Document:

EXHIBIT 10.35

 

Portions of this Exhibit 10.35 have been omitted based upon a request for confidential treatment. This Exhibit 10.35, including the non-public information, has been filed separately with the Securities and Exchange Commission. “[*]” designates portions of this document that have been redacted pursuant to the request for confidential treatment filed with the Securities and Exchange Commission.

 

 

RECEIVABLES PURCHASE AGREEMENT

 

BETWEEN

 

AUTOMOTIVE FINANCE CANADA INC.

 

- and -

 

KAR AUCTION SERVICES, INC.

 

- and -

 

PRECISION TRUST

 

Dated as of February 8, 2010

 

BENNETT JONES LLP

 

 

TABLE OF CONTENTS

 

	
ARTICLE 1 INTERPRETATION
    	
2
    
	
 
    	
 
    
	
1.1
    	
Definitions
    	
2
    
	
1.2
    	
Headings
    	
18
    
	
1.3
    	
Number,   Gender, Etc.
    	
19
    
	
1.4
    	
Non-Business   Days
    	
19
    
	
1.5
    	
Governing   Law
    	
19
    
	
1.6
    	
References   to Statutes
    	
19
    
	
1.7
    	
Severability
    	
19
    
	
1.8
    	
Currency
    	
19
    
	
1.9
    	
Schedules
    	
19
    
	
 
    	
 
    	
 
    
	
ARTICLE 2 PURCHASES AND INCREASES
    	
20
    
	
 
    	
 
    
	
2.1
    	
Purchase   Request and Increase
    	
20
    
	
2.2
    	
Purchase   and Sale
    	
20
    
	
2.3
    	
Ownership   Interests
    	
21
    
	
2.4
    	
Transfer   From Deposit Accounts to Collection Account
    	
21
    
	
2.5
    	
Allocations   of Seller’s Share of Collections Before the Termination Date
    	
21
    
	
2.6
    	
Allocation   of Trust’s Share of Collections Before the Termination Date
    	
22
    
	
2.7
    	
Payments   from Collection Account
    	
22
    
	
2.8
    	
Allocation   and Payment of Seller’s Share of Collections After a Termination Date
    	
23
    
	
2.9
    	
Allocation   of Trust’s Share of Collections After a Termination Date
    	
24
    
	
2.10
    	
Payments   from Collection Account After a Termination Date
    	
24
    
	
2.11
    	
Purchases   Limited by Program Limit
    	
25
    
	
2.12
    	
Program   Limit
    	
25
    
	
2.13
    	
Voluntary   Paydown of Investment
    	
25
    
	
2.14
    	
Cash   Reserve Account
    	
25
    
	
2.15
    	
Calculations
    	
26
    
	
2.16
    	
Specified   Ineligible Receivables
    	
26
    
	
2.17
    	
Collection   Account
    	
26
    
	
 
    	
 
    	
 
    
	
ARTICLE 3 CONDITIONS PRECEDENT
    	
27
    
	
 
    	
 
    
	
3.1
    	
Conditions   Precedent for the Initial Purchase
    	
27
    
	
3.2
    	
Conditions   Precedent in Favour of the Trust for Purchase/All Increases
    	
28
    
	
 
    	
 
    	
 
    
	
ARTICLE 4 REPRESENTATIONS AND   WARRANTIES 
    	
29
    
	
 
    	
 
    
	
4.1
    	
General   Representations and Warranties of the Seller
    	
29
    
	
4.2
    	
Survival
    	
31
    
	
4.3
    	
Representations   and Warranties of the Trust
    	
31
    
	
4.4
    	
Survival
    	
32
    

 

 

	
ARTICLE 5 ADMINISTRATION
    	
32
    
	
 
    	
 
    
	
5.1
    	
Designation   of the Servicer
    	
32
    
	
5.2
    	
Standard   of Care
    	
33
    
	
5.3
    	
Authorization   of Servicer
    	
33
    
	
5.4
    	
Enforcement   of Contracts
    	
33
    
	
5.5
    	
Assignment   for Purpose of Enforcement
    	
34
    
	
5.6
    	
Deposit   of Collections
    	
34
    
	
5.7
    	
Description   of Services
    	
34
    
	
5.8
    	
Affirmative   Covenants of the Servicer
    	
36
    
	
5.9
    	
Reporting   Requirements of the Servicer
    	
39
    
	
5.10
    	
Negative   Covenants of the Servicer
    	
40
    
	
5.11
    	
Servicer   Termination Events
    	
42
    
	
5.12
    	
Effecting   a Servicer Transfer
    	
43
    
	
5.13
    	
Appointment   of Replacement Servicer
    	
43
    
	
5.14
    	
Additional   Servicer Covenants Following a Servicer Transfer
    	
43
    
	
5.15
    	
Trust   Rights Following a Servicer Transfer
    	
44
    
	
5.16
    	
Power   of Attorney; Further Assurances
    	
45
    
	
5.17
    	
Deemed   Collections
    	
45
    
	
 
    	
 
    	
 
    
	
ARTICLE 6 TRIGGER EVENTS 
    	
46
    
	
 
    	
 
    
	
6.1
    	
Meaning   of Trigger Event
    	
46
    
	
6.2
    	
Action   Upon Occurrence of a Trigger Event
    	
50
    
	
6.3
    	
Optional   Repurchase of Pool Receivables
    	
50
    
	
 
    	
 
    	
 
    
	
ARTICLE 7 GENERAL COVENANTS AND POWER   OF ATTORNEY
    	
51
    
	
 
    	
 
    
	
7.1
    	
Affirmative   Covenants of the Seller
    	
51
    
	
7.2
    	
Reporting   Requirements of the Seller
    	
52
    
	
7.3
    	
Negative   Covenants of the Seller
    	
53
    
	
7.4
    	
Covenants   of the Trust
    	
54
    
	
 
    	
 
    	
 
    
	
ARTICLE 8 PERFORMANCE GUARANTEE 
    	
55
    
	
 
    	
 
    
	
8.1
    	
Performance   Guarantee
    	
55
    
	
8.2
    	
Guarantee   Unconditional
    	
55
    
	
8.3
    	
Recourse   against Servicer
    	
56
    
	
8.4
    	
Authorization   by the Performance Guarantor
    	
56
    
	
8.5
    	
No   Subrogation
    	
57
    
	
8.6
    	
Stay   of Acceleration
    	
57
    
	
8.7
    	
Representations   and Warranties
    	
57
    
	
8.8
    	
Payments
    	
58
    
	
 
    	
 
    	
 
    
	
ARTICLE 9 INDEMNIFICATION
    	
59
    
	
 
    	
 
    
	
9.1
    	
Indemnification   by the Seller
    	
59
    
	
9.2
    	
Notification   of Potential Liability
    	
61
    

 

ii

 

	
9.3
    	
Litigation
    	
61
    
	
9.4
    	
Tax   Indemnity
    	
62
    
	
9.5
    	
Tax   Credit
    	
62
    
	
 
    	
 
    	
 
    
	
ARTICLE 10 MISCELLANEOUS 
    	
63
    
	
 
    	
 
    
	
10.1
    	
Liability   of the Trust and the Securitization Agent
    	
63
    
	
10.2
    	
Delegation   in Favour of Securitization Agent
    	
63
    
	
10.3
    	
Change   in Circumstances
    	
63
    
	
10.4
    	
Amendments,   Waivers, Etc.
    	
65
    
	
10.5
    	
Notices, Etc.
    	
65
    
	
10.6
    	
No   Waiver; Remedies
    	
65
    
	
10.7
    	
Binding   Effect; Assignability
    	
66
    
	
10.8
    	
Costs   and Expenses
    	
66
    
	
10.9
    	
Confidentiality
    	
66
    
	
10.10
    	
Effect of Agreement
    	
66
    
	
10.11
    	
Agreement Non-Exclusive
    	
67
    
	
10.12
    	
No Set-off
    	
67
    
	
10.13
    	
Termination
    	
67
    
	
10.14
    	
Discharge of Certain Registrations in the Province of   Québec
    	
67
    
	
10.15
    	
Execution in Counterparts
    	
67
    

 

	
Schedule A
    	
-
    	
Form of Purchase Request
    
	
Schedule B
    	
-
    	
Location of Records
    
	
Schedule C
    	
-
    	
Form of Contracts
    
	
Schedule D
    	
-
    	
Form of Portfolio Report
    
	
Schedule E
    	
-
    	
Form of Portfolio Certificate
    
	
Schedule F
    	
-
    	
Form of Increase Request
    
	
Schedule G
    	
-
    	
Deposit Accounts
    
	
Schedule H
    	
-
    	
Québec Assignment
    

 

iii

 

RECEIVABLES PURCHASE AGREEMENT

 

MEMORANDUM OF AGREEMENT dated as of February 8, 2010.

 

B E T W E E N:

 

AUTOMOTIVE FINANCE CANADA INC.,
 a corporation incorporated under the laws of the Province of Ontario,

 

(hereinafter referred to as the “Seller” and the initial “Servicer”),

 

- and -

 

KAR AUCTION SERVICES, INC.,
 a corporation incorporated under the laws of Delaware,

 

(hereinafter referred to as the “Performance Guarantor” or “KAR”),

 

- and -

 

BNY TRUST COMPANY OF CANADA,
  a trust company incorporated under the laws of Canada and licensed to carry on business as a trustee in each of the provinces of Canada, in its capacity as trustee of Precision Trust, a trust established pursuant to the laws of the Province of Ontario,

 

(hereinafter referred to as the “Trust”),

 

WHEREAS the Seller desires to sell to the Trust, and the Trust desires to purchase from the Seller, from time to time on the terms and conditions set forth below, an undivided co-ownership interest in the Seller’s present and future Receivables and the Related Security related thereto, on a fully serviced basis;

 

AND WHEREAS the Performance Guarantor has agreed to guarantee the obligations of the Servicer hereunder in accordance with the terms hereof;

 

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and the covenants and agreements of the parties herein contained and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged by each of the parties), the parties hereby covenant and agree as follows:

 

 

ARTICLE 1 
 INTERPRETATION

 

1.1                                                                               Definitions

 

In this Agreement, unless the context requires otherwise, the following terms shall have the following meanings:

 

“AFC” means Automotive Finance Corporation, an Indiana corporation;

 

“Affiliate” means, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person;

 

“Applicable Rental Receivables Advance Rate” means, (i) [*], at any time the Static Rental Receivables Pool Net Loss Rate is greater than [*] but less than [*], (ii) [*] at any time the Static Rental Receivables Pool Net Loss Rate is [*] or greater, and (iii) [*], at any other time;

 

“Backup Servicer” means the Person appointed to act as backup servicer pursuant to the Backup Servicing Agreement;

 

“Backup Servicing Agreement” means (i) the backup servicing agreement expected to be entered into among the Servicer, the Backup Servicer and the other parties thereto; and (ii) any replacement backup servicing agreement entered into from time to time with the prior written consent of the Trust, in each case as such agreements may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof;

 

“Backup Servicing Fee Letter” means the fee letter (if any) approved in writing by the Trust setting forth the Backup Servicing Fees payable to the Backup Servicer, as the same may be amended, supplemented or otherwise modified from time to time with the prior written consent of the Trust;

 

“Backup Servicing Fees” means all fees and reimbursable expenses (excluding Transition Expenses) payable pursuant to the Backup Servicing Agreement or the Backup Servicing Fee Letter;

 

“Blocked Account Agreement” means the blocked account agreements referred to in Section 3.1(l);

 

“Blocked Account Claims” means any Security Interest in favour of a bank or other financial institutions under a Blocked Account Agreement;

 

“BNY Trust Company” means BNY Trust Company of Canada and its successors and assigns;

 

“Business Day” means any day (other than a Saturday, Sunday or public holiday) on which banks are open for business in Toronto, Ontario, but excluding any public holiday in the United States identified by the Seller as not constituting a “Business Day” for the purposes of this Agreement;

 

2

 

“Buyers’ Fees” means the fees paid by an Obligor to an auction in connection with a purchase of a vehicle by such Obligor;

 

“Carry Costs” means, with respect to any Collection Period, the sum of the amounts of the following items that accrued or were incurred during such Collection Period: (a) the Funding Discount, (b) the Standby Fee, (c) the Replacement Servicer Fee, or, to the extent  no Replacement Servicer Fee is payable during such Collection Period, the Notional Servicer Fee, (d) the Backup Servicing Fees and (e) all other expenses and fees payable by the Seller under this Agreement;

 

“Cash Deposit Amount” means, with respect to the Purchase or any Increase, an amount sufficient to ensure that after effecting such Purchase or Increase, the amount contained in the Cash Reserve Account is equal to the Cash Reserve Required Amount;

 

“Cash Payment” means, in respect of the Purchase, the amount set forth in the Purchase Request as the “Cash Payment” and, in respect of each Increase, the amount set forth in the related Increase Request as the “Cash Payment”;

 

“Cash Reserve Account” means an Eligible Deposit Account established in the name of the Trust and designated as the Cash Reserve Account for the purposes hereof, the balance of which shall be subject to the control of the Trust for the benefit of the Trust and the Seller and applied in accordance with the terms hereof, which account shall bear interest and shall initially be account number [*], maintained at [*];

