1
EXHIBIT 10.3
GUARANTY
This GUARANTY is made as of December 18, 1997 by UGLY DUCKLING
CORPORATION, a Delaware corporation ("Guarantor") in favor of GENERAL ELECTRIC
CAPITAL CORPORATION, a New York corporation ("Purchaser").
W I T N E S S E T H :
WHEREAS, Purchaser, Guarantor and LaSalle National Bank, as agent for
certain lenders under a certain Fourth Amended and Restated Loan and Security
Agreement dated as of February 28, 1996, as amended ("Seller"), have entered
into that certain Purchase Agreement dated as of December 18, 1997 (the
"Purchase Agreement");
WHEREAS, in connection with the Purchase Agreement, First Merchants
Acceptance Corporation, a Delaware corporation as debtor and
debtor-in-possession ("FMAC"), Purchaser and Guarantor shall enter into the
Servicing Agreement (as defined in the Purchase Agreement) pursuant to which
FMAC, and after confirmation of FMAC's plan of reorganization, Guarantor shall
service the Finance Contracts (as defined in the Purchase Agreement) acquired by
Purchaser under the Purchase Agreement;
WHEREAS, Guarantor is a major secured creditor of FMAC and consummation
of the transactions contemplated by the Purchase Agreement and its entry into
the Servicing Agreement will be to the direct financial benefit of Guarantor;
and
WHEREAS, it is a condition precedent to Purchaser's obligation to
consummate the transactions contemplated by the Purchase Agreement that, and
Purchaser is not willing to consummate such transactions, unless, among other
things, Guarantor executes and delivers this Guaranty to Purchaser.
NOW, THEREFORE, in consideration of the above premises, the mutual
covenants set forth below and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Guarantor hereby agrees in
favor of Purchaser as follows:
1. DEFINITIONS. All obligations and liabilities of each Contract Debtor
existing or hereafter arising under the Finance Contracts, whether voluntary or
involuntary, including, without limitation, the Schedule of Payments are
referred to herein collectively as the "Obligations." All capitalized terms used
but not defined herein shall have the respective meanings assigned to them under
the Purchase Agreement.
2. GUARANTY. Guarantor hereby acknowledges and agrees that upon
acquisition of the Finance Contracts from Seller, Purchaser shall or shall be
deemed to have established a Reserve on its books for charges which Purchaser is
entitled to make against the Reserve pursuant to the
2
Purchase Agreement or the Servicing Agreement (the "Losses"), which shall be
solely a ledger account and shall not consist of segregated funds or an interest
in cash, equal to fourteen percent (14%) of the aggregate amount of the
Outstanding Principal Balance under the Eligible Finance Contracts (the
"Aggregate Outstanding Principal Balance") as of the Effective Date (i.e., the
amount of the Purchase Price paid by Purchaser at Closing under Section
2.1(a)(i) of the Purchase Agreement). Guarantor further acknowledges and agrees
that Purchaser shall charge all Losses arising from the Obligations against the
Reserve. The Guarantor hereby guarantees to Purchaser the full and punctual
payment when due (whether at stated maturity, by required pre-payment, by
acceleration or otherwise), as well as the performance, of all of the
Obligations including all such which would become due but for the operation of
the automatic stay or other provisions of the Federal Bankruptcy Code. Subject
to the Cap (as defined in Section 3 below), this Guaranty is an absolute,
unconditional and continuing guaranty of the full and punctual payment and
performance of all of the Obligations and not of their collection only and is in
no way conditioned upon any requirement that Purchaser first attempt to collect
any of the Obligations in default from any Contract Debtor or resort to any
collateral security or other means of obtaining payment. Upon the occurrence and
during the continuance of a Deficiency Event (as defined below), the obligations
of the Guarantor hereunder with respect to such Obligations in default shall
become immediately due and payable to Purchaser, without demand or notice of any
nature, all of which are expressly waived by the Guarantor. Payments by the
Guarantor hereunder may be required by Purchaser on any number of occasions.
