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SECURITY AGREEMENT

 
dated as of

 
December 28, 2006

 
among

 
MANCHESTER INC.,
MANCHESTER INDIANA ACCEPTANCE, INC.,
MANCHESTER INDIANA OPERATIONS, INC.,

 
as Guarantors,

 
THE BANK OF NEW YORK TRUST COMPANY, N.A.,

 
as the Collateral Agent

 
and

 
PALM BEACH MULTI-STRATEGY FUND, L.P.,

 
as Lender
 

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TABLE OF CONTENTS

   
Page
ARTICLE I DEFINITIONS
4
SECTION 1.01
Definitions
4
SECTION 1.02
Other Definitional Provisions
6
   
ARTICLE II REPRESENTATIONS AND WARRANTIES
6
SECTION 2.01
Representations and Warranties of Guarantors
6
   
ARTICLE III COVENANTS
10
SECTION 3.01
Certain Affirmative Covenants of Guarantors
10
SECTION 3.02
Financial Covenants
12
SECTION 3.03
Negative Covenants
12
SECTION 3.04
Covenants by Manchester
13
SECTION 3.05
Covenants by MIO
13
SECTION 3.06
Financial Reports
13
   
ARTICLE IV GUARANTOR ACCOUNTS
15
SECTION 4.01
Guarantor Accounts
15
   
ARTICLE V REMEDIES
15
SECTION 5.01
Remedies
15
SECTION 5.02
No Waiver
17
SECTION 5.03
Appointment Of Lender As Attorney-In-Fact
17
   
ARTICLE VI EXPENSES AND INDEMNITIES
18
SECTION 6.01
Payment For Expenses
18
   
ARTICLE VII COLLATERAL AGENT
18
SECTION 7.01
Exculpation, Collateral Agent’s Reliance, Etc
18
SECTION 7.02
Benefit of Article 7
19
SECTION 7.03
Resignation And Removal Of Collateral Agent
19
SECTION 7.04
Notice of Guarantor Default
19
   
ARTICLE VIII MISCELLANEOUS
20
SECTION 8.01
Notices
20
SECTION 8.02
Prior Agreements Superseded
20
SECTION 8.03
Parties Bound
20
SECTION 8.04
No Third Party Beneficiary
20
SECTION 8.05
Execution In Counterparts
20
SECTION 8.06
Severability Of Provisions
20
SECTION 8.07
Further Instruments
20
SECTION 8.08
GOVERNING LAW
21
SECTION 8.09
CONSENT OF JURISDICTION
21
SECTION 8.10
WAIVER OF JURY TRIAL
21

 
 
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SECTION 8.11
TIME OF ESSENCE
22

Schedule I- Chief Executive Office
 
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SECURITY AGREEMENT
 
THIS SECURITY AGREEMENT dated as of December 28, 2006 (as amended, supplemented
or otherwise modified from time to time in accordance with the terms hereof,
this “Security Agreement”) is made among (1) Manchester Inc., a Nevada
corporation (“Manchester”); Manchester Indiana Acceptance, Inc., a Delaware
corporation (“MIA”), and Manchester Indiana Operations, Inc., a Delaware
corporation (“MIO”) (together, the “Guarantors”, and each, a “Guarantor”), (2)
The Bank of New York Trust Company, N.A., or any affiliated successor thereto,
as collateral agent for the Secured Parties (in such capacity, the “Collateral
Agent”) and (3) Palm Beach Multi-Strategy Fund, L.P. (the “Lender”).
 
WITNESSETH:
 
WHEREAS, the Guarantors have executed that certain Guaranty (the “Guaranty”)
dated the date hereof in favor of the Lender in respect of certain obligations
of Manchester Indiana Funding, LLC (the “Borrower”) under that certain Loan and
Security Agreement (the “Loan Agreement”) dated the date hereof between the
Borrower and Lender, and the other Loan Documents (as defined in the Loan
Agreement), and in respect of certain obligations of the Guarantors under the
Sale and Security Agreement (as defined in the Loan Agreement) and the other
Loan Documents;
 
WHEREAS, it is a condition precedent to the Lender making advances to the
Borrower under the Loan Agreement that the Guarantors have executed and
delivered this Security Agreement as security for the Guarantors’ obligations
under the Guaranty;
 
WHEREAS, each Guarantor is duly authorized to execute and deliver this Security
Agreement. All agreements made by each Guarantor herein are for the benefit and
security of the Secured Parties and the Collateral Agent. Each Guarantor is
entering into this Security Agreement, and the Collateral Agent is accepting the
grants created hereby, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged; and
 
WHEREAS, all things necessary to make this Security Agreement a valid, binding
and legal obligation of each Guarantor, in accordance with the terms of this
Security Agreement, have been done and performed and have happened.
 
GRANTING CLAUSE
 
NOW, THEREFORE, THIS SECURITY AGREEMENT WITNESSETH, that, to secure the prompt
and complete payment of all Secured Guaranty Obligations and the performance and
observance by each Guarantor of all the agreements, covenants and provisions
contained in the Guaranty for the benefit of the Lender, and in consideration of
the premises and of the covenants herein contained, each Guarantor does hereby
grant, bargain, sell, assign, transfer, convey, mortgage, pledge and confirm, to
the Collateral Agent and its successors and assigns, for the security and
benefit of the Lender, a first priority security interest in and mortgage Lien
on all estate, right, title and interest of such Guarantor in, to and under all
personal property of any kind or description whatsoever, wherever located,
whether now owned or hereafter acquired, tangible or intangible, including (i)
all Accounts, Chattel Paper, Commercial Tort Claims, copyrights, Documents,
Equipment, Financial Assets, Fixtures, General Intangibles, Goods, Guarantor
Accounts, Instruments, Inventory, Investment Property, Letter-of-Credit Rights
(and all letters of credit), money, Supporting Obligations and the Intellectual
Property Collateral and (ii) without limiting the foregoing, the following
described properties, rights, interests and privileges whether now owned or
hereafter acquired:
 
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1. The Acquisition Agreements, including, without limitation, (i) any and all
rights of any Guarantor to receive moneys under or pursuant to the Acquisition
Agreements, (ii) any and all claims of any Guarantor for damages under or in
respect of the Acquisition Agreements including, without limitation, any and all
claims arising under any warranty or indemnity provision contained in the
Acquisition Agreements, and (iii) any and all rights of any Guarantor to compel
performance of the Acquisition Agreements;
 
2. All rights of the Guarantors under the Loan Documents to which they are a
party (other than the Guaranty and this Agreement);
 
3. The membership interests, shares, stock and other equity interests (the
“Equity Interests”) of each and any direct and indirect subsidiary of each
Guarantor (each, a “Equity Interest”), all certificates (if any) representing or
evidencing such Equity Interests, and all of the rights of the applicable member
or stockholder under the related constitutional documents, and all present and
future rights of the applicable member to receive payment of money or other
distributions, dividends or payments arising out of or in connection with such
Equity Interests and its rights under such constitutional documents;
 
4. All debt securities, indebtedness and liabilities now or hereafter issued to,
owed to or held by any Guarantor, in each case whether direct or indirect, joint
or several, absolute or contingent, liquidated or unliquidated and whether now
or hereafter outstanding, together with all certificates, promissory notes,
Instruments, Chattel Paper or other documents representing or evidencing any of
the foregoing (collectively, the “Pledged Debt Interests”);
 
