Exhibit 10.5

Execution Copy

SECURITY AGREEMENT

between

NF FUNDING I, LLC,

as Grantor

and

ARES AGENT SERVICES, L.P.,

as Collateral Agent

Dated as of March 29, 2019

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TABLE OF CONTENTS

 

         Page  

SECTION 1. DEFINITIONS; GRANT OF SECURITY

     1  

1.1

  Terms Generally      1  

1.2

  Terms Defined in the Uniform Commercial Code      1  

1.3

  Additional Definitions      1  

SECTION 2. GRANT OF SECURITY

     2  

2.1

  Grant of Security      2  

2.2

  Security for Obligations      3  

SECTION 3. REPRESENTATIONS AND WARRANTIES

     3  

3.1

  Representations and Warranties      3  

SECTION 4. COVENANTS

     5  

4.1

  General Affirmative Covenants      5  

4.2

  Delivery of Instruments, Securities, Chattel Paper and Documents      6  

4.3

  Authorization for UCC Filings      6  

SECTION 5. COLLATERAL AGENT; AUTHORITY TO TAKE CERTAIN ACTIONS

     6  

5.1

  Appointment      6  

5.2

  No Duty on the Part of Collateral Agent or Secured Parties      6  

SECTION 6. REMEDIES

     7  

6.1

  Remedies      7  

6.2

  Application of Proceeds      8  

6.3

  Collection Account      8  

6.4

  Power of Attorney      9  

SECTION 7. RELEASE OF COLLATERAL

     10  

7.1

  Duties of the Collateral Agent      10  

7.2

  Duties of the Servicer      10  

SECTION 8. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS

     10  

SECTION 9. STANDARD OF CARE; COLLATERAL AGENT MAY PERFORM

     11  

SECTION 10. MISCELLANEOUS

     11  

10.1

  Notices, Etc.      11  

10.2

  APPLICABLE LAW      12  

10.3

  CONSENT TO JURISDICTION      12  

10.4

  Security Interest Absolute      12  

10.5

  Counterparts      13  

10.6

  Waiver of Jury Trial      13  

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This SECURITY AGREEMENT, dated as of March 29, 2019 (as it may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms hereof, this “Security Agreement”), is between NF FUNDING I, LLC, a
Delaware limited liability company (the “Borrower” or the “Grantor”) and ARES
AGENT SERVICES, L.P. (“Ares”) as collateral agent for the Secured Parties (in
such capacity, the “Collateral Agent”).

WITNESSETH:

WHEREAS, reference is made to that certain Credit Agreement, dated as of the
date hereof (as it may be amended, supplemented or otherwise modified from time
to time in accordance with the terms thereof, the “Credit Agreement”), among the
Borrower, Ares, as Collateral Agent and administrative agent (in such capacity,
the “Administrative Agent”, and together with the Collateral Agent, the
“Agents”), and the lenders parties thereto (each a “Lender” and collectively,
the “Lenders”); and

WHEREAS, in consideration of the extensions of credit and other accommodations
of the Lenders as set forth in the Credit Agreement, the Grantor has agreed to
secure its Obligations under the Loan Documents as set forth herein.

NOW, THEREFORE, in consideration of the premises and the agreements, provisions
and covenants herein contained, the Grantor and the Collateral Agent agree as
follows:

SECTION 1. DEFINITIONS; GRANT OF SECURITY.

1.1 Terms Generally. Except as otherwise provided herein, all capitalized terms
used herein without definition shall have the meanings as assigned to such terms
in the Credit Agreement, if defined therein, or otherwise in the Servicing
Agreement, dated as of the date hereof (as it may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof, the
“Servicing Agreement”), among the Borrower, the Collateral Agent and Nicholas
Financial, Inc., as servicer (in such capacity, the “Servicer”).

1.2 Terms Defined in the Uniform Commercial Code. The following terms shall have
the meaning assigned to such terms in the UCC (if any term is defined in Article
9 of the UCC and in another article of the UCC, the terms as used herein shall
be as defined in Article 9 of the UCC): “account,” “chattel paper,” “deposit
account,” “document,” “financial asset,” “financing statement,” “general
intangible,” “goods,” “instrument,” “investment property,” “letter-of-credit
right,” “money,” “proceeds,” “record,” “securities account,” “securities
intermediary,” “supporting obligation” and such other terms as the context may
otherwise indicate.

1.3 Additional Definitions. In this Security Agreement, the following terms
shall have the following meanings:

“Administrative Agent” shall have the meaning set forth in the recitals.

“Agents” shall have the meaning set forth in the recitals.