3. DEFICIENCY EVENT. In the event that as of any month end prior to the
Discharge Date the Reserve is less than $2 million or any Remittances have been
seized, withheld or misappropriated by, or otherwise remitted to, Financial
Security Assurance, Inc. (collectively, the "Misappropriated Remittances"), a
Deficiency Event shall be deemed to have occurred hereunder. Upon the occurrence
of a Deficiency Event, Guarantor, within 24 hours of a demand by Purchaser,
shall pay Purchaser an amount equal to (a) the difference between $2 million and
the actual Reserve as of such month end and/or (b) the Misappropriated
Remittances, in each case, as set forth in Purchaser's demand. All payments to
be made by Guarantor to Purchaser hereunder shall be made in lawful money of the
United States of America, in immediately available funds, to such account as
Purchaser shall specify in writing to Guarantor from time to time, and shall be
accompanied by a notice from Guarantor stating that such payments are made under
this Guaranty. Notwithstanding any provision of this Guaranty to the contrary,
Guarantor's aggregate liability under this Guaranty shall not exceed (a) the sum
of (i) Ten Million Dollars ($10,000,000) and (ii) all amounts payable under
Section 9 hereof, less (b) the aggregate Remittances actually received by
Purchaser with respect to all Finance Contracts that were not Eligible Finance
Contracts as of the Effective Date, less all Servicing Fees paid with respect to
such Financing Contracts (the "Cap"). Any amounts paid by Guarantor to Purchaser
under this Guaranty which are returned to Guarantor pursuant to the Purchase
Agreement shall not reduce Guarantor's aggregate liability under this Guaranty.
4. WAIVERS BY GUARANTOR; PURCHASER'S FREEDOM TO ACT. Guarantor agrees
that the Obligations will be paid and performed strictly in accordance with
their respective terms, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of Purchaser with respect thereto. Guarantor waives, to the extent
permitted by law, promptness, diligence, presentment, demand, protest, notice of
acceptance, notice of any
2
3
Obligations incurred and all other notices of any kind, all defenses which may
be available by virtue of any valuation, stay, moratorium law or other similar
law now or hereafter in effect, any right to require the marshaling of assets of
any Contract Debtor or any other entity or other person primarily or secondarily
liable with respect to any of the Obligations, and all suretyship defenses
generally. Without limiting the generality of the foregoing, Guarantor agrees to
the provisions of any Finance Contract and other instruments evidencing,
securing or otherwise executed in connection with any Obligation and agrees that
the obligations of Guarantor hereunder shall not be released or discharged, in
whole or in part, or otherwise affected by: (a) the failure of Purchaser to
assert any claim or demand or to enforce any right or remedy against any
Contract Debtor or any other entity or other person primarily or secondarily
liable with respect to any of the Obligations; (b) any extensions, compromises,
refinancings, consolidations or renewals of any of the Obligations; (c) any
changes in the time, place or manner of payment of any of the Obligations or any
rescissions, waivers, compromises, refinancings, consolidations, amendments or
modifications of any of the terms or provisions of any of the Finance Contracts
or any other agreements evidencing, securing or otherwise executed in connection
with any of the Obligations; (d) the addition, substitution or release of any
entity or other person primarily or secondarily liable for any of the
Obligations; (e) the adequacy of any rights which Purchaser may have against any
collateral security or other means of obtaining repayment of any of the
Obligations; (f) the impairment of any collateral securing any of the
Obligations, including, without limitation, the failure to perfect or preserve
any rights which Purchaser might have in such collateral security or the
substitution, exchange, surrender, release, loss, failure to insure or
destruction of any such collateral; (g) the nonexistence, invalidity or
unenforceability of any Finance Contract or any other agreement evidencing,
securing or otherwise executed in connection with any of the Obligations; (h)
the breach of the Purchase Agreement or of the Servicing Agreement by any party
to either such agreement or the rightful or wrongful termination of the
Servicing Agreement by any party thereto; or (i) any other act or omission which
might in any manner or to any extent vary the risk of Guarantor or otherwise
operate as a release or discharge of Guarantor, all of which may be done without
notice to Guarantor. To the fullest extent permitted by law, Guarantor hereby
expressly waives any and all rights or defenses arising by reason of any law
which in any other way would require any election of remedies by Purchaser.