5. Each Guarantor Account, all security entitlements with respect to all
Financial Assets credited from time to time to the Guarantor Accounts, all
dividends, distributions, return of capital, interest, Cash, Instruments and
other property from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of such security entitlements or
such Financial Assets and all subscription warrants, rights or options issued
thereon or with respect thereto, and all certificates and Instruments, if any,
from time to time representing or evidencing the Guarantor Accounts;
 
6. All Accounts, Chattel Paper, Instruments, General Intangibles and other
obligations of any kind, whether or not arising out of or in connection with the
sale or lease of Goods or the rendering of services and whether or not earned by
performance, and all rights now or hereafter existing in and to all security
agreements, leases, charters and other contracts securing or otherwise relating
to any such Accounts, Chattel Paper, Instruments, General Intangibles or
obligations;
 
7. All rents, issues, profits, revenues, insurance or requisition proceeds and
other income of the property subjected or required to be subjected to the Lien
of this Security Agreement and all other property of the Guarantors, whether
tangible or intangible, now owned or hereafter acquired; and
 
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together with, to the extent not otherwise included above, all Proceeds and
products of any and all of the foregoing (or of such Proceeds and products). All
of the foregoing is collectively referred to herein as the “Guaranty
Collateral”.
 
HABENDUM CLAUSE
 
TO HAVE AND TO HOLD all and singular the aforesaid property unto the Collateral
Agent, its successors and assigns, in trust, for the benefit and security of the
Lender, and for the uses and purposes and subject to the terms and provisions
set forth in this Security Agreement.
 
It is expressly agreed that anything herein contained to the contrary
notwithstanding, each Guarantor shall remain liable under each of the agreements
and contracts included in the Guaranty Collateral to which such Guarantor is a
party (the “Collateral Documents”) and to perform all of the obligations assumed
by such Guarantor thereunder, all in accordance with and pursuant to the terms
and provisions thereof, and that the Collateral Agent and the Secured Parties
shall have no obligation or liability under any thereof by reason of or arising
out of the assignment hereunder, nor shall any of the Secured Parties be
required or obligated in any manner to perform or fulfill any obligations of any
Guarantor under or pursuant to any of the Collateral Documents, except as herein
expressly provided, to make any payment, to make any inquiry as to the nature or
sufficiency of any payment received by it or present or file any claim, or take
any action to collect or enforce the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.
 
Each Guarantor does hereby constitute the Collateral Agent the true and lawful
attorney of such Guarantor, irrevocably, with full power (in the name of such
Guarantor or otherwise) to ask, require, demand, receive, compound and give
acquittance for any and all monies and claims for monies (in each case including
insurance and requisition proceeds) due and to become due under or arising out
of the Collateral Documents and all other property which now or hereafter
constitutes part of the Guaranty Collateral, to endorse any checks or other
Instruments or orders in connection therewith and to file any claims or to take
any action or to institute any proceedings which the Collateral Agent may deem
to be necessary or advisable in the premises.
 
Each Guarantor agrees that at any time and from time to time, upon the written
request of the Collateral Agent, such Guarantor will promptly and duly execute
and deliver or cause to be duly executed and delivered any and all such further
instruments and documents as the Collateral Agent may reasonably deem desirable
in obtaining the full benefits of the assignment hereunder and of the rights and
powers granted herein.
 
Each Guarantor does hereby warrant and represent that it has not assigned or
pledged, and hereby covenants that it will not assign or pledge, so long as this
Security Agreement shall remain in effect and shall not have been terminated
pursuant to its terms, any of its estate, right, title or interest hereby
assigned, to anyone other than the Collateral Agent, and that, with respect to
such right, title and interest hereby assigned, it will not, except as expressly
provided in this Security Agreement and the Guaranty, (i) enter into any
agreement amending or supplementing any of the Collateral Documents, (ii)
execute any waiver or modification of, or consent under, the terms of any of the
Collateral Documents, (iii) settle or compromise any claim arising under any of
the Collateral Documents, or (iv) submit or consent to the submission of any
dispute, difference or other matter arising under or in respect of any of the
Collateral Documents to arbitration thereunder.
 
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Each Guarantor does hereby agree that it will not take or omit to take any
action, the taking or omission of which might result in an alteration or
impairment of any of the Collateral Documents or of any of the rights created by
any thereof or the assignment hereunder.
 
It is hereby further agreed that any and all property described or referred to
in the Granting Clause hereof which is hereafter acquired by any Guarantor shall
ipso facto, and without any other conveyance, assignment or act on the part of
such Guarantor or the Collateral Agent, become and be subject to the Lien herein
granted as fully and completely as though specifically described herein, but
nothing contained in this paragraph shall be deemed to modify or change the
obligations of such Guarantor contained in the foregoing paragraphs.
 
IT IS HEREBY COVENANTED AND AGREED by and between the parties hereto as follows:
 
ARTICLE I
 
DEFINITIONS
 
SECTION 1.01 Definitions. For all purposes of this Agreement, (a) terms
capitalized herein that are not defined herein shall have the meanings given to
them in the Guaranty or the Loan Agreement and (b) the following terms which are
defined in the UCC are used herein as so defined: Accounts, Cash, Chattel Paper,
Commercial Tort Claim, Deposit Account, Document, Equipment, Financial Assets,
Fixtures, General Intangible, Goods, Instrument, Inventory, Investment Property,
Letter-of-Credit Right, letter of credit, money, Proceeds, promissory note,
Securities Account and Supporting Obligation.
 
In addition, the following terms shall have the meaning herein specified:
 
“Acquisition Agreements” means the (i) Stock Purchase Agreement, dated December
2, 2006, by and among Manchester, MIO, MIA and the shareholders of each of GNAC,
Inc., an Indiana corporation (“GNAC”) and F.S. English, Inc., an Indiana
corporation (“FSE”), and (ii) the Employment Agreement, dated the date hereof,
between MIO and Rick L. Stanley.
 
“Guarantor Accounts” means all accounts of the Guarantors (except the Blocked
Account) as of the date hereof with any bank or financial institution, details
of which have been given to Lender.
 
“Guarantor Account Control Agreements” means the account control agreements
entered into in accordance with Section 4.01 hereof.
 
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“Guarantor Default” means any breach by any Guarantor of any of its obligations,
covenants or agreements under the Guaranty or this Agreement, or any event which
with the passage of time or notice or both would constitute such a breach.
 
“Intellectual Property Collateral” means, collectively, (a)(i) all computer and
other electronic data processing hardware, (ii) all software programs, (iii) all
firmware associated therewith, (iv) all documentation with respect to such
hardware, software and firmware described in the preceding clauses (i) through
(iii) and (v) all rights with respect to all of the foregoing, (b) all
copyrights of each Guarantor and all applications for registration thereof,
(c)(i) all letters patent and applications for letters patent throughout the
world, (ii) all patent licenses of each Guarantor, (iii) all reissues,
divisions, continuations, continuations-in-part, extensions, renewals and
reexaminations of any of the items described in the preceding clauses (i) and
(ii), and (iii) all proceeds of, and rights associated with, the foregoing, (d)
all trademarks, trade names, corporate names, company names, business names,
fictitious business names, trade styles, service marks, certification marks,
collective marks, logos, other source of business identifiers, prints and labels
on which any of the foregoing have appeared or appear, designs and General
Intangibles of a like nature, in each case, of the Guarantor and (e) common law
and statutory trade secrets and all other confidential or proprietary or useful
information and all know-how obtained by or used in or contemplated at any time
for use in the business of the Guarantor.
 
