder free and clear of liens and (2) if such
Purchase Advance is to be
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DALLAS2 939606V9 53877-00012
used to refinance a portion of the purchase price previously financed by
another Person in respect of the purchase of such Portfolio Pool, the
Lender shall be satisfied that upon funding such Purchase Advance in
accordance with the Disbursement Letter with respect thereto, all
obligations and indebtedness owing to, and all Liens in property of
Borrower claimed by, such Person will be released and discharged,
(d) Borrower shall have filed all financing statements and taken
any and all other action, in each case as may be required to
perfect Borrower's ownership interest in such Portfolio Pool (including
all Portfolio Loan Receivables included therein), in form and substance
satisfactory to the Lender;
(e) the Lender shall be satisfied that upon funding such
Purchase Advance, the Lender will have a valid and enforceable first
priority security interest in and to all Collateral in respect of such
Portfolio Pool;
(f) Borrower shall have paid all Lender Expenses incurred in
connection with the transactions evidenced by this Agreement; and
(g) all other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered,
executed, or recorded and shall be in form and substance reasonably
satisfactory to the Lender.
3.3 Conditions Subsequent to the Initial Extension of Credit. The
obligation of Lender to continue to make Advances (or otherwise extend credit
hereunder) is subject to the fulfillment, on or before the date applicable
thereto, of each of the following conditions subsequent (the failure by Borrower
to so perform or cause to be performed constituting a failure of a condition for
funding and an Event of Default):
(a) within thirty (30) days after each Purchase Advance,
any item required by clauses (1) through (5) of Section 3.2(b)(iii), delivery of
which to Lender is deferred pursuant to the proviso of such Section 3.2(b)(iii);
(b) within thirty (30) days of the Closing Date,
Borrower will deliver to Lender certificates of foreign qualification and good
standing of Borrower from the appropriate government offices in the states of
Arizona, New Mexico, Texas and Utah; and
(c) within thirty (30) days of the Closing Date,
Borrower will cause to be delivered to Lender the certificate of foreign
qualification and good standing of Servicer from the appropriate government
office in the state of California.
If the employment of any Validity Guarantor as an officer of Borrower or
Servicer terminates, Borrower shall deliver to Lender, in each case, within 30
days of the date of each such termination, a validity guaranty which is duly
executed and delivered by another officer of Borrower or Servicer (the identity
of whom shall be acceptable to Lender in its discretion) and which is
substantially in the form of the Validity Guaranty or otherwise in form and
substance satisfactory to Lender.
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3.4 Conditions Precedent to all Extensions of Credit. The obligation of
Lender to make all Advances (or to extend any other credit hereunder) shall be
subject to the following conditions precedent:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all material
respects on and as of the date of such extension of credit, as though made on
and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date),
(b) no Default or Event of Default shall have occurred
and be continuing on the date of such extension of credit, nor shall either
result from the making thereof,
(c) no injunction, writ, restraining order, or other
order of any nature prohibiting, directly or indirectly, the extending of such
credit shall have been issued and remain in force by any Governmental Authority
against Borrower, Lender, or any of their Affiliates, and
(d) no Material Adverse Change shall have occurred.
3.5 Term. This Agreement shall become effective upon the execution and
delivery hereof by Borrower and Lender and shall continue in full force and
effect for a term ending on the Maturity Date. The foregoing notwithstanding,
Lender shall have the right to terminate its obligations under this Agreement
immediately and without notice upon the occurrence and during the continuation
of an Event of Default.
3.6 Effect of Termination. On the Termination Date, all Obligations
(including all Bank Product Obligations) immediately shall become due and
payable without notice or demand (including providing cash collateral to be held
by Lender for the benefit of the Bank Product Providers with respect to the then
extant Bank Product Obligations). No termination of this Agreement, however,
shall relieve or discharge Borrower of its duties, Obligations, or covenants
hereunder and the Lender's Liens in the Collateral shall remain in effect until
all Obligations have been fully and finally discharged and Lender's obligations
to provide additional credit hereunder have been terminated. When this Agreement
has been terminated and all of the Obligations have been fully and finally
discharged and Lender's obligations to provide additional credit under the Loan
Documents have been terminated irrevocably, Lender will, at Borrower's sole
expense, execute and deliver any termination statements, lien releases, mortgage
releases, re-assignments of trademarks, discharges of security interests, and
other similar discharge or release documents (and, if applicable, in recordable
form) as are reasonably necessary to release, as of record, the Lender's Liens
and all notices of security interests and liens previously filed by Lender with
respect to the Obligations.
3.7 Early Termination by Borrower. Borrower has the option, at any time
upon 90 days prior written notice to Lender, to terminate this Agreement by
paying to Lender, in cash, the Obligations (including providing cash collateral
to be held by Lender for the benefit of the Bank Product Providers with respect
to the then extant Bank Product Obligations), in full, together with the
Applicable Prepayment Premium. If Borrower has sent a notice of termination
pursuant to the provisions of this Section, then Lender's obligations to extend
credit hereunder shall terminate and Borrower shall be obligated to repay the
Obligations (including providing cash
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DALLAS2 939606V9 53877-00012
collateral to be held by Lender for the benefit of the Bank Product Providers
with respect to the then extant Bank Product Obligations) in full, together with
the Applicable Prepayment Premium, on the date set forth as the date of
termination of this Agreement in such notice.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower hereby grants to Lender (and
any Bank Product Provider to the extent that it has provided Bank Products to
Parent, Borrower or its Subsidiaries) a continuing security interest in all of
its right, title, and interest in all currently existing and hereafter acquired
or arising Collateral in order to secure prompt repayment of any and all of the
Obligations in accordance with the terms and conditions of the Loan Documents
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. The Lender's Liens in and to the Collateral
shall attach to all Collateral without further act on the part of Lender or
Borrower. Anything contained in this Agreement or any other Loan Document to the
contrary notwithstanding, except for Permitted Dispositions, Borrower has no
authority, express or implied, to dispose of any item or portion of the
Collateral.
4.2 Negotiable Collateral. Not later than the earlier of 20 days after
each Purchase Advance or the date when first available to Borrower, Borrower
shall cause the original of each Portfolio Note for each Portfolio Loan
Receivable included in the Borrowing Base with respect to such Purchase Advance
to be delivered to Lender, or to a third party custodian acceptable to Lender in
Lender's sole and absolute discretion (the "Collateral Agent") pursuant to a
Collateral Agency Agreement in form and substance acceptable to Lender (a
"Collateral Agency Agreement") in Lender's sole and absolute discretion, duly
endorsed by Borrower as follows: "Pay to the order of Foothill Capital
Corporation." In the event that any other Collateral, including proceeds, is
evidenced by or consists of Negotiable Collateral, and if and to the extent that
perfection of priority of Lender's security interest is dependent on or enhanced
by possession, Borrower, immediately upon the request of Lender, shall endorse
and deliver physical possession of such Negotiable Collateral to Lender,
provided, however, if acceptable to Lender Borrower may deliver Negotiable
Collateral to a Collateral Agent pursuant to a Collateral Agency Agreement in
form and substance acceptable to Lender in Lender's sole and absolute
discretion.
4.3 Collection of Portfolio Loan Receivables, Accounts, General
Intangibles and Chattel Paper. At any time after the occurrence and during the
continuation of an Event of Default, Lender or Lender's designee may (a) notify
Obligors or other obligors that Portfolio Loan Receivables, Accounts, chattel
paper or General Intangibles have been assigned to Lender or that Lender has a
security interest therein, or (b) collect the Portfolio Loan Receivables,
Accounts, chattel paper or General Intangibles directly and charge the
collection costs and expenses to the Loan Account. Borrower agrees that it will
hold in trust for Lender, as Lender's trustee, any Collections that it receives
and immediately will deliver said Collections to Servicer pursuant to the
Servicing Agreement or, at the request of Lender to Lender, in each case in
their original form as received by Borrower.
4.4 Delivery of Additional Documentation Required. At any time upon the
request of Lender, Borrower shall execute and deliver to Lender, any and all
financing statements, original financing statements in lieu of continuation
statements, fixture filings, security
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agreements, pledges, assignments, endorsements of certificates of title, and all
other documents (the "Additional Documents") that Lender may request in its
Permitted Discretion, in form and substance satisfactory to Lender, to perfect
and continue perfected or better perfect the Lender's Liens in the Collateral
(whether now owned or hereafter arising or acquired), to create and perfect
Liens in favor of Lender in any Real Property acquired after the Closing Date,
and in order to fully consummate all of the transactions contemplated hereby and
under the other Loan Documents. To the maximum extent permitted by Applicable
Law, Borrower authorizes Lender to execute any such Additional Documents in
Borrower's name and authorizes Lender to file such executed Additional Documents
in any appropriate filing office. In addition, on such periodic basis as Lender
shall require, Borrower shall (a) provide Lender with a report of all new
patentable, copyrightable, or trademarkable materials acquired or generated by
Borrower during the prior period, (b) cause all patents, copyrights, and
trademarks acquired or generated by Borrower that are not already the subject of
a registration with the appropriate filing office (or an application therefor
diligently prosecuted) to be registered with such appropriate filing office in a
manner sufficient to impart constructive notice of Borrower's ownership thereof,
and (c) cause to be prepared, executed, and delivered to Lender supplemental
schedules to the applicable Loan Documents to identify such patents, copyrights,
and trademarks as being subject to the security interests created thereunder.
4.5 Power of Attorney. Borrower hereby irrevocably makes, constitutes,
and appoints Lender (and any of Lender's officers, employees, or agents
designated by Lender) as Borrower's true and lawful attorney, with power to (a)
if Borrower refuses to, or fails timely to execute and deliver any of the
documents described in Section 4.4, sign the name of Borrower on any of the
documents described in Section 4.4, (b) endorse Borrower's name on any
Collection item that may come into Lender's possession, (c) at any time that an
Event of Default has occurred and is continuing: (i) send requests for
verification with respect to any Portfolio Loan Receivable, (ii) settle and
adjust all claims under Borrower's policies of insurance and make all
determinations and decisions with respect to such policies of insurance, (iii)
take control, in any manner, of any item of payment or proceeds relating to any
Collateral, (iv) prepare, file, and sign Borrower's name to a proof of claim in
bankruptcy or similar document against any Obligor, or to any notice of lien,
assignment, or satisfaction of lien or similar document in connection with any
of the Collateral, (v) receive and open mail addressed to Borrower and dispose
of all Collections and related mail and payment items, and notify postal
authorities to change the address for delivery thereof to such address as Lender
may designate, (vi) use the information recorded on or contained in any data
processing equipment, computer hardware, and software relating to the
Collateral, (vii) settle and adjust disputes and claims respecting the Portfolio
Loan Receivables directly with Obligors, for amounts and upon terms that Lender
determines to be reasonable, and Lender may cause to be executed and delivered
any documents and releases that Lender determines to be necessary, (viii)
execute such assignments, for and in the name of Borrower, as necessary to cause
any Portfolio Mortgage to be assigned to Lender and (ix) execute, as a Person
authorized to do so under the Code, or in the name of Borrower, such statements
of continuation, assignment or amendment with respect to any financing
statements included in the Portfolio Documents as Lender may deem necessary, and
(d) do all other acts and things necessary, in Lender's determination, to
fulfill Borrower's obligations under this Agreement. The appointment of Lender
as Borrower's attorney, and each and every one of its rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have
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been fully and finally repaid and performed and Lender's obligations to extend
credit hereunder are terminated.