5. UNENFORCEABILITY OF OBLIGATIONS AGAINST ANY CONTRACT DEBTOR. If for
any reason a Contract Debtor has no legal existence or is under no legal
obligation to discharge any of the Obligations, if any of the Obligations have
become unrecoverable from any Contract Debtor by reason of such Contract
Debtor's insolvency, bankruptcy or reorganization or by other operation of law
or for any other reason or if acceleration of the time for payment of any of the
Obligations is stayed upon the insolvency, bankruptcy or reorganization of any
Contract Debtor, or for any other reason, this Guaranty shall nevertheless be
binding on Guarantor to the same extent as if Guarantor at all times had been
the principal obligor on all such Obligations.
6. SUBROGATION; SUBORDINATION; OFFSET.
(a) Until the final payment and performance in full of all of the
Obligations, Guarantor shall not exercise any rights against any
Contract Debtor arising as a result of payment by Guarantor hereunder,
by way of subrogation, reimbursement, restitution, contribution or
otherwise, and will not prove any claim in competition with Purchaser
in
3
4
respect of any payment hereunder in any bankruptcy, insolvency or
reorganization case or proceedings of any nature; Guarantor will not
claim any setoff, recoupment or counterclaim against any Contract
Debtor in respect of any liability of Guarantor to such Contract
Debtor; and Guarantor waives any benefit of and any right to
participate in any collateral security which may be held by Purchaser.
In the event Guarantor exercises any such rights against any Contract
Debtor, Guarantor shall indemnify Purchaser against any claims, damages
and expenses, including reasonable attorneys' fees, suffered or
incurred by Purchaser as a result of Guarantor's exercise of any such
rights.
(b) The payment of any amounts due with respect to any indebtedness
of any Contract Debtor now or hereafter owed to Guarantor is hereby
subordinated to the prior payment in full of all of the Obligations.
Except to fulfill its obligations under the Servicing Agreement or
otherwise as agent of Purchaser, Guarantor agrees that, after the
occurrence of any Deficiency Event, Guarantor will not demand, xxx for
or otherwise attempt to collect any such indebtedness of any Contract
Debtor to Guarantor until all of the Obligations shall have been paid
in full. If, notwithstanding the foregoing sentence, Guarantor shall
collect, enforce or receive any amounts in respect of such
indebtedness, such amounts shall be collected, enforced and received by
Guarantor as trustee for Purchaser and be paid over to Purchaser on
account of the Obligations without affecting in any manner the
liability of Guarantor under the other provisions of this Guaranty.
(c) Guarantor shall not claim, as a defense hereunder, any setoff,
recoupment, counterclaim or similar right against Purchaser in respect
of any liability of Purchaser to Guarantor.
7. FURTHER ASSURANCES. Guarantor agrees to do all such things and
execute all such documents as Purchaser may consider necessary or desirable to
give full effect to this Guaranty and to perfect and preserve the rights and
powers of Purchaser hereunder. Guarantor acknowledges and confirms that
Guarantor itself has established its own adequate means of obtaining about
Contract Debtors on a continuing basis all information desired by Guarantor
concerning the financial condition of Contract Debtors and that Guarantor will
look to Contract Debtors and not to Purchaser in order for Guarantor to keep
adequately informed of changes in Contract Debtors' financial condition.
8. TERMINATION; REINSTATEMENT. This Guaranty shall remain in full force
and effect until Purchaser is given written notice of Guarantor's intention to
discontinue this Guaranty, notwithstanding any intermediate or temporary payment
or settlement of the whole or any part of the Obligations. No such notice shall
be effective unless received and acknowledged in writing by an officer of
Purchaser at the address of Purchaser for notices set forth in Section 12 of
this Guaranty. No such notice shall affect any rights of Purchaser hereunder,
including, without limitation, the rights set forth in Sections 2 and 3, with
respect to any Obligations incurred or accrued prior to the receipt of such
notice or any Obligations incurred or accrued pursuant to any contract or
commitment in existence prior to such receipt. Notwithstanding the foregoing,
this Guaranty shall automatically terminate upon the indefeasible payment and
performance of the Obligations in full. This Guaranty shall continue to be
effective or be reinstated, notwithstanding any such notice or termination, if
at
4
5
any time any payment made or value received with respect to any Obligation is
rescinded or must otherwise be returned by Purchaser upon the insolvency,
bankruptcy or reorganization of any Contract Debtor, or otherwise, all as though
such payment had not been made or value received.