“Interest Coverage Ratio” shall mean the fraction, expressed as a ratio, the
numerator of which shall be (i) the consolidated interest income of MIA and MIO
according to GAAP and the denominator of which shall be (ii) the consolidated
interest expense of MIA and MIO according to GAAP.
 
“Leverage Ratio” means, the fraction, expressed as a ratio, the numerator of
which is equal to (i) (a) the consolidated liabilities of MIA and MIO according
to GAAP, less (b) any consolidated subordinate debt of MIA and MIO according to
GAAP, and the denominator of which is equal to (ii) (x) the Tangible Net Worth,
plus (y) any consolidated subordinate debt of MIA and MIO according to GAAP.
 
“Secured Guaranty Obligations” means all obligations and liabilities of the
Guarantors under the Guaranty.
 
“Servicer Termination Event” shall have the meaning given to that term in the
Sale and Servicing Agreement.
 
“Tangible Net Worth” means (i) the consolidated stockholders’ equity, according
to GAAP, of the following Manchester subsidiaries: Nice Cars Acceptance
AcquisitionCo, Inc. (“NCAC”), Nice Cars Operations AcquisitionCo, Inc. (“NCAC”),
MIA and MIO, less (ii) any intangible assets of NCAC, NCOC, MIA and MIO
according to GAAP.
 
“UCC” means the Uniform Commercial Code as in effect from time to time in the
State of New York; provided that if by reason of mandatory provisions of law,
the perfection or the effect of perfection or non-perfection of the security
interest in any item or portion of the Guaranty Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than the State of
New York, “UCC” shall mean the Uniform Commercial Code as in effect in such
other jurisdiction for purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection.
 
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“Vehicle” means a new or used automobile, light truck, van or minivan, together
with all accessions thereto.
 
SECTION 1.02 Other Definitional Provisions. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words “include”, “includes” and
“including” shall be deemed to be followed by the phrase “without limitation”.
The word “will” shall be construed to have the same meaning and effect as the
word “shall”. Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person’s successors and assigns, (c) any reference to any statute or act shall
include all related current regulations and all amendments and any successor
statutes, acts and regulations (and any reference to any statute or act, without
additional reference, shall be deemed to refer to federal statutes and acts of
the United States), (d) the words “herein”, “hereof” and “hereunder”, and words
of similar import, shall be construed to refer to this Agreement in its entirety
and not to any particular provision hereof, (e) all references herein to
Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, this Agreement and (f)
the words “asset” and “property” shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and
properties, including money, Securities, Accounts and contract rights.
 
ARTICLE II
 
REPRESENTATIONS AND WARRANTIES
 
SECTION 2.01 Representations and Warranties of Guarantors. The Guarantors
jointly and severally represent and warrant as follows:
 
(a) Each Guarantor is a corporation duly incorporated, validly existing and in
good standing under the laws of the state of its incorporation, is duly
qualified to do business and is in good standing as a foreign corporation in all
states where such qualification is required, has all necessary corporate power
and authority to enter into this Agreement and each of the other Loan Documents
to which it is a party and to perform all of its obligations hereunder and
thereunder.
 
(b) Each Guarantor operates its business only under the assumed names listed on
Schedule 5.1(b) of Schedule A attached to the Loan Agreement.
 
(c) Each Guarantor has all requisite right and power and is duly authorized and
empowered to enter into, execute, deliver and perform this Agreement and each
other Loan Document to which it is a party and this Agreement and each other
Loan Document to which it is a party are the legal, valid and binding
obligations of such Guarantor and are enforceable against such Guarantor in
accordance with their terms.
 
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(d) The execution, delivery and performance by each Guarantor of this Agreement
and the other Loan Documents to which it is a party does not and shall not (i)
violate any provision of any Law, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to such
Guarantor; (ii) violate any provision of its charter documents or bylaws; or
(iii) result in a breach of or constitute a default under any indenture or loan
or credit agreement or any other agreement, lease or instrument to which such
Guarantor is a party or by which it or any of its assets or properties may be
bound or affected; and no Guarantor is in default of any such Law, order, writ,
judgment, injunction, decree, determination or award or any such indenture,
agreement, lease or instrument.
 
(e) No consent, approval, license, exemption of or filing or registration with,
giving of notice to, or other authorization of or by, any court, administrative
agency or other governmental authority is or shall be required in connection
with the execution, delivery or performance by any Guarantor of this Agreement
or any other Loan Document for the valid consummation of the transactions
contemplated hereby or thereby.
 
(f) No event has occurred and is continuing which constitutes a Guarantor
Default. There is no action, suit, proceeding or investigation pending or
threatened against or affecting any Guarantor before or by any court,
administrative agency or other governmental authority that brings into question
the validity of the transactions contemplated hereby, or that might result in
any Material Adverse Effect.
 
(g) No Guarantor is in default in the payment of any taxes levied or assessed
against it or any of its assets or properties, except for taxes being contested
in good faith and by appropriate proceedings and for which adequate reserves
have been made.
 
(h) Each Guarantor has good and marketable title to its assets and properties as
reflected in its financial statements furnished to Lender.
 
(i) Each of the financial statements furnished to Lender by the Guarantors was
prepared in accordance with GAAP and fairly and accurately reflects their
financial condition as of the date thereof; and each Guarantor hereby certifies
that there have been no Material Adverse Effects, since the date of such
statements, and there are no known contingent liabilities not provided for or
disclosed in such statements.
 
(j) Neither this Agreement, the Guaranty or any statement or document referred
to herein or delivered to any Secured Party or the Custodian by any Guarantor
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements made herein or therein not misleading.
 
(k) The Guarantors have good, indefeasible and merchantable title to and
ownership of the Guaranty Collateral, free and clear of all Liens, except those
of the Collateral Agent for the benefit of Lender.
 
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(l) All books, records and documents relating to the Guaranty Collateral are and
shall be genuine and in all respects what they purport to be.
 
(m) Each place of business of each Guarantor is only at the locations set forth
in Section 5.1(n) of Schedule A attached to the Loan Agreement. No Guarantor
shall begin or do business (either directly or through subsidiaries) at other
locations or cease to do business at any of the above locations or at
Guarantor’s principal place of business without first notifying Lender.
 
(n) The present value of all benefits vested under all Plans of the Guarantors
or any Commonly Controlled Entity (based on the assumptions used to fund the
Plans) did not, as of the last annual valuation date (which in case of any Plan
was not earlier than December 31, 1982) exceed the value of the assets of the
Plans applicable to such vested benefits.
 