 

“Cash Reserve Event” means as of any Settlement Date, (i) the arithmetic average of the Net Spread for [*] or (ii) the Delinquency Ratio is greater than [*]; provided, however, that following each occurrence of a Cash Reserve Event, such trigger shall remain in effect until [*];

 

“Cash Reserve Excess Amount” means, on any Remittance Date, the amount of cash on deposit in the Cash Reserve Account after giving effect to any payments into and from the Cash Reserve Account on such Remittance Date in excess of the Cash Reserve Required Amount;

 

“Cash Reserve Required Amount” means, on any day (i) after the occurrence of a Cash Reserve Event, [*] of the Investment on such day, and (ii) on any other day, 1.0% of the Investment on such day;

 

“CDOR” means, on each Business Day, the average bid rate of interest (expressed as an annual percentage rate) rounded to the nearest one-hundred-thousandth of one percent (with decimal fractions of 0.000005 percent and greater being rounded up) for Canadian dollar bankers’ acceptances with maturities of one month (or such other period as may be determined by the Securitization Agent, acting reasonably, as appropriate given the term to maturity of the relevant Notes) which appears on the Reuters Screen CDOR Page as of approximately 10:00 a.m., Toronto time, on such Business Day, provided that if such rate does not appear on the Reuters Screen CDOR Page on such day, the “CDOR” for such period shall be the average of the bid rates of interest (expressed and rounded as set forth above) for Canadian dollar bankers’ acceptances with maturities of one month for same day settlement as quoted by such of the banks listed on Schedule I to the Bank Act (Canada) as may quote such a rate as of approximately 10:00 a.m., Toronto time, on such Business Day;

 

3

 

“Closing Date” means February 8, 2010, or such other date as may be mutually agreed between the parties;

 

“Collection Account” means an Eligible Deposit Account established in the name of the Trust, in trust for and on behalf of the Trust and the Seller, which account shall initially be account number [*] maintained at [*];

 

“Collection Costs” means, in respect of a Collection Period, all reasonable out-of-pocket costs and expenses of the Servicer (if other than the Seller, the Backup Servicer or any Affiliate thereof) and the Trust in administering the Pool Assets and collecting amounts payable thereunder and enforcing the Related Security related thereto, including reasonable legal expenses of the Servicer or the Trust;

 

“Collection Period” means the period from and including the first day of a calendar month to and including the last day of such calendar month, provided that the first Collection Period will begin at the close of business on February 9, 2010 and end on (and include) February 28, 2010 and the last Collection Period will be the Collection Period in which the Final Termination Date occurs;

 

“Collections” means, with respect to the Pool Receivables, (a) all funds which are received by the Seller, the Servicer or the Trust in payment of any amounts owed in respect of such Receivables (including, without limitation, principal payments, finance charges, floorplan fees, curtailment fees, interest and all other charges), or applied (or to be applied) to amounts owed in respect of such Receivables (including, without limitation, insurance payments and net proceeds of the sale or other disposition of vehicles or other collateral or property of the related Obligors or any other Person directly or indirectly liable for the payment of Pool Receivables applied (or to be applied) thereto), (b) all Collections deemed to have been received pursuant to Section 5.17, (c) all other proceeds of such Receivables, and (d) without duplication, all other amounts deposited to the Deposit Accounts or the Collection Account hereunder;

 

“Contract” means, with respect to any Obligor, collectively, the Dealer Note issued by such Obligor, or similar agreement between such Obligor and the Seller, any guarantee issued in connection therewith and each other agreement or instrument executed by an Obligor pursuant to or in connection with any of the foregoing, the purpose of which is to evidence, secure or support such Obligor’s obligations to the Seller under such Dealer Note or other similar agreement, forms of all such Dealer Notes and other agreement forms being attached hereto as Schedule C;

 

“Credit and Collection Policies” means the customary policies and practices of the Servicer that have been delivered to the Trust relating to the creditworthiness of Obligors, the making of collections and the enforcement of Receivables and the Related Security as such policies and practices may be amended from time to time in accordance with this Agreement;

 

“Curtailment Date” means, with respect to any Receivable, the date specified as such in the Contract for such Receivable;

 

“DBRS” means DBRS Limited and its successors;

 

4

 

“Dealer Note” means a demand promissory note and security agreement and any other promissory note issued, or agreement made by, an Obligor in favor of the Seller;

 

“Default Ratio” means the ratio (expressed as a percentage and rounded upward to the nearest 1/100th of 1%) computed as of each Settlement Date by dividing (i) the aggregate Principal Balance of all Receivables (other than Specified Ineligible Receivables) that became Defaulted Receivables during the related Collection Period plus the aggregate amount of non-cash adjustments that reduced the Principal Balance of any Receivable during such Collection Period (other than a Receivable that became a Defaulted Receivable during such Collection Period) by (ii) the aggregate amount of Receivables (other than Specified Ineligible Receivables) that were generated by the Seller during the Collection Period that occurred five calendar months prior to the Collection Period ending on such Settlement Date;

 

“Defaulted Receivable” means a Receivable:

 

(a)                                 as to which any payment, or part thereof, remains unpaid for more than 90 days after the due date for such payment;

 

(b)                                 which, consistent with the Credit and Collection Policy, would be written off the Seller’s books as uncollectible; or

 

(c)                                  which is converted to a long term payment plan in the form of a note or other similar document;

 

“Deferred Purchase Price” means the aggregate of amounts paid to the Seller in respect of the Deferred Purchase Price pursuant to Sections 2.7(f) and 2.9(f);

 

“Delinquency Ratio” means the ratio (expressed as a percentage and rounded upward to the nearest 1/100 of 1%) computed as of each Settlement Date by dividing (i) the aggregate Principal Balance of all Receivables (other than Specified Ineligible Receivables) that were Delinquent Receivables on such Settlement Date, by (ii) the Pool Balance (less the aggregate Principal Balance of all Specified Ineligible Receivables) on such Settlement Date;

 

“Delinquent Receivable” means a Receivable which is not a Defaulted Receivable (i) as to which any payment, or part thereof, remains unpaid for more than 30 days after the due date for such payment, or (ii) which, consistent with the Credit and Collection Policy, would be classified as delinquent by the Seller;

 

“Deposit Accounts” means the Eligible Deposit Accounts established in the name of the Servicer, in trust for and on behalf of the Trust and the Seller, which accounts shall be separate and segregated from the Servicer’s own assets and shall initially be the accounts listed in Schedule G, as such Schedule may be updated from time to time by the Servicer with the approval of the Trust;

 

“Eligible Backup Servicer” means a Person identified by the Trust as being capable of performing the required functions of Backup Servicer, as such functions may be agreed to by the Trust and the Seller, in respect of the Receivables Pool and the similar pool of receivables

 

5

 

originated by Affiliates of the Seller in the U.S., and which has agreed to perform such services for an aggregate annual compensation not greater than [*];

 

“Eligible Deposit Account” means either (a) a deposit account with an Eligible Institution, or (b) a segregated trust account with the corporate trust department of a depositary institution organized under the laws of Canada or a province thereof and authorized to act as a trustee for funds deposited in such account, so long as any of the securities of such depositary institution shall have a credit rating from DBRS in one or more of its generic credit rating categories which signifies investment grade;

 

“Eligible Institution” means a depositary institution which (x) at all times (a) has either (i) a long-term unsecured debt rating not lower than AA (low) by DBRS, or (ii) a short-term rating not lower than R-1 (middle) by DBRS, or (b) has its obligations with respect to the relevant matter guaranteed by an institution with either of the ratings referred to in (a), or (y) has been approved in writing by DBRS;

 

“Eligible Investments” means, at any particular date, book-based securities, negotiable instruments or securities, in each case maturing not later than the Business Day preceding the next succeeding Remittance Date after such date represented by instruments in bearer or registered form which evidence any of:

 

(a)                                 direct obligations of, or obligations fully guaranteed as to the timely payment of principal and interest by, the Government of Canada or the government of British Columbia, Alberta or Ontario, provided any such government is rated not less than R-1 (middle) by DBRS;

 

(b)                                 any security having a rating of at least R-1 (middle) from DBRS, or, in the case of asset backed commercial paper, a rating of a least R-1 (high) from DBRS, but for greater certainty, excluding commercial paper that is extendable by its terms;

 

(c)                                  any other class of investments approved in writing by the Securitization Agent (other than those set out in (a) and (b) above); and

 

(d)                                 without limiting the generality of the foregoing, if qualified under (b) or (c) above, securities of the Trust, the Securitization Agent and any Affiliate thereof may be considered Eligible Investments for the purposes of this definition;

 

“Eligible Receivable” means, at any time, a Receivable:

 

(a)                                 the Obligor of which (i) is a Person that is a resident of Canada and located in a province or territory of Canada, (ii) is not the Government of Canada or any agency or instrumentality thereof or any federal crown corporation, and (iii) is not any provincial or territorial government or agency thereof;

 

(b)                                 that is not a Defaulted Receivable or Delinquent Receivable;

 

(c)                                  which is denominated and payable to the Seller only in Canadian dollars in Canada;

 

6

 

(d)                                 which, together with the related Contract and Related Security, has been originated or acquired in Canada by the Seller in the ordinary course of business;

 

(e)                                  which arises under a Contract which, together with such Receivable and the Related Security in respect thereof, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor thereof, enforceable by the Seller and its assigns against such Obligor in accordance with its terms subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors’ rights generally and to equitable principles of general application;

 

(f)                                   which is secured by the Related Security which contains customary and enforceable provisions such that the rights and remedies of the Seller and its assigns are adequate for realization against the collateral of the benefits of the security, including the Related Security of such Receivable, subject to the limitations on enforceability in (e) above;

 

(g)                                  in respect of which the Related Vehicle and Proceeds Security, as against creditors of the applicable Obligor, is a perfected, valid, subsisting and enforceable Security Interest in the Financed Vehicle in favour of the Seller, perfected by all necessary or appropriate filings, registrations, recordings or other actions in each jurisdiction necessary to ensure the perfection of such Security Interest for the term thereof and which, in respect of the Related Vehicle Security, is subject only to Security Interests in favour of other Persons which are subordinate in priority to the Related Vehicle Security, Operation of Law Claims and Government and Employee Claims, and provided that, to the knowledge of the Seller at such time, no enforcement or collection proceedings have been commenced in respect of any such Security Interest, Operation of Law Claim or Government and Employee Claim;

 

(h)                                 for which the interest of the Seller in the Receivable and the Related Security related thereto and the Contract giving rise thereto, as against creditors of the Seller, is free and clear of all Security Interests and rights of others, other than Government and Employee Claims, Operation of Law Claims, Blocked Account Claims and those created pursuant to this Agreement;

 

(i)                                     upon the purchase of an interest in such Receivable and the Related Security in respect thereof by the Trust, the Trust will obtain good and marketable title to the Trust’s Co-Ownership Interest therein free and clear of any Security Interest created by, or arising through, the Seller (as opposed to a Security Interest created by, or arising through an Obligor) other than Blocked Account Claims;

 

(j)                                    the sale of which pursuant to the terms hereof does not contravene or conflict with any law, rules or regulations applicable thereto, or require the consent of the Obligor or any other Person;

 

7

 

(k)                                 in respect of which no enforcement action, whether by repossession or otherwise, has been taken by any Person in respect of the related Financed Vehicle;

 

(l)                                     there is no federal, provincial or local law or ordinance under which such Receivable or the Related Security is subject to any Taxes, nor will any payment or remittance to be made by or on behalf of the Seller on its own behalf or on behalf of any Obligor under this Agreement be subject to any Taxes; provided, however, that this statement shall not extend to any Taxes payable by, or required to be withheld by the Seller on account of Taxes payable on the income or capital of the Trust or Taxes payable in respect of GST or PST payable by Obligors;

 

(m)                             other than with respect to a Rental Receivable, (i) which satisfies all applicable requirements of the Credit and Collection Policy, (ii) whose terms require a minimum principal payment of not less than [*] plus accrued interest and, if applicable, by paying the applicable floorplan fee or curtailment fee, on each Curtailment Date and upon each extension of a Curtailment Date, (iii) whose term has [*] (iv) for which all payments required to be made pursuant to the related Contract in connection with any Curtailment Date extension have not been waived and have been made within [*] days of each such extension, (v) whose terms (including the due date thereof) have not otherwise been amended or modified in any material respect and [*];

 

(n)                                 which is payable on demand and which the related Contract requires repayment on the earlier of (i) [*] following the sale of the related Financed Vehicle, and (ii) the Curtailment Date for such Receivable;

 

(o)                                 which arises from the making of a loan to finance the purchase of (i) an automobile or light duty truck, [*];

 

(p)                                 where not more than [*] of the aggregate Principal Balance of all Receivables of the Obligor of such Receivable and its Affiliates are Defaulted Receivables;

 

(q)                                 the Obligor of which is not an Affiliate of the Seller or the Performance Guarantor, an Excluded Obligor or a father, mother, son or daughter (or any Affiliate thereof) of any officer or director of the Seller or its Affiliates;

 

