CASH COLLATERAL ACCOUNT AGREEMENT
This CASH COLLATERAL ACCOUNT AGREEMENT (this "Agreement") is dated as of January
11, 2001, and made by and among UGLY DUCKLING CORPORATION, a Delaware
corporation ("UDC") and UGLY DUCKLING CAR SALES AND FINANCE CORPORATION, an
Arizona corporation ("UDCSFC" and, together with UDC, each a "Grantor" and,
collectively, the "Grantors"), and BNY MIDWEST TRUST COMPANY, as Collateral
Agent for itself and the Lenders party to the Loan Agreement referred to below
(in such capacity, "Agent" and referred to herein as "Secured Party").
RECITALS
WHEREAS, UDC, certain Lenders and Secured Party are parties to that certain
Senior Secured Loan Agreement dated as of January 11, 2001 (as amended,
supplemented or otherwise modified from time to time, the "Loan Agreement";
capitalized terms used herein without definition shall have the meanings
ascribed to such terms in the Loan Agreement); and
WHEREAS, in connection with the Loan Agreement, UDCSFC has executed the
Stock Pledge Agreement; and
WHEREAS, Secured Party has established a cash collateral account in which
all Collections in respect of all Residual Certificates are to be deposited; and
WHEREAS, it is a condition precedent to the effectiveness of the Loan
Agreement that the Grantors shall have executed and delivered to Secured Party
and Lenders this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the agreements,
provisions and covenants contained herein, the Grantors and Secured Party hereby
agree as follows:
AGREEMENT
SECTION 1. Definitions. The following terms used in this Agreement shall
have the following meanings:
"Cash Equivalents" means any of the following, so long as Secured Party has
a perfected security interest therein: (i) securities issued, guarantied or
insured by the United States or any of its agencies and having maturities of not
more than thirty days; (ii) certificates of deposit or bankers' acceptances
having maturities of not more than thirty days issued by (a) Secured Party, (b)
any Lender or (c) a U.S. federal or state chartered commercial bank of
recognized standing whose capital and unimpaired surplus is in excess of
$200,000,000 and whose short-term commercial paper rating, or that of its parent
holding company, is at least A-1 or the equivalent by Standard & Poor's
Corporation ("S&P") and at least P-1 or the equivalent by Xxxxx'x Investors
Services, Inc. ("Moody's"); (iii) marketable direct obligations issued by any
state of the United States of America or any political subdivision of any such
state or any public instrumentality thereof maturing within thirty days from the
date of acquisition thereof and, at the time of acquisition, having the highest
rating from either S&P or Moody's; (iv) certificates of deposit maturing within
thirty days of the date of acquisition thereof in an amount less than or equal
to $100,000 in the aggregate issued by any bank insured by the Federal Deposit
Insurance Corporation; (v) eurodollar time deposits having a maturity of not
more than thirty days purchased directly from any Lender (whether such deposit
is with such Lender (or its Affiliates) or any other Lender (or its
Affiliates)); (vi) commercial paper rated at least A-1 by S&P or P-1 by Moody's
and, in either case, having a tenor of not more than thirty days; and (vii)
money market funds invested in one or more of the foregoing.
"Collateral" means (a) the Collateral Account and all funds and monies and
investment property from time to time on deposit in or credited to the
Collateral Account, (b) all Permitted Investments, including all investment
property, certificates, instruments and securities from time to time
representing or evidencing such Permitted Investments and any account or
accounts in which such Permitted Investments may be held by, or in the name of,
Secured Party for or on behalf of Grantors, (c) all interest, dividends, cash,
instruments, investment property and other property from time to time received,
receivable, or otherwise distributed in respect of or in exchange for any or all
of the Collateral, and (d) to the extent not covered by clauses (a) through (c)
above, all proceeds of any or all of the foregoing.
"Collateral Account" means the cash collateral account established and
maintained pursuant to Section 2 hereof.
"Permitted Investments" means those investments made by Secured Party in
Cash Equivalents for the account of Grantors pursuant to Section 5.
SECTION 2. Collateral Account
(i) Secured Party shall establish and maintain at BNY Midwest Trust Company
at Chicago, Illinois, in the name of, and under the sole dominion and control
of, Secured Party, a special cash collateral account (account number 197869
designated as "Ugly Duckling Corporation Collateral Account.")
(ii) Upon Secured Party's receipt of any Collections pursuant to any
Standing Dividend Resolution, Section 2.2 of the Loan Agreement or otherwise,
Secured Party shall promptly deposit such Collections into the Collateral
Account.