4.6 Right to Inspect. Lender and its officers, employees, or agents
shall have the right, from time to time (a) during normal business hours so long
as no Default or Event of Default is in existence and no Material Adverse Change
has occurred or (b) otherwise, at Lender's discretion, to inspect the Books and
the Portfolio Books and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, quality, value, condition
of, or any other matter relating to, the Collateral. Without limiting the
foregoing, Lender shall have the right at any time to visit the properties
(including Real Property) of Borrower included in the Portfolio Collateral,
discuss Borrower's business, assets, liabilities, financial condition, results
of operations and business prospects, insofar as the same are reasonably related
to the rights of Lender hereunder or under any of the Loan Documents, with
Borrower's principal officers, independent accountants and other professionals
providing services to Borrower, and any other Person, and verify any matter
relating to the Collateral, provided, that nothing herein shall be construed to
grant Lender any rights of examination and inspection with respect to any
Obligor which are greater than Borrower's rights of examination and inspection
with respect to such Obligor. Lender shall have full access to all records
available to Borrower or Servicer from any credit reporting service, bureau or
similar service and shall have the right to examine and make copies of any such
records.
4.7 Control Agreements. Borrower agrees that it will not transfer assets
out of any Securities Accounts other than as permitted under Section 7.19 and,
if to another securities intermediary, unless each of Borrower, Lender, and the
substitute securities intermediary have entered into a Control Agreement. No
arrangement contemplated hereby or by any Control Agreement in respect of any
Securities Accounts or other Investment Property shall be modified by Borrower
without the prior written consent of Lender. Upon the occurrence and during the
continuance of a Default or Event of Default, Lender may notify any securities
intermediary to liquidate the applicable Securities Account or any related
Investment Property maintained or held thereby and remit the proceeds thereof to
the Lender's Account.
4.8 Portfolio Acquisition Documents. Borrower shall promptly provide
Lender with copies of all Portfolio Acquisition Documents, and all collateral
assignments and financing statements which are filed in connection therewith on
or after the Closing Date.
4.9 Portfolio Documents. Borrower will maintain all Portfolio Documents
(other than Portfolio Notes which have been delivered to Lender pursuant to
Section 4.2) in a secure manner in a location with fire, casualty and theft
protection satisfactory to the Lender. Borrower will provide to Lender copies of
any Portfolio Documents as Lender may request.
4.10 Borrower's Perfection. Borrower represents to Lender that all
appropriate financing statements, and all related statements of assignment or
amendment in order to cause Borrower to be properly noted as secured party of
record with respect thereto, have been filed in all filing locations as may be
required to perfect and protect in favor of Borrower all security interests,
liens and rights evidenced by all Portfolio Documents with respect to all
personal property securing Portfolio Loan Receivables existing as of the Closing
Date, and that such filings remain effective as of such date. Unless otherwise
expressly agreed by Lender, Borrower
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DALLAS2 939606V9 53877-00012
covenants that it will take all action necessary to maintain the effectiveness
of such filings. Lender is authorized to file any UCC-3 statements of
continuation, assignment or amendment as it may determine in its discretion to
be necessary to enable it to protect and maintain its interests under this
Agreement. Borrower hereby irrevocably authorizes Lender to file, and at
Lender's request Borrower shall execute, such other financing statements and
amendments thereof, in form and substance satisfactory to Lender, as Lender may
request in order to protect and maintain its interests under this Agreement.
Borrower represents to Lender that all filings and recordations, and all related
assignments, have been filed or recorded in all jurisdictions as may be required
to perfect and protect in favor of Borrower all Portfolio Mortgages and other
liens or interests evidenced by Portfolio Documents with respect to all Real
Property securing Portfolio Loan Receivables existing as of the Closing Date,
and that such filings and recordations remain effective as of such date.
4.11 Custodial Possession. Upon written request, Lender will deliver any
Portfolio Note and related Portfolio Documents to Borrower or any Servicer for
the limited purpose of any presentation, collection, renewal, sale or
disposition not prohibited by this Agreement, provided, that such request shall
specify the specific limited purpose thereof and identify the Portfolio Note and
related Portfolio Documents which are the subject of such request and, prior to
taking possession thereof, Borrower (or Servicer on its behalf) shall sign a
custodial receipt, in form satisfactory to Lender (i) identifying such Portfolio
Note and related Portfolio Collateral Documents, (ii) stating such limited
purpose, (iii) committing Borrower (and, if applicable, such Servicer) to return
possession of such Portfolio Note and related Portfolio Collateral Documents to
Lender promptly upon completion of such purpose but in any event no later than
twenty one (21) calendar days after taking possession thereof (unless the stated
limited purpose is sale or disposition, in which event such custodial receipt
shall confirm arrangements, satisfactory to Lender, for delivery of all proceeds
thereof to Lender), (iv) stating that Borrower's (and, if applicable, such
Servicer's) possession of such Portfolio Note and related Portfolio Documents at
all times remains subject to Lender's rights under this agreement and (v)
containing such other agreements or confirmations as Lender may require.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Lender to enter into this Agreement, Borrower
makes the following representations and warranties to Lender which shall be
true, correct, and complete, in all material respects, as of the date hereof,
and shall be true, correct, and complete, in all material respects, as of the
Closing Date, and at and as of the date of the making of each Advance (or other
extension of credit) made thereafter, as though made on and as of the date of
such Advance (or other extension of credit) (except to the extent that such
representations and warranties relate solely to an earlier date) and such
representations and warranties shall survive the execution and delivery of this
Agreement:
5.1 No Encumbrances. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens except for Permitted Liens.
5.2 Eligible Portfolio Loan Receivables. Each Eligible Portfolio
Loan Receivable (i) to the best of Borrower's knowledge, represents bona fide
existing obligations created by the lending of money by an Originator to its
borrower customer in the ordinary course of such
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DALLAS2 939606V9 53877-00012
Originator's business and (ii) has been absolutely sold, transferred and
conveyed by a Seller to Borrower, and purchased and accepted by Borrower from
such Seller, pursuant to Portfolio Acquisition Documents. Each Eligible
Portfolio Loan Receivable has been documented in accordance with the Required
Procedures and the Portfolio Agreements evidencing same, as delivered to Lender,
represent the entire agreement by Obligor with respect thereto. Unless otherwise
disclosed to Lender in writing at the time of proposing a Portfolio Receivable
to Lender for eligibility, neither Borrower nor Parent has received notice of
(a) actual or imminent bankruptcy, insolvency, or material impairment of the
financial condition of any Obligor regarding any Eligible Portfolio Loan
Receivable or (b) actual or threatened litigation regarding the validity or
enforceability of any Eligible Portfolio Loan Receivable or the validity,
enforceability or priority of any Portfolio Mortgage or Lien on other Portfolio
Collateral. With respect to each Eligible Portfolio Loan Receivable, Borrower
has duly recorded an assignment of the Portfolio Mortgage in favor of Borrower
and duly filed financing statements with respect to any Personal Property
Collateral for such Eligible Portfolio Loan Receivable against the applicable
Obligor in all applicable jurisdictions, and Borrower has taken all action to
cause such Seller's transfer and assignment thereof to Borrower to be filed of
record in all appropriate filing offices as required to disclose such transfer
and assignment and protect Borrower's ownership thereof. Unless otherwise
clearly disclosed to Lender in writing prior to submission to Lender for
evaluation for eligibility, Borrower represents that it is the sole legal and
beneficial owner of each Portfolio Loan Receivable proposed to Lender as an
Eligible Portfolio Loan Receivable, and all related Portfolio Documents and
Portfolio Books, and that no participation interest or other ownership interest
(legal, beneficial or otherwise) has been sold or is otherwise outstanding with
respect thereto.
5.3 Equipment. All of the Equipment is used or held for use in
Borrower's business and is fit for such purposes.
5.4 Location of Books, Inventory and Equipment. The Books are not stored
with a bailee, warehouseman, or similar party and are located in Borrower's
possession, or in Servicer's possession on behalf of Borrower, only at the
locations identified on Schedule 5.4. All Inventory and Equipment is located at
the locations identified on Schedule 5.4.
5.5 Portfolio Loan Receivables Records. To the best knowledge and belief
of Borrower, all entries in all Portfolio Books, as of the Closing Date, are
true, correct and complete in all material respects. All Portfolio Books are
true, correct and complete in all material respects with respect to all
payments, advances, and events occurring after the Closing Date.
5.6 Location of Chief Executive Office; FEIN. The chief executive office
of Borrower is located at the address indicated in Schedule 5.6 and Borrower's
FEIN is identified in Schedule 5.6.
5.7 Due Organization and Qualification; Subsidiaries
(a) Borrower is a wholly-owned Subsidiary of K-W
Properties. Parent owns 100% of the Capital Stock of K-W Properties. Each
Obligated Party is duly organized and existing and in good standing under the
laws of the jurisdiction of its organization and qualified to do business in any
state where the failure to be so qualified reasonably could be expected to
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DALLAS2 939606V9 53877-00012
result in a Material Adverse Change. No Obligated Party is required to obtain
any licenses, permits or approvals from any Governmental Authority in order to
engage in its line of business which it has not duly obtained.
(b) Set forth on Schedule 5.7(b), is a complete and
accurate description of the authorized Capital Stock of Borrower, by class, and,
as of the Closing Date, a description of the number of shares of each such class
that are issued and outstanding. Other than as described on Schedule 5.7(b),
there are no subscriptions, options, warrants, or calls relating to any shares
of Borrower's Capital Stock, including any right of conversion or exchange under
any outstanding security or other instrument. Borrower is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its Capital Stock or any security convertible into or
exchangeable for any of its Capital Stock.
(c) Borrower has no direct or indirect Subsidiaries.
5.8 Due Authorization; No Conflict
(a) The execution, delivery, and performance by Borrower
of this Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary action on the part of Borrower.
(b) The execution, delivery, and performance by Borrower
of this Agreement and the other Loan Documents to which it is a party do not and
will not (i) violate any provision of federal, state, or local law or regulation
applicable to Borrower, the Governing Documents of Borrower, or any order,
judgment, or decree of any court or other Governmental Authority binding on
Borrower, (ii) conflict with, result in a breach of, or constitute (with due
notice or lapse of time or both) a default under any material contractual
obligation of Borrower, (iii) result in or require the creation or imposition of
any Lien of any nature whatsoever upon any properties or assets of Borrower,
other than Permitted Liens, or (iv) require any approval of Borrower's interest
holders or any approval or consent of any Person under any material contractual
obligation of Borrower.
(c) Other than the filing of the financing statements,
the execution, delivery, and performance by Borrower and the other Persons party
to this Agreement and the other Loan Documents to which Borrower is a party do
not and will not require any registration with, consent, or approval of, or
notice to, or other action with or by, any Governmental Authority or other
Persons.
(d) This Agreement and the other Loan Documents to which
Borrower is a party, and all other documents contemplated hereby and thereby,
when executed and delivered by Borrower will be the legally valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms, except as enforcement may be limited by equitable principles
or by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors' rights generally.
(e) The Lender's Liens are validly created, perfected,
and first priority Liens, subject only to Permitted Liens.
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DALLAS2 939606V9 53877-00012
(f) The execution, delivery, and performance by
Guarantor of the Loan Documents to which it is a party have been duly authorized
by all necessary action on the part of Guarantor.