(r)                                    the Obligor of which is not, to the knowledge of the Seller, subject to any proceedings of the type described in Sections 5.11(g) or (h);

 

(s)                                   [*];

 

(t)                                    which is guaranteed by the related Obligor’s parent, general partner or owner; and

 

8

 

(u)                                 which is not a  Specified Ineligible Receivable;

 

“ETA” means Part IX of the Excise Tax Act (Canada);

 

“Excluded Obligor” means an Obligor so designated in writing as such by the Trust in a notice to the Seller in good faith and in the Trust’s reasonable judgment relating to credit considerations from time to time, it being understood that from time to time such notice may be revoked by written notice to the Seller;

 

“Final Termination Date” means the first Remittance Date following the Termination Date on which the Investment is reduced to zero and all Replacement Servicer Fees, Collection Costs, Funding Discounts, Backup Servicer Fees, Transition Expenses, indemnified amounts and Standby Fees have been paid in full;

 

“Finance Charge and Floorplan Fee Collections” means, with respect to any Collection Period, any Collections applied by the Servicer in such Collection Period in respect of interest and finance charges and any other amount (other than principal) owed under a Contract;

 

“Financed Vehicle” means [*];

 

“Funding Discount” means, for each day during a Tranche Period, the amount determined pursuant to the following formula:

 

TA x TR
  365

 

Where:

 

“TA” means the Tranche Amount outstanding on such day; and

 

“TR” means the Tranche Rate on such day;

 

“GAAP” means generally accepted accounting principles and practices in the United States, consistently applied;

 

“Government and Employee Claim” means, in respect of any Person, liens or deemed trusts for taxes, assessments, employee claims or similar governmental or employee charges or levies affecting such Person or its property and, in the case of the Seller, incurred in the ordinary course of business that are not yet due and payable or as to which any applicable grace period shall not have expired, or that are being contested in good faith by proper proceedings and for which adequate reserves have been established, but only so long as foreclosure with respect to such a lien is not imminent and the use and value of the property to which the Security Interest attaches is not impaired during the pendency of such proceeding;

 

“Governmental Authority” means the government of any sovereign state or any political subdivision thereof, or of any political subdivision of a political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory, administrative or other functions of or pertaining to government;

 

9

 

“Gross-up” has the meaning ascribed thereto in Section 9.5;

 

“Grossed-up Payment” has the meaning ascribed thereto in Section 9.5;

 

“GST” means all amounts payable under the ETA or pursuant to any similar value added tax legislation in any other jurisdiction of Canada that is stated to be harmonized with the GST;

 

“Increase” means an increase in the Investment pursuant to Section 2.1(b) hereof;

 

“Increase Request” means the written request sent to the Trust by the Seller pursuant to Section 2.2 in the form annexed hereto as Schedule “F”;

 

“Indebtedness” means, without duplication:

 

(a)                                 indebtedness for borrowed money (including, without limitation, amounts payable to Affiliates);

 

(b)                                 obligations evidenced by bonds, debentures, notes or other similar instruments;

 

(c)                                  the redemption price of any redeemable preference shares;

 

(d)                                 obligations in respect of letters of credit or similar instruments issued or accepted by any bank or other institution; and

 

(e)                                  obligations under direct or indirect guarantees in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (a) through (d) above;

 

provided, however, that “Indebtedness” shall not include obligations both (A) classified as accounts payable or accrued liabilities under GAAP and (B) incurred in the ordinary course of business;

 

“Indemnified Amounts” has the meaning ascribed thereto in Section 9.1;

 

“Indemnified Parties” has the meaning ascribed thereto in Section 9.1;

 

“Insurance Policies” means any comprehensive, collision, fire, theft or other insurance policy maintained by an Obligor with respect to one or more Financed Vehicles which is in an amount not less than 50% of the market value of such Financed Vehicles and in which the Seller or the Servicer is or is required to be named as loss payee;

 

“Investment” means, with respect to the Trust, the aggregate of the amounts paid to the Seller in respect of Cash Payments pursuant to this Agreement, reduced from time to time by amounts actually distributed and applied on account of such Investment pursuant to Article 2; provided, that if such Investment shall have been reduced by any distribution and thereafter all or a portion of such distribution is rescinded or must otherwise be returned for any reason, such Investment

 

10

 

shall be increased by the amount of such rescinded or returned distribution, as though it had not been made;

 

“KAR Credit Facility” means that certain Credit Agreement, dated as of April 20, 2007 among KAR Holdings II, LLC, KAR, as Borrower, the secured lenders from time to time party thereto, Bear Stearns Corporate Lending Inc., as Administrative Agent, UBS Securities LLC, as Syndication Agent and the other parties thereto, as the same may be amended, supplemented or otherwise modified from time to time;

 

“KAR Financial Covenant” means the financial covenant regarding KAR’s maximum consolidated senior secured leverage ratio as set forth in Section 8.1(a) of the KAR Credit Facility on the date of execution thereof. Such covenant (including all defined terms incorporated therein) will survive the termination of the KAR Credit Facility and can only be amended, modified, added or terminated from time to time with the prior written consent of the Trust; provided, however, that as long as KAR’s senior secured debt shall be rated at least “BBB- (stable)” by S&P and at least “Baa3 (stable)” by Moody’s, the financial covenant will conform with the financial covenants required by KAR’s Credit Facility or any replacement facility without the consent of the Trust;

 

“KAR Financial Covenant Event” means any breach of the KAR Financial Covenant that is not cured pursuant to the cure right as set forth in Section 8.1 (b) of the KAR Credit Facility;

 

“KAR Financial Covenant Termination Event” means, following the occurrence of a KAR Financial Covenant Event, the earliest to occur of (i) if a Trust Notice Event has occurred, 120 days following the occurrence of such Trust Notice Event, (ii) any KAR Restricted Amendment, and (iii) the occurrence of a Trust Notice Event resulting in the KAR Credit Facility being accelerated;

 

“KAR Restricted Amendment” means any action under or amendment to the KAR Credit Facility [*];

 

“Loss Percentage” means, on any date, the greatest of [*];

 

“Loss Reserve” means, for any date, an amount equal to the product of [*];

 

“Loss Reserve Ratio” means [*];

 

“Lot Check” means, with respect to an Obligor, a physical inspection of such Obligor’s Financed Vehicles and which may include a review of such Obligor’s books and records related thereto;

 

“Material Adverse Effect” means any effect upon the business, operations, property or financial condition of the Seller or the Servicer, as applicable, which materially adversely affects (i) the interest of the Trust in the Pool Assets, (ii) the collectibility or credit quality of a Receivable forming part of the Pool Assets, (iii) the legality, validity or enforceability of Receivables, (iv) the Related Security or (v) the Seller or Servicer’s, as applicable, ability to perform its obligations hereunder;

 

“Moody’s” means Moody’s Investor Services, Inc. and its successors;

 

11

 

“Net Cash Payment” means, with respect to the Purchase, the amount set forth in the Purchase Request as the “Net Cash Payment” and, in respect of each Increase, the amount set forth in the related Increase Request as the “Net Cash Payment”;

 

“Net Receivables Pool Balance” means, at any time, an amount equal to the result of

 

(a)                                 100% of the aggregate Principal Balances of all [*];

 

plus the aggregate of:

 

(b)                                 [*] of the aggregate Principal Balances of all Eligible Receivables constituting Specified Curtailment Receivables;

 

(c)                                  the Applicable Rental Receivable Advance Rate multiplied by of the aggregate Principal Balance of all Rental Receivables;

 

minus the aggregate, without duplication, of

 

(d)                                 the amount by which the result obtained in clause (b) above exceeds the product of (X) the amount obtained in clause (a) above multiplied by (Y) [*];

 

(e)                                  the amount by which the result obtained in clause (c) above exceeds the product of (x) the amount obtained in clause (a) above multiplied by (Y) [*]; and

 

(f)                                   the aggregate amount by which the aggregate Principal Balance of all Eligible Receivables [*] of each Obligor exceeds the product of (A) the Normal Concentration Percentage for such Obligor (or, in the case of a Special Obligor, the Special Concentration Percentage for such Obligor) multiplied by (B) the aggregate Principal Balance of all Eligible Receivables [*];

 

“Net Spread” means, in respect of a Collection Period, the annualized percentage equivalent of a fraction, the numerator of which is the excess of (x) all Finance Charge and Floorplan Fee Collections received and applied during such Collection Period (including recoveries and Collections received in respect of Defaulted Receivables) over (y) the sum of, without duplication, (i) the Carry Costs for such Collection Period, (ii) the aggregate amount of Receivables that became Defaulted Receivables during such Collection Period, and (iii) the aggregate amount of non-cash adjustments that reduced the Principal Balance of any Pool Receivable during such Collection Period (but excluding any Receivable that was included in the calculation of Net Spread pursuant to clause (ii) above in any previous Collection Period); and the denominator of which is the average Pool Balance during such Collection Period;

 

“New Car” means a  “new motor vehicle” within the meaning of the Motor Vehicle Dealer Act, 2002 (Ontario);

 

“Normal Concentration Percentage” for any Obligor (other than a Special Obligor) means at any time, [*];

 

12

 

“Notes” means the short-term debt obligations issued by the Trust in connection with the transactions contemplated hereby;

 

“Notional Servicer Fee” means, for any Collection Period, an amount equal to [*] times the average aggregate net book value of all Pool Receivables outstanding during such Collection Period;

 

“Obligor” means any Person who is obligated to make payment on a Receivable including any co-signer or guarantor;

 

“Operation of Law Claim” means any mechanic’s lien, supplier’s lien, materialman’s lien, landlord’s lien or similar lien arising and having priority governed by operation of law but not including any Security Interest arising pursuant to a written security agreement and which can only be perfected pursuant to the provisions of a PPSA;

 

“Paydown Date” means any day prior to the occurrence of a Trigger Date on which:

 

(a)                                 the Servicer has failed to deliver a Portfolio Report or a Portfolio Certificate in accordance with the terms hereof;

 

(b)                                 any of the statements contained in Section 3.2(b) are not satisfied and have not been waived by the Trust; or

 

(c)                                  the Trust’s Share is greater than 100%;

 

“Person” means an individual, partnership, corporation, limited liability company, trust, joint venture, unincorporated organization, association, board or body established by statute, government (or any agency or political subdivision thereof) or other entity;

 

“Pool Assets” means each Pool Receivable and the Related Security with respect thereto;

 

“Pool Balance” means, on a particular date, the aggregate Principal Balance of the Receivables Pool on that date;

 

“Pool Receivable” means any Receivable forming part of the Receivables Pool;

 

“Portfolio Certificate” means a certificate substantially in the form of Schedule E thereto;

 

“Portfolio Report” means a report substantially in the form of Schedule D;

 

“PPSA” means the Personal Property Security Act (Ontario) and the comparable legislation of any other province or territory of Canada;

 

“Prime Rate” means, at any time and from time to time, the fluctuating annual interest rate most recently established by Bank of Montreal which it refers to as its “prime rate”;

 

“Principal Balance” means, with respect to any Receivable, the then unpaid principal amount of all advances or loans made to the related Obligor pursuant to the related Contract by the Seller, to the extent that [*];

 

13

 

“Program Fee Side Letter” means the letter agreement between the Seller and the Securitization Agent dated February 8, 2010, as the same may be amended, varied or replaced from time to time;

 

“Program Limit” means $75  million or such greater amount as the Seller and the Trust may agree upon in writing;

 

“PST”  means amounts payable under the Retail Sales Tax Act (Ontario) or any statute of another jurisdiction in Canada, imposing a single stage retail sales tax similar in nature to the Ontario PST;

 

“Purchase” means the purchase of the Trust’s Co-Ownership Interest effected pursuant to Section 2.2(a);

 

“Purchase Price” means the sum of the Cash Payments and the Deferred Purchase Price;

 

“Purchase Request” means the written request sent to the Trust by the Seller pursuant to Section 2.1 in form annexed hereto as Schedule A;

 

“Québec Assignment” means the form of assignment attached hereto as Schedule H;

 

“Québec Receivable” means each Receivable where either one of the following conditions is satisfied:

 

(a) the Obligor of such Receivable is located in the Province of Québec; or

 

(b) such Receivable is payable to an address or an account in the Province of Québec;

 

“Receivable” means any right to payment from an Obligor arising under a Contract, whether such indebtedness or other obligations constitute accounts, chattel paper, instruments or general intangibles, arising from the providing of financing and other services by the Seller to new, used and wholesale automobiles or other motor vehicle dealers, including the obligation to pay any finance charges and other obligations with respect thereto;

 

“Receivables Pool”  means all present Receivables (other then Receivables owing by Excluded Obligors) and all future Receivables (other then Receivables owing by Excluded Obligors) and all Related Security with respect to such Receivables; provided that the Receivables Pool shall not include any such interests (other than proceeds of such interests) created after the Final Termination Date;

 

“Records” means all contracts, books, records, microfiche and other documents and information (including computer programmes, tapes, diskettes, data processing software and related property and rights) maintained by or on behalf of the Seller evidencing or otherwise relating to any Pool Receivables, including the Contracts related thereto, or relating to any of the related Financed Vehicles, Obligors, Related Security, Collections or the Deposit Accounts and shall include all such records, information and material maintained or required to be maintained by the Servicer in respect thereof but excluding for greater certainty the financial statements of the Seller and its Affiliates;