“Ares” shall have the meaning set forth in the preamble.

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“Borrower” shall have the meaning set forth in the preamble.

“Collateral” shall have the meaning assigned in Section 2.1.

“Collateral Agent” shall have the meaning set forth in the preamble.

“Collection Account” shall mean the segregated account designated as the
Collection Account maintained by the Collection Account Bank in the name of the
Borrower, as to which the Collateral Agent has control for the benefit of the
Secured Parties within the meaning of Sections 8-106(d) and 9-104(a), as
applicable, of the UCC pursuant to the Control Agreement.

“Collection Account Bank” shall mean a financial institution, reasonably
acceptable to the Administrative Agent, which maintains the Collection Account.
The initial Collection Account Bank is Wells Fargo Bank, National Association.

“Company” shall have the meaning set forth in the recitals.

“Credit Agreement” shall have the meaning set forth in the recitals.

“Grantor” shall have the meaning set forth in the preamble.

“Lenders” shall have the meaning set forth in the recitals.

“Parent” shall mean Nicholas Financial, Inc., a Florida corporation.

“Secured Obligations” shall have the meaning assigned in Section 2.2.

“Secured Party” shall mean each of the Agents (including former Agents), each
Lender, each Indemnitee or any of them.

“Security Agreement” shall have the meaning set forth in the preamble.

“Seller” shall mean Nicholas Financial, Inc., a Florida corporation.

“Servicer” shall have the meaning set forth in Section 1.1.

SECTION 2. GRANT OF SECURITY.

2.1 Grant of Security. The Grantor hereby grants to the Collateral Agent for the
benefit of the Secured Parties, a security interest in all of the Grantor’s
right, title and interest, whether now owned or existing or hereafter acquired
or arising and wheresoever located, in, to and under all accounts, certificates
of deposit, chattel paper, deposit accounts, documents, general intangibles,
goods, instruments, investment property (including securities accounts and
financial assets credited thereto), letter-of-credit rights, letters of credit,
money and supporting obligations, and all other personal property of the
Grantor, including, without limitation (a) the Receivables (including the
related Contracts), all Collections, all other monies received with respect to
the Receivables and all Net Liquidation Proceeds, Insurance Proceeds and
Recoveries received with respect to the Receivables, (b) the security interests
in the related Financed Vehicles granted by the related Obligors pursuant to the
Receivables and any other interest of the

 

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Grantor in such Financed Vehicles, including, without limitation, the
certificates of title and any other evidence of ownership with respect to such
Financed Vehicles; (c) any proceeds from claims on any physical damage, extended
warranties, credit life and credit accident and health insurance policies or
certificates or any vendor’s single interest (VSI) policy, if any, relating to
the related Financed Vehicles or the related Obligors, including any rebates or
premiums; (d) property (including the right to receive future Liquidation
Proceeds) that secures a Receivable and that has been acquired pursuant to the
liquidation of such Receivable; (e) refunds for the costs of extended service
contracts with respect to the related Financed Vehicles, refunds of unearned
premiums with respect to credit life and credit accident and health insurance
policies or certificates covering a related Obligor or Financed Vehicle or his
or her obligations with respect to such Financed Vehicle and any recourse to
Dealers for any of the foregoing; (f) the Receivable File related to each
Receivable and any and all other documents that the Grantor (or its designee)
keeps on file relating to the Receivables, the related Obligors or the related
Financed Vehicles; (g) the Lockbox Account (when opened) and the Collection
Account, including all amounts and property from time to time held therein or
credited thereto, and other amounts on deposit in the Cash Management System, in
each case related to the Receivables; (h) any proceeds from recourse against
Dealers including with respect to the sale of the Receivables; (i) all rights,
remedies, powers, privileges and claims of the Grantor under or with respect to
the Receivables Purchase Agreement, the Servicing Agreement, the Custodial
Agreement and any other Loan Document or the Argentum Purchase Agreement
(whether arising pursuant to the terms of any such agreement or otherwise
available to the Grantor at law or in equity), including the rights of the
Grantor to enforce the Receivables Purchase Agreement, the Servicing Agreement,
the Custodial Agreement and any other Loan Document and to give or withhold any
and all consents, requests, notices, directions, approvals, extensions or
waivers under or with respect to any such agreement, (j) all present and future
claims, demands, causes and choses in action in respect of any or all of the
foregoing and (k) all payments on or under and all proceeds of every kind and
nature whatsoever in respect of any or all of the foregoing, including all cash
and non-cash proceeds, and other property consisting of, arising from or
relating to all or any part of any of the foregoing other than Excluded Amounts
(collectively, the “Collateral”).