(g) The execution, delivery, and performance by
Guarantor of the Loan Documents to which it is a party do not and will not (i)
violate any provision of federal, state, or local law or regulation applicable
to Guarantor, the Governing Documents of Guarantor, or any order, judgment, or
decree of any court or other Governmental Authority binding on Guarantor, (ii)
conflict with, result in a breach of, or constitute (with due notice or lapse of
time or both) a default under any material contractual obligation of Guarantor,
(iii) result in or require the creation or imposition of any Lien of any nature
whatsoever upon any properties or assets of Guarantor, other than Permitted
Liens, or (iv) require any or consent of any Person under any material
contractual obligation of Guarantor.
(h) The execution, delivery, and performance by
Guarantor of the Loan Documents to which Guarantor is a party do not and will
not require any registration with, consent, or approval of, or notice to, or
other action with or by, any Governmental Authority or other Person.
(i) The Loan Documents to which Guarantor is a party,
and all other documents contemplated hereby and thereby, when executed and
delivered by Guarantor will be the legally valid and binding obligations of
Guarantor, enforceable against Guarantor in accordance with their respective
terms, except as enforcement may be limited by equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to
or limiting creditors' rights generally.
5.9 Litigation. Other than those matters disclosed on Schedule 5.9,
there are no actions, suits, or proceedings pending or, to the best knowledge of
Borrower or Guarantor, threatened against Borrower or Guarantor, or any of its
Subsidiaries, as applicable, except for (a) matters that are fully covered by
insurance (subject to customary deductibles), and (b) matters arising after the
Closing Date that, if decided adversely to Borrower or Guarantor, or any of its
Subsidiaries, as applicable, reasonably could not be expected to result in a
Material Adverse Change.
5.10 No Material Adverse Change. All financial statements relating to
Borrower or Parent that have been delivered by Borrower or Parent to Lender have
been prepared in accordance with GAAP (except, in the case of unaudited
financial statements, for the lack of footnotes and being subject to year-end
audit adjustments) and present fairly in all material respects, Borrower's or
Parent's financial condition, as the case may be, as of the date thereof and
results of operations for the period then ended. There has not been a Material
Adverse Change with respect to Borrower or Parent since the date of the latest
financial statements submitted to Lender on or before the Closing Date.
5.11 Fraudulent Transfer
(a) Each of Borrower and Parent is Solvent.
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DALLAS2 939606V9 53877-00012
(b) No transfer of property is being made by Borrower or
Parent and no obligation is being incurred by Borrower or Parent in connection
with the transactions contemplated by this Agreement or the other Loan Documents
with the intent to hinder, delay, or defraud either present or future creditors
of Borrower or Parent.
5.12 Employee Benefits. None of Borrower, any of its Subsidiaries, or
any of their ERISA Affiliates maintains or contributes to any Benefit Plan.
5.13 Environmental Condition. Except as set forth on Schedule 5.13, (a)
to Borrower's knowledge, none of Borrower's assets has ever been used by
Borrower or by previous owners or operators in the disposal of, or to produce,
store, handle, treat, release, or transport, any Hazardous Materials, where such
production, storage, handling, treatment, release or transport was in violation,
in any material respect, of applicable Environmental Law, (b) to Borrower's
knowledge, none of Borrower's properties or assets has ever been designated or
identified in any manner pursuant to any environmental protection statute as a
Hazardous Materials disposal site, (c) Borrower has not received notice that a
Lien arising under any Environmental Law has attached to any revenues or to any
Real Property, and (d) Borrower has not received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal or state
governmental agency concerning any action or omission by Borrower resulting in
the releasing or disposing of Hazardous Materials into the environment.
5.14 Brokerage Fees. Any and all brokerage commissions or finders fees
payable in connection herewith shall be the sole responsibility of Borrower and
Lender shall have no obligation for any such payments.
5.15 Intellectual Property. Borrower owns, or holds licenses in, all
trademarks, trade names, copyrights, patents, patent rights, and licenses that
are necessary to the conduct of its business as currently or proposed to be
conducted. Attached hereto as Schedule 5.15 is a true, correct, and complete
listing of all material patents, patent applications, trademarks, trademark
applications, copyrights, and copyright registrations as to which Borrower is
the owner or is an exclusive licensee.
5.16 Leases. Borrower is not party to any lease agreement. No Books or
Portfolio Records are located on any leased premises except as described in
Schedule 5.16.
5.17 DDAs. Set forth on Schedule 5.17 are all of Borrower's DDAs,
including, with respect to each depository (i) the name and address of such
depository, and (ii) the account numbers of the accounts maintained with such
depository.
5.18 Complete Disclosure. All factual information (taken as a whole)
furnished by or on behalf of Borrower or Parent in writing to Lender (including
all information contained in the Schedules hereto or in the other Loan
Documents) for purposes of or in connection with this Agreement, the other Loan
Documents, or any transaction contemplated herein or therein is, and all other
such factual information (taken as a whole) hereafter furnished by or on behalf
of Borrower or Parent in writing to Lender will be, true and accurate, in all
material respects, on the date as of which such information is dated or
certified and not incomplete by omitting to state any fact necessary to make
such information (taken as a whole) not misleading in any material
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DALLAS2 939606V9 53877-00012
respect at such time in light of the circumstances under which such information
was provided. On the Closing Date, the Closing Date Business Plan represents,
and as of the date on which any other Projections are delivered to Lender, such
additional Projections will represent Borrower's good faith best estimate of its
future performance for the periods covered thereby.
5.19 Indebtedness. The Borrower has no Indebtedness outstanding other
than the Subordinated Debt identified on Schedule 5.19.
5.20 Compliance. The Required Procedures, the Portfolio Documents and
all actions and transactions by Parent, Borrower and Servicer in connection
therewith comply in all material respects with all Applicable Laws.
5.21 Servicing. Borrower has entered into the Servicing Agreement with
Parent pursuant to which Borrower has engaged Parent, as Servicer and as
Borrower's agent, to monitor, manage, enforce and collect the Portfolio Loan
Receivables comprising the Purchased Portfolio and disburse Collections in
respect thereof as provided by the Servicing Agreement, subject to this
Agreement. Parent has the requisite knowledge, experience, expertise and
capacity to service the Purchased Portfolio.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, Borrower
shall and shall cause each of its Subsidiaries to do all of the following:
6.1 Accounting System. Maintain a system of accounting that enables
Borrower to produce financial statements in accordance with GAAP and maintain
records pertaining to the Collateral that contain information as from time to
time reasonably may be requested by Lender.
6.2 Collateral Reporting. Provide Lender with the following documents at
the following times in form satisfactory to Lender and signed by ▇▇▇▇ ▇. ▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, or any Authorized Person satisfactory to Lender:
Prior to any Advance (a) a calculation of the Borrowing Base
as of such date (including aging reports, delinquency
and past due reports in respect of Portfolio Loan
Receivables, and such other information reasonably
requested by Lender),
Monthly (not later
than the 10th day (b) an ERV Projection for each Portfolio Pool as of the
of each month) last day of the preceding calendar month;
(b) a Borrowing Base Certificate as of the last day of
the preceding calendar month with includes a detailed
analysis of the Borrowing Base as of the date thereof,
together with a reconciliation to the Borrowing Base
Certificate previously provided to Lender and containing
all information reasonably requested by Lender,
(c) detailed information regarding Portfolio Loan
Receivables, including all
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DALLAS2 939606V9 53877-00012
information reasonably requested by Lender,
(d) for each Portfolio Pool, a current cumulative
listing of Portfolio Loan Receivables Borrower has
deemed to be uncollectible.
(d) a report of the amount of Portfolio Payment
Collections actually received during the prior month,
together with a reconciliation against the amount of
Portfolio Payment Collections projected to be received
during such month;
(e) a report of dispositions of Portfolio Loan
Receivables, if any, and Collections received in respect
thereof during the prior month;
(f) a report detailing Real Property of Borrower and
including such information as Lender may reasonably
request;
(d) a detailed calculation of Borrower's and its
Subsidiaries' obligations with respect to Bank Product
Agreements; and
Upon request by (e) such other reports as to the Collateral, or the
Lender financial condition of Borrower or Parent, as Lender may
reasonably request.
In addition, Borrower agrees to cooperate fully with Lender to facilitate and
implement a system of electronic collateral reporting in order to provide
electronic reporting of each of the items set forth above.
6.3 Financial Statements, Reports, Certificates. Deliver to Lender:
(a) as soon as available, but in any event within 30
days after the end of each month during each of Borrower's fiscal years,
(i) a company prepared consolidated balance sheet and
income statement covering Borrower's and its Subsidiaries'
operations during such period,
(ii) a certificate signed by the chief financial officer
of Borrower to the effect that:
(A) the financial statements delivered hereunder
have been prepared in accordance with GAAP (except for
the lack of footnotes and being subject to year-end
audit adjustments) and fairly present in all material
respects the financial condition of Borrower and its
Subsidiaries,
(B) the representations and warranties of
Borrower contained in this Agreement and the other Loan
Documents are true and correct in all material respects
on and as of the date of such certificate, as though
made
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DALLAS2 939606V9 53877-00012
on and as of such date (except to the extent that such
representations and warranties relate solely to an
earlier date), and
(C) there does not exist any condition or event
that constitutes a Default or Event of Default (or, to
the extent of any non-compliance, describing such
non-compliance as to which he or she may have knowledge
and what action Borrower has taken, is taking, or
proposes to take with respect thereto), and
(iii) for each month that is the date on which a
financial covenant in Section 7.20 is to be tested, a Compliance
Certificate demonstrating, in reasonable detail, compliance at
the end of such period with the applicable financial covenants
contained in Section 7.20,
(b) as soon as available, but in any event within 90
days after the end of each of Borrower's fiscal years, consolidated financial
statements of Borrower and its Subsidiaries for each such fiscal year, audited
by independent certified public accountants acceptable to Lender in Lender's
sole and absolute discretion (Lender acknowledges that as of the Closing Date
KPMG LLP is acceptable to Lender) and certified, without any qualifications, by
such accountants to have been prepared in accordance with GAAP (such audited
financial statements to include a balance sheet, income statement, and statement
of cash flow and, if prepared, such accountants' letter to management), together
with a certificate of such accountants addressed to Lender stating that such
accountants do not have knowledge of the existence of any Default of Event of
Default under Section 7.20,
(c) as soon as available, but in any event within 30
days after the end of each fiscal quarter during each of Parent's fiscal years,
(i) a company prepared consolidated balance sheet and
income statement covering Parent's operations during such
period,
(ii) a certificate signed by the chief financial officer
and controller of Parent (in each case in his or her
representative capacity as an officer of Parent and not
individually) to the effect that:
(A) the financial statements delivered hereunder
have been prepared in accordance with GAAP (except for
the lack of footnotes and being subject to year-end
audit adjustments) and fairly present in all material
respects the financial condition of Parent,
(B) the representations and warranties of Parent
contained in the Loan Documents are true and correct in
all material respects on and as of the date of such
certificate, as though made on and as of such date
(except to the extent that such representations and
warranties relate solely to an earlier date), and
(C) there does not exist any condition or event
that constitutes a Default or Event of Default (or, to
the extent of any non-compliance,
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DALLAS2 939606V9 53877-00012
describing such non-compliance as to which he or she may
have knowledge and what action Parent has taken, is
taking, or proposes to take with respect thereto), and
(d) as soon as available, but in any event within 90
days after the end of each of Parent's fiscal years, consolidated financial
statements of Parent for each such fiscal year, audited by independent certified
public accountants acceptable to Lender in Lender's sole and absolute discretion
and certified, without any qualifications, by such accountants to have been
prepared in accordance with GAAP (such audited financial statements to include a
balance sheet, income statement, and statement of cash flow and, if prepared,
such accountants' letter to management),
(e) as soon as available, but in any event 30 Business
Days prior to the start of each of Borrower's fiscal years, copies of Borrower's
Projections, in form and substance (including as to scope and underlying
assumptions) satisfactory to Lender, for the forthcoming two years, year by
year, and for the first such fiscal year, month by month, certified by the chief
financial officer of Borrower as being such officer's good faith best estimate
of the financial performance of Borrower during the period covered thereby, and
for each fiscal year thereafter, on a quarterly basis, certified by the chief
financial officer of Borrower as being such officer's good faith best estimate
of the financial performance of Borrower during the period covered thereby,
(i) if and when filed by Borrower,
(ii) copies of Parent's federal income tax returns, and
any amendments thereto, filed with the Internal Revenue Service,
and
(iii) any other information that is provided by Borrower
to Parent in its capacity as sole shareholder, generally,
(f) if and when filed by Borrower and as requested by
Lender, satisfactory evidence of payment of applicable excise taxes in each
jurisdiction in which (i) Borrower conducts business or is required to pay any
such excise tax, (ii) where Borrower's failure to pay any such applicable excise
tax would result in a Lien on the properties or assets of Borrower, or (iii)
where Borrower's failure to pay any such applicable excise tax reasonably could
be expected to result in a Material Adverse Change,
(g) as soon as Borrower has knowledge of any event or
condition that constitutes a Default or an Event of Default, notice thereof and
a statement of the curative action that Borrower proposes to take with respect
thereto,
(h) as soon as available, any other information that is
material to the Purchased Portfolio or any Portfolio Pool, Servicer's ability to
perform its obligations under the Servicing Agreement, Borrower's ability to
repay the Obligations or Borrower's ability to timely perform any of its
obligations under the Loan Documents, and
(i) upon the request of Lender, any other information
reasonably requested relating to the financial condition of Borrower.