9. GUARANTOR'S AGREEMENT TO PAY ENFORCEMENT COSTS, ETC. Guarantor
agrees, as the principal obligor and not as a guarantor only, to pay to
Purchaser, on demand, all costs and expenses (including court costs and
reasonable legal expenses) incurred or expended by Purchaser in connection with
this Guaranty and the enforcement hereof, together with interest on amounts
recoverable under this Guaranty from the time when such amounts become due until
payment, whether before or after judgment, at the rate of 13% per annum.
10. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon
Guarantor, its successors and assigns, and shall inure to the benefit of and be
enforceable by Purchaser and its successors, transferees and assigns; provided,
however, that Guarantor shall not have the right to assign its obligations under
this Guaranty without the written consent of Purchaser.
11. AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Guaranty nor consent or any departure by Guarantor therefrom shall be
effective unless the same shall be in writing and signed by Purchaser. No
failure on the part of Purchaser to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right.
12. NOTICES. All notices and other communications called for hereunder
shall be made in writing and, unless otherwise specifically provided herein,
shall be deemed to have been duly made or given when delivered by hand or mailed
first class, postage prepaid, addressed as follows:
(a) If to Guarantor: Ugly Duckling Corporation
0000 Xxxx Xxxxxxxxx Xxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
(b) If to Purchaser: General Electric Capital Corporation
Auto Financial Services
000 Xxxxxxxxx Xxxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx Xxxxxx, Account
Executive
13. GOVERNING LAW; CONSENT TO JURISDICTION. THIS GUARANTY SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
ILLINOIS, without giving effect to its conflicts of laws principles.
Guarantor agrees that any suit for the enforcement of this Guaranty may be
brought in the courts of the State of Illinois or any federal court sitting
therein and consents to the nonexclusive jurisdiction
of such court and to service of process in any such suit being made upon
Guarantor by mail at the address specified by reference in Section 12 hereof.
Guarantor hereby waives any objection that it
5
6
may now or hereafter have to the venue of any such suit or any such court or
that such suit was brought in an inconvenient court.
14. WAIVER OF JURY TRIAL. GUARANTOR HEREBY WAIVES ITS RIGHT TO A JURY
TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS GUARANTY, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE
PERFORMANCE OF ANY OF SUCH RIGHTS OR OBLIGATIONS.
15. MISCELLANEOUS. This Guaranty constitutes the entire Agreement of
Guarantor and Purchaser with respect to the matters set forth herein. The rights
and remedies herein provided are cumulative and not exclusive of any remedies
provided by law or any other agreement, and this Guaranty shall be in addition
to any other guaranty of or collateral security for any of the Obligations. The
invalidity or unenforceability of any one or more sections of this Guaranty
shall not affect the validity or enforceability of its remaining provisions.
Captions are for the ease of reference only and shall not affect the meaning of
the relevant provisions. The meanings of all defined terms used in this Guaranty
shall be equally applicable to the singular and plural forms of the terms
defined. This Guaranty may be executed in one or more counterparts, all of which
together shall constitute one and the same instrument.
16. SECURED OBLIGATION. Guarantor hereby agrees that all obligations of
Guarantor under this Guaranty also shall be secured by all of the collateral
pledged to Purchaser as collateral security for the obligations of Guarantor
under that certain Loan and Security Agreement dated as of August 15, 1997, as
amended, by and between Guarantor and Purchaser.
[SIGNATURE PAGE FOLLOWS]
6
7
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed and delivered as of the date first above written.
UGLY DUCKLING CORPORATION
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Its Vice President
---------------------------------
ACCEPTED AND AGREED TO
as of December 18, 1997
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Xxxxxx X. Xxxxxxx
----------------------------------
Its Manager of Underwriting
-------------------------------
7