2.2 Security for Obligations. This Security Agreement secures, and the
Collateral is collateral security for, the prompt and complete payment or
performance in full when due, whether at stated maturity, by required
prepayment, declaration, acceleration, demand 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. § 362(a) (and any
successor provision thereof)), of all Indemnified Liabilities, other Obligations
and all other obligations of every nature of Grantor from time to time owed to
any Secured Party or to the Collateral Agent or any other Agent on behalf of the
Secured Parties under the Credit Agreement (the “Secured Obligations”).

SECTION 3. REPRESENTATIONS AND WARRANTIES

3.1 Representations and Warranties. The Grantor hereby represents and warrants
to the Secured Parties on the Closing Date and on each Credit Date, that:

 

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(a) This Security Agreement creates a valid and continuing security interest (as
defined in the UCC) in the Collateral in favor of the Collateral Agent for the
benefit of the Secured Parties, which security interest is prior to all other
Liens other than Permitted Liens or as otherwise permitted by the Credit
Agreement, free and clear of Liens other than Permitted Liens or as otherwise
permitted by the Credit Agreement, and is enforceable as such against creditors
of and purchasers from the Grantor.

(b) The Grantor is the sole and exclusive legal and beneficial owner of all of
the Collateral including, without limitation, each Receivable, together with the
books, documents, instruments, chattel paper and records evidencing or relating
thereto, free and clear of Liens (other than Permitted Liens) and adverse claims
and no financing statement or other instrument similar in effect covering any
Collateral (including any Receivable, any interest therein, or any related
books, instruments, documents or records) is on file in any recording office
except such as may be filed (i) naming Parent as debtor and Borrower as secured
party in accordance with the Receivables Purchase Agreement, (ii) Borrower as
debtor and Ares as Collateral Agent, as the secured party in accordance with the
provisions herein, (iii) with respect to the Argentum Receivables, naming
Argentum as debtor and Parent as secured party in accordance with the Argentum
Purchase Agreement, (iv) assigning any of the above to Borrower or Ares, as the
case may be, in accordance with the Receivables Purchase Agreement and the
provisions herein, or (v) after the Closing Date, in connection with other
Permitted Liens.

(c) The Grantor has received all consents and approvals required by the terms of
any material item of Collateral to the grant of a security interest to the
Collateral Agent in its interest and rights in the Collateral hereunder.

(d) All steps necessary to ensure that the Collateral Agent has “control” over
the Collection Account (and, with respect to any Credit Date following the
opening of the Lockbox Account, the Lockbox Account) within the meaning of UCC
Section 9-104(a)(2) have been taken.

(e) The Grantor’s name in which it has executed this Security Agreement is the
exact name as it appears in the Grantor’s organizational documents as filed with
the Grantor’s jurisdiction of organization and the Grantor is a limited
liability company organized solely under the laws of the State of Delaware.

(f) Upon (i) the filing of a UCC financing statement with the Secretary of State
of the State of Delaware naming the Grantor as “debtor” and the Collateral Agent
as “secured party” and describing the Collateral, (ii) the execution and
delivery of the Control Agreement by the parties thereto and (iii) after the
opening of the Lockbox Account, the execution and delivery of the Lockbox
Control Agreement by the parties thereto, the security interests granted to the
Collateral Agent hereunder constitute valid and perfected first priority
security interests with respect to all of the Collateral (subject to Permitted
Liens) in which a security interest can be perfected by the filing of a
financing statement under the Delaware Uniform Commercial Code or by “control”
under the applicable UCC.

(g) All chattel paper, instruments, securities, documents or other physical
collateral constituting or relating to the Receivables or other Collateral
(including any to be acquired on such date, unless otherwise agreed to by the
Collateral Agent or as expressly permitted under the Loan Documents) have been
duly delivered to the Collateral Agent or the Custodian in accordance with the
terms of this Security Agreement, the Custodial Agreement and the other Loan
Documents, as applicable.

 

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(h) No authorization, approval or other action by, and no notice to or filing
with, any Governmental Authority or regulatory body is required for either
(i) the pledge or grant by the Grantor of the Liens purported to be created in
favor of the Collateral Agent hereunder, or (ii) the exercise by the Collateral
Agent of any rights or remedies in respect of any Collateral (whether
specifically granted or created hereunder or created or provided for by
applicable law), except for the filings contemplated and described in
Section 3.1(b) above.

SECTION 4. COVENANTS.