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DALLAS2 939606V9 53877-00012
Neither Parent nor any Subsidiary of Borrower will have a fiscal year different
from that of Borrower. Borrower agrees that its independent certified public
accountants are authorized to communicate with Lender and to release to Lender
whatever financial information concerning Borrower as Lender reasonably may
request. Borrower waives the right to assert a confidential relationship, if
any, it may have with any accounting firm or service bureau in connection with
any information requested by Lender pursuant to or in accordance with this
Agreement, and agrees that Lender may contact directly any such accounting firm
or service bureau in order to obtain such information.
6.4 Relationship with Obligors. Perform on-site examinations with
respect to each Obligor on a Portfolio Loan Receivable prior to holding or
consummating any judicial or non-judicial foreclosure sale of any Portfolio
Collateral securing same, and the records of such examinations and all
supporting information and documentation shall be maintained by Borrower and
made available to Lender upon request. Borrower shall deliver to Lender as soon
as available, copies of all write-ups, credit reports, term sheets, and other
information pertaining to Borrower's transactions with existing or prospective
Obligors. Borrower shall promptly notify Lender of any default or event of
default under the Portfolio Documents or the occurrence of any other event which
may impair the prospect of payment of any Portfolio Loan Receivable.
6.5 Title to Property. Upon Lender's request, promptly deliver to
Lender, properly endorsed, any and all evidences of ownership of, certificates
of title, or applications for title to any items of Personal Property
Collateral.
6.6 Maintenance of Properties. Maintain and preserve all of its
properties which are necessary or useful in the proper conduct of its business
in good working order and condition, ordinary wear and tear excepted, and comply
at all times with the provisions of all leases to which it is a party as lessee
so as to prevent any loss or forfeiture thereof or thereunder. Borrower shall
not permit any item of Personal Property Collateral to become a fixture to Real
Property or an accession to other property, and such Personal Property
Collateral shall at all times remain personal property.
6.7 Taxes. Cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower
or any of its assets to be paid in full, before delinquency or before the
expiration of any extension period, except to the extent that the validity of
such assessment or tax shall be the subject of a Permitted Protest. Borrower
will make timely payment or deposit of all tax payments and withholding taxes
required of it by Applicable Laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Lender with proof satisfactory to Lender indicating
that Borrower has made such payments or deposits. Borrower shall deliver
satisfactory evidence of payment of applicable excise taxes in each
jurisdictions in which Borrower is required to pay any such excise tax, in form
satisfactory to Lender.
6.8 Insurance
(a) At Borrower's expense, maintain insurance respecting
its assets wherever located, covering loss or damage by fire, theft, explosion,
and all other hazards and risks as ordinarily are insured against by other
Persons engaged in the same or similar
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DALLAS2 939606V9 53877-00012
businesses. Borrower also shall maintain business and public liability
insurance. All such policies of insurance shall be in such amounts and with such
insurance companies as are reasonably satisfactory to Lender. Borrower shall
deliver copies of all such policies to Lender with a satisfactory lender's loss
payable endorsement naming Lender as sole loss payee or additional insured, as
appropriate. Each policy of insurance or endorsement shall contain a clause
requiring the insurer to give not less than 30 days prior written notice to
Lender in the event of cancellation of the policy for any reason whatsoever.
(b) Borrower shall give Lender prompt notice of any loss
covered by such insurance. Lender shall have the exclusive right and may (but
shall not be obligated) to adjust any losses payable under any such insurance
policies in excess of $50,000, without any liability of Lender to Borrower
whatsoever in respect of such adjustments. Any monies received as payment for
any loss under any insurance policy mentioned above (other than liability
insurance policies) or as payment of any award or compensation for condemnation
or taking by eminent domain, shall be paid over to an account controlled by
Lender to be applied at the option of Borrower either to (i) the prepayment of
the Obligations or (ii) under staged payment terms reasonably satisfactory to
Lender, for application to the cost of repairs, replacements, or restorations.
Any such repairs, replacements, or restorations shall be effected with
reasonable promptness and shall be of a value at least equal to the value of the
items of property destroyed prior to such damage or destruction.
(c) Borrower will not take out separate insurance
concurrent in form or contributing in the event of loss with that required to be
maintained under this Section 6.8, unless Lender is included thereon as named
insured with the loss payable to Lender under a lender's loss payable
endorsement or its equivalent. Borrower immediately shall notify Lender whenever
such separate insurance is taken out, specifying the insurer thereunder and full
particulars as to the policies evidencing the same, and copies of such policies
promptly shall be provided to Lender.
(d) Cause each Obligor to maintain insurance in
accordance with the requirements prescribed by the Required Procedures.
6.9 Location of Books, Inventory and Equipment. Keep its Books,
Inventory and Equipment only at the locations identified on Schedule 5.4;
provided however, that Borrower may amend Schedule 5.4 so long as such amendment
occurs by written notice to Lender not less than 30 days prior to the date on
which any Books, Inventory or Equipment is moved to such new location, so long
as such new location is within the continental United States, and so long as, at
the time of such written notification, Borrower provides any financing
statements or fixture filings necessary to perfect and continue perfected the
Lender's Liens on such assets and also provides to Lender a Collateral Access
Agreement.
6.10 Compliance with Laws. Cause the Required Procedures, the Portfolio
Loan Documents and all actions and transactions by Parent, Borrower or Servicer
in connection therewith to comply in all material respects with all Applicable
Laws.
6.11 Leases. Cause Parent to pay when due all rents and other amounts
payable under any lease agreement with respect to leased premises where any of
the Portfolio Documents or
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DALLAS2 939606V9 53877-00012
Portfolio Books are located, in each case unless such payments are the subject
of a Permitted Protest.
6.12 Brokerage Commissions. Pay any and all brokerage commission or
finders fees incurred in connection with or as a result of Borrower's obtaining
financing from Lender under this Agreement. Borrower agrees and acknowledges
that payment of all such brokerage commissions or finders fees shall be the sole
responsibility of Borrower, and Borrower agrees to indemnify, defend, and hold
Lender harmless from and against any claim of any broker or finder arising out
of Borrower's obtaining financing from Lender under this Agreement.
6.13 Existence. At all times preserve and keep in full force and effect
Borrower's valid existence and good standing and any rights and franchises
material to Borrower's businesses.
6.14 Environmental
(a) Keep any property either owned or operated by
Borrower free of any Environmental Liens or post bonds or other financial
assurances sufficient to satisfy the obligations or liability evidenced by such
Environmental Liens, (b) comply, in all material respects, with Environmental
Laws and provide to Lender documentation of such compliance which Lender
reasonably requests, (c) promptly notify Lender of any release of a Hazardous
Material in any reportable quantity from or onto property owned or operated by
Borrower and take any Remedial Actions required to ▇▇▇▇▇ said release or
otherwise to come into compliance with applicable Environmental Law, and (d)
promptly provide Lender with written notice within 10 days of the receipt of any
of the following: (i) notice that an Environmental Lien has been filed against
any of the real or personal property of Borrower, (ii) commencement of any
Environmental Action or notice that an Environmental Action will be filed
against Borrower, and (iii) notice of a violation, citation, or other
administrative order which reasonably could be expected to result in a Material
Adverse Change.
(b) As soon as reasonably possible and in any event
within 60 days after request by Lender, provide Lender with an environmental
site assessment report, prepared by an environmental consultant acceptable to
Lender and in form satisfactory to Lender, with respect to any Portfolio
Collateral.
6.15 Disclosure Updates. Promptly and in no event later than 5 Business
Days after obtaining knowledge thereof, (a) notify Lender if any written
information, exhibit, or report furnished to Lender contained any untrue
statement of a material fact or omitted to state any material fact necessary to
make the statements contained therein not misleading in light of the
circumstances in which made, and (b) correct any defect or error that may be
discovered therein or in any Loan Document or in the execution, acknowledgement,
filing, or recordation thereof.
6.16 Collateral Access. Execute and maintain in full force and effect
Collateral Access Agreements n connection with all Personal Property Collateral
and personal property securing Portfolio Loan Receivables. Borrower shall assign
all of its rights under such Collateral Access Agreements to Lender and shall
take all further action to ensure that Lender, as collateral assignee of
Borrower, has access to such property.
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6.17 Due Diligence. Cooperate fully with Lender in connection with
Lender's due diligence, from time to time, with respect to property proposed by
Borrower as Collateral and Portfolio Collateral. Without limitation, Borrower
will provide Lender with access to all information, files, records and other
information respecting Collateral or Portfolio Collateral as Lender may request.
Lender shall be entitled to procure such appraisals, brokers' price opinions,
lien search reports, tax filing reports, title reports, evaluations or other
reports, certifications or information as it may require in connection with its
evaluation or re-evaluation of any Collateral.
6.18 Separate Existence; Conduct of Business. Borrower acknowledges that
the Lender has executed this Agreement and entered into the other Loan Documents
in reliance upon Borrower's identity as a separate legal entity from Parent.