 

14

 

“Recreational Vehicle” means [*];

 

“Related Security” means, with respect to any Receivable:

 

(a)                                 the Related Vehicle and Proceeds Security;

 

(b)                                 all of the Seller’s interest in all warranties, indemnities, service obligations and other contract rights issued or granted by, or otherwise existing under applicable law against, the Obligor or the manufacturer in respect of the related Financed Vehicle;

 

(c)                                  all guarantees and Security Interests (other than the Related Vehicle and Proceeds Security) from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable, or otherwise, together with all financing statements or other instruments describing any collateral securing such Receivable, and including all Security Interests (other than the Related Vehicle and Proceeds Security) granted by any Person (whether or not the primary Obligor on such Receivable) under or in connection therewith and purporting to secure payment of such Receivable;

 

(d)                                 all Records relating to such Receivable, including all original Contracts;

 

(e)                                  all service contracts and other contracts and agreements relating to such Receivable; and

 

(f)                                   all proceeds of or relating to any of the foregoing, including proceeds of or relating to the Receivable;

 

“Related Vehicle and Proceeds Security” means with respect to any Receivable, the Seller’s Security Interest in the related Financed Vehicle, and all proceeds thereof including proceeds of Insurance Policies;

 

“Related Vehicle Security” means with respect to any Receivable, the Seller’s Security Interest in the related Financed Vehicle excluding all proceeds thereof but including proceeds of Insurance Policies;

 

“Remittance Date” means Tuesday of each week or, if Tuesday is not a Business Day, the next Business Day; provided that, after the Termination Date, the Trust may designate additional Business Days as Remittance Dates in its discretion;

 

“Rental Receivable” means an Eligible Receivable which satisfies all the requirements of the definition of Eligible Receivable except [*], provided (i) such Receivable must have a maturity of [*], (ii) the terms of the related Contract as they apply to such Receivable require [*], (iv) the related Obligor is otherwise current on its obligations under the related Contract, and (v) if applicable, [*];

 

15

 

“Replacement Servicer” means, at any time following a Servicer Transfer, the Person whom the Trust designates from time to time by written notice given to the Seller in accordance with Section 5.13 as the Replacement Servicer;

 

“Replacement Servicer Fee” means, in respect of any Collection Period, if the Backup Servicer is the Replacement Servicer, the amount referred to in the Backup Servicing Agreement or Backup Servicing Fee Letter, and if a Person other than the Seller, an Affiliate of the Seller or the Backup Servicer is the Replacement Servicer, the actual fee payable to such Person, calculated and payable monthly based on the aggregate net book value of all Pool Receivables outstanding as at each Settlement Date;

 

“Reporting Date” means, in respect of a Collection Period, the 15th day of the following calendar month or, if such day is not a Business Day, the next following Business Day;

 

“Securitization Agent” means BMO Nesbitt Burns Inc.;

 

“Security Interest” means a lien, security interest, hypothec, title retention agreement, pledge, assignment (whether or not by way of security), charge, encumbrance, mortgage, right of set-off, lease or other right or claim of any Person;

 

“Seller’s Retained Interest” has the meaning ascribed thereto in Section 2.3;

 

“Seller’s Share” means 100% minus the Trust’s Share;

 

“Servicer” means the Person designated as the Servicer for the time being pursuant to Sections 5.1 and 5.13 which shall be the Seller initially and, after a Servicer Transfer, means any Replacement Servicer (including, for greater certainty, the Backup Servicer to the extent it is the Replacement Servicer);

 

“Servicer Termination Event” has the meaning ascribed thereto in Section 5.11;

 

“Servicer Transfer” has the meaning ascribed thereto in Section 5.12;

 

“Settlement Date” means, in respect of a Collection Period, the last day of the Collection Period;

 

“Special Concentration Percentage” means [*];

 

“Special Obligors” means [*];

 

“Specified Curtailment Receivable” means an Eligible Receivable which satisfies all of the requirements of the definition of Eligible Receivable except [*];

 

“Specified Ineligible Receivable” means any Pool Receivable that the Servicer has identified as a “Specified Ineligible Receivable” pursuant to Section 2.16;

 

“Standard & Poor’s” means Standard & Poor’s Rating Service, a division of The McGraw Hill Companies Inc., and its successors;

 

16

 

“Standby Fee” has the meaning ascribed thereto in the Program Fee Side Letter;

 

“Static Rental Receivables Pool Net Loss Rate” means, a ratio (expressed as a percentage), calculated for the semi-annual periods beginning on January 1 of any calendar year to and including June 30 of such calendar year and beginning on July 1 of any calendar year to and including December 31 of such calendar year, by dividing [*];

 

“Subsidiary” has the meaning ascribed thereto in the Business Corporations Act (Ontario) from time to time;

 

“Tangible Net Worth” means, with respect to any Person, the net worth of such Person calculated in accordance with GAAP after subtracting therefrom the aggregate amount of such Person’s intangible assets, including, without limitation, goodwill, franchises, licenses, patents, trademarks, tradenames, copyrights, service marks and brand names and capitalized software;

 

“Tax” means any withholding, stamp, general corporation, property, capital, large corporations, excise, GST, PST, sales or other tax or any fee, levy, assessment or other governmental charge, including any related penalties or interest (excluding any tax imposed upon the Trust with respect to its income);

 

“Tax Credit” has the meaning ascribed thereto in Section 9.5;

 

“Termination Date” means the earlier of:

 

(a)                                 the Trigger Date;

 

(b)                                 April 20, 2012, which date may be extended by notice from the Trust to the Seller upon agreement to such extension by the Seller and the Securitization Agent; and

 

(c)                                  the date the Seller designates as the Termination Date upon 90 days’ notice to the Trust;

 

“Tractors” means [*];

 

“Tranche Amount” means, on any date, the principal amount of Notes outstanding on such date;

 

“Tranche Period” means the period beginning on a Remittance Date and ending on the day immediately prior to the next occurring Remittance Date; provided that the first Tranche Period shall be the period beginning on the date of the Purchase and ending on the day immediately prior to the first Remittance Date;

 

“Tranche Rate” means (a) at any time prior to the occurrence of a Trigger Event, [*], and (b) at any time on or after the occurrence of a Trigger Event, [*];

 

“Transition  Expenses” means all reasonable costs and expenses (including reasonable legal fees) incurred by the Backup Servicer in connection with transferring servicing obligations under this Agreement, which shall not exceed the cap established in the Backup Servicing Agreement or the Backup Servicing Fee Letter;

 

17

 

“Trigger Date” means the day that, in accordance with Section 6.2, is declared as, or automatically becomes, the Trigger Date;

 

“Trigger Event” has the meaning ascribed thereto in Section 6.1;

 

“Trust’s Co-Ownership Interest” has the meaning ascribed thereto in Section 2.3;

 

“Trust Notice Event” means, following the occurrence of a KAR Financial Covenant Event, the Trust has provided the Seller with written notice of the Trust’s declaration of a KAR Financial Covenant Termination Event;

 

“Trust’s Share” means on any Business Day before the Termination Date, the percentage computed as:

 

	
 
    	
I + LR
    	
 
    
	
 
    	
NRPB
    	
 
    

 

where:

 

	
I
    	
=
    	
the Investment at the time of computation, reduced   by the aggregate amount deposited in the Collection Account on (i) with   respect to any Portfolio Report, the last Business Day of the immediately   prior Collection Period, or (ii) with respect to any Portfolio   Certificate, the last Business Day of the prior calendar week, provided that   in the case of (ii) above an equal amount is wired to the Trust on the   immediately following Remittance Date to pay down the Investment,
    
	
 
    	
 
    	
 
    
	
LR
    	
=
    	
the Loss Reserve at the time of computation,
    
	
 
    	
 
    	
 
    
	
NRPB
    	
=
    	
the Net Receivables Pool Balance at the time   of computation,
    

 

and, on any Business Day on or after the Termination Date, the Trust’s Share calculated as of the last Business Day prior to the Termination Date.

 

1.2                                                                               Headings

 

The division of this Agreement into Articles, Sections, Schedules and other subdivisions, the provision of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement.  The terms “this Agreement”, “hereof”, “hereunder” and similar expressions refer to this Agreement and not to any particular Article, Section, Schedule or other portion hereof and include the recitals and any agreement supplemental hereto.  Unless something in the subject matter or context is inconsistent therewith, references herein to particular Articles, Sections and Schedules are to the particular Articles, Sections and Schedules of this Agreement.

 

18

 

1.3                                                                               Number, Gender, Etc.

 

Words importing the singular number shall include the plural and vice versa; words importing gender shall include all genders.  Any use of the term “including” in this Agreement shall be read as, and shall mean, “including, without limitation”.

 

1.4                                                                               Non-Business Days

 

Whenever any payment to be made hereunder shall be stated to be due or any action to be taken hereunder shall be stated to be required to be taken on a day other than a Business Day, unless otherwise specifically provided for herein, such payment shall be made or such action shall be taken on the next succeeding Business Day.

 

1.5                                                                               Governing Law

 

This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein.  Each of the parties hereto hereby attorns to the non-exclusive jurisdiction of the courts of the Province of Ontario.

 

1.6                                                                               References to Statutes

 

All references herein to any statute or any provision thereof shall, unless otherwise specified herein, mean such statute or provision as the same may be amended, re-enacted or replaced from time to time.

 

1.7                                                                               Severability

 

In the event that one or more of the provisions contained in this Agreement shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality or enforceability of the remaining provisions hereof shall not be affected or impaired thereby.  Each of the provisions of this Agreement is hereby declared to be separate and distinct.

 

1.8                                                                               Currency

 

All amounts expressed herein in terms of money refer to lawful currency of Canada and all payments to be made hereunder shall be made in such currency.

 

1.9                                                                               Schedules

 

The following Schedules annexed hereto are incorporated herein by reference and are deemed to be part hereof:

 

	
Schedule A
    	
–
    	
Form of Purchase Request
    
	
Schedule B
    	
–
    	
Location of Records
    
	
Schedule C
    	
–
    	
Form of Contracts
    
	
Schedule D
    	
–
    	
Form of Portfolio Report
    
	
Schedule E
    	
–
    	
Form of Portfolio Certificate
    
	
Schedule F
    	
–
    	
Form of Increase Request
    

 

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Schedule G
    	
–
    	
Deposit Accounts
    
	
Schedule H
    	
–
    	
Québec Assignment
    

 

ARTICLE 2 
 PURCHASES AND INCREASES

 

2.1                                                                               Purchase Request and Increase

 

(a)                                 At any time on or after the execution of this Agreement and on or prior to February 15, 2010, the Seller may, by delivery of an appropriately completed Purchase Request to the Trust, request the Trust to purchase an undivided co-ownership interest in the Receivables Pool from the Seller.  The Purchase Request shall specify (i) the amount of the Cash Payments to be paid to the Seller (which shall not be less than $30,000,000 and shall be an integral multiple of $100,000) and the Net Cash Payment to be paid to the Seller, and (ii) the date of such Purchase.

 

(b)                                 From time to time after the Purchase hereunder up to the Termination Date, the Seller may, by delivery of an appropriately completed Increase Request delivered to the Trust at least one Business Day prior to the date of the proposed Increase, request the Trust to increase the Investment and the amount of its undivided co-ownership interest in the Receivables Pool.  The Increase Request shall specify, (i) the amount of the Cash Payment (which shall not be less than $500,000 and shall be an integral multiple of $100,000) and the Net Cash Payment to be paid to the Seller, (ii) the date of such Increase (which shall be a Remittance Date), and (iii) the account number of the Seller into which the Net Cash Payment should be deposited.

 

2.2                                                                               Purchase and Sale

 

(a)                                 If the conditions precedent in Section 3.1 (in the case of the Purchase hereunder) and Section 3.2 are satisfied or have not been satisfied but have been waived by the Trust, on the date specified in the Purchase Request, the Seller shall sell, assign and transfer to the Trust, and the Trust shall purchase, an undivided co-ownership interest in the Receivables Pool, having the terms and attributes and conferring upon the Trust the entitlements and property rights set out in Section 2.3, for the Purchase Price applicable to the Purchase, and the Trust shall deposit the applicable Cash Deposit Amount into the Cash Reserve Account and pay to the Seller the Net Cash Payment in respect thereof on the date of such Purchase.  Upon the making of such payment and deposit, all of the Seller’s right, title and interest in and to an undivided co-ownership interest in the Receivables Pool shall be sold, assigned and transferred to the Trust on a fully serviced basis without recourse (except as provided by this Agreement), without the need of any formality or other instrument of assignment.

 

(b)                                 If the conditions precedent in Section 3.2 are satisfied or have not been satisfied but have been waived by the Trust, on the date specified in an Increase Request, the Trust shall deposit the applicable Cash Deposit Amount into the Cash Reserve Account and pay to the Seller the Net Cash Payment in respect thereof on the date of such Increase and thereafter the Investment shall be increased by the amount of the Cash Payment and the Trust’s Share shall be calculated based on such increased Investment. Upon the making of such payment and deposit pursuant to the Increase Request, an additional interest in the Receivables Pool shall be sold,

 

20

 

assigned and transferred to the Trust on a fully serviced basis without recourse (except as provided by this Agreement), without the need of any formality or other instrument of assignment, such that the Trust’s Share shall be calculated based on such increased Investment.