4.1 General Affirmative Covenants. From the date of this Security Agreement, and
so long as any Revolving Loan Commitment is in effect and until payment in full
of all of the Obligations (other than Unasserted Obligations), the Grantor
agrees that:

(a) The Grantor shall from time to time prepare, or cause to be prepared,
execute and deliver all such financing statements, continuation statements,
instruments of further assurance and other instruments, and shall take such
other action as the Collateral Agent may reasonably request to:

(i) maintain or preserve the lien (and the priority thereof) of this Security
Agreement or carry out more effectively the purposes hereof; and

(ii) preserve and defend title to the Collateral securing the Secured
Obligations and the rights therein of the Collateral Agent and the Secured
Parties secured thereby against the claims of all Persons and parties that are
adverse to the Secured Parties.

(b) The Grantor, on its own behalf and on behalf of the Collateral Agent, shall
(i) enforce all covenants and obligations of the Seller in the Receivables
Purchase Agreement, (ii) use commercially reasonable efforts to enforce all
covenants and obligations of Argentum under the Argentum Purchase Agreement and
(iii) use commercially reasonable efforts to enforce all covenants and
obligations of the Collection Account Bank contained in the Control Agreement
and the Lockbox Account Bank contained in Lockbox Account Control Agreement,
and, in each case, in a timely manner and to the extent permitted under the
Credit Agreement.

(c) Upon the occurrence and during the continuation of an Event of Default,
promptly following a request from the Collateral Agent to do so, the Grantor
agrees to take all such lawful action as the Collateral Agent may request to
compel or secure the performance and observance by (i) the Seller of its
obligations under or in connection with the Receivables Purchase Agreement in
accordance with the terms thereof, (ii) the Servicer of its obligations as
Servicer under or in connection with the Servicing Agreement or (iii) the Backup
Servicer of its obligations as Backup Servicer under or in connection with the
Backup Servicing Agreement in accordance with the terms thereof, and to exercise
any and all rights, remedies, powers and privileges lawfully available to the
Grantor under or in connection with the Receivables Purchase Agreement, the
Dealer Agreements, the Servicing Agreement or the Backup Servicing Agreement to
the extent and in the manner directed by the Collateral Agent, including the

 

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transmission of notices of default thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Seller, the Dealers, the Servicer, Argentum or the Backup Servicer of their
respective obligations under the Receivables Purchase Agreement, the Dealer
Agreements, the Servicing Agreement, the Argentum Purchase Agreement or the
Backup Servicing Agreement.

(d) The Grantor agrees to use its commercially reasonable efforts to assist and
aid the Collateral Agent to obtain as soon as practicable upon the request of
the Collateral Agent any necessary approvals or consents of any governmental
authority or any other Person for the exercise of any remedies, voting or
consensual rights or attorney in fact powers set forth in this Security
Agreement.

4.2 Delivery of Instruments, Securities, Chattel Paper and Documents. As to all
instruments, securities, chattel paper and documents constituting part of the
Collateral, if any, and except as otherwise provided in the Servicing Agreement
or the Custodial Agreement and other than any such instruments, securities,
chattel paper or documents representing ordinary course collections delivered in
accordance with the Servicing Agreement and the other Loan Documents, upon the
request of the Collateral Agent, the Grantor shall deliver to the Collateral
Agent the originals of any such instruments, securities, chattel paper and
documents constituting Collateral in the possession of the Grantor.

4.3 Authorization for UCC Filings. The Grantor authorizes the Collateral Agent
and the Administrative Agent to file all financing statements or continuation
statements, and amendments to financing statements, in any jurisdictions and
with any filing office as the Collateral Agent may determine are necessary or
advisable to perfect (or maintain) the security interest granted to the
Collateral Agent in connection herewith. Such financing statements may describe
the Collateral in the same manner as described herein or may contain an
indication or description of the Collateral that describes such property in any
other manner as the Collateral Agent may determine is necessary, advisable or
prudent to ensure the perfection of the security interest in the Collateral
granted to the Collateral Agent in connection herewith, including describing
such property as “all assets” or “all personal property” or words to similar
effect.

SECTION 5. COLLATERAL AGENT; AUTHORITY TO TAKE CERTAIN ACTIONS.

5.1 Appointment. Pursuant to Section 8 of the Credit Agreement, the Collateral
Agent has been appointed to act as Collateral Agent by the Lenders. The
Collateral Agent shall have the right hereunder, to make demands, to give
notices, to exercise or refrain from exercising any rights, and to take or
refrain from taking any action (including, without limitation, the release or
substitution of Collateral), in accordance with this Security Agreement, the
Credit Agreement and the Servicing Agreement.