(o) The liability to which any Guarantor or any Commonly Controlled Entity would
become subject under Sections 4063 or 4064 of ERISA if such Guarantor or any
Commonly Controlled Entity were to withdraw from all Multi-employer Plans or if
such Multi- employer Plans were to be terminated as of the valuation date most
closely preceding the date hereof, is not in excess of One Thousand Dollars
($1,000.00);
 
(p) No Guarantor is engaged nor shall it engage, principally or as one of its
important activities, in a business of extending credit for the purpose of
“purchasing” or “carrying” any “margin stock” within the respective meanings of
each of the quoted terms under Regulations G or X of the Board of Governors of
the Federal Reserve System as now and from time to time hereafter in effect. No
part of the proceeds of any advances hereunder shall be used for “purchasing” or
“carrying” “margin stock” as so defined or for any purpose which violates, or
which would be inconsistent with, the provisions of the Regulations of such
Board of Governors. If requested by Lender, each Guarantor shall furnish to
Lender a statement in conformity with the requirement of Federal Reserve Form
G-3 referred to in said Regulation G to the foregoing effect. All of the
outstanding securities of each Guarantor have been offered, issued, sold and
delivered in compliance with, or are exempt from, all federal and state laws and
rules and regulations of federal and state regulatory bodies governing the
offering, issuance, sale and delivery of securities.
 
(q) No Guarantor is an “investment company” or a company “controlled” by an
“investment company,” within the meaning of the Investment Company Act of 1940,
as amended.
 
(r) To the best of each Guarantor’s knowledge, the land and improvements owned
or leased by each Guarantor for use in its business operations (including the
locations listed in Section 5.1(n) of Schedule A of the Loan Agreement) are free
of dangerous levels of contaminates, oils, asbestos, radon, PCB’s, hazardous
substances or waste as defined by federal, state or local environmental laws,
regulations or administrative orders or other materials, the removal of which is
required or the maintenance of which is prohibited, regulated or penalized by
any federal, state or local governmental authority.
 
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(s) Each Guarantor is solvent, generally able to pay its obligations as they
become due, has sufficient capital to carry on its business and transactions and
all businesses and transactions in which it intends to engage, and the current
value of each Guarantor’s assets, at fair saleable valuation, exceeds the sum of
its liabilities. No Guarantor shall be rendered insolvent by the execution and
delivery of this Agreement and the other Loan Documents and the consummation of
the transactions contemplated hereby and thereby and the capital remaining in
each Guarantor is not now and shall not foreseeably become unreasonably small to
permit such Guarantor to carry on its business and transactions and all
businesses and transactions in which it is about to engage. No Guarantor intends
to, nor does it reasonably believe it shall, incur debts beyond its ability to
repay the same as they mature.
 
(t) The Collateral Agent for the benefit of Lender has a perfected first
priority security interest in favor of the Collateral Agent for the benefit of
Lender in all of the Guarantors’ respective right, title and interest in the
Guaranty Collateral, prior and superior to any other Lien, except any statutory
or constitutional lien for taxes not yet due and payable.
 
(u) There are no material actions, suits or proceedings pending, or threatened
against or affecting the assets of any Guarantor or the consummation of the
transactions contemplated hereby, at law, or in equity, or before or by any
governmental authority or instrumentality or before any arbitrator of any kind.
No Guarantor is subject to any judgment, order, writ, injunction or decree of
any court or governmental agency. There is not a reasonable likelihood of an
adverse determination of any pending proceeding which would, individually or in
the aggregate, have a Material Adverse Effect.
 
(v) Section 5.1(x) of Schedule A attached to the Loan Agreement correctly and
completely sets forth for each Guarantor (i) its full legal name and state of
organization, (ii) its Federal Tax Identification Number; (iii) its chief
executive office, (iv) all prior names used in the last five (5) years
(including, without limitation, such Guarantor’s predecessors in interest as a
result of a merger or consolidation) and (v) the charter or other similar number
for such Guarantor in its state of organization.
 
(w) No Guarantor (i) is a person whose property or interest in property is
blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of
September 23, 2001 Blocking Property and Prohibiting Transactions With Persons
Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079
(2001)), (ii) engages in any dealings or transactions prohibited by Section 2 of
such executive order, or is otherwise associated with any such person in any
manner violative of Section 2, or (iii) is a Person on the list of Specially
Designated Nationals and Blocked Persons or subject to the limitations or
prohibitions under any other U.S. Department of Treasury’s Office of Foreign
Assets Control regulation or executive order.
 
(x) Each Guarantor is in compliance with the Patriot Act. No part of the
proceeds of any of the Loans will be used, directly or indirectly, for any
payments to any governmental official or employee, political party, official of
a political party, candidate for political office, or anyone else acting in an
official capacity, in order to obtain, retain or direct business or obtain any
improper advantage, in violation of the United States Foreign Corrupt Practices
Act of 1977, as amended.
 
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(y) This Security Agreement constitutes the legal, valid and binding obligations
of each Guarantor enforceable in accordance with its terms, except as the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors’ rights generally, by general equitable principles (whether
enforcement is sought by proceedings in equity or at law) and an implied
covenant of good faith and fair dealing.
 
(z) No Guarantor has any Deposit Accounts, Securities Accounts, collateral
accounts or any other accounts with any Person other than the Guarantor Accounts
(collectively, the “Other Accounts”).
 
(aa)  Each Guarantor has the requisite licenses and permits required under
applicable law to carry on its business as now being conducted in all applicable
states, except to the extent the failure to do so does not have a material
adverse effect on the ability of such Guarantor to conduct its business.
 
ARTICLE III
 
COVENANTS
 
SECTION 3.01 Certain Affirmative Covenants of Guarantors. So long as any of the
Secured Guaranty Obligations remain outstanding or any obligations of the Lender
under the Loan Agreement shall remain outstanding, the Guarantors hereby jointly
and severally agree and covenant that each Guarantor shall:
 
(a) Pay or cause to be paid currently all of its expenses, including all
payments on its obligations whenever due, as well as all payments of any and all
taxes of whatever nature when due. This provision shall not apply to taxes or
expenses which are due, but which are challenged in good faith and for which
adequate reserves have been established.
 
(b) Maintain, preserve, and protect the Guaranty Collateral.
 
(c) Furnish to Secured Parties prompt written notice as to the occurrence of any
Guarantor Default hereunder or Servicer Termination Event or any event which
with the passage of time or the giving of notice would become a Servicer
Termination Event.
 
(d) Carry on and conduct its business in the same manner and in the same fields
of enterprise as it is presently engaged, and shall preserve its existence,
licenses or qualifications as a domestic corporation in the state of its
incorporation and as a foreign organization in every jurisdiction in which the
character of its assets or properties or the nature of the business transacted
by it at any time makes qualification as a foreign organization necessary, and
to maintain all other material organizational rights and franchises.
 
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(e) Comply and cause each of the Guarantors to comply with all statutes,
governmental rules and regulations applicable to them and their business
(including, without limitation, applicable usury and consumer Laws).
 
(f) Permit and authorize Secured Parties and allow Secured Parties to access,
without notifying any Guarantor, (i) to make such inquiries or investigation
through business credit, other credit reporting services or other sources
concerning any Guarantor as any Secured Party, in its sole discretion, shall
deem appropriate and (ii) to inspect, audit and examine the Guaranty Collateral
at the premises of Guarantors.
 
(g) Provide each Secured Party sixty (60) days prior written notice of any
Guarantor initiating any activities in any state other than the then-Approved
States.
 