(iii) Anything contained in this Agreement to the contrary notwithstanding,
any interest received in respect of any Permitted Investment of any amounts
deposited in the Collateral Account shall be deemed Collateral, subject to
release to Grantors only pursuant to Section 3 hereof.
(iv) In addition to the deposits of Collections in the Collateral Account
pursuant to Section 2(ii), on or about the date hereof the Grantors have
deposited to the Cash Collateral Account additional cash collateral in an amount
equal to the Required Cash Collateral Amount. Such additional cash collateral
shall be held separate from Collections and shall be released from time to time
as provided in Section 3(ii) hereof. Such additional cash collateral may be
invested in Cash Equivalents in accordance with the provisions of this Agreement
and shall otherwise constitute security for the Obligations pursuant to this
Agreement. [Interest earned on such amount will be distributed to Grantors from
time to time as requested by Grantors.]
SECTION 3. Release of Collateral; Payment of Loans.
(i) Secured Party shall, on each Payment Date, repay the Outstanding
Principal Amount in an amount equal to the Monthly Amortization Amount for such
Payment Date, together with all accrued and unpaid interest and all other
amounts then due and payable under the Loan Documents from funds (and only from
funds) on deposit in the Collateral Account.
(ii) Any provision of the Loan Agreement to the contrary notwithstanding,
any amounts held by Secured Party in the Collateral Account and not otherwise
required to be applied to the Obligations shall, at the written direction of
UDC, be applied to repay Obligations under the Loan Agreement (to be applied as
set forth in Section 2.6 thereof) or, if the Borrowing Base plus such amount on
deposit in the Collateral Account exceeds the sum of (1) the Outstanding
Principal Amount plus (2) the Required Cash Collateral Amount at such time and
no Default has occurred and is continuing, such amounts held in the Collateral
Account shall, upon written request by Borrower to Collateral Agent, be released
to Borrower up to the amount of such excess; provided, however, that (a) any
release to Borrower of amounts on deposit in the Collateral Account shall only
be made on a Payment Date and only after giving effect to the payment of all
amounts due under the Loan Documents on such Payment Date and (b) no release
shall result in the amount on deposit in the Collateral Account being less than
the Required Cash Collateral Amount at such time.
SECTION 4. Pledge; Security for Obligations. Each Grantor hereby assigns to
Secured Party, for the benefit of Secured Party and the ratable benefit of the
Lenders, and hereby grants to Secured Party for the benefit of Secured Party and
the ratable benefit of the Lenders a continuing security interest in, all of
such Grantor's right, title and interest in the Collateral to secure the payment
and performance of all the Secured Obligations (as defined below). This
Agreement secures, and the Collateral is collateral security for, the prompt
payment and performance in full when due, whether at stated maturity, by
declaration, acceleration or otherwise (including the payment of amounts that
would become due but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code, 11 U.S.C. ss. 362(a), or any successor provision
thereto, whether or not an allowed claim), of all obligations or liabilities of
every nature now or hereafter existing under this Agreement, the Loan Agreement,
the Notes or any other Loan Document and all amendments, extensions or renewals
thereof, whether for principal, interest (including, without limitation,
interest that, but for the filing of a petition in bankruptcy with respect to
any Grantor, would accrue on such obligations, whether or not an allowed claim),
indemnities, fees, expenses or otherwise, whether now existing or hereafter
arising, voluntary or involuntary, whether or not jointly owed with others,
direct or indirect, absolute or contingent, liquidated or unliquidated, and
whether or not from time to time deceased or extinguished and later increased,
created or incurred, and all obligations or liabilities of every nature of such
Grantor now or hereafter existing under this Agreement, the Loan Agreement, the
Notes or any other Loan Document (all such obligations being the "Secured
Obligations").
SECTION 5. Investment of Amounts in Collateral Account. Cash held by
Secured Party in the Collateral Account shall not be invested or reinvested
except as provided in this Section 5. Secured Party may invest funds on deposit
in the Collateral Account in Cash Equivalents and, provided no Event of Default
has occurred and is continuing, shall invest in such Cash Equivalents as may be
specified from time to time in a written request from UDC.