5.2 No Duty on the Part of Collateral Agent or Secured Parties. The powers
conferred on the Collateral Agent hereunder are solely to protect the interests
of the Secured Parties in the Collateral and shall not impose any duty upon the
Collateral Agent or any Secured Party to exercise any such powers except with
respect to the duties of the Collateral Agent set forth in Section 7. Neither
the Collateral Agent nor any Secured Party nor their managers, members,
directors, officers, agents or employees shall be liable for any action taken or
omitted

 

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to be taken by it or them under or in connection with the exercise of such
powers, except in connection with or arising out of its or their own gross
negligence or willful misconduct. Notwithstanding anything contained herein to
the contrary, but subject to Section 7, the Collateral Agent shall exercise the
rights and powers conferred upon it pursuant to this Agreement solely at the
written direction of the Administrative Agent or the Required Remedies Lenders
and shall not be liable for any actions or omissions take by it in accordance
with such written direction.

SECTION 6. REMEDIES.

6.1 Remedies.

(a) If any Event of Default shall have occurred and be continuing, the
Collateral Agent shall be authorized, upon the written direction of the
Administrative Agent with the consent of the Required Remedies Lenders or at the
written direction of the Required Remedies Lenders (any such consent or
direction being subject to Section 12.1 of the Credit Agreement), to:

(i) exercise in respect of the Collateral, in addition to all other rights and
remedies provided for herein or in any other Loan Document or otherwise
available to it at law or in equity, all the rights and remedies of the
Collateral Agent upon default under the UCC (whether or not the UCC applies to
the affected Collateral) to collect, enforce or satisfy any Secured Obligations
then owing, whether by acceleration or otherwise, including without limitation,
without notice except as specified below or under applicable law, to sell,
assign, lease, license (on an exclusive or nonexclusive basis) or otherwise
dispose of the Collateral or any part thereof in one or more parcels at public
or private sale, at any of the Collateral Agent’s offices or elsewhere, for
cash, on credit or for future delivery, at such time or times and at such price
or prices and upon such other terms as the Collateral Agent may deem
commercially reasonable and to give notice of sole control or any other
instruction or entitlement order under the Control Agreement;

(ii) sell the Collateral without giving any warranties as to the Collateral. The
Collateral Agent may specifically disclaim or modify any warranties of title or
the like. This procedure will not be considered to adversely affect the
commercial reasonableness of any sale of the Collateral;

(iii) exercise all rights, remedies, powers, privileges and claims of the
Grantor against the Originator, the Servicer, the Seller, Argentum or the Backup
Servicer under or in connection with the Servicing Agreement, the Receivables
Purchase Agreement, any Dealer Agreement, the Argentum Purchase Agreement or the
Backup Servicing Agreement, including the right or power to take any action to
compel or secure performance or observance by the Servicer, the Seller, any
Dealer, Parent or the Backup Servicer of their respective obligations to the
Grantor thereunder and to give any consent, request, notice, direction,
approval, extension or waiver thereunder; and

 

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(iv) notify the Obligors of the Collateral Agent’s interest in the Receivables
and direct Obligors to remit all Collections to a lockbox, address or account
designated by the Collateral Agent.

(b) The Collateral Agent or any Secured Party may be the purchaser of any or all
of the Collateral at any public or private sale in accordance with the UCC and
the Collateral Agent, as collateral agent for and representative of the Secured
Parties, shall be entitled, for the purpose of bidding and making settlement or
payment of the purchase price for all or any portion of the Collateral sold at
any such sale made in accordance with the UCC, to use and apply any of the
Secured Obligations as a credit on account of the purchase price for any
Collateral payable by the Collateral Agent at such sale. Each purchaser at any
such sale shall hold the property sold absolutely free from any claim or right
on the part of the Grantor, and the Grantor hereby waives (to the extent
permitted by applicable law) all rights of redemption, stay and/or appraisal
which it now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted other than pre-sale redemption
pursuant to Section 9-623 of the UCC. The Collateral Agent shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. The Collateral Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. The Grantor hereby waives (to the extent permitted by applicable law)
any claims against the Collateral Agent arising by reason of the fact that the
price at which any Collateral may have been sold at such a private sale was less
than the price which might have been obtained at a public sale. If the proceeds
of any sale or other disposition of the Collateral are insufficient to pay all
the Secured Obligations, the Grantor shall be liable for the deficiency and the
reasonable fees of any attorneys employed by the Collateral Agent to collect
such deficiency. The Grantor further agrees (to the extent permitted by
applicable law) that a breach of any of the covenants contained in this Section
will cause irreparable injury to the Collateral, that the Collateral Agent has
no adequate remedy at law in respect of such breach and, as a consequence, that
each and every covenant contained in this Section shall be specifically
enforceable against the Grantor, and the Grantor hereby waives and agrees (to
the extent permitted by applicable law) not to assert any defenses against an
action for specific performance of such covenants except for a defense of
payment or that no Event of Default has occurred and is continuing giving rise
to the Secured Obligations becoming due and payable prior to their stated
maturities. Nothing in this Section shall in any way alter the rights of the
Collateral Agent hereunder.