From and after the Closing Date, Borrower shall conduct its own business in its
own name and take all reasonable steps, including, without limitation, all steps
that the Lender may from time to time reasonably request, to maintain Borrower's
identity and existence as separate legal entity and to make it manifest to third
parties that Borrower is an entity with assets and liabilities distinct from
those of Parent and is not an operating division of Parent. Without limiting the
generality of the foregoing and in addition to the other covenants set forth
herein, Borrower shall:
(a) conduct all transactions with Parent (including,
without limitation, under the Servicing Agreement) strictly on an arm's-length
basis and allocate all overhead expenses (including, without limitation,
telephone and other utility charges) for items shared between Parent, as the
case may be, and Borrower on the basis of actual use to the extent practicable
and, to the extent such allocation is not practicable, on a basis reasonably
related to actual use;
(b) observe all corporate formalities as a distinct
entity, and ensure that all corporate actions relating to the dissolution or
liquidation of Borrower or the initiation or participation in, acquiescence in,
or consent to any bankruptcy, insolvency, reorganization, or similar proceeding
involving Borrower, are duly authorized by unanimous vote of its managers;
(c) maintain Borrower's Books separate from the books
and records of Parent and otherwise readily identifiable as its own assets
rather than assets of Parent;
(d) except as provided by Section 2.7(b), not commingle
funds or other assets of Borrower with those of Parent and, except for the
Designated Account, not maintain bank accounts or other depository accounts to
which Borrower is an account party, into which Borrower makes deposits or from
which Borrower has the power to make withdrawals; and
(e) except the Service Fee, not permit Borrower to pay
or finance any of Parent's operating expenses.
6.19 Servicing Agreement. Cause Servicer to promptly provide Lender
with true and complete copies of all notices sent or received by Servicer under
the Servicing Agreement.
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DALLAS2 939606V9 53877-00012
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, until termination of this
Agreement and full and final payment of the Obligations, Borrower will not and
will not permit any of its Subsidiaries to do any of the following:
7.1 Indebtedness. Create, incur, assume, permit, guarantee, or otherwise
become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement and the
other Loan Documents,
(b) Subordinated Debt set forth on Schedule 5.19, and
refinancings, renewals, or extensions thereof provided that (i) the terms and
conditions of such refinancings, renewals, or extensions do not, in Lender's
reasonable judgment, materially impair the prospects of repayment of the
Obligations by Borrower or materially impair Borrower's creditworthiness, (ii)
such refinancings, renewals, or extensions do not result in an increase in the
principal amount of, or interest rate with respect to, the Indebtedness so
refinanced, renewed, or extended, (iii) such refinancings, renewals, or
extensions do not result in a shortening of the maturity of the Indebtedness so
refinanced, renewed, or extended, nor are they on terms or conditions that are
materially more burdensome or restrictive to Borrower and (iv) such Indebtedness
constitutes Subordinated Debt.
7.2 Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its assets, of any kind,
whether now owned or hereafter acquired, or any income or profits therefrom,
except for Permitted Liens (including Liens that are replacements of Permitted
Liens to the extent that the original Indebtedness is refinanced, renewed, or
extended under Section 7.1(b) and so long as the replacement Liens only encumber
those assets that secured the refinanced, renewed, or extended Indebtedness).
7.3 Restrictions on Fundamental Changes
(a) Enter into any merger, consolidation,
reorganization, or recapitalization, or reclassify its Capital Stock, other than
a conversion of Borrower's corporate form to a "Subchapter S corporation" under
the IRC, provided that all documentation in respect of such conversion is
satisfactory to Lender and nothing impairs the Obligations, Lender's Liens, or
Lender's rights or Borrower's obligations under the Loan Documents.
(b) Liquidate, wind up, or dissolve itself (or suffer
any liquidation or dissolution).
(c) Convey, sell, lease, license, assign, transfer, or
otherwise dispose of, in one transaction or a series of transactions, all or any
substantial part of its assets.
(d) Change its jurisdiction of organization.
7.4 Disposal of Assets. Other than Permitted Dispositions, convey, sell,
lease, license, assign, transfer, or otherwise dispose of any of Borrower's
assets.
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7.5 Change Name. Change Borrower's name, FEIN, corporate structure, or
identity, or add any new fictitious name; provided however, that Borrower may
change its name upon at least 30 days prior written notice to Lender of such
change and so long as, at the time of such written notification, Borrower
provides any financing statements or fixture filings necessary to perfect and
continue perfected the Lender's Liens.
7.6 Guarantee. Guarantee or otherwise become in any way liable with
respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of Borrower in the
ordinary course of business or which are transmitted or turned over to Lender.
7.7 Nature of Business. Engage directly or indirectly in any line of
business or activity other than owning and servicing the Purchased Portfolio and
the transactions contemplated and authorized by the Servicing Agreement.
7.8 Prepayments and Amendments.
(a) Prepay, redeem, defease, purchase, or otherwise
acquire any Indebtedness of any Obligated Party, other than the Obligations in
accordance with this Agreement, and
(b) Directly or indirectly, amend, modify, alter,
increase, or change any of the terms or conditions of any agreement, instrument,
document, indenture, or other writing evidencing or concerning Indebtedness
except as allowed by Section 7.1(b).
7.9 Change of Control. Cause, permit, or suffer, directly or indirectly,
any Change of Control.
7.10 Required Procedures. Make any changes or revisions in any
material respect to the Required Procedures.
7.11 Modification of Portfolio Loan Receivables. Modify any Portfolio
Loan Receivable or Portfolio Documents, other than modifications made in
accordance with the Required Procedures, provided, that no such modification may
forgive any amount payable under a Portfolio Loan Receivable, release any
guaranty of a Portfolio Loan Receivable or release any Portfolio Collateral
without the prior written consent of Lender.
7.12 Distributions. Other than Permitted Distributions, make any
distribution or declare or pay any dividends (in cash or other property, other
than common Stock) on, or purchase, acquire, redeem, or retire any of Borrower's
Stock, of any class, whether now or hereafter outstanding.
7.13 Accounting Methods. Modify or change its method of accounting
(other than as may be required to conform to GAAP) or enter into, modify, or
terminate any agreement currently existing, or at any time hereafter entered
into with any third party accounting firm or service bureau for the preparation
or storage of Borrower's accounting records, or in the case of Servicer, its
records with respect to Borrower and the Purchased Portfolio, without said
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accounting firm or service bureau agreeing to provide Lender information
regarding the Collateral or Borrower's financial condition.
7.14 Investments. Directly or indirectly, form or acquire any
Subsidiaries or make or acquire any other Investment or incur any liabilities
(including contingent obligations) for or in connection with any Investment
other than Cash Equivalents.
7.15 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any transaction with any Affiliate of Borrower except for
transactions that are in the ordinary course of Borrower's business, upon fair
and reasonable terms, that are fully disclosed to Lender, and that are no less
favorable to Borrower than would be obtained in an arm's length transaction with
a non-Affiliate.
7.16 Suspension. Suspend or go out of a substantial portion of its
business.
7.17 Use of Proceeds. Use the proceeds of the Advances for any purpose
other than (a) on the Closing Date, (i) to pay transactional fees, costs, and
expenses incurred in connection with this Agreement, the other Loan Documents
and the transactions contemplated hereby and thereby as of the Closing Date and
(ii) to refinance indebtedness as provided by the Disbursement Letter, and (b)
thereafter, to finance the purchase of new Portfolio Pools, Permitted
Distributions, Protective Advances, payment of the Service Fee and Servicing
Costs, and for corporate purposes in the ordinary course of Borrower's business.
7.18 Change in Location of Chief Executive Office, Books and Records or
Substantial Collateral; Inventory and Equipment with Bailees. Relocate its chief
executive office, its Books and Records or a substantial portion of any other
Collateral to a new location without providing 30 days prior written
notification thereof to Lender and so long as, at the time of such written
notification, Borrower provides any financing statements or fixture filings
necessary to perfect and continue perfected the Lender's Liens and also provides
to Lender a Collateral Access Agreement with respect to such new location. The
Books, Inventory and Equipment shall not at any time now or hereafter be stored
with a bailee, warehouseman, or similar party without Lender's prior written
consent.
7.19 Securities Accounts. Establish or maintain any Securities Account
unless Lender shall have received a Control Agreement in respect of such
Securities Account. Borrower shall not transfer assets out of any Securities
Account; provided, however, that, so long as no Event of Default has occurred
and is continuing or would result therefrom, Borrower may use such assets (and
the proceeds thereof) to the extent not prohibited by this Agreement.
7.20 Financial Covenants.
(a) Fail to maintain, for Borrower:
(i) Tangible Net Worth. Tangible Net Worth as of each
date specified below until the Maturity Date, in an amount equal
to or greater than:
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Test Date Minimum Tangible Net Worth
Closing Date $1,100,000
March 31, 2003 $1,600,000
June 30, 2003 $2,100,000
September 30, 2003 $2,600,000
December 31, 2003 $3,100,000
March 31, 2004 $3,600,000
June 30, 2004 $4,100,000
September 30, 2004 $4,600,000
December 31, 2004 $5,100,000
March 31, 2005 $5,600,000
June 30, 2005 $6,100,000
September 30, 2005 $6,600,000
(ii) Maximum Ratio of Debt to Tangible Net Worth. A
ratio of Indebtedness (excluding Subordinated Debt) to Tangible
Net Worth as of the last day of each fiscal quarter at any time
of less than 3.75 to 1.0;
(iii) Minimum Interest Coverage Ratio. Interest Coverage
Ratio, as of the end of any fiscal quarter, equal to or greater
than 1.5 to 1.0; and
(iv) Senior Debt to ERV Ratio. Senior Debt to ERV Ratio,
as of the last day of each fiscal quarter of Borrower, at an
amount which is less than or equal to the Senior Debt to ERV
Ratio Requirement.
7.21 Participations. Sell participations or any other interest in any
Portfolio Loan Receivable.
7.22 Compromise or Settlement of Portfolio Loan Receivables. Compromise,
settle, adjust, or modify any Portfolio Loan Receivable if such action would
result in Borrower receiving less than the Release Price thereof.
7.23 Acquisition of Real Property. Acquire any Real Property except
as permitted by Section 7.24.
7.24 Foreclosure (or Deed in Lieu) Regarding Portfolio Collateral.
Notify Lender of recordation of any notice of default on a Portfolio Loan
Receivable within seven (7) days of recordation thereof, and in writing with
each Borrowing Base Certificate delivered to Lender. Borrower shall also notify
Lender in writing with each Borrowing Base Certificate delivered to Lender, the
date upon which any notice of foreclosure sale was recorded and the
initial date set for related foreclosure sale. In the case of a notice of
foreclosure sale, Borrower will also notify Lender in writing of the recordation
of any related notice of trustee sale within five (5) days of recordation
thereof, and include in such notice the date first set for sale. Promptly upon
consummation of any such foreclosure or trustee sale, or any deed or ▇▇▇▇ of
sale in lieu of foreclosure, retention of collateral in satisfaction of debt or
similar transaction, Borrower shall deliver to Lender true and complete copies
of all documentation executed (in the case of notices, postings and the like),
or to be executed (in the case of deeds, bills of sale or other documents
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DALLAS2 939606V9 53877-00012
related to consummation of such transaction or transfer of such property), by
Borrower in respect thereof. In the event Borrower intends or expects, by means
of any such foreclosure, deed or ▇▇▇▇ of sale in lieu of foreclosure, retention
of collateral in satisfaction of debt or similar transaction, to acquire title
to any personal property included in the Portfolio Collateral, Borrower shall,
contemporaneously upon acquiring such title, execute and deliver to Lender such
security agreements, financing statements or other documents as may be required
by Lender in order to maintain Lender's interest therein (Borrower hereby
appoints Lender as its attorney-in-fact, and grants Lender a special power of
attorney, coupled with an interest, to execute any such security agreements,
financing statements or other documents, in Borrower's name and on its behalf,
and file and record same as required to perfect Lender's interest therein).