(h) Provide Lender with evidence of such Guarantor’s insurance (including,
without limitation, property damage and liability insurance) issued by a
reputable carrier, as required by Lender (which insurance shall be in such
amounts and cover such risks as is satisfactory to Lender and shall include
without limitation, Director and Officer insurance, Errors and Omissions
insurance and Fidelity insurance). This insurance shall reflect the Collateral
Agent for the benefit of Lender as the loss payee or additional insured, as
required by Lender, and contain a provision that the Collateral Agent for the
benefit of Lender shall be notified by the carrier thirty (30) days prior to the
termination or cancellation of any such insurance.
 
(i) promptly notify Lender and the Collateral Agent in writing of:
 
(i) the occurrence of any Material Adverse Effect;
 
(ii) the acceleration of the maturity of any indebtedness owed by any Guarantor,
or any default by any Guarantor under any indenture, mortgage, agreement,
contract or other instrument to which any of them is a party or by which any of
them or any of their properties is bound;
 
(iii) the filing of any suit or proceeding against any Guarantor.
 
Upon the occurrence of any of the foregoing, the Guarantors will take all
necessary or appropriate steps to remedy promptly any such Material Adverse
Effect, acceleration, default, to protect against any such adverse claim, to
defend any such suit or proceeding, and to resolve all controversies on account
of any of the foregoing.
 
(j) Perform its obligations and undertakings hereunder and pursuant to the other
Loan Documents.
 
(k) Contemporaneously herewith and from time to time hereafter, deliver to the
Collateral Agent possession all originals of all negotiable Documents and
Instruments and Chattel Paper and promissory notes currently owned or held by
such Guarantor and representing or evidencing any indebtedness (duly endorsed in
blank).
 
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(l) If at any time any Guarantor shall acquire or otherwise have rights with
respect to a Commercial Tort Claim which such Guarantor reasonably believes,
based upon then-current information, is likely to result in a judgment in favor
of such Guarantor in excess of $250,000, it shall promptly notify the Lender and
the Collateral Agent thereof in a writing (such writing to be in form and
substance satisfactory to the Lender and the Collateral Agent) signed by it
containing brief details thereof to the Collateral Agent and take such other
actions as necessary or desirable or reasonably requested by the Collateral
Agent or the Lender to grant and perfect a Lien in such Commercial Tort Claim in
favor of the Collateral Agent for the benefit of the Lender.
 
(m) During the term of this Agreement and so long as any of the Indebtedness
remains unpaid, maintain a modern system of accounting in accordance with GAAP
or other systems of accounting acceptable to Lender. For the purpose of
determining compliance with the covenants and representations in the Loan
Documents, Lender shall have the right to recast any financial statement or
report presented to Lender by or on behalf of any Guarantor to comply with GAAP.
 
SECTION 3.02 Financial Covenants. Manchester, MIA and MIO jointly and severally
undertake and covenant with the Lender that as of the end of each quarter,
beginning with the quarter ending March 31, 2007, (i) the Tangible Net Worth
shall not be less than $2,500,000, (ii) the Interest Coverage Ratio shall not be
less than 1.4:1, and (iii) the consolidated net income of MIA and MIO determined
in accordance with GAAP shall exceed $1.00 (one dollar).
 
SECTION 3.03 Negative Covenants. So long as any of the Secured Guaranty
Obligations remain outstanding or any obligations of the Lender under the Loan
Agreement shall remain outstanding, the Guarantors hereby jointly and severally
agree and covenant that no Guarantor shall, without the Lender’s prior written
consent, do any of the following:
 
(a) (i) Incur or permit to exist any Lien with respect to the Guaranty
Collateral now owned or hereafter acquired by such Guarantor, except Liens in
favor of the Collateral Agent for the benefit of Lender or (ii) enter into or
become subject to any agreement (other than this Agreement or any Loan Document)
that prohibits or otherwise restricts the right of such Guarantor to create,
assume or suffer to exist any Lien in favor of the Collateral Agent for the
benefit of Lender on such Person’s assets.
 
(b) Delegate, transfer or assign any of its obligations or liabilities under
this Agreement or any other Loan Document, or any part thereof, to any other
Person.
 
(c) Be a party to or participate in: (i) any merger or consolidation; (ii) any
purchase or other acquisition of all or substantially all of the assets or
properties or shares of any class of, or any partnership or joint venture
interest in, any other Person; (iii) any sale, transfer, conveyance or lease of
all or substantially all of such Guarantor’s assets or properties; or (iv) any
sale or assignment, with or without recourse, of any Receivables or Vehicles
owned by Guarantor, other than in connection with the origination of a
Receivable or sale of Receivables to Borrower.
 
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(d) Incur, assume or suffer to exist any Liabilities (including any contingent
liabilities) or otherwise become liable upon the obligations of any Person by
assumption, endorsement or guaranty thereof or otherwise other than (i)
Liabilities under the Loan Documents to which it is a party; (ii) accounts
payable incurred in the ordinary course of business; or (iii) other Liabilities
consented to in writing by Lender.
 
(e) Directly or indirectly make loans to, invest in, extend credit to, or
guaranty the debt of any Person, other than in the ordinary course of such
Guarantor’s business.
 
(f) Amend, modify, or otherwise change in any respect any material agreement,
instrument, or arrangement (written or oral) by which such Guarantor, or any of
its assets, are bound, including, without limitation, the Loan Documents.
 
(g) Change its name, convert from one type of entity to another type, change its
principal place of business, change the state in which it is organized under, or
make any material changes in the nature of its business as carried on as of the
date hereof.
 
(h) Make any expenditure or commitment or incur any obligation or enter into or
engage in any transaction except as expressly authorized pursuant to the Loan
Documents; (ii) engage directly or indirectly in any business or conduct any
operations except as expressly authorized pursuant to the Loan Documents; or
(iii) make any acquisitions of or capital contributions to or other investments
in any Person, except pursuant to the Loan Documents.
 
(i) Establish or deposit any monies, securities or any other assets in any Other
Account without the prior written consent of the Lender.
 
(j) Sell, assign (by operation of law or otherwise) or otherwise dispose of any
of the Guaranty Collateral, or create or suffer to exist any Lien or other
charge or encumbrance upon or with respect to any of the Guaranty Collateral to
secure indebtedness of any Person, except for the security interest created by
this Security Agreement.
 
SECTION 3.04 Covenants by Manchester. Manchester covenants with the Lender that
it shall not at any time make any Distribution to its equity owners or any other
Person if such Distribution would cause (i) a Guarantor Default or (ii) a
Default or Event of Default (as those terms are defined in the Loan Agreement).
 
SECTION 3.05 Covenants by MIO. MIO represents and warrants to the Lender that,
as of the date hereof, it does not own any interest in any retail installment
sale contracts for any new or used automobiles, light trucks, vans or minivans
and covenants with the Lender that it shall not on any date after the date of
this Agreement own any such interest or originate any such sale contracts.
 