6.2 Application of Proceeds. Except as expressly provided elsewhere in this
Security Agreement, all proceeds received by the Collateral Agent in respect of
any sale, any collection from, or other realization upon all or any part of the
Collateral shall be remitted by the Collateral Agent to the Collection Account
Bank for the benefit of the Administrative Agent and be applied in full or in
part by the Administrative Agent against the Secured Obligations in accordance
with Section 2.10 of the Credit Agreement.

6.3 Collection Account. For the avoidance of doubt, if any Event of Default
shall have occurred and be continuing, the Collateral Agent may (acting at the
written direction of the Administrative Agent (with consent of the Required
Remedies Lenders) or the Required Remedies Lenders) direct the Collection
Account Bank with respect to the Collection Account and the Lockbox Account Bank
with respect to the Lockbox Account to transfer any or all assets credited to
such account to any other account to or for the benefit of the Collateral Agent.
Any amounts so applied or transferred shall reduce the Obligations by such
amount.

 

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6.4 Power of Attorney. The Grantor irrevocably makes, constitutes and appoints
the Collateral Agent as the Grantor’s true and lawful agent and
attorney-in-fact, and in such capacity the Collateral Agent shall have the right
upon the occurrence and during the continuance of an Event of Default, with
power of substitution for the Grantor and in the Grantor’s name or otherwise,
for the use and benefit of the Collateral Agent:

(a) to receive, endorse, assign and/or deliver any and all notes, acceptances,
checks, drafts, money orders or other evidences of payment relating to the
Collateral or any part thereof;

(b) to demand, collect, receive payment of, give receipt for and give discharges
and releases of all or any of the Collateral and to notify the Obligors of the
Collateral Agent’s interest in the Receivables and direct Obligors, Argentum,
employees of the Servicer and any third-party collection agencies, insurance
providers, warranty providers or other payors of Collections to remit
Collections to a lockbox, address or account designated by the Collateral Agent;

(c) to commence and prosecute any and all suits, actions or proceedings at law
or in equity in any court of competent jurisdiction to collect or otherwise
realize on all or any of the Collateral or to enforce any rights in respect of
any Collateral;

(d) to settle, compromise, compound, adjust or defend any actions, suits or
proceedings relating to all or any of the Collateral;

(e) to notify, or to require the Grantor to notify, parties holding Collateral
in accordance with the Collateral Agent’s instructions; and

(f) to use, sell, assign, transfer, pledge, make any agreement with respect to
or otherwise deal with all or any of the Collateral, and to do all other acts
and things necessary to carry out the purposes of this Security Agreement, as
fully and completely as though the Collateral Agent were the absolute owner of
the Collateral for all purposes; provided, however, that nothing herein
contained shall be construed as requiring or obligating the Collateral Agent to
make any commitment or to make any inquiry as to the nature or sufficiency of
any payment received by the Collateral Agent, or to present or file any claim or
notice, or to take any action with respect to the Collateral or any part thereof
or the moneys due or to become due in respect thereof or any property covered
thereby, and no action taken or omitted to be taken by the Collateral Agent with
respect to the Collateral or any part thereof shall give rise to any defense,
counterclaim or offset in favor of the Grantor or to any claim or action against
the Collateral Agent.

It is understood and agreed that the appointment of the Collateral Agent as the
agent and attorney-in-fact of the Grantor for the purposes set forth above is
coupled with an interest and is irrevocable.

 

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SECTION 7. RELEASE OF COLLATERAL.

7.1 Duties of the Collateral Agent.

(a) At the same time as any Contract (i) expires by its terms and all amounts in
respect thereof have been paid by the related Obligor and deposited in the
Collection Account or (ii) has been prepaid in full and all amounts in respect
thereof have been paid by the related Obligor and deposited in the Collection
Account, the Collateral Agent shall, to the extent requested by the Servicer,
release its interest in such Contract and the related Collateral. In connection
with any sale of a Financed Vehicle in accordance with the Credit Agreement on
or after the occurrence of an event described in clauses (i) or (ii) above or in
connection with a Charged-Off Receivable, after the deposit by the Servicer of
the proceeds of such sale into the Collection Account, the Collateral Agent
shall execute and deliver to the Servicer any assignments, bills of sale,
termination statements and any other releases and instruments as the Servicer
may reasonably request in order to effect the release and transfer of such
Financed Vehicle.