 

(c)                                  In addition to Sections 2.2(a) and 2.2(b), but subject to the last sentence of this Section 2.2(c), the Seller shall, on the date hereof, execute and deliver to the Trust the Québec Assignment.  For greater certainty, to the extent there is any conflict or inconsistency between this Agreement and the Québec Assignment, the Québec Assignment shall govern.

 

2.3                                                                               Ownership Interests

 

The undivided co-ownership interests in the Receivables Pool to be conveyed to and owned by the Trust pursuant to the terms hereof shall constitute and comprise property interests in the Receivables Pool that shall entitle the Trust to receive amounts from the Trust’s Share of Collections from Receivables and other amounts constituting the Receivables Pool in the amounts, at the times and on the terms and conditions herein provided.  Such undivided co-ownership interest is not intended and shall not be construed as merely a contractual or personal right against the Seller but rather as an interest in rem.  The undivided co-ownership interest in the Receivables Pool acquired by the Trust by way of the Purchase and any Increases in accordance with Section 2.1 are collectively referred to herein as the “Trust’s Co- Ownership Interest.”  The undivided ownership interest in the Receivables Pool not constituting the Trust’s Co-Ownership Interest shall be retained by the Seller and shall constitute and comprise property interests in the Receivables Pool that shall entitle the Seller to receive amounts from the Seller’s Share of Collections from Receivables and other amounts constituting the Receivables Pool in the amounts, at the times and on the terms and conditions herein provided.  Such undivided ownership interest in the Receivables Pool not constituting the Trust’s Co-Ownership Interest is referred to herein as the “Seller’s Retained Interest.”  The Seller and Trust shall hold the Seller’s Retained Interest and Trust’s Co-Ownership Interest, respectively, as tenants in common.

 

2.4                                                                               Transfer From Deposit Accounts to Collection Account

 

On each Business Day, all amounts on deposit in each Deposit Account shall be transferred by the Servicer from such Deposit Account to the Collection Account.

 

2.5                                                                               Allocations of Seller’s Share of Collections Before the Termination Date

 

The Seller hereby authorizes and directs the Servicer, on each Business Day which is prior to the occurrence of the Termination Date, to allocate from the Seller’s Share of Collections for such day, the following amounts in the following order:

 

(a)                                 to the Replacement Servicer, an amount equal to the Seller’s Share of the sum of any Replacement Servicer Fee and any Collection Costs, and any arrears thereof, and to the Backup Servicer, the Seller’s Share of any Backup Servicing Fees and Transition Expenses, and any arrears thereof;

 

(b)                                 in respect of the Cash Reserve Account, the amount, if any,  by which the balance on deposit in the Cash Reserve Account is less than the Cash Reserve Required Amount; and

 

21

 

(c)                                  to the Seller, any remaining balance on account of the Seller’s Retained Interest.

 

2.6                                                                               Allocation of Trust’s Share of Collections Before the Termination Date

 

The Trust hereby authorizes and directs the Servicer, on each Business Day which is prior to the occurrence of the Termination Date, to allocate from the Trust’s Share of Collections for such day and from amounts available in the Cash Reserve Account pursuant to Section 2.14, the following amounts in the following order of priority:

 

(a)                                 to the Replacement Servicer, an amount equal to the Trust’s Share of the sum of any Replacement Servicer Fee and any Collection Costs, and any arrears thereof, and to the Backup Servicer, the Trust’s Share of the Backup Servicing Fees and Transition Expenses, and any arrears thereof;

 

(b)                                 to the Trust, an amount equal to the sum of the Funding Discount and the Standby Fees accrued through such day;

 

(c)                                  to the Trust, if such Business Day is a Paydown Date, an amount up to the amount of the Investment for application in reduction of the Investment; provided that if a Paydown Date has occurred pursuant to clause (c) of the definition of Paydown Date, the amount to be applied in reduction of the Investment shall only be the amount (subject to such amounts being in integral multiples of $100,000) necessary to cause the Trust’s Share to be reduced to an amount equal to or less than 100%;

 

(d)                                 into the Cash Reserve Account, the amount, if any (after giving effect to Section 2.5(b)), by which the balance on deposit in the Cash Reserve Account is less than the Cash Reserve Required Amount;

 

(e)                                  to the Trust, if a voluntary paydown of the Investment is being made, for application in reduction of the Investment in accordance with Section 2.13;

 

(f)                                   to the relevant Indemnified Party, an amount equal to the aggregate amounts owed to such Indemnified Party pursuant to Sections 9.1 or 9.4 that remain unpaid;

 

(g)                                  to the Trust, any other amounts owing to the Trust hereunder; and

 

(h)                                 to the Seller, any remaining balance as Deferred Purchase Price.

 

2.7                                                                               Payments from Collection Account

 

Amounts on deposit in the Collection Account deposited pursuant to Section 2.4 shall be paid out and applied by the Servicer as follows:

 

(a)                                 amounts allocated for the benefit of the Replacement Servicer and Backup Servicer pursuant to Sections 2.5(a) and 2.6(a) shall be paid to the

 

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Replacement Servicer and Backup Servicer, as applicable, when due and payable;

 

(b)                                 amounts allocated pursuant to Sections 2.5(b) and 2.6(d) shall be deposited to the Cash Reserve Account;

 

(c)                                  amounts allocated pursuant to (i) Section 2.6(b) shall be paid to the Trust on each Remittance Date and (ii) Section 2.6(g) shall be paid to the Trust on the second Remittance Date of each month;

 

(d)                                 amounts allocated pursuant to Sections 2.6(c) and 2.6(e) shall be paid to the Trust on each Remittance Date and the Investment shall be reduced by the amounts distributed and applied pursuant to such Sections;

 

(e)                                  amounts allocated for the benefit of an Indemnified Party pursuant to Section 2.6(f) shall be paid when due and payable to such Indemnified Party or as such Indemnified Party may otherwise direct; and

 

(f)                                   amounts allocated pursuant to Section 2.5(c) shall be paid to the Seller in respect of the Seller’s Retained Interest on each Business Day and amounts allocated pursuant to Section 2.6(h) shall be paid to the Seller in respect of Deferred Purchase Price on each Business Day.

 

For greater certainty, priority shall be determined by the priority of allocations under Sections 2.5 and 2.6 and not by the order in which payments and deposits are referred to in this Section 2.7.

 

2.8                                                                               Allocation and Payment of Seller’s Share of Collections After a Termination Date

 

The Seller hereby authorizes and directs the Servicer, on each Business Day on or after the occurrence of a Termination Date, to allocate from the Seller’s Share of Collections for such day, the following amounts in the following order:

 

(a)                                 to the Replacement Servicer, an amount equal to the Seller’s Share of the sum of any Replacement Servicer Fee and any Collection Costs, and any arrears thereof, and to the Backup Servicer, the Seller’s Share of any Backup Servicing Fees and Transition Expenses, and any arrears thereof;

 

(b)                                 to the relevant Indemnified Party, an amount equal to the aggregate amounts owed to such Indemnified Party pursuant to Sections 9.1 or 9.4 that remain unpaid; and

 

(c)                                  to the Seller, the balance on account of the Seller’s Retained Interest.

 

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2.9                                                                               Allocation of Trust’s Share of Collections After a Termination Date

 

The Trust hereby authorizes and directs the Servicer, on each Business Day which is on or after the Termination Date, to allocate from the Trust’s Share of Collections for such day and amounts available in the Cash Reserve Account pursuant to Section 2.14, the following amounts in the following order of priority:

 

(a)                                 to the Replacement Servicer, an amount equal to the Trust’s Share of the sum of any Replacement Servicer Fee and any Collection Costs, and any arrears thereof, and to the Backup Servicer, the Trust’s Share of the Backup Servicing Fees and Transition Expenses, and any arrears thereof;

 

(b)                                 to the Trust, an amount equal to the Funding Discount accrued through such day;

 

(c)                                  to the Trust, an amount equal to the Investment;

 

(d)                                 to the extent the amounts payable under Section 2.8(b) have not been satisfied in full, to the relevant Indemnified Party, an amount equal to the aggregate amounts owed to such Indemnified Party pursuant to Sections 9.1 or 9.4 that remain unpaid;

 

(e)                                  to the Trust, any other amounts owing to the Trust hereunder; and

 

(f)                                   to the Seller, the balance, as Deferred Purchase Price.

 

2.10                                                                        Payments from Collection Account After a Termination Date

 

Amounts on deposit in the Collection Account deposited pursuant to Section 2.4 shall be paid out and applied by the Trust as follows:

 

(a)                                 amounts held on deposit for the benefit of the Replacement Servicer pursuant to Sections 2.8(a) and 2.9(a) shall be paid to the Replacement Servicer when due and payable;

 

(b)                                 amounts held on deposit for the benefit of the Backup Servicer pursuant to Sections 2.8(a) and 2.9(a) shall be paid to the Backup Servicer when due and payable;

 

(c)                                  amounts held on deposit for the benefit of an Indemnified Party pursuant to Sections 2.8(b) and 2.9(d) shall be paid to such Indemnified Party or as such Indemnified Party may otherwise direct, when due and payable;

 

(d)                                 amounts allocated pursuant to Sections 2.9(b) and (e) shall be paid to the Trust on such dates as the Trust may determine;

 

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(e)                                  amounts allocated pursuant to Section 2.9(c) shall be paid to the Trust on each Remittance Date and the Investment shall be reduced by such amounts distributed; and

 

(f)                                   amounts allocated pursuant to Section 2.8(c) shall be paid to the Seller in respect of the Seller’s Retained Interest on each Business Day and amounts allocated pursuant to Section 2.9(f) shall be paid to the Seller on account of Deferred Purchase Price on each Business Day.

 

For greater certainty, priority shall be determined by the priority of allocations under Sections 2.8 and 2.9 and not by the order in which payments and deposits are referred to in this Section 2.10.

 

2.11                                                                        Purchases Limited by Program Limit

 

No Purchase or Increase may be made hereunder if, after giving effect thereto, the Investment would exceed the Program Limit.

 

2.12                                                                        Program Limit

 

The Seller may, upon at least 30 days written notice to the Trust, reduce in part the unused portion of the Program Limit; provided that each partial reduction shall be in the amount of at least $1,000,000 or an integral multiple thereof and shall be effective on a Remittance Date.

 

2.13                                                                        Voluntary Paydown of Investment

 

If at any time the Seller wishes to reduce the Investment, the Seller shall give the Trust, the Servicer and the Backup Servicer at least two Business Days’ prior written notice thereof (including the amount of such proposed reduction and the proposed date on which such reduction will commence).  Following the delivery of such notice, on the proposed date of commencement of such reduction and on each day thereafter, the Servicer shall allocate all amounts available for allocation under Section 2.6(e) to the Trust until the aggregate amount allocated shall equal the desired amount of reduction, provided that,

 

(a)                                 unless otherwise agreed by the Trust, the amount of any such reduction shall be not less than $1,000,000 and shall be an integral multiple of $1,000,000, and the Investment after giving effect to such reduction shall be not less than $30 million, and

 

(b)                                 the Seller shall use reasonable efforts to choose a reduction amount, and the date of commencement thereof, so that to the extent practicable such reduction shall commence and conclude in the same Collection Period.

 

2.14                                                                        Cash Reserve Account

 

To the extent that on any Business Day before the Termination Date the Trust’s Share of Collections is less than the sum of the amounts referred to in Sections 2.6(a) through

 

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(c), the Trust shall apply, by deposit to the Collection Account, any amounts on deposit in the Cash Reserve Account to make the allocations specified in Sections 2.6(a) through (c) on such Business Day.  On each Remittance Date prior to the Termination Date, any Cash Reserve Excess Amount shall, if requested by the Seller, be paid to the Seller on account of Deferred Purchase Price.  On the Termination Date, the balance of the Cash Reserve Account shall be deposited to the Collection Account and applied under Section 2.9.

 

2.15                                                                        Calculations

 

In making all allocation and payments of Collections and amounts on deposit in the Cash Reserve Account hereunder, the Servicer shall use the information contained in the most recently delivered Portfolio Report or Portfolio Certificate, as applicable, including any Portfolio Report or Portfolio Certificate delivered on the day of such allocation or payment.