Borrower will not acquire title to, or take possession of, any Real Property
unless Borrower has determined, based on an environmental site assessment
prepared by a credentialed consultant acceptable to Lender who regularly
conducts environmental audits, that such Real Property, including all
improvements thereon, is in compliance with applicable Environmental
Requirements and that there are no circumstances present on such Real Property
relating to the use, management or disposal of any Hazardous Materials for which
investigation, testing, monitoring, containment, clean-up or remediation could
be required under any Environmental Law.
7.25 Release of Real Property Collateral. Following a request by
Borrower, in connection with any Permitted Disposition of Real Property, Lender
will deliver to an escrow or title company (which escrow or title company shall
be a bona fide and reputable company as reasonably determined by Lender), a
release of Lender's Lien on such Real Property, provided that no Default or
Event of Default is in existence and each of the following conditions has been
satisfied:
(a) If the net proceeds of such Permitted Disposition
equal or exceed the applicable Release Price for such Real Property, Lender
shall have received assurances acceptable to Lender that (i) the escrow agent
shall not record such release until such escrow agent holds for Lender's account
in immediately available funds an amount equal to the applicable Release Price
for such Real Property and is irrevocably committed to disbursing such Release
Price to Lender at the closing of such Permitted Disposition;
(b) If the net proceeds of such Permitted Disposition
are less than the applicable Release Price for such Real Property, (i) Borrower
shall have pledged additional Collateral, acceptable to Lender in its sole and
absolute discretion and sufficient to support such deficiency or Borrower shall
have made a cash payment to Lender from Borrower's own funds (not constituting
proceeds of an Advance) in an amount equal to such deficiency, and (ii) Lender
shall have received assurance acceptable to Lender that such escrow agent shall
not record such release until such escrow agent holds for Lender's account in
immediately available funds an amount equal to the net proceeds of such
Permitted Disposition and is irrevocably committed to disbursing such net
proceeds to Lender at the closing of such Permitted Disposition;
(c) Prior to or at the time of the request for such
release, Borrower shall have delivered to Lender a pro forma settlement sheet
showing the selling price of the parcel of Real Property to be released, the net
proceeds of sale to be delivered to the Collection Account, and such other
information as Lender shall require;
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(d) In the case of a partial release of the Mortgage,
prior to the transfer date, Borrower shall have delivered to Lender such title
endorsements as Lender may require to establish the continuing priority of the
lien of the Mortgage; and
(e) Prior to the transfer date, Borrower shall have
delivered to Lender a copy of an irrevocable written instruction by Borrower to
the escrow or title company directing that such escrow or title company is only
authorized to record the release upon payment of all net proceeds of sale to
Lender.
7.26 Servicing Agreement.
(a) With respect to the Servicing Agreement (i) amend or
modify the Servicing Agreement in any manner that (A) causes or allows the
aggregate amount of the Service Fee payable under the Servicing Agreement to
exceed, as of any time of determination, an amount equal to the amount of the
Service Fee as determined pursuant to the Servicing Agreement on the Closing
Date, and Servicing Costs, (B) except as allowed by clause (A) preceding,
obligates Borrower for payment of any professional costs or court costs incurred
by Servicer in servicing under the Servicing Agreement, (C) causes or allows the
requirements applicable to Servicer's standards of conduct, compliance with laws
or licensing requirements to be less restrictive than exist on the Closing Date,
(D) releases any indemnity obligations of Servicer or modifies any such
obligations in any manner that is less restrictive than exist on the Closing
Date, (E) relieves Servicer of its obligation to perform under the Servicing
Agreement, or (ii) terminates the Servicing Agreement, or allows the Servicing
Agreement to be terminated, in any such case without the prior written consent
of Lender.
(b) Allow Servicer to delegate any of its duties or
functions under the Servicing Agreement to any Person, or otherwise engage any
such Person to perform any such duties or functions for or on behalf of Servicer
or Borrower.
(c) Transfer the duties and functions of Servicer under
the Serving Agreement to any other Person.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable, or when declared due
and payable, all or any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the Bankruptcy
Code, would have accrued on such amounts), fees and charges due Lender,
reimbursement of Lender Expenses, or other amounts constituting Obligations);
8.2 If Borrower fails to perform, keep, or observe any term, provision,
condition, covenant, or agreement contained in this Agreement or in any of the
other Loan Documents;
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8.3 If any material portion of any Obligated Party's or its
Subsidiaries' assets is attached, seized, subjected to a writ or distress
warrant, levied upon, or comes into the possession of any third Person;
8.4 If an Insolvency Proceeding is commenced by an Obligated Party
or any of its Subsidiaries;
8.5 If an Insolvency Proceeding is commenced against an Obligated Party
or any of its Subsidiaries, and any of the following events occur: (a) such
Obligated Party or Subsidiary consents to the institution of such Insolvency
Proceeding against it, (b) the petition commencing the Insolvency Proceeding is
not timely controverted, (c) the petition commencing the Insolvency Proceeding
is not dismissed within 15 calendar days of the date of the filing thereof;
provided, however, that, during the pendency of such period, Lender shall be
relieved of its obligations to extend credit hereunder, (d) an interim trustee
is appointed to take possession of all or any substantial portion of the
properties or assets of, or to operate all or any substantial portion of the
business of, such Obligated Party or any of its Subsidiaries, or (e) an order
for relief shall have been entered therein;
8.6 If any Obligated Party or any of its Subsidiaries is enjoined,
restrained, or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs;
8.7 If a notice of Lien, levy, or assessment is filed of record with
respect to any assets of an Obligated Party or any of its Subsidiaries by any
Governmental Authority, or if any taxes or debts owing at any time hereafter to
any one or more of such entities becomes a Lien, whether ▇▇▇▇▇▇ or otherwise,
upon any of assets of an Obligated Party or its Subsidiaries and the same is not
paid before such payment is delinquent;
8.8 If a judgment or other claim becomes a Lien or encumbrance upon any
material portion of the assets of an Obligated Party or any of its Subsidiaries;
8.9 If there is a default in any material agreement to which an
Obligated Party is a party and such default (a) occurs at the final maturity of
the obligations thereunder, or (b) results in a right by the other party
thereto, irrespective of whether exercised, to accelerate the maturity of
Obligated Party obligations thereunder, to terminate such agreement, or to
refuse to renew such agreement pursuant to an automatic renewal right therein;
8.10 If Borrower or any of its Subsidiaries makes any payment on account
of Indebtedness that has been contractually subordinated in right of payment to
the payment of the Obligations, except to the extent such payment is permitted
by the terms of the subordination provisions applicable to such Indebtedness;
8.11 If any misstatement or misrepresentation exists now or hereafter in
any warranty, representation, statement, or Record made to Lender by an
Obligated Party, its Subsidiaries or any officer, employee, agent, or director
of an Obligated Party or any of its Subsidiaries;
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8.12 If the obligation of Guarantor under the Guaranty, or any
obligation of a Validity Guarantor under the Validity Guaranty, is limited or
terminated by operation of law or by Guarantor thereunder;
8.13 If this Agreement or any other Loan Document that purports to
create a Lien, shall, for any reason, fail or cease to create a valid and
perfected and, except to the extent permitted by the terms hereof or thereof,
first priority Lien on or security interest in the Collateral covered hereby or
thereby;
8.14 Any provision of any Loan Document shall at any time for any reason
be declared to be null and void, or the validity or enforceability thereof shall
be contested by any Obligated Party or any Affiliate thereof, or a proceeding
shall be commenced by any Obligated Party or any Affiliate thereof, or by any
Governmental Authority having jurisdiction over an Obligated Party, seeking to
establish the invalidity or unenforceability thereof, or any Obligated Party or
any Affiliate thereof shall deny that such Obligated Party has any liability or
obligation purported to be created under any Loan Document;
8.15 The occurrence of a Change of Control;
8.16 The occurrence of a Material Adverse Change;
8.17 Either ▇▇▇▇ ▇. ▇▇▇▇▇ or ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ shall cease to be
employed in his or her current capacity with Borrower or Parent and a
replacement satisfactory to Lender in its Permitted Discretion shall not be
hired within 120 days of such termination of employment;
8.18 Either Borrower or Servicer fails to comply, in any material
respect, with its respective obligations under the Servicing Agreement; or
8.19 Guarantor fails to comply, in any material respect, with its
obligations under any Loan Documents to which it is a party.