SECTION 6. Application of Collateral. Notwithstanding any other provision
of this Agreement, the Loan Agreement or any other Loan Document, each Grantor
agrees that if any Secured Obligation becomes due and remains unpaid, Secured
Party may, at any time and from time to time, without notice to or demand of
Grantors, set off and apply any and all of the Collateral then or thereafter on
deposit in the Collateral Account against, and/or continue to hold such
balances, monies and proceeds as security for, the payment of any and all
Secured Obligations as the same may become due, all as the Lenders may elect and
whether or not any default shall have occurred hereunder. Each Grantor hereby
agrees that the pledge and security interest provided above shall be a
continuing security for the payment of the Secured Obligations until the
termination of this Agreement.
SECTION 7. Representations and Warranties. Each Grantor represents and
warrants to Secured Party that the following statements are true, correct and
complete:
(i) Each Grantor is a corporation duly organized, validly, existing and in
good standing under the laws of its state of incorporation and is duly qualified
and in good standing in each jurisdiction where the nature of its business or
properties requires such qualification.
(ii) The execution, delivery and performance by each Grantor of this
Agreement are within the power of such Grantor and have been duly authorized by
all necessary actions on the part of such Grantor or its shareholders.
(iii) This Agreement has been duly executed and delivered by each Grantor
and constitutes a legally valid and binding obligation of such Grantor,
enforceable against it in accordance with its terms, except as may be limited by
bankruptcy, insolvency or other laws of general application relating to or
affecting the enforcement of creditors' rights generally.
(iv) The execution, delivery and performance of this Agreement do not (a)
violate any provisions of law or any order of any court or other agency of
government, (b) contravene any provision of any Grantor's Articles or
Certificate of Incorporation, Bylaws or any material contract or agreement to
which any Grantor is a party or by which any Grantor or any Grantor's assets are
bound, or (c) result in the creation or imposition of any lien, charge or
encumbrance of any nature upon any property, asset or revenue of any Grantor
except pursuant to this Agreement.
(v) Each Grantor is the legal and beneficial owner of the Collateral free
and clear of any Lien except for the lien and security interest created by this
Agreement and/or the Loan Documents.
(vi) The pledge and assignment of the Collateral pursuant to this Agreement
creates a valid and perfected first priority security interest in the
Collateral, securing the payment of the Obligations.
(vii) The chief place of business and chief executive office of each
Grantor and the office where each Grantor keeps its records concerning the
Collateral is located at 0000 Xxxx Xxxxxxxxx Xxxx, Xxxxx 000, Xxxxxxx, Xxxxxxx
00000.
SECTION 8. Further Assurances. Grantors agree that at any time and from
time to time, at the expense of Grantors, they will promptly execute and deliver
to Secured Party any further instruments and documents, and take any further
actions, that may be necessary or that Secured Party or Required Lenders may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable Secured Party to exercise
and enforce its rights and remedies hereunder and with respect to any
Collateral, including without limitation, (i) the execution and filing of such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary, or as Secured Party or Required
Lenders may reasonably request, in order to perfect and preserve the security
interests granted or purported to be granted hereby and (ii) at Secured Party's
or Required Lenders' request, appear and defend any action or proceeding that
may affect Grantors' title to or Secured Party's security interest in all or any
part of the Collateral.
SECTION 9. Acknowledgment of Risks. Each Grantor specifically understands,
acknowledges and agrees that this Agreement and the agreements, obligations and
liabilities of such Grantor hereunder shall not be discharged or otherwise
affected by any bankruptcy, reorganization or similar proceeding commenced by or
against Grantors or any subsidiary of the Grantors. Each Grantor understands and
acknowledges that by virtue of this Agreement, it has specifically assumed any
and all risks of any such proceeding with respect to any other Grantor or any
subsidiary of any Grantor.
SECTION 10. Transfers and Other Liens. Each Grantor agrees that it will not
sell or otherwise dispose of any of the Collateral or create or permit to exist
any Lien upon or with respect to any of the Collateral, except for the lien and
security interest created by this Agreement or any other Loan Document.
SECTION 11. Additional Agreements. Grantors agree not to take or consent or
agree to any action which would impair or otherwise adversely impact Secured
Party's interest or ability to exercise remedies with respect to the Collateral
(as defined in the Loan Agreement), except as otherwise permitted under the Loan
Agreement or any other Loan Document.
SECTION 12. Secured Party Appointed Attorney-in-Fact. Each Grantor hereby
appoints Secured Party as each Grantor's attorney-in-fact, with full authority
in the place and stead of such Grantor and in the name of such Grantor or
otherwise, from time to time, at any time in Secured Party's reasonable
discretion to take any action and to execute any instrument which Secured Party
may reasonably deem necessary or advisable to accomplish the purposes of this
Agreement.