SECTION 3.06 Financial Reports. Each Guarantor shall furnish to Lender and its
duly authorized representatives such information respecting the business and
financial condition such Guarantor may reasonably request, and without any
request, the following financial statements and reports, in a form satisfactory
to Lender:
 
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(a) As soon as available, and in any event within ten (10) calendar days after
the close of each month, a copy of the consolidated and consolidating balance
sheet of such Guarantor and the Borrower as of the close of the preceding month
and the consolidated and consolidating statements of income, retained earnings
and cash flows of such Guarantor and for the preceding month, each in reasonable
detail showing in comparative form the figures for the corresponding date and
period in the previous fiscal year (to the extent available to compare),
prepared in accordance with GAAP, consistently applied;
 
(b) As soon as available, and in any event within ninety (90) calendar days
after the close of each fiscal year of such Guarantor, a copy of the
consolidated and consolidating balance sheets of such Guarantor and the Borrower
as of the close of such period and the consolidated and consolidating statements
of income, retained earnings and cash flows of such Guarantor and the Borrower
for such period, and all supporting schedules and footnotes thereto, all in
detail reasonably satisfactory to Lender, prepared in accordance with GAAP,
consistently applied. All such annual financial statements shall be audited by a
firm of independent public accountants of recognized standing, selected by such
Guarantor and satisfactory to Lender, in accordance with GAAP, and shall be
accompanied by the written statement of the accountants who prepared the audited
financial statements, certifying whether such accountants have obtained
knowledge of any Event of Default under the Loan Documents;
 
(c) As soon as available, and in any event within forty-five (45) calendar days
prior to the close of each annual accounting period of such Guarantor, pro forma
balance sheets and statements of income, retained earnings and cash flows of the
Borrower for the next annual accounting period;
 
(d) Promptly after receipt thereof, any additional written reports, management
letters or other detailed information contained in writing concerning
significant aspects of such Guarantor’s or any of its subsidiary’s operations or
concerning significant aspects of such Guarantor’s or any of its subsidiary’s
financial affairs, given to it by its independent public accountants;
 
(e) Promptly after receipt thereof and in no event more than five (5) Business
Days thereafter, a copy of each audit or other report made by any state or
federal agency of the books and records or assets of such Guarantor of its
compliance or non-compliance with applicable laws relating to the underwriting,
origination, servicing and/or collection of loans;
 
(f) Promptly (but never more than five (5) Business Days) after knowledge
thereof shall have come to the attention of such Guarantor, written notice of
(i) any threatened or pending litigation or governmental proceeding or labor
controversy against such Guarantor or (ii) the occurrence of any Guarantor
Default;
 
(g) As soon as available, a copy of all federal and state tax returns filed by
such Guarantor during the current fiscal year and each fiscal year hereafter;
 
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(h) Within ten (10) calendar days of a request therefor from Lender, such other
information (whether financial or otherwise) regarding such Guarantor as Lender
shall reasonably require; and
 
(i) As soon as available, and in any event within ten (10) calendar days prior
to the beginning of each calendar month, monthly financial projections of such
Guarantor for the next month.
 
Each of the financial statements furnished to Lender pursuant to subsections (b)
and (c) of this Section shall be accompanied by a written certificate signed by
the chief financial officer or other authorized representative of Manchester, to
the effect that to the best of the chief financial officer’s or applicable
authorized representative’s knowledge and belief no Default or Event of Default
has occurred during the period covered by such statements or, if any such
Default or Event of Default has occurred during such period, setting forth a
description of such Default or Event of Default and specifying the action, if
any, taken to remedy the same.
 
SECTION 3.07 Covenant of Manchester. Manchester represents and warrants that it
has employed the firm of Rodefer Moss & Co, PLLC to act as the independent
public accountant and auditor for Manchester and its subsidiaries and covenants
with Lender that it shall not replace such firm without Lender’s prior written
consent.
 
ARTICLE IV
 
GUARANTOR ACCOUNTS
 
SECTION 4.01 Guarantor Accounts. Within 15 calendar days after the date hereof,
each Guarantor shall enter into account control agreements with the Lender, the
Collateral Agent and the applicable banks with respect to all the Guarantor
Account(s) held in the name of such Guarantor, each such account control
agreements to be in form and substance satisfactory to the Lender in its sole
discretion.
 
ARTICLE V
 
REMEDIES 
 
SECTION 5.01 Remedies. If any Guarantor Default shall occur and be continuing,
the Lender or the Collateral Agent at the direction of the Lender may protect
and enforce their rights under the Guaranty and this Agreement by any
appropriate proceedings, including proceedings for specific performance of any
covenant or agreement contained in the Guaranty and this Agreement and the
following rights and remedies:
 
(a) All of the rights and remedies of a secured party under the UCC, as amended,
or other applicable law.
 
(b) The right, to the fullest extent permissible by law, to: (i) enter upon the
premises of any Guarantor, or any other place or places where the Guaranty
Collateral is located and kept, without any obligation to pay rent to any
Guarantor, through self-help and without judicial process, without first
obtaining a final judgment or giving any Guarantor notice and opportunity for a
hearing on the validity of such Secured Party’s claim, and remove the Guaranty
Collateral therefrom to the premises of any Secured Party or any agent of
Lender, for such time as Lender may desire, in order to effectively collect and
liquidate the Collateral; and/or (ii) require any Guarantor to assemble the
Guaranty Collateral and make it available to such Secured Party at a place to be
designated by such Secured Party, in Lender’s reasonable discretion.
 
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(c) The right to sell or otherwise dispose of any or all Guaranty Collateral in
its then condition at public or private sale or sales, in lots or in bulk, for
cash or on credit, all as any Secured Party, in its discretion, may deem
advisable; provided that such sales may be adjourned from time to time with or
without notice. The requirement of reasonable notice to Guarantors of the time
and place of any public sale of the Guaranty Collateral or of the time after
which any private sale either by any Secured Party or at Lender’s option, a
broker, or any other intended disposition thereof is to be made, shall be met if
such notice is mailed, postage prepaid, to Guarantors at the address of
Guarantors designated herein at least ten (10) Business Days before the date of
any public sale or at least ten (10) Business Days before the time after which
any private sale or other disposition is to be made unless applicable law
requires otherwise.
 
(d) Each Secured Party shall have the right to conduct such sales on Guarantors’
premises or elsewhere and shall have the right to use the Guarantors’ premises
without charge for such sales for such time or times as Lender may see fit. Each
Secured Party is hereby granted a license or other right to use, without charge,
Guarantors’ labels, copyrights, rights of use of any name, trade secrets, trade
names, trademarks and advertising matter, or any property of a similar nature,
as it pertains to the Guaranty Collateral, in advertising for sale and selling
any Guaranty Collateral and Guarantors’ rights under all licenses and all
franchise agreements shall inure to the benefit of the Collateral Agent for the
benefit of the Lender.
 
(e) Each Secured Party shall have the right to sell, lease or otherwise dispose
of the Guaranty Collateral, or any part thereof, for cash, credit or any
combination thereof, and such Secured Party may purchase all or part of the
Guaranty Collateral at public or, if permitted by law, private sale and, in lieu
of actual payment of such purchase price, may set off the amount of such price
against the Secured Guaranty Obligations, all in the discretion of the Lender.
The proceeds realized from the sale of any Guaranty Collateral shall be applied
first to reasonable costs and expenses, attorney’s fees, expert witness fees
incurred by any Secured Party for collection and for acquisition, completion,
protection, removal, storage, sale and delivery of the Guaranty Collateral;
second to all Secured Guaranty Obligations; and third the remainder, if any, to
the Guarantors, their successors or assigns, or to whomsoever may be lawfully
entitled to receive the same. If any deficiency shall arise, each Guarantor
shall remain liable to the Secured Parties therefor.
 