(b) When permitted by the provisions of the Credit Agreement (including, but not
limited to, upon any permitted prepayment or termination or the Final Maturity
Date, in each case upon payment in full of the Secured Obligations and
termination of all Revolving Loan Commitments), the Collateral Agent shall
execute instruments and take such other actions reasonably necessary to release
property from the lien of this Security Agreement, or convey the Collateral
Agent’s interest in the same, in a manner and under circumstances that are not
inconsistent with the provisions of the Credit Agreement.

7.2 Duties of the Servicer. In order to facilitate the servicing of the
Receivables by the Servicer, the Collateral Agent may authorize the Servicer to
execute in the name and on behalf of the Collateral Agent instruments of
satisfaction or cancellation, or of partial or full release or discharge, and
other comparable instruments with respect to the Receivables, subject to the
provisions of the Servicing Agreement.

SECTION 8. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.

This Security Agreement shall create a continuing security interest in the
Collateral and shall remain in full force and effect so long as any Revolving
Loan Commitment is in effect and until the payment in full of all Secured
Obligations (other than Unasserted Obligations), be binding upon the Grantor,
its successors and assigns, and inure, together with the rights and remedies of
the Collateral Agent hereunder, to the benefit of the Collateral Agent and its
successors, transferees and assigns. Without limiting the generality of the
foregoing, if a Lender assigns or otherwise transfers any Loan held by it to any
other Person in accordance with Section 9.6 of the Credit Agreement, such other
Person shall thereupon become vested with all the benefits in respect thereof
granted to a Lender herein or otherwise as a Secured Party to the extent
provided herein. Upon the payment and performance in full of all Secured
Obligations (other than Unasserted Obligations) and the cancellation or
termination of the Revolving Loan Commitments, the security interest granted
hereby shall automatically terminate hereunder and all rights to the Collateral
shall revert to the Grantor. Upon any such termination the Collateral Agent
shall, at the Grantor’s expense, execute and deliver to the Grantor or otherwise
authorize

 

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the filing of such documents as the Grantor shall reasonably request, including
financing statement amendments and notices to securities intermediaries and
depositary institutions, if any, to evidence such termination. Upon any
disposition of property permitted by the Credit Agreement, the Liens granted
herein shall be deemed to be automatically released and all rights to such
property shall automatically revert to the Grantor or the Grantor’s assignee
with no further action on the part of any Person.

SECTION 9. STANDARD OF CARE; COLLATERAL AGENT MAY PERFORM.

The powers conferred on the Collateral Agent hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon it to exercise any
such powers. Except for the exercise of reasonable care in the custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, the Collateral Agent shall have no duty as to any Collateral or as
to the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Collateral. The Collateral Agent shall be
deemed to have exercised reasonable care in the custody and preservation of
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which the Collateral Agent accords its own property.
Neither the Collateral Agent nor any of its directors, officers, employees or
agents shall be liable for failure to demand, collect or realize upon all or any
part of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
the Grantor or otherwise. If the Grantor fails to perform any agreement
contained herein, the Collateral Agent may itself perform, or cause performance
of, such agreement, and the reasonable expenses of the Collateral Agent incurred
in connection therewith shall be payable by the Grantor under Section 9.2 of the
Credit Agreement.

SECTION 10. MISCELLANEOUS.

10.1 Notices, Etc. Any notice required or permitted to be given under this
Security Agreement shall be given in accordance with Section 9.1 of the Credit
Agreement. No failure or delay on the part of the Collateral Agent in the
exercise of any power, right or privilege hereunder or under any other Loan
Document shall impair such power, right or privilege or be construed to be a
waiver of any default or acquiescence therein, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other power, right or privilege. All rights and
remedies existing under this Security Agreement and the other Loan Documents are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
In case any provision in or obligation under this Security Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby. All covenants hereunder shall be given independent
effect so that if a particular action or condition is not permitted by any of
such covenants, the fact that it would be permitted by an exception to, or would
otherwise be within the limitations of, another covenant shall not avoid the
occurrence of a Default or an Event of Default if such action is taken or
condition exists. This Security Agreement shall be binding upon and inure to the
benefit of the Collateral Agent and the Grantor and their respective successors
and assigns and each Secured Party shall have all the rights of an express third
party beneficiary hereof. The Grantor shall not, without the prior written
consent of the Collateral Agent given in accordance with the Credit Agreement or
this Security Agreement, assign any

 

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right, duty or obligation hereunder. This Security Agreement and the other Loan
Documents embody the entire agreement and understanding between the Grantor and
the Collateral Agent and supersede all prior agreements and understandings
between such parties relating to the subject matter hereof and thereof.
Accordingly, the Loan Documents may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements of the parties.