SECTION 13. Secured Party May Perform. If any Grantor fails to perform any
agreement contained herein, after notice to each Grantor, Secured Party may
itself perform, or cause performance of, such agreement and the expenses of
Secured Party, incurred in connection therewith shall be payable by Grantors
under Section 16 hereof.
SECTION 14. Standard of Care. The powers conferred on Secured Party
hereunder are solely to protect its interests in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except as provided
hereunder and except for the exercise of reasonable care in the custody of any
Collateral in its possession and the accounting for monies actually received by
it hereunder, Secured Party shall have no duty as to any Collateral, it being
understood that Secured Party shall have no responsibility for (a) ascertaining
or taking action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relating to any Collateral, whether or not Secured
Party has or is deemed to have knowledge of such matters, (b) taking any
necessary steps (other than steps taken in accordance with the standard of care
set forth above to maintain possession of the Collateral) to preserve rights
against any parties with respect to any Collateral, (c) initiating any action to
protect the Collateral against the possibility of a decline in market value, or
(d) any loss resulting from Permitted Investments made pursuant to Section 5.
The Secured Party shall not be required to exercise any discretion or take any
action under this Agreement, but shall be required to act or refrain from acting
(and shall be fully protected in so acting or refraining from acting) upon the
instructions of the Required Lenders, and such instructions shall be binding
upon all Lenders, and the Secured Party shall not be liable to the Grantors or
any Lender with respect to any action taken or omitted at the direction of the
Required Lenders, provided that the Secured Party shall not be required to taken
any action that exposes the Secured Party in its sole judgment to personal
liability or that is contrary to this Agreement or applicable law.
SECTION 15. Remedies upon Default. If any default shall have occurred and
be continuing hereunder Secured Party may exercise in respect of the Collateral,
in addition to any and all other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a Secured Party on
default under the Uniform Commercial Code (the "Code") as in effect in the State
of Illinois at that time.
SECTION 16. Expenses. Grantors agree to promptly pay to Secured Party all
the actual costs and expenses which Secured Party may incur in connection with
(a) the custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (b) the exercise or enforcement of any
of the rights of Secured Party hereunder, or (c) the failure by any Grantor to
perform or observe any of the provisions hereof.
SECTION 17. No Waiver. No failure on the part of Secured Party to exercise,
and no course of dealing with respect to, and no delay in exercising, any right,
power or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise by Secured Party of any right, power or remedy
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies herein provided are to the fullest
extent permitted by law cumulative and are not exclusive of any remedies
provided by law.
SECTION 18. Amendments, Etc. No amendment, modification, termination or
waiver of any provision of this Agreement, or consent to any departure by any
Grantor therefrom, shall in any event be effective without the written
concurrence of Secured Party.
SECTION 19. Notices. Except as otherwise specifically provided herein, any
notice or other communication herein required or permitted to be given shall be
in writing and may be personally served, telecopied, telexed or sent by mail and
shall be deemed to have been given when delivered in person, upon receipt of
telecopy or telex or four (4) Business Days after deposit in the mail,
registered or certified, with postage prepaid and properly addressed. For the
purposes hereof, the address of each of the parties hereto (until notice of a
change thereof is delivered in the manner provided herein) shall be as specified
in the Loan Agreement.
SECTION 20. Continuing Security Interest; Termination. This Agreement shall
create a continuing security interest in the Collateral and shall (a) remain in
full force and effect until indefeasible payment in full of all Obligations; (b)
be binding upon each Grantor, its permitted successors and assigns; and (c)
inure to the benefit of Secured Party and its respective successors, transferees
and assigns. Upon indefeasible payment in full of the Obligations, Grantors
shall be entitled to the return, upon its request and at its expense, of such of
the Collateral as shall not have been sold or otherwise applied pursuant to the
terms hereof.
SECTION 21. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE
EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF ILLINOIS.
Unless otherwise defined herein or in the Loan Agreement, terms defined in
Article 9 of the Uniform Commercial Code in the State of Illinois are used
herein as therein defined.
IN WITNESS WHEREOF, Grantors and Secured Party have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
GRANTORS:
UGLY DUCKLING CORPORATION,
a Delaware corporation
By: ___________________________________________________________________________
Title: ________________________________________________________________________
UGLY DUCKLING CAR SALES AND FINANCE CORPORATION,
an Arizona corporation
By: ___________________________________________________________________________
Title: ________________________________________________________________________
SECURED PARTY:
BNY MIDWEST TRUST COMPANY,
as Collateral Agent
By: ___________________________________________________________________________
Title: ________________________________________________________________________