(f) The right to appoint or seek appointment of a receiver, custodian or trustee
of any Guarantor or any of its properties or assets pursuant to court order.
 
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(g) All other rights and remedies that any Secured Party may have at law or in
equity.
 
Additionally, if any Guarantor Default shall occur and be continuing, each
Secured Party may enforce the payment of any Secured Guaranty Obligations due it
or enforce any other legal or equitable right which it may have. All rights,
remedies and powers conferred upon the Secured Parties under the Guaranty and
this Agreement shall be deemed cumulative and not exclusive of any other rights,
remedies or powers available under the Guaranty and this Agreement or at law or
in equity.
 
SECTION 5.02 No Waiver. No delay, failure or omission of any Secured Party to
exercise any right upon the occurrence of any Guarantor Default shall impair any
such right or shall be construed to be a waiver of any such Guarantor Default or
an acquiescence therein. Any Secured Party may, from time to time, in a writing
waive compliance by the other parties with any of the terms of the Guaranty and
this Agreement and its rights and remedies upon any Guarantor Default, and, each
Guarantor agrees that no waiver by any Secured Party shall ever be legally
effective unless such waiver shall be acknowledged and agreed to in writing by
Lender. No waiver of any Guarantor Default by any Secured Party shall impair any
right or remedy of such Secured Party not specifically waived. No single,
partial or full exercise of any right of any Secured Party shall preclude any
other or further exercise thereof. No modification or amendment of or supplement
to this Agreement or any other written agreement between the parties hereto
shall be valid or effective (or serve as a basis of reliance by way of estoppel)
unless the same is in writing and signed by the Lender and the party against
whom it is sought to be enforced. The acceptance by any Secured Party at any
time and from time to time of a partial payment or partial performance of any of
Secured Guaranty Obligations set forth herein shall not be deemed a waiver,
reduction, modification or release from any Guarantor Default then existing. No
waiver by any Secured Party of any Guarantor Default shall be deemed to be a
waiver of any other existing or any subsequent Guarantor Default.
 
SECTION 5.03 Appointment Of Lender As Attorney-In-Fact. Each Guarantor
irrevocably designates, makes, constitutes and appoints each Secured Party (and
all persons reasonably designated by any Secured Party), with full power of
substitution, as such Guarantor’s true and lawful attorney-in-fact (and not
agent-in-fact) and each Secured Party, or such Secured Party’s agent, may,
without notice to any Guarantor, and at such time or times thereafter as such
Secured Party or said agent, in its discretion, may determine, in any
Guarantor’s or such Secured Party’s name, at no duty or obligation on such
Secured Party, do the following:
 
(a) Upon the occurrence of any Guarantor Default, all acts and things necessary
to fulfill the Guarantor’s obligations under this Agreement and the other Loan
Documents, except as otherwise set forth herein, at the cost and expense of the
Guarantors.
 
(b) In addition to, but not in limitation of the foregoing, at any time or times
upon the occurrence of a Guarantor Default, each Secured Party shall have the
right: (i) to enter upon Guarantors’ premises and to receive and open all mail
directed to the Guarantors and remove all payments to the Guarantors on the
Guaranty Collateral; (ii) in the name of the Guarantors, to notify the Post
Office authorities to change the address for the delivery of mail addressed to
the Guarantors to such address as such Secured Party may designate; (iii)
demand, collect, receive for and give renewals, extensions, discharges and
releases of any Guaranty Collateral; (iv) institute and prosecute legal and
equitable proceedings to realize upon the Guaranty Collateral; (v) settle,
compromise, compound or adjust claims in respect of any Guaranty Collateral or
any legal proceedings brought in respect thereof; (vi) generally, sell in whole
or in part for cash, credit or property to others or to itself at any public or
private sale, assign, make any agreement with respect to or otherwise deal with
any of the Guaranty Collateral as fully and completely as though such Secured
Party were the absolute owner thereof for all purposes, except to the extent
limited by any applicable laws and subject to any requirements of notice to the
Guarantors or other persons under applicable laws; (vii) take possession and
control in any manner and in any place of any cash or non-cash items of payment
or proceeds of Guaranty Collateral; (viii) endorse the name of the Guarantors
upon any notes, acceptances, checks, drafts, money orders, chattel paper or
other evidences of payment of Guaranty Collateral that may come into the
possession of such Secured Party; and (ix) sign the Guarantors’ name on any
instruments or documents relating to any of the Guaranty Collateral. The
appointment of each Secured Party as attorney-in-fact for the Guarantors is
coupled with an interest and is irrevocable.
 
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ARTICLE VI
 
EXPENSES AND INDEMNITIES
 
SECTION 6.01 Payment For Expenses. The Guarantors shall pay (within thirty (30)
days after any invoice or other statement or notice) all costs and expenses
incurred by any Secured Party or any of their affiliates, including, without
limitation, (a) all documentation and diligence fees and expenses, (b) all
search, appraisal, recording, professional and filing fees and expenses and all
other out-of-pocket charges and expenses (including, without limitation, UCC and
judgment and tax lien searches and UCC filings and fees for post-closing UCC,
judgment and tax lien searches and wire transfer fees), (c) all audit fees and
expenses, (d) all of the Secured Parties’ attorneys’ fees and expenses, but only
to the extent incurred after a Guarantor Default or incurred in connection with
(i) any effort to enforce, protect or collect payment of any Secured Guaranty
Obligations or to enforce the Guaranty or this Agreement or any related
agreement, document or instrument, or effect collection hereunder or thereunder,
(ii) instituting, maintaining, preserving, enforcing and foreclosing on the
Liens of the Collateral Agent for the benefit of the Secured Parties in any of
the Guaranty Collateral, whether through judicial proceedings or otherwise, (v)
defending or prosecuting any actions, claims or proceedings arising out of or
relating to the Secured Parties’ transactions with the Guarantors unless there
is a final, non-appealable judgment by a court which finds the applicable
Secured Party to have acted in gross negligence or willful misconduct in
connection therewith, or (vi) any modification, restatement, supplement,
amendment, waiver or extension of this Agreement, the Guaranty or any related
agreement, document or instrument, and all of the same may and shall be part of
the Secured Guaranty Obligations.
 
ARTICLE VII
 
COLLATERAL AGENT
 
SECTION 7.01 Exculpation, Collateral Agent’s Reliance, Etc. Neither Collateral
Agent nor any of its directors, officers, agents, attorneys, or employees shall
be liable to Lender, any Guarantor or any other Person for any action taken or
omitted to be taken by any of them under or in connection with the this
Agreement or the Guaranty, including their negligence of any kind, except that
each shall be liable for its own gross negligence or willful misconduct, as
determined by a non-appealable judgment of a court of competent jurisdiction.
Without limiting the generality of the foregoing, Collateral Agent (a) may
consult with legal counsel (including counsel for the Guarantors), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants or experts; (b) makes no warranty or
representation to Lender and shall not be responsible to Lender for any
statements, warranties or representations made in or in connection with the Loan
Documents; (c) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or the Guaranty on the part of any Guarantor or to inspect the
property (including the books and records) of any Guarantor; (d) shall not be
responsible to Lender for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or the Guaranty or any
instrument or document furnished in connection therewith; (e) may rely upon the
representations and warranties of each Guarantor or Secured Party in exercising
its powers hereunder; and (f) shall incur no liability to Lender under or in
respect of this Agreement or the Guaranty by acting upon any notice, consent,
certificate or other instrument or writing (including any facsimile, telegram,
cable or telex) believed by it to be genuine and signed or sent by the proper
Person or Persons. Collateral Agent shall not be liable to Lender, any Guarantor
or any other Person for special, exemplary, punitive or consequential damages.
The Collateral Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Lender as it deems appropriate or it
shall first be indemnified to its satisfaction by the Lender against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.
 