9. LENDER'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence, and during the
continuation, of an Event of Default, Lender (at its election but without notice
of its election and without demand) may do any one or more of the following, all
of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement, under any of the Loan Documents,
or under any other agreement between Borrower and Lender;
(c) Exercise or assign any and all rights to collect,
manage, and service the Portfolio Loan Receivables, in Lender's discretion,
including, (i) receive, process and account for all Collections in respect of
Portfolio Loan Receivables, (ii) terminate the Servicing Agreement and assign
Servicer's responsibilities to any replacement servicer, (iii) without notice
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DALLAS2 939606V9 53877-00012
to or demand upon Borrower, make any payments as are reasonably necessary or
desirable in connection with the Servicing Agreement or any other agreement that
Lender, Borrower or Servicer enters into with any replacement servicer, and (iv)
take all lawful actions and procedures which Lender or such assignee deems
necessary to collect the amounts due to Borrower in connection with Portfolio
Loan Receivables (all amounts incurred by Lender pursuant to this clause (c)
shall be Lender Group Expenses);
(d) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Lender, but without
affecting any of the Lender's Liens in the Collateral and without affecting the
Obligations;
(e) Enforce any and all rights of Borrower under any
Portfolio Documents;
(f) Settle or adjust disputes and claims on Portfolio
Loan Receivables, Accounts, General Intangibles or Negotiable Collateral
directly with Obligors and other obligors thereon for amounts and upon terms
which Lender considers advisable, and in such cases, Lender will credit
Borrower's Loan Account with only the net amounts received by Lender in payment
thereof after deducting all Lender Expenses incurred or expended in connection
therewith;
(g) Without notice to or demand upon Borrower or any
Guarantor, make such payments and do such acts as Lender considers necessary or
reasonable to protect its security interests in the Collateral. Borrower agrees
to assemble the Personal Property Collateral if Lender so requires, and to make
the Personal Property Collateral available to Lender at a place that Lender may
designate which is reasonably convenient to both parties. Borrower authorizes
Lender to enter the premises where the Personal Property Collateral is located,
to take and maintain possession of the Personal Property Collateral, or any part
of it, and to pay, purchase, contest, or compromise any Lien that in Lender's
determination appears to conflict with the Lender's Liens and to pay all
expenses incurred in connection therewith and to charge Borrower's Loan Account
therefor. With respect to any of Borrower's owned or leased premises, Borrower
hereby grants Lender a license to enter into possession of such premises and to
occupy the same, without charge, in order to exercise any of Lender's rights or
remedies provided herein, at law, in equity, or otherwise;
(h) Without notice to Borrower (such notice being
expressly waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of the Code), set off and
apply to the Obligations any and all (i) balances and deposits of Borrower held
by Lender (including any amounts received in the Designated Account, or (ii)
Indebtedness at any time owing to or for the credit or the account of Borrower
held by Lender;
(i) Hold, as cash collateral, any and all balances and
deposits of Borrower held by Lender, and any amounts received in the Designated
Account, to secure the full and final repayment of all of the Obligations;
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(j) Maintain, repair, prepare for sale, advertise for
sale and sell (in the manner provided for herein) the Personal Property
Collateral. Borrower hereby grants to Lender a license or other right to use,
without charge, Borrower's labels, patents, copyrights, trade secrets, trade
names, trademarks, service marks, and advertising matter, or any property of a
similar nature, as it pertains to the Personal Property Collateral, in
completing production of, advertising for sale, and selling any Personal
Property Collateral and Borrower's rights under all licenses and all franchise
agreements shall inure to Lender's benefit;
(k) Sell the Personal Property Collateral at either a
public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
Borrower's premises) as Lender determines is commercially reasonable; provided
that the Personal Property Collateral need not be present at any such sale;
(l) Lender shall give notice of the disposition of the
Personal Property Collateral as follows:
(i) Lender shall give Borrower a notice in writing of
the time and place of public sale, or, if the sale is a private
sale or some other disposition other than a public sale is to be
made of the Personal Property Collateral, then the time on or
after which the private sale or other disposition is to be made;
and
(ii) the notice shall be personally delivered or mailed,
postage prepaid, to Borrower as provided in Section 12, at least
10 days before the earliest time of disposition set forth in the
notice; no notice needs to be given prior to the disposition of
any portion of the Personal Property Collateral that is
perishable or threatens to decline speedily in value or that is
of a type customarily sold on a recognized market;
(m) Lender may credit bid and purchase at any public
sale;
(n) Lender may seek the appointment of a receiver or
keeper to take possession of all or any portion of the Collateral or to operate
same and, to the maximum extent permitted by Applicable Law, may seek the
appointment of such a receiver without the requirement of prior notice or a
hearing;
(o) Lender may assume or assign any and all rights and
responsibilities to collect, manage, and service the Portfolio Loan Receivables,
including without limitation, (i) the responsibility for the receipt, processing
and accounting for all payments on account of the Portfolio Loan Receivables,
(ii) periodically sending demand notices and statements to the Obligors, (iii)
enforcing legal rights with respect to the Portfolio Loan Receivables, including
hiring attorneys to do so to the extent Lender or such third party deems such
engagement necessary, and (iv) taking all lawful actions and procedures which
Lender or such third party deems necessary to collect on the Portfolio Loan
Receivables; provided, however, that such right shall arise only upon the
occurrence of an Event of Default consisting of a failure to make any payment
required hereunder when due, the occurrence of any other material Event of
Default hereunder, or upon Lender determining that Borrower has engaged in
fraudulent conduct in connection with any aspect of its handling of the
Portfolio Loan Receivables, cash collected on
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account thereof, or any other Collateral; and provided, further, that all
reasonable fees and expenses incurred by Lender in connection with the
enforcement of its rights under this Section 9.1(o) shall be Lender Expenses;
(p) Lender shall have all other rights and remedies
available at law or in equity or pursuant to any other Loan Document; and
(q) Any deficiency that exists after disposition of the
Personal Property Collateral as provided above will be paid immediately by
Borrower. Any excess will be returned, without interest and subject to the
rights of third Persons, by Lender to Borrower.
9.2 Special Rights of Lender in respect of Portfolio Documents. Without
limiting Section 9.1, should Borrower or Servicer default in performance of its
servicing obligations in respect of any Portfolio Loan Receivable or fail to
take any action necessary to preserve the ongoing performance and enforceability
of any Portfolio Loan Receivable or preserve the value thereof then, in any such
event, Lender shall have the right to take such action as Lender may deem
necessary in its sole discretion to preserve the ongoing performance and
enforceability of such Portfolio Loan Receivable and preserve the value thereof,
including without limitation, taking any action that Borrower is required or
authorized to take in respect of such Portfolio Loan Receivable or to otherwise
properly service such Portfolio Loan Receivable, or contract with any Person to
take or perform any such actions. Borrower hereby grants to Lender a special
power of attorney (which shall be irrevocable, coupled with an interest and
include power of substitution) to take any action authorized in
this paragraph. Any advances, payments or other costs or expenses made or
incurred by Lender in taking any action authorized under this paragraph shall be
included within the Obligations and reimbursed to Lender on demand or, at
Lender's discretion charged and treated as Advances. Lender's rights under this
Section 9.2 are cumulative of all other rights of Lender under the Loan
Documents and may be exercised in whole or in part, in Lender's discretion.
Lender shall have no obligation to take any action under this paragraph, and no
undertaking by Lender under this paragraph shall obligate Lender to continue any
such action or to take any other or additional action under this paragraph.
9.3 Remedies Cumulative. The rights and remedies of Lender under this
Agreement, the other Loan Documents, and all other agreements shall be
cumulative. Lender shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by Lender
of one right or remedy shall be deemed an election, and no waiver by Lender of
any Event of Default shall be deemed a continuing waiver. No delay by Lender
shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or
other amounts payable under such leases) due to third Persons, or fails to make
any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, Lender, in its sole discretion
and upon provision of prior or subsequent notice to Borrower, may do any or all
of the following: (a) make payment of the same or any part thereof, (b) set up
such reserves in Borrower's Loan Account as Lender deems necessary to protect
Lender from the exposure
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created by such failure, or (c) in the case of the failure to comply with
Section 6.8, obtain and maintain insurance policies of the type described in
Section 6.8 and take any action with respect to such policies as Lender deems
prudent. Any such amounts paid by Lender shall constitute Lender Expenses and
any such payments shall not constitute an agreement by Lender to make similar
payments in the future or a waiver by Lender of any Event of Default under this
Agreement. Lender need not inquire as to, or contest the validity of, any such
expense, tax, or Lien and the receipt of the usual official notice for the
payment thereof shall be conclusive evidence that the same was validly due and
owing.
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of documents, instruments, chattel paper, and guarantees at any time held by
Lender on which Borrower may in any way be liable.
11.2 Lender's Non-Liability for Collateral. Borrower hereby agrees that:
(a) So long as Lender complies with its obligations, if any, under the Code,
Lender shall not in any way or manner be liable or responsible for: (i)
the safekeeping of the Collateral, or for any act or failure to act with respect
to the Collateral or for any loss or damage thereto (other than failure to
exercise reasonable care in custody of promissory notes, security agreements
delivered to Lender by Borrower under this Agreement), or for any diminution in
the value thereof, (ii) any loss or damage thereto occurring or arising in any
manner or fashion from any cause, (iii) any diminution in the value thereof, or
(iv) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other Person, and (b) all risk of loss, damage, or destruction of the
Collateral shall be borne by Borrower. In the case of any Negotiable Collateral,
Lender shall have no duty or obligation to preserve rights against prior
parties. The Obligations shall not be affected by any failure of Lender to take
any steps to perfect its security interests or to collect or realize upon the
Collateral, nor shall loss of or damage to the Collateral release Borrower from
any of the Obligations.
11.3 Indemnification. Borrower shall pay, indemnify, defend, and hold
the Lender-Related Persons, each Participant, and each of their respective
officers, directors, employees, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by Applicable
Law) from and against any and all claims, demands, suits, actions,
investigations, proceedings, and damages, and all reasonable attorneys fees and
disbursements and other costs and expenses actually incurred in connection
therewith (as and when they are incurred and irrespective of whether suit is
brought), at any time asserted against, imposed upon, or incurred by any of them
(a) in connection with or as a result of or related to the execution, delivery,
enforcement, performance, or administration of this Agreement, any of the other
Loan Documents, or the transactions contemplated hereby or thereby, (b) with
respect to any investigation, litigation, or proceeding related to this
Agreement, any other Loan Document, or the use of the proceeds of the credit
provided hereunder (irrespective of whether any Indemnified Person is a party
thereto), or any act, omission, event, or circumstance in any manner related
thereto and (c) arising from or in connection with any act or omission by
Borrower or Parent (whether in its capacity as Servicer or otherwise), whether
occurring prior to or after the (all the foregoing, collectively, the
"Indemnified Liabilities"). The foregoing to the contrary
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DALLAS2 939606V9 53877-00012
notwithstanding, Borrower shall have no obligation to any Indemnified Person
under this Section 11.3 with respect to any Indemnified Liability that a court
of competent jurisdiction finally determines to have resulted from the gross
negligence or willful misconduct of such Indemnified Person. This provision
shall survive the termination of this Agreement and the repayment of the
Obligations. If any Indemnified Person makes any payment to any other
Indemnified Person with respect to an Indemnified Liability as to which Borrower
was required to indemnify the Indemnified Person receiving such payment, the
Indemnified Person making such payment is entitled to be indemnified and
reimbursed by Borrower with respect thereto. WITHOUT LIMITATION, THE FOREGOING
INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED
LIABILITIES WHICH IN WHOLE OR IN PART CAUSED BY OR ARISE OUT OF ANY NEGLIGENT
ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by Borrower or Lender to the other relating to this Agreement or any
other Loan Document shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by registered or certified mail
(postage prepaid, return receipt requested), overnight courier, electronic mail
(at such email addresses as Borrower or Lender, as applicable, may designate to
each other in accordance herewith), or telefacsimile to Borrower or Lender, as
the case may be, at its address set forth below:
If to Borrower: KWP Financial IX, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ or ▇▇▇▇ ▇. ▇▇▇▇▇
Telecopy No.: ▇▇▇-▇▇▇-▇▇▇▇ or ▇▇▇-▇▇▇-▇▇▇▇
with copies to: ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
If to Lender: FOOTHILL CAPITAL CORPORATION
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Business Finance Division Manager
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
FOOTHILL CAPITAL CORPORATION
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
LOAN AND SECURITY AGREEMENT - Page 71
DALLAS2 939606V9 53877-00012
Attn: Loan Portfolio Manager
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
with copies to: Jenkens & ▇▇▇▇▇▇▇▇▇
A Professional Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telecopy No. ▇▇▇-▇▇▇-▇▇▇▇
Lender and Borrower may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other
party. All notices or demands sent in accordance with this Section 12, other
than notices by Lender in connection with enforcement rights against the
Collateral under the provisions of the Code, shall be deemed received on the
earlier of the date of actual receipt or 3 Business Days after the deposit
thereof in the mail. Borrower acknowledges and agrees that notices sent by
Lender in connection with the exercise of enforcement rights against Collateral
under the provisions of the Code shall be deemed sent when deposited in the mail
or personally delivered, or, where permitted by Applicable Law, transmitted by
telefacsimile or any other method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
13.1 THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH
OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF
AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO
ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL
BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF CALIFORNIA.
13.2 THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER'S
OPTION, IN THE COURTS OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING SUCH
ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWER AND
LENDER WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13.2.
13.3 BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE
LOAN DOCUMENTS OR ANY OF THE
LOAN AND SECURITY AGREEMENT - Page 72
DALLAS2 939606V9 53877-00012
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER
AND LENDER REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
14.1 Assignments and Participations.
(a) Lender may assign and delegate to one or more
assignees (each an "Assignee") all, or any ratable part of all, of the
Obligations and the other rights and obligations of Lender hereunder and under
the other Loan Documents; provided, however, that Borrower may continue to deal
solely and directly with Lender in connection with the interest so assigned to
an Assignee until (i) written notice of such assignment, together with payment
instructions, addresses, and related information with respect to the Assignee,
have been given to Borrower by Lender and the Assignee, and (ii) Lender and its
Assignee have delivered to Borrower an appropriate assignment and acceptance
agreement.