 

2.16                                                                        Specified Ineligible Receivables

 

At any time prior to a Receivable first being referenced in a Portfolio Report or a Portfolio Certificate as an Eligible Receivable, the Servicer (so long as the Seller is the Servicer) may designate such Receivable as a “Specified Ineligible Receivable” (which designation may take the form of a specification that a certain class or category of Receivables to be created after such designation will be treated as “Specified Ineligible Receivables”).  In addition, the Servicer (so long as the Seller is the Servicer) may, on behalf of the Seller, (i) designate an existing Receivable as a “Specified Ineligible Receivable” or (ii) designate an existing Specified Ineligible Receivable as a Receivable (i.e., no longer a “Specified Ineligible Receivable”), in each of cases (i) and (ii) with the prior written consent of the Trust.  For the avoidance of doubt, any Receivable which was treated as an Eligible Receivable hereunder at any time may not be treated as a “Specified Ineligible Receivable” without the prior written consent of the Trust.  The Servicer (so long as the Seller is the Servicer) shall identify the aggregate Principal Balance of all such “Specified Ineligible Receivables” on each Portfolio Report.  To the extent the Servicer has from time to time identified a Receivable as a “Specified Ineligible Receivable” in accordance with this Section, for so long as such Receivable is a Specified Ineligible Receivable, such Receivable (i)  shall not be included as an Eligible Receivable by the Seller or the Servicer hereunder, (ii) shall not be included in any calculations of the Delinquency Ratio or the Default Ratio or other Receivables Pool information (other than a statement of the aggregate Principal Balance of such Specified Ineligible Receivables) hereunder and (iii) shall not be considered a Receivable for purposes of Section 6.1(q).

 

2.17                                                                        Collection Account

 

Subject to this Section 2.17, the Servicer shall be entitled to access the Collection Account and the Collections deposited therein, and may withdraw funds deposited to the Collection Account and payable to the Seller pursuant to Sections 2.7(f) and 2.10(f) prior to the relevant Remittance Date.  Notwithstanding anything else contained in this Agreement, the Trust may notify the Servicer that it no longer wishes the Servicer to have the access rights described in this Section 2.17 and/or to be authorized to allocate and pay the amounts referred to in Sections 2.5, 2.6, 2.7, 2.8 and 2.9.  Upon receipt of such notice, the Servicer will have no further

 

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access or other rights with respect to the Collection Account and the Trust, or its nominees, will assume the duties of the Servicer under the aforementioned Sections 2.5 through 2.9.

 

ARTICLE 3 
 CONDITIONS PRECEDENT

 

3.1                                                                               Conditions Precedent for the Initial Purchase

 

Prior to the Purchase occurring hereunder, the following shall have occurred, or the Seller shall have delivered to the Trust the following, as the case may be, in each case in form and substance satisfactory to the Trust, acting reasonably:

 

(a)                                 a certificate of an officer of the Seller attaching copies of its constating documents;

 

(b)                                 a certificate of status for the Seller in the Province of Ontario and a certificate of compliance for the Performance Guarantor in the State of Delaware;

 

(c)                                  resolutions of the board of directors of the Seller approving and authorizing the execution, delivery and performance of this Agreement and the other documents to be delivered by the Seller hereunder, and the Purchase and any Increase hereunder up to the Program Limit, certified by a senior officer of the Seller to be in full force and effect as of the Closing Date;

 

(d)                                 incumbency certificates of the officers of the Seller executing this Agreement and the other documents to be delivered by the Seller hereunder showing their names, offices and specimen signatures on which certificates the Trust shall be entitled to conclusively rely until such time as the Trust receives from the Seller a replacement certificate meeting the requirements of this Section 3.1(d);

 

(e)                                  a copy of the Credit and Collection Policies and sample copies of each of the forms of Contract and other documents used or acquired by the Seller in each of the provinces of Canada with respect to Financed Vehicles and the Related Security, including credit application forms;

 

(f)                                   reports showing the results of the searches conducted in the Provinces of Ontario and Quebec against the Seller and its predecessors on the Business Day immediately preceding the Closing Date to determine the existence of any Security Interests in the Pool Assets;

 

(g)                                  copies of verification statements, officially stamped or marked to indicate that copies of such documents have been filed with the appropriate Governmental Authorities in the Provinces of Ontario and Quebec or, if officially stamped copies are not available prior to the Closing Date, photocopies of documents accepted for filing or registration, of all financing statements or other similar statements or other registrations, if any, filed in

 

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such province or provinces with respect to the Purchase to ensure recognition as against third parties of the interests of the Trust in the Pool Assets; in each case showing the Seller’s address as 1717 Burton Road, Vars, Ontario, K0A 3H0;

 

(h)                                 evidence that such Persons as the Trust may have designated who have registered financing statements or similar instruments against the Seller shall have entered into such agreements or acknowledgements or amended their registrations, filings or recordings so as to negate any Security Interest or other interest in the Pool Assets capable of encumbering or defeating the interests of the Trust therein;

 

(i)                                     executed copies of this Agreement, the Program Fee Side Letter, the Québec Assignment and the other agreements and instruments called for hereunder;

 

(j)                                    an opinion of counsel to the Seller (including certain matters under Québec Law) dated as of the Closing Date, which opinions may rely on an officer’s certificate of the Seller as to certain factual matters;

 

(k)                                 an opinion of counsel to the Performance Guarantor dated as of the Closing Date;

 

(l)                                     blocked account agreements with respect to the Deposit Accounts executed by the banks or other financial institutions at which each of the Deposit Accounts are located shall have been be executed and delivered to the Trust in form satisfactory to the Trust; and

 

(m)                             such other documentation as may be required by the Trust or its counsel, Bennett Jones LLP or the Seller or its counsel, Osler Hoskin & Harcourt LLP, acting reasonably.

 

3.2                                                                               Conditions Precedent in Favour of the Trust for Purchase/All Increases

 

Prior to the Purchase and all Increases hereunder, the following shall have occurred, or the Seller shall have delivered to the Trust the following, as the case may be, in each case in form and substance satisfactory to the Trust, acting reasonably:

 

(a)                                 the Trust shall have received the Purchase Request or Increase Request, duly executed by the Seller;

 

(b)                                 immediately prior to, at the time of and after giving effect to the Purchase or Increase, the following statements will be true, and the Seller, by accepting any payment pursuant to Section 2.2 in respect of the Purchase or any Increase, will be deemed to have certified that:

 

(i)                           the representations and warranties of the Seller contained in Section 4.1 are correct on and as of the date of purchase as though made on and as of such date; and

 

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(ii)                        no event has occurred and is continuing, or would result from the effecting of such Purchase or Increase, that constitutes a Trigger Event or would constitute a Trigger Event by further requirement that notice be given or time elapse or both; and

 

(c)                                  all other documents, instruments, opinions and agreements required by the terms hereof to be delivered to the Trust shall have been so delivered and shall be satisfactory in form and substance to the Trust, acting reasonably, and the Trust shall have received such other approvals, opinions or documents as it may reasonably request.

 

ARTICLE 4 
 REPRESENTATIONS AND WARRANTIES

 

4.1                                                                               General Representations and Warranties of the Seller

 

The Seller represents and warrants to the Trust (in its capacity as Seller and as Servicer), and acknowledges that the Trust is relying upon such representations and warranties in consummating the transactions contemplated hereby that as of the Closing Date and as of the date of each Increase:

 

(a)                                 the Seller is a corporation duly incorporated and existing under its jurisdiction of incorporation, the Seller is not a “non-resident” of Canada for the purposes of the Income Tax Act (Canada) and the Seller is duly qualified, licensed or registered in each of the provinces of Canada to carry on its present business and operations, except where the failure to be so qualified, licensed or registered could not reasonably be expected to have a Material Adverse Effect;

 

(b)                                 the execution, delivery and performance by the Seller of this Agreement and all other instruments, agreements and documents to be delivered by it hereunder, and the transactions contemplated hereby and thereby, are within the Seller’s powers, have been duly authorized by all necessary corporate action and do not contravene (i) the Seller’s constating documents or by-laws, (ii) any resolution of its board of directors (or any committee thereof) or shareholders or (iii) any law or any contractual restriction binding on or affecting the Seller (including pursuant to any indentures, loan or credit agreements, leases, mortgages or security agreements), the contravention of which could reasonably be expected to have a Material Adverse Effect, and do not result in or require the creation of any Security Interest (other than any Security Interest created pursuant to this Agreement and the Related Security, the Blocked Account Claims, or Security Interests permitted by this Agreement), upon or with respect to any of its properties, and the consummation of the transactions contemplated hereby does not require approval of shareholders or approval or consent of any Person under any contract to which the Seller is a party;

 

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(c)                                  no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or regulatory body is required for the due execution, delivery and performance by the Seller of this Agreement or any other instrument, agreement or document to be delivered hereunder or thereunder except (i) those that have already been given, filed or obtained, as the case may be, and (ii) financing statements filed in favour of the Trust;

 

(d)                                 this Agreement and the other instruments, agreements and documents executed in connection herewith constitute legal, valid and binding obligations of the Seller enforceable against it in accordance with their terms, subject to (a) applicable bankruptcy, reorganization, winding-up, insolvency, moratorium and other laws of general application limiting the enforcement of creditors’ rights; (b) the fact that the granting of equitable remedies such as specific performance and injunction is within the discretion of a court of competent jurisdiction; and (c) general principles of equity;

 

(e)                                  all filings, recordings, registrations or other actions required under this Agreement have been made or taken in Ontario (the parties acknowledge that in Quebec such filings, recordings, registrations or other actions shall be taken immediately following closing), in order to validate, preserve, perfect or protect the interests (including the co-ownership interest) of the Trust in, and the rights of the Trust to collect, any and all of the Pool Assets, including the right to enforce the Related Security;

 

(f)                                   as of the date hereof, the chief executive office of the Seller is located in Ontario and the books, records and documents related to the Receivables in which the Seller has an interest and other printed information (excluding policies or certificates of insurance) evidencing or relating to the Pool Assets, the Obligors and the related Financed Vehicles are located at the offices shown in Schedule B;

 

(g)                                  the Records contain all information reasonably necessary for the enforcement and Collection by the Trust of the Pool Assets, including the name, address and phone number of each Obligor, the Principal Balance and any accrued interest and fees on each Pool Receivable, the vehicle identification number of each related Financed Vehicle and the payment history of the Obligor with respect to each Pool Receivable, as such information may change from time to time;

 

(h)                                 each Portfolio Report and Portfolio Certificate fully and accurately summarizes the information contained therein and reflects all of the Pool Receivables and the adjusted Principal Balances;

 

(i)                                     there is no order, judgment or decree of any court, arbitrator or similar tribunal or Governmental Authority purporting to enjoin or restrain, and there are no proceedings before any court, arbitrator or similar tribunal or Governmental Authority seeking to enjoin or restrain the Seller from

 

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effecting the Purchase or any Increase hereunder, or the Seller, its agents or the Trust from making any collection in respect thereof, which could reasonably be expected to have a Material Adverse Effect;

 

(j)                                    there are no actions, suits or proceedings in existence or, to the knowledge of the Seller, pending or threatened, against or affecting the Seller or its Affiliates, or the property of the Seller or of any such Affiliates, in any court, or before any arbitrator of any kind, or before or by any governmental body, which could reasonably be expected to have a Material Adverse Effect;

 

(k)                                 the transactions contemplated herein do not require compliance with the Bulk Sales Act (Ontario) or any similar legislation of any other jurisdiction;

 

(l)                                     all documents, computer files, microfiche or other records and materials containing information or disclosure relating to the Seller, the Backup Servicer, the Performance Guarantor, the Obligors, the Financed Vehicles and the Pool Assets made available to the Trust from time to time will be true and correct in all material respects;

 

(m)                             the computer records of the Seller which contain particulars of the Pool Assets will contain notations, marks or other designations sufficient to identify that an interest in the Pool Assets has been sold by the Seller to the Trust hereunder;

 

(n)                                 the Records relating to the Pool Assets are current and reflect all material transactions between the Seller and the Obligors under such Pool Assets and any other Person in respect thereof;

 

(o)                                 each Pool Receivable included as an Eligible Receivable in the calculation of the Net Receivables Pool Balance is an Eligible Receivable as of the date of such calculation; and

 

(p)                                 the Credit and Collection Policies in their current form do not contain any amendments or new policies or practices when compared to the historical policies and practices of the Servicer that would have adversely affected the historical collection results that have been furnished to the Trust.

 

4.2                                                                               Survival

 

Subject to Section 10.13, the representations, warranties and covenants of the Seller (in its capacity as Servicer) contained in this Agreement shall survive the consummation of the transactions contemplated by this Agreement.

 

4.3                                                                              Representations and Warranties of the Trust

 

The Trust represents and warrants to the Seller, and acknowledges that the Seller is relying upon such representations and warranties in consummating the transactions contemplated hereby, that:

 

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(a)                                 the Trust is validly existing under the laws of the Province of Ontario;

 

(b)                                 the execution, delivery and performance by it of this Agreement and the other documents to be delivered by it hereunder (i) are within its powers and (ii) do not contravene: (A) the documents pursuant to which it was established, (B) in any material respect, any law, rule or regulation applicable to it, (C) any material contractual restriction binding on or affecting it or its property, or (D) any material order, writ, judgement, award, injunction or decree binding on or affecting it or its property;

 

(c)                                  no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by it of this Agreement or any other document to be delivered by it hereunder other than those which have been obtained or completed;

 

(d)                                 this Agreement constitutes a legal, valid and binding obligation enforceable against it in accordance with its terms subject to (a) applicable bankruptcy, reorganization, winding-up, insolvency, moratorium and other laws of general application limiting the enforcement of creditors’ rights; (b) the fact that the granting of equitable remedies such as specific performance and injunction is within the discretion of a court of competent jurisdiction; and (c) general principles of equity;

 

(e)                                  there is no pending or, to its knowledge, threatened, action or proceeding affecting it or any of its assets before any court, governmental agency or arbitrator which would, if determined adversely, have a material adverse effect on the Seller’s rights or interests hereunder; and

 

(f)                                   it is not a non-resident of Canada within the meaning of the Income Tax Act (Canada).