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SECTION 7.02 Benefit of Article 7. The provisions of this Article are intended
solely for the benefit of Lender, and no Guarantor shall be entitled to rely on
any such provision or assert any such provision in a claim or defense against
Lender. Lender and the Collateral Agent may waive or amend such provisions as
they desire without any notice to or consent of any Guarantor.
 
SECTION 7.03 Resignation And Removal Of Collateral Agent. Collateral Agent may
be removed and may resign in accordance with the provisions of Section 9.5 of
the Loan Agreement.
 
SECTION 7.04 Notice of Guarantor Default. Collateral Agent shall not be deemed
to have knowledge or notice of the occurrence of any Guarantor Default, unless
Collateral Agent shall have received written notice from a Lender or a Guarantor
referring to this Agreement, describing such Guarantor Default and stating that
such notice is a “notice of default.” Collateral Agent will notify Lender of its
receipt of any such notice. Collateral Agent shall take such action with respect
to such Guarantor Default as may be directed by Lender; provided, however, that
unless and until Collateral Agent has received any such direction, Collateral
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Guarantor Default as it shall deem
advisable or in the best interest of Lender.
 
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ARTICLE VIII
 
MISCELLANEOUS
 
SECTION 8.01 Notices. Except when telephonic notice is expressly authorized by
this Agreement, any notice or other communication to any party in connection
with this Agreement shall be in writing and shall be sent by manual delivery,
telegram, facsimile transmission, overnight courier or United States mail
(postage prepaid) addressed to such party at the address specified on Schedule A
to the Loan Agreement, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, or facsimile transmission, from the
first Business Day after the date of sending if sent by overnight courier, or
from four days after the date of mailing if mailed.
 
SECTION 8.02 Prior Agreements Superseded. This Agreement, together with the
other Loan Documents, constitute the sole and only agreement of the parties
hereto and supersede any prior understandings or written or oral agreements
between the parties respecting the subject matter of this Agreement and the
other Loan Documents. No provision of this Agreement or other Loan Document may
be modified, waived or terminated except by instrument in writing executed by
the Lender and the party against whom a modification, waiver or termination is
sought to be enforced.
 
SECTION 8.03 Parties Bound. This Agreement shall be binding upon the Guarantors,
the Collateral Agent, Lender and their respective successors and assigns, and
shall inure to the benefit of the Guarantors, the Collateral Agent, Lender and
the successors and permitted assigned of each Guarantor, the Collateral Agent
and Lender. No Guarantor shall assign its rights or duties hereunder without the
consent of Lender.
 
SECTION 8.04 No Third Party Beneficiary. This Agreement is for the sole benefit
of the Secured Parties and is not for the benefit of any third party.
 
SECTION 8.05 Execution In Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original, and
all of which taken together shall constitute but one and the same instrument.
 
SECTION 8.06 Severability Of Provisions. Any provision which is determined to be
unconscionable, against public policy or any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
 
SECTION 8.07 Further Instruments. Each Guarantor shall from time to time execute
and deliver, and shall cause each of its subsidiaries to execute and deliver,
all such amendments, supplements and other modifications hereto and to the other
Loan Documents to which they are party and all such financing statements or
continuation statements, instruments of further assurance and any other
instruments, and shall take such other actions, as any Secured Party reasonably
requests and deems necessary or advisable in furtherance of the agreements
contained herein.
 
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SECTION 8.08 GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED A CONTRACT AND
INSTRUMENT MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK AND THE LAWS OF THE UNITED STATES OF AMERICA. EACH PARTY HERETO HEREBY
AGREES THAT ANY LEGAL ACTION OR PROCEEDING AGAINST IT WITH RESPECT TO THIS
AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED
STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AS LENDER MAY ELECT,
AND, BY EXECUTION AND DELIVERY HEREOF, EACH PARTY HERETO ACCEPTS AND CONSENTS
FOR ITSELF AND IN RESPECT TO ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. EACH PARTY HERETO AGREES THAT
SECTIONS 5-1401 AND 5.1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK SHALL APPLY TO THIS AGREEMENT AND WAIVES ANY RIGHT TO STAY OR TO DISMISS
ANY ACTION OR PROCEEDING BROUGHT BEFORE SAID COURTS ON THE BASIS OF FORUM NON
CONVENIENS. EACH PARTY HERETO HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON IT, AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY
REGISTERED MAIL DIRECTED TO IT AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
 
SECTION 8.09 CONSENT OF JURISDICTION. AT THE OPTION OF LENDER, THIS AGREEMENT
MAY BE ENFORCED IN ANY FEDERAL COURT OR NEW YORK STATE COURT SITTING IN NEW
YORK, NEW YORK; AND EACH PARTY HERETO CONSENTS TO THE JURISDICTION AND VENUE OF
ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT
CONVENIENT. IN THE EVENT ANY RELATED PARTY COMMENCES ANY ACTION IN ANOTHER
JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR
INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS, LENDER AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE
TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH
TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.
 
SECTION 8.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ANY RIGHT TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (a) UNDER
THIS AGREEMENT OR UNDER ANY OF THE OTHER LOAN DOCUMENTS, OR (b) ARISING FROM ANY
LENDING RELATIONSHIP EXISTING AMONG THE COLLATERAL AGENT AND LENDER, ON THE ONE
HAND, AND THE RELATED PARTIES, ON THE OTHER HAND, IN CONNECTION WITH THIS
AGREEMENT, AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
 
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SECTION 8.11 TIME OF ESSENCE. Time is of the essence for the performance of the
obligations set forth in this Agreement and the Guaranty.
 

signature pages follow

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IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be
duly executed by their respective officers thereunto duly authorized, as of the
day and year first above written.
 

        Manchester, Inc., a Nevada corporation  
   
   
  By:    

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  Name:       

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  Title:     

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Manchester Indiana Acceptance, Inc.,
a Delaware corporation
 
   
   
  By:    

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  Name:       

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  Title:     

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Manchester Indiana Operations, Inc.,
a Delaware corporation
 
   
   
  By:    

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  Name:       

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  Title:     

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The Bank of New York Trust Company, N.A.,
as Collateral Agent
 
   
   
  By:    

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Name: John C. Stohlmann    Title: Vice President

 

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        Palm Beach Multi-Strategy Fund, L.P.  
   
   
  By:   Palm Beach Links Capital, L.P.,    
its General Partner 
          By: PBL Holdings, LLC,     
its General Partner 
               
By: 
 

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Managing Director
       
 
By:
 

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Managing Director

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