10.2 APPLICABLE LAW. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 AND
SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW) THEREOF.

10.3 CONSENT TO JURISDICTION. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE
GRANTOR ARISING OUT OF OR RELATING HERETO OR ANY OTHER LOAN DOCUMENT, OR ANY OF
THE OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND
DELIVERING THIS SECURITY AGREEMENT, THE GRANTOR, FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, IRREVOCABLY (i) ACCEPTS GENERALLY AND UNCONDITIONALLY THE
NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (ii) WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS; (iii) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH
PROCEEDING IN ANY SUCH COURT MADE TO CT CORPORATION AT 28 LIBERTY STREET NEW
YORK, NEW YORK 10005 APPOINTED IN ACCORDANCE WITH SECTION 9.14(b) OF THE CREDIT
AGREEMENT IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE GRANTOR, IN ANY
SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT; AND (iv) AGREES THAT THE COLLATERAL AGENT
RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
BRING PROCEEDINGS AGAINST THE GRANTOR, IN THE COURTS OF ANY OTHER JURISDICTION.

10.4 Security Interest Absolute. All rights of Collateral Agent hereunder, the
grant of a security interest in the Collateral and all obligations of the
Grantor hereunder, shall be absolute and unconditional irrespective of:

(a) Any claim as to the validity, regularity or enforceability of the Credit
Agreement, any other Loan Document, any agreement with respect to any of the
Obligations or any other agreement or instrument relating to any of the
foregoing;

(b) Any change in the time, manner or place of payment of, or in any other term
of, all of or any of the Obligations, or any other amendment or waiver of or any
consent to any departure from the Credit Agreement, any other Loan Document or
any other agreement or instrument relating to any of the foregoing;

(c) Any change in the laws, rules or regulations of any jurisdiction;

(d) The occurrence of any Event of Default;

 

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(e) Any exchange, release or non-perfection of Collateral Agent’s security
interest in any other Collateral, or any release or amendment or waiver of or
consent to or departure from any guaranty, for all or any of the Obligations; or

(f) Any other circumstance that might otherwise constitute a defense available
to, or a discharge of, the Grantor in respect of the Obligations or in respect
of this Security Agreement (other than the indefeasible payment in full of all
Obligations).

10.5 Counterparts. This Security Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument. Delivery of an executed signature page to this Security
Agreement by facsimile transmission or other electronic image scan transmission
(e.g., “PDF” or “tif” via email) shall be as effective as delivery of a manually
signed counterpart of this Security Agreement.

10.6 Waiver of Jury Trial. EACH OF THE GRANTOR AND THE COLLATERAL AGENT HEREBY
AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING HEREUNDER OR UNDER ANY OF THE OTHER LOAN DOCUMENTS
OR ANY DEALINGS BETWEEN IT RELATING TO THE SUBJECT MATTER OF THIS SECURITY
AGREEMENT OR THIS LOAN TRANSACTION. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS. EACH OF THE GRANTOR AND THE COLLATERAL AGENT ACKNOWLEDGES THAT THIS
WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT IT
HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS SECURITY AGREEMENT, AND
THAT IT WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS.
EACH OF THE GRANTOR AND THE COLLATERAL AGENT FURTHER WARRANTS AND REPRESENTS
THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY
AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY
REFERRING TO THIS SECTION 10.6 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS HERETO OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE UNDER THE CREDIT AGREEMENT.
IN THE EVENT OF LITIGATION, THIS SECURITY AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the Grantor and the Collateral Agent have caused this
Security Agreement to be duly executed and delivered by their respective
signatories thereunto duly authorized as of the date first written above.

 

NF FUNDING I, LLC,

as Grantor

By:  

/s/ Doug Marohn

Name: Doug Marohn Title: President & CEO ARES AGENT SERVICES, L.P.,

as Collateral Agent

By: Ares Agent Services GP, LLC, its General Partner By:  

/s/ Jeffrey W. Kramer

Name: Jeffrey W. Kramer Title: Authorized Signatory

 

[Signature Page to Security Agreement]