(b) From and after the date that Lender provides
Borrower with such written notice and executed assignment and acceptance
agreement, (i) the Assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such assignment and acceptance agreement, shall have the assigned and
delegated rights and obligations of Lender under the Loan Documents, and (ii)
Lender shall, to the extent that rights and obligations hereunder and under the
other Loan Documents have been assigned and delegated by it pursuant to such
assignment and acceptance agreement, relinquish its rights (except with respect
to Section 11.3 hereof) and be released from its obligations under this
Agreement (and in the case of an assignment and acceptance covering all or the
remaining portion of Lender's rights and obligations under this Agreement and
the other Loan Documents, Lender shall cease to be a party hereto and thereto),
and such assignment shall affect a novation between Borrower and the Assignee.
(c) Immediately upon Borrower's receipt of such fully
executed assignment and acceptance agreement, this Agreement shall be deemed to
be amended to the extent, but only to the extent, necessary to reflect the
addition of the Assignee and the resulting adjustment of the rights and duties
of Lender arising therefrom.
(d) Lender may at any time sell to one or more
commercial banks, financial institutions, or other Persons not Affiliates of
such Lender (a "Participant") participating interests in the Obligations and the
other rights and interests of Lender hereunder and under the other Loan
Documents; provided, however, that (i) Lender shall remain the "Lender" for all
purposes of this Agreement and the other Loan Documents and the Participant
receiving the participating interest in the Obligations and the other rights and
interests of Lender shall not constitute a "Lender" hereunder or under the other
Loan Documents and Lender's obligations under this Agreement shall remain
unchanged, (ii) Lender shall remain solely
LOAN AND SECURITY AGREEMENT - Page 73
DALLAS2 939606V9 53877-00012
responsible for the performance of such obligations, (iii) Borrower and Lender
shall continue to deal solely and directly with each other in connection with
Lender's rights and obligations under this Agreement and the other Loan
Documents, (iv) Lender shall not transfer or grant any participating interest
under which the Participant has the right to approve any amendment to, or any
consent or waiver with respect to, this Agreement or any other Loan Document,
except to the extent such amendment to, or consent or waiver with respect to
this Agreement or of any other Loan Document would (A) extend the final maturity
date of the Obligations hereunder in which such Participant is participating,
(B) reduce the interest rate applicable to the Obligations hereunder in which
such Participant is participating, (C) release all or a material portion of the
Collateral or guaranties (except to the extent expressly provided herein or in
any of the Loan Documents) supporting the Obligations hereunder in which such
Participant is participating, (D) postpone the payment of, or reduce the amount
of, the interest or fees payable to such Participant through Lender, or (E)
change the amount or due dates of scheduled principal repayments or prepayments
or premiums, and (v) all amounts payable by Borrower hereunder shall be
determined as if Lender had not sold such participation, except that, if amounts
outstanding under this Agreement are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as
Lender under this Agreement. The rights of any Participant only shall be
derivative through Lender and no Participant shall have any rights under this
Agreement or the other Loan Documents or any direct rights as to Borrower, the
Collections, the Collateral, or otherwise in respect of the Obligations. No
Participant shall have the right to participate directly in the making of
decisions by Lender.
(e) In connection with any such assignment or
participation or proposed assignment or participation, a Lender may disclose all
documents and information which it now or hereafter may have relating to
Borrower or Borrower's business.
(f) Any other provision in this Agreement
notwithstanding, Lender may at any time create a security interest in, or
pledge, all or any portion of its rights under and interest in this Agreement in
favor of any Federal Reserve Bank in accordance with Regulation A of the Federal
Reserve Bank or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal
Reserve Bank may enforce such pledge or security interest in any manner
permitted under Applicable Law.
14.2 Successors. This Agreement shall bind and inure to the benefit of
the respective successors and assigns of each of the parties; provided, however,
that Borrower may not assign this Agreement or any rights or duties hereunder
without Lender's prior written consent and any prohibited assignment shall be
absolutely void ab initio. No consent to assignment by Lender shall release
Borrower from its Obligations. Lender may assign this Agreement and the other
Loan Documents and its rights and duties hereunder and thereunder pursuant to
Section 14.1 and, except as expressly required pursuant to Section 14.1, no
consent or approval by Borrower is required in connection with any such
assignment.
LOAN AND SECURITY AGREEMENT - Page 74
DALLAS2 939606V9 53877-00012
15. AMENDMENTS; WAIVERS.
15.1 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by Borrower therefrom, shall be effective unless the same shall be in
writing and signed by Lender and Borrower and then any such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
15.2 No Waivers; Cumulative Remedies. No failure by Lender to exercise
any right, remedy, or option under this Agreement or any other Loan Document, or
delay by Lender in exercising the same, will operate as a waiver thereof. No
waiver by Lender will be effective unless it is in writing, and then only to the
extent specifically stated. No waiver by Lender on any occasion shall affect or
diminish Lender's rights thereafter to require strict performance by Borrower of
any provision of this Agreement. Lender's rights
under this Agreement and the other Loan Documents will be cumulative and not
exclusive of any other right or remedy that Lender may have.
16. GENERAL PROVISIONS.
16.1 Effectiveness. This Agreement shall be binding and deemed effective
when executed by Borrower and Lender.
16.2 Section Headings. Headings and numbers have been set forth herein
for convenience only. Unless the contrary is compelled by the context,
everything contained in each Section applies equally to this entire Agreement.
16.3 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed against Lender or Borrower, whether under
any rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by all parties and shall be construed and interpreted according to the
ordinary meaning of the words used so as to accomplish fairly the purposes and
intentions of all parties hereto.
16.4 Severability of Provisions. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
16.5 Withholding Taxes. All payments made by Borrower hereunder or under
any note will be made without setoff, counterclaim, or other defense, except as
required by Applicable Law other than for Taxes (as defined below). All such
payments will be made free and clear of, and without deduction or withholding
for, any present or future taxes, levies, imposts, duties, fees, assessments or
other charges of whatever nature now or hereafter imposed by any jurisdiction
(other than the United States) or by any political subdivision or taxing
authority thereof or therein (other than of the United States) with respect to
such payments (but excluding, any tax imposed by any jurisdiction or by any
political subdivision or taxing authority thereof or therein (i) measured by or
based on the net income or net profits of Lender, or (ii) to the extent that
such tax results from a change in the circumstances of Lender, including a
change in the residence, place of organization, or principal place of business
of Lender, or a change in the branch or lending office of Lender participating
in the transactions set forth herein) and all
LOAN AND SECURITY AGREEMENT - Page 75
DALLAS2 939606V9 53877-00012
interest, penalties or similar liabilities with respect thereto (all such
non-excluded taxes, levies, imposts, duties, fees, assessments or other charges
being referred to collectively as "Taxes"). If any Taxes are so levied or
imposed, Borrower agrees to pay the full amount of such Taxes, and such
additional amounts as may be necessary so that every payment of all amounts due
under this Agreement or under any note, including any amount paid pursuant to
this Section 16.5 after withholding or deduction for or on account of any Taxes,
will not be less than the amount provided for herein; provided, however, that
Borrower shall not be required to increase any such amounts payable to Lender if
the increase in such amount payable results from Lender's own willful misconduct
or gross negligence. Borrower will furnish to Lender as promptly as possible
after the date the payment of any Taxes is due pursuant to Applicable Law
certified copies of tax receipts evidencing such payment by Borrower.
16.6 Amendments in Writing. This Agreement only can be amended by a
writing signed by Lender and Borrower.
16.7 Counterparts; Telefacsimile Execution. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The foregoing shall apply to each other Loan Document mutatis
mutandis.
16.8 Revival and Reinstatement of Obligations. If the incurrence or
payment of the Obligations by Borrower or any Guarantor or the transfer to
Lender of any property should for any reason subsequently be declared to be void
or voidable under Applicable Law relating to creditors' rights, including
provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, or other voidable or recoverable payments of money or transfers of
property (collectively, a "Voidable Transfer"), and if Lender is required to
repay or restore, in whole or in part, any such Voidable Transfer, or elects to
do so upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Lender is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of Lender
related thereto, the liability of Borrower or Guarantor automatically shall be
revived, reinstated, and restored and shall exist as though such Voidable
Transfer had never been made.
16.9 Integration. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
[Signature page to follow.]
LOAN AND SECURITY AGREEMENT - Page 76
DALLAS2 939606V9 53877-00012
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first above written.
KWP FINANCIAL IX, INC.
a California corporation
By: /s/ [ILLEGIBLE]
-------------------------------------
Name: [ILLEGIBLE]
-----------------------------------
Title: Secretary and CFO
----------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ [ILLEGIBLE]
-------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------
Title: Vice President
----------------------------------
LOAN AND SECURITY AGREEMENT - Signature Page
DALLAS2 939606V9 53877-00012
SCHEDULE P-1
TO
LOAN AND SECURITY AGREEMENT
Permitted Liens
None.
DALLAS2 939606V9 53877-00012
SCHEDULE 5.4
TO
LOAN AND SECURITY AGREEMENT
Locations of Books, Inventory, Equipment
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
DALLAS2 939606V9 53877-00012
SCHEDULE 5.6
TO
LOAN AND SECURITY AGREEMENT
Chief Executive Office; FEIN
1. Chief Executive Office of Borrower:
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
2. Borrower's FEIN: ▇▇-▇▇▇▇▇▇▇
DALLAS2 939606V9 53877-00012
SCHEDULE 5.7(b)
TO
LOAN AND SECURITY AGREEMENT
Capitalization of Borrower
# of
Owner Class of Capital Authorized # of Issued Par Value Certificate
Stock Shares Shares Number
-----------------------------------------------------------------------------------------------------------------------
K-W Properties, a California Common 10,000 1,000 $0.00 1
corporation
-----------------------------------------------------------------------------------------------------------------------
DALLAS2 939606V9 53877-00012
SCHEDULE 5.9
TO
LOAN AND SECURITY AGREEMENT
Litigation
None.
DALLAS2 939606V9 53877-00012
SCHEDULE 5.13
TO
LOAN AND SECURITY AGREEMENT
Environmental Matters
None.
DALLAS2 939606V9 53877-00012
SCHEDULE 5.15
TO
LOAN AND SECURITY AGREEMENT
Intellectual Property
None.
DALLAS2 939606V9 53877-00012
SCHEDULE 5.16
TO
LOAN AND SECURITY AGREEMENT
Leases
Borrower's Books and Records are located at the premises leased by
▇▇▇▇▇▇▇-▇▇▇▇▇▇, Inc. and located at ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇.
DALLAS2 939606V9 53877-00012
SCHEDULE 5.17
TO
LOAN AND SECURITY AGREEMENT
Demand Deposit Accounts
▇▇▇▇▇ Fargo Bank
9600 Santa ▇▇▇▇▇▇ Blvd.
Acct #: 4170039804
Type of Acct:: Commercial Checking Account
DALLAS2 939606V9 53877-00012
SCHEDULE 5.19
TO
LOAN AND SECURITY AGREEMENT
Permitted Indebtedness
None.
DALLAS2 939606V9 53877-00012