 

4.4                                                                               Survival

 

Subject to Section 10.13, the representations and warranties of the Trust contained in this Agreement shall survive the consummation of the transactions contemplated by this Agreement.

 

ARTICLE 5 
 ADMINISTRATION

 

5.1                                                                               Designation of the Servicer

 

The Trust hereby designates the Seller as the initial Servicer under this Agreement and by executing and delivering this Agreement, the Seller agrees to accept its designation as the Servicer until a Servicer Transfer, and hereby agrees to perform the duties and obligations of the Servicer pursuant to the terms hereof, at no cost to the Trust.  Subject to the provisions of this 

 

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Agreement, the Servicer shall administer, service and collect the Pool Assets as agent for the Trust until the Final Termination Date and the Trust shall not terminate the Seller as Servicer except in accordance with Section 5.12.  The Servicer may, in accordance with the terms of the Credit and Collection Policies, subcontract with any Person for the administration and collection of the Pool Receivables; provided however, that the Servicer shall remain liable for the performance of the duties and obligations so subcontracted and all other duties and obligations of the Servicer pursuant to the terms hereof.

 

5.2                                                                               Standard of Care

 

The Servicer, as agent for the Trust (to the extent provided herein), shall perform its duties hereunder with reasonable care and diligence, using that degree of skill and attention that the Servicer exercises in managing, servicing, administering, collecting on and performing similar functions relating to comparable Receivables that it services for itself or other Persons.

 

5.3                                                                               Authorization of Servicer

 

Without limiting the generality of the authority granted by the designation of any Person as Servicer, and subject to the other provisions of this Agreement, the Servicer is hereby authorized and empowered by the Trust to take any and all reasonable steps in its name and on its behalf necessary or desirable, and not inconsistent with the sale, transfer and assignment of an undivided co-ownership interest in the Pool Assets to the Trust, except that the Servicer shall not be required to notify any Person of the Trust’s interest therein until the occurrence of a Trigger Event, in the reasonable determination of the Servicer, to collect all amounts due under any and all Pool Assets, including, to execute and deliver, on behalf of the Trust and its successors and assigns, any and all instruments of satisfaction or cancellation, or partial or full release or discharge, and all other comparable instruments, with respect to the Pool Assets and, after delinquency of any Pool Receivable, and to the extent permitted under and in compliance with applicable law and regulations, to commence proceedings with respect to enforcing payment of such Pool Receivable and the Related Security, and adjusting, settling or compromising the account or payment thereof, to the same extent as the Seller could have done if it had continued to own the Pool Assets.  The Trust shall furnish the Servicer with any powers of attorney and other documents that are within the ability of the Trust to furnish and which are reasonably necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder as agent of the Trust.

 

5.4                                                                               Enforcement of Contracts

 

The Servicer is authorized to enforce and protect the Trust’s rights and interests in, to and under the Pool Assets and the Trust’s right to receive payment in respect thereof, and the Servicer may commence or defend proceedings in the name of the Trust (or any agent thereof, including the Servicer) for the purpose of enforcing or protecting any rights under any of the Pool Assets or against any Obligor personally.  Unless the Trust shall have given its express prior written consent thereto, the Servicer shall not take any action that would make the Trust a party to any litigation.  Notwithstanding the foregoing, the Servicer need not seek the Trust’s consent to make the Trust a party to litigation incidental to the enforcement by the Servicer of any of the Pool Assets.

 

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5.5                                                                               Assignment for Purpose of Enforcement

 

If the Servicer shall commence a legal proceeding to enforce any rights under any of the Pool Assets or against an Obligor personally in accordance with this Agreement, the Trust shall thereupon be deemed to have automatically assigned its interest in any affected Pool Asset to the Servicer as of the day prior to such commencement, solely for the purpose of and only to the extent necessarily incidental to the enforcement by the Servicer of such rights.  The Servicer shall hold any such assigned interest in a Pool Asset in trust for the Trust and the same shall be deemed to have been automatically re-assigned to the Trust when the assignment to the Servicer ceases to be necessary for the enforcement by the Servicer of such rights.  If in any enforcement suit or legal proceeding it shall be held that the Servicer may not enforce a right under a Pool Asset on the grounds that it shall not be a real party in interest or a holder entitled to enforce rights in respect of the Pool Asset, the Trust shall, at the Servicer’s expense and direction, take such steps as are necessary to enforce the Pool Asset.

 

5.6                                                                               Deposit of Collections

 

The Servicer shall deposit, or cause to be deposited, all Collections, to the Deposit Accounts as soon as reasonably possible and in any event, within one Business Day of receipt.  All Collections deposited to the Deposit Accounts shall be held for the benefit of the Trust and the Seller, shall only be invested in Eligible Investments and shall be withdrawn from the Deposit Accounts only in accordance with the terms of this Agreement.  Notwithstanding the foregoing, the Servicer shall be entitled to reimburse itself out of Collections for any amounts paid by it to [*] pursuant to Section 8 of the Blocked Account Agreement in respect of chargebacks relating to cheques, drafts and other payment items dishonoured or otherwise returned for insufficient funds.

 

5.7                                                                               Description of Services

 

The Servicer shall, unless the Trust directs otherwise, take or cause to be taken all such reasonable actions as may be necessary or advisable from time to time to administer and service each Pool Receivable and the Related Security and the related Collections in accordance with the provisions of the Credit and Collection Policies, this Agreement and applicable law.  Without limiting the generality of the foregoing, the Servicer shall, in accordance with and subject to the Credit and Collection Policies, with respect to each Pool Receivable:

 

(a)                                 take or cause to be taken all such actions as may be necessary or desirable from time to time to collect the Pool Receivable in accordance with the terms and provisions of the applicable Contract and in accordance with the terms of this Agreement;

 

(b)                                 keep an individual record with respect to the Pool Receivable and post to it all payments received under or in respect of such Pool Receivable;

 

(c)                                  deposit all Collections in respect of the Pool Receivable to the Deposit Accounts as required by Section 5.6, regardless of any defence, set-off right or counterclaim;

 

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(d)                                 give timely notice to the Obligor of the Pool Receivable of any payment or other default thereunder within the Servicer’s knowledge;

 

(e)                                  record the Pool Receivable as being delinquent or defaulted in accordance with the Credit and Collection Policies;

 

(f)                                   investigate all delinquencies and defaults under the Pool Receivable;

 

(g)                                  respond to all reasonable enquiries of the Obligor of the Pool Receivable or other obligors under the Related Security;

 

(h)                                 take such steps as are reasonably necessary or appropriate to maintain the perfection and priority, as the case may be, of the Security Interests, if any, created pursuant to the Pool Receivable and the Related Security and, subject to Sections 5.7(m) and (n) to refrain from releasing or subordinating any such Security Interest in whole or in part except to the extent that the Servicer would have done so in a similar situation with respect to other Receivables administered by it on its own behalf;

 

(i)                                     make all payments to Governmental Authorities and others where a statutory lien or deemed trust having priority over the Trust’s interest in any of the Pool Assets has arisen (provided that nothing herein shall preclude the Servicer from contesting any claim in the ordinary course of business and in good faith);

 

(j)                                    subject to Sections 5.3 and 5.4, determine the advisability of taking action and instituting and carrying out legal proceedings with respect to the Pool Receivable and the Related Security in case of default by the Obligor under such Pool Receivable and take such action and institute and carry out such legal proceedings determined by it to be advisable;

 

(k)                                 maintain Records with respect to the Pool Receivable and the Related Security and, subject to Section 10.9, grant representatives of the Trust reasonable access to examine and make copies of such Records and a reasonable opportunity to discuss matters relating to the administration and servicing of the Pool Receivable and the Related Security with personnel of the Servicer involved in such administration and servicing during business hours, including the opportunity to see and review information systems and software in operation;

 

(l)                                     hold as trust property for and on behalf of the Trust and the Seller, free and clear, as against creditors of the Seller, of all Security Interests and rights of others other than Government and Employee Claims, Operation of Law Claims and those created pursuant to this Agreement, all Records with respect to the Pool Receivable at any one or more of the offices identified in Schedule B until the Final Termination Date;

 

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(m)                             execute and deliver all such assignments, releases and discharges of the Pool Receivable and the Related Security as are required by the terms thereof and upon receipt of all amounts due thereunder or as necessary to allow the Servicer to liquidate and sell a Financed Vehicle in accordance with the Credit and Collection Policies; and

 

(n)                                 settle, compromise and otherwise deal with any claims under the Pool Receivable or the Related Security if necessary, advisable or otherwise permitted in accordance with the terms of the related Contract, this Agreement and the Credit and Collection Policies.

 

5.8                                                                               Affirmative Covenants of the Servicer

 

From the date hereof until the Final Termination Date, the Servicer covenants and agrees that it will, unless the Trust shall otherwise consent in writing:

 

(a)                                 comply in all respects with all applicable laws, rules, regulations and orders with respect to it, its business and properties, all Pool Assets and the performance of its obligations as Servicer, such compliance to include paying before the same become delinquent all Taxes and Security Interests imposed upon the Servicer or its property in accordance with its normal policies with respect thereto, except to the extent the same are contested in good faith and by appropriate proceedings or where failure to do so could not reasonably be expected to have a Material Adverse Effect;

 

(b)                                 preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified as an extra-provincial corporation or other out-of-jurisdiction corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualifications could reasonably be expected to have a Material Adverse Effect;

 

(c)                                  hold as trust property for and on behalf of the Trust and the Seller, at any one or more of the offices designated under the heading “Location of Records” in Schedule B (provided that, as may be necessary, originals may be delivered to any law firm acting on behalf of the Servicer in connection with any claims or proceedings connected with a Pool Asset) with respect to each Pool Receivable, until the obligations in respect of such Pool Receivable have been satisfied, the following documents or instruments, which are hereby constructively delivered to the Trust:

 

(i)       the original Contracts applicable to the Pool Receivables;

 

(ii)      the original credit application, credit analysis and credit agency report (unless no such report could be obtained in respect of the Obligor) and “credit bureau score” and “custom score” records, if any, relating to the Obligor, all in accordance with the Credit and Collection Policies;

 

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(iii)     all other documents that the Servicer shall keep on file, in accordance with its customary procedures, evidencing the Related Security; and

 

(iv)     any and all other documents that the Servicer shall keep on file, in accordance with its customary procedures, relating to a Receivable, an Obligor or any Financed Vehicles;

 

(d)                                 comply with the Credit and Collections Policies in regard to the Pool Assets and otherwise, as applicable, in performing its covenants hereunder, except to the extent that non-compliance therewith would not materially adversely affect the Trust’s interest in any Pool Assets with respect thereto or the collectibility or enforceability thereof, it being agreed for the purposes of this Agreement that the invalidity or loss of priority of any material Security Interest in any Financed Vehicle comprising part of the Related Security related to any Pool Receivable would materially adversely affect the Trust’s interest therein;

 

(e)                                  at its own expense, employ and provide general administrative, supervisory and accounting staff and general overhead as may from time to time be reasonably required to carry out its obligations hereunder and cause its employees to perform their responsibilities in collecting and administering the Pool Assets in the same manner as if the Pool Assets were owned by the Seller, except (i) to the extent necessary or desirable to accommodate the exercise by the Trust of its rights under this Agreement, or (ii) as otherwise required hereby;

 

(f)                                   pay from its own funds all general administrative and out-of-pocket expenses and other costs incurred by it in carrying out its obligations hereunder and all fees and expenses of any administrator appointed or subcontractor retained by it;

 

(g)                                  cause the computer records of the Seller which contain particulars of the Pool Assets to contain notations, marks or other designations sufficient to identify that an interest in the Pool Assets has been sold by the Seller to the Trust hereunder;

 

(h)                                 maintain and implement administrative and operating procedures (including an ability to recreate Records in the event of the destruction of the originals of such Records) to keep and maintain, and keep and maintain all Records and other information reasonably necessary or advisable to enable the Servicer to produce the information required to be produced by it pursuant hereto or reasonably necessary or advisable for the enforcement of all of the Pool Receivables and Related Security (including Records adequate to permit the daily identification of all Collections under and adjustments to each Pool Receivable);

 

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(i)                                     at any time and from time to time during regular business hours, upon five Business Days’ prior notice, subject to Section 10.9, (A) assemble such of the Records or copies thereof as may reasonably be requested by the Trust and make same available to the Trust at the principal place of business of the Servicer and, if the Records cannot be provided solely at such office, at such other offices of the Servicer or its Affiliates where Records are kept, and permit the Trust, its agents or representatives, to examine and make copies, as reasonably required, of such Records and (B) permit the Trust or its agents to visit the offices and properties of the Seller for the purpose of discussing matters relating to the Pool Assets and the Servicer’s performance hereunder with any of the Servicer’s officers or employees having knowledge of such matters, provided that the Trust shall act reasonably to minimize any disruption to the Servicer in connection therewith; provided that prior to the occurrence of a Cash Reserve Event or a Trigger Event, the Trust shall not be reimbursed for more than two such examinations in any year, if a Cash Reserve Event has occurred and is continuing, the Trust shall not be reimbursed for more than four such examinations in any year and, if a Trigger Event has occurred and is continuing, the Trust shall be reimbursed for all such examinations;

 

(j)                                    to the extent the Records consist in whole or in part of computer programs which are licensed by the Servicer, the Servicer will, forthwith upon the occurrence of the first Servicer Termination Event, use its best efforts to arrange for the licence or sublicence of such programs to the Trust for the limited purpose of permitting the Trust or any Replacement Servicer to administer and collect the Pool Assets and to enforce the rights acquired by the Trust in respect of the Related Security;

 

(k)                                 at its expense, timely and fully perform and comply in all material respects with all material provisions, covenants and other promises required to be observed by the Seller under the Contracts in connection with the Pool Assets;

 

(l)                                     permit the Trust at any reasonable time and from time to time to inspect the data processing systems used by the Servicer to service, administer and collect the Pool Receivables and the Related Security and, in the event that the Seller is not the Servicer, to permit the Servicer to use, through the Seller only (and not directly), any computer or computer related equipment, together with all necessary software, that had been used by the Seller to service, administer and collect the Pool Receivables and the Related Security immediately prior to the Seller ceasing to be the Servicer, provided that the Trust shall act reasonably to minimize any disruption to the Servicer in connection therewith;

 

(m)                             give the Trust not less than 30 days’ prior written notice of any change in the address of its chief place of business and chief executive office, and written notice promptly after any change in the address of an office listed under the

 

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heading “Location of Records” in Schedule B, and each such notice shall be deemed to amend Schedule B accordingly;

 

(n)                                 provide to the Trust not less than 30 days’ prior notice of any change in the name of the Servicer as stated in its constating documents;

 

(o)                                 co-operate with, and offer such assistance as may reasonably be requested by, the chartered accountants selected by the Trust to furnish reports in respect of the Trust, the Purchase, any Increases and the servicing of the Pool Assets under this Agreement, and furnish in respect of the preceding fiscal year, addressed to the Trust and such other Persons as the Trust may reasonably designate, a certificate of an officer who is familiar with this Agreement certifying that, to the knowledge of such officer, the Servicer complied in such calendar year with its obligations hereunder except to the extent non-compliance therewith did not materially adversely affect the interest of the Trust and except as further set forth in such certificate;

 

(p)                                 upon request of the Trust and with the Servicer’s written consent, such consent not to be unreasonably withheld, request the Servicer’s auditors to assist the Trust’s auditors to the extent and in such manner as is reasonably required for the Trust’s auditors to report on the status of the Pool Assets under this Agreement;

 

(q)                                 make or cause to be made all filings, recordings, registrations and take all other actions in each jurisdiction necessary to validate, preserve, perfect or protect the co-ownership interests of the Trust in the Pool Assets including, the right to enforce the Related Security; and

 

(r)                                    following the occurrence and during the continuation of a Termination Event or a Cash Reserve Event, the Servicer shall provide to the Backup Servicer and the Trust (if requested) on a daily basis an electronic download with respect to the Pool Receivables in form and substance acceptable to the Backup Servicer (and which shall include, but not be limited to, all records related to each Receivable required by the Backup Servicer to service and collect such Receivable) and a Portfolio Certificate (including information with respect to all Collections received and all Receivables acquired by the Seller). Following the occurrence and during the continuation of a Cash Reserve Event, the Trust shall have the right to require the Seller or the Servicer to, and upon such request the Seller or the Servicer, as applicable, shall, assemble copies of all of the Contracts and make the same available to the Backup Servicer or other third-party custodian specified by, and at a place selected by, the Trust within 30 days.

 

5.9                                                                               Reporting Requirements of the Servicer

 

From the date hereof until the Final Termination Date, the Servicer covenants and agrees that it will, unless the Trust shall otherwise consent in writing, deliver to the Trust:

 

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(a)                                 on each Reporting Date, a Portfolio Report relating to the Pool Assets during the related Collection Period and relating to all transactions between the Seller in its capacity as Servicer and the Trust during such Collection Period, such report to be current as of the close of business of the Servicer on the related Settlement Date;

 

(b)                                 on the first Business Day of each week, a Portfolio Certificate relating to the Pool Assets as of the close of business of the Servicer on the last day of the prior week;

 

(c)                                  upon the Trust’s reasonable request therefor, a listing by Obligor of all Pool Receivables and current aging report for all Delinquent Receivables;

 

(d)                                 forthwith after the occurrence of each Servicer Termination Event and each event or the existence of any fact which, with the giving of such notice or lapse of time or both, may constitute a Servicer Termination Event, a statement of a senior financial officer or accounting officer of the Servicer setting forth details as to such Servicer Termination Event or fact or event and the action which the Servicer has taken and is proposing to take with respect thereto; and

 

(e)                                  promptly, from time to time, such other documents, records, information or reports with respect to the Pool Assets or the conditions or operations, financial or otherwise, of the Servicer as the Trust may from time to time reasonably request.

 

5.10                                                                        Negative Covenants of the Servicer

 

From the date of this Agreement until the Final Termination Date, the Servicer covenants and agrees that it will not, unless the Trust shall otherwise consent in writing:

 

(a)                                 except as otherwise provided herein, whether by operation of law or otherwise, purport to sell, assign or otherwise dispose of, or create or suffer to exist any Security Interest upon or with respect to the Seller’s or the Trust’s interest in the Pool Assets if the effect of such Security Interest would be to cause the related Pool Receivable not to be an Eligible Receivable, or assign any right to receive payment under, or to enforce the Servicer’s interest in, any of the Pool Assets, provided that the Servicer may enter into arrangements with collection agencies, private investigation firms and law firms to directly collect and hold payments of Receivables in trust for the benefit of the Trust and the Seller in accordance with the Credit and Collection Policies;

 

(b)                                 make any change in the Credit and Collection Policies which could reasonably be expected to have a Material Adverse Effect without the prior written consent of the Trust, nor will it make any change to its credit, collection and administration practices and procedures with respect to Pool Receivables or Receivables which are to become Pool Receivables than it

 

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applies with respect to other Receivables owned or serviced by it (including, by way of example, its practice of granting waivers relative to the Credit and Collection Policy) without providing the Trust with prior written notice to the extent such change would impact a material portion of the Receivables Pool [*];

 

(c)                                  after the occurrence and during the continuance of a Trigger Event, extend the maturity or adjust the Principal Balance or otherwise modify the terms of any Pool Receivable in any material respect, or amend, modify or waive any term or condition of any related Contract in any material respect;

 

(d)                                 release any security, guarantee or insurance securing any indebtedness under any of the Pool Receivables, except to the extent that granting such release is in accordance with this Agreement, the Credit and Collection Policies and the Servicer’s usual practices as an obligee or such security or insurance is replaced in a form acceptable to the Trust, acting reasonably;

 

(e)                                  take any action that adversely affects the perfection, validity or protection of the Trust’s rights to collect amounts owing in respect of the Pool Receivables and the proceeds thereof, including the right to enforce the Related Security, except to the extent that the Servicer would have done so in a similar situation with respect to other similar receivables administered by it on its own behalf;

 

(f)                                   enter into any transaction of reorganization, amalgamation or arrangement, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution) or sell, lease or otherwise dispose of its assets as an entirety or substantially as an entirety; except that the Servicer may enter into a transaction of reorganization, amalgamation, or arrangement, so long as (i) such transaction could not reasonably be expected to have a Material Adverse Effect, (ii) as a condition to the completion of such transaction, the continued or reorganized corporation shall have executed an agreement of assumption to perform every obligation of the Servicer hereunder and under the other agreements, instruments and documents executed and delivered by the Servicer hereunder or otherwise contemplated hereby, (iii) the Backup Servicer shall have provided its written consent and acknowledged its continuing obligations under the Backup Servicer Agreement in respect of the obligations of such continued or reorganized corporation, and (iv) the Performance Guarantor shall have provided its written consent and acknowledged its continuing obligations under this Agreement in respect of the obligations of such continued or reorganized corporation; or

 

(g)                                  resign as Servicer (provided, for greater certainty, that nothing herein contained shall limit the ability of the Trust to appoint a Replacement Servicer in accordance with the provisions of this Agreement).

 

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5.11                                                                        Servicer Termination Events

 

The occurrence or existence of one or more of the following events or facts which is continuing and has not been remedied by the Servicer or the Backup Servicer within the time period specified if any, with respect to such events or facts shall constitute a “Servicer Termination Event”:

 

(a)                                 the Servicer fails to make any payment or deposit to be made by it hereunder and such failure continues for two Business Days after the occurrence of such failure;

 

(b)                                 any failure on the part of the Servicer to duly perform or observe any material term, condition, covenant or agreement of the Servicer set forth in this Agreement (other than Section 5.10(f)) or any document executed in connection herewith, other than such as are specifically referred to in paragraph (a) above, which failure continues unremedied for a period of 30 days after the date on which the Servicer receives written notice thereof from the Trust specifying the default or breach;

 

(c)                                  any representation or warranty made by the Servicer (or any of its officers) in or pursuant to this Agreement, the Purchase Request, any Increase Request, any Portfolio Report, any Portfolio Certificate or any document executed in connection herewith or therewith proves to have been false or incorrect in any material respect when made and has not been cured within 30 days after written notice thereof has been received by the Servicer from the Trust;

 

(d)                                 the taking of possession by an encumbrancer (including a receiver, receiver manager or trustee) of any assets of the Servicer (other than solely to perfect a security interest therein), or the levying or enforcement or a distress or execution or any similar process against any part of the assets of the Servicer that remains unsatisfied for 30 days after the Servicer becoming aware thereof, which materially adversely affects the Servicer’s ability to perform its obligations hereunder;

 

(e)                                  the issuance or levying of a writ of execution, attachment or similar process against all or a substantial portion of the property of the Servicer, the Backup Servicer or the Performance Guarantor, in connection with any judgment against the Servicer, the Backup Servicer or the Performance Guarantor in any amount that materially affects the property of the Servicer, the Backup Servicer or the Performance Guarantor if such writ of execution, attachment or similar process shall not have been stayed or dismissed after 45 days;

 

(f)                                   any failure on the part of the Servicer to duly perform or observe the terms of Section 5.10(f);

 

(g)                                  any of the Servicer, AFC or the Performance Guarantor shall generally not pay its debts as they become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of

 

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creditors; or any proceedings shall be instituted by or against the Servicer or the Performance Guarantor seeking to adjudicate it bankrupt or insolvent, or seeking liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking the entry of an order for relief by the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property and, if such proceeding has been instituted against the Servicer or the Performance Guarantor, as the case may be, either such proceeding has not been stayed or dismissed within 45 days or any of the actions sought in such proceeding (including the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official) are granted, or the Servicer or the Performance Guarantor take any corporate action to authorize any of the actions described in this Section 5.11(g); and

 

(h)                                 the filing by the Servicer, AFC or the Performance Guarantor of a notice of intention to make a proposal under the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act or any other similar legislation in the applicable jurisdiction, to some or all of its creditors.

 

5.12                                                                        Effecting a Servicer Transfer

 

At any time after the occurrence of a Servicer Termination Event that has not been subsequently waived in writing by the Trust, the Trust may effect a termination of a Servicer’s designation as Servicer hereunder (a “Servicer Transfer”) by giving notice to the Servicer of its decision to terminate the Servicer’s engagement as Servicer, which termination shall take effect at the time specified in such notice, or, failing the specification of any time, upon the appointment of a Replacement Servicer.  Any waiver delivered by the Trust will only be effective with respect to the specific matters in respect of which it is given and shall not be applicable to any further event or occurrence.  The Trust acknowledges that any written waiver it delivers will be irrevocable by the Trust.

 

5.13                                                                        Appointment of Replacement Servicer

 

At any time after the occurrence of a Servicer Termination Event, the Trust may by instrument in writing delivered to the Servicer designate and appoint as the Replacement Servicer any Person;

 

5.14                                                                        Additional Servicer Covenants Following a Servicer Transfer

 

From and after a Servicer Transfer until the Final Termination Date, the Servicer and the Seller covenant and agree that they shall, in addition to any other obligations, upon the request of the Trust:

 

(a)                                 instruct the Obligor of each Pool Receivable (and any other Persons, if applicable, in the case of the Related Security) to remit all payments due under the Pool Receivables and Related Security to the Replacement Servicer;

 

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(b)                                 remit to the Replacement Servicer all payments, if any, received by the predecessor Servicer from Obligors and from other Persons, if applicable, under the Pool Assets;

 

(c)                                  segregate all cash, cheques and other instruments constituting Collections in a manner acceptable to the Trust and, immediately upon receipt, deposit all such cash, cheques and instruments, duly endorsed or with duly executed instruments of transfer, to an account specified by the Replacement Servicer;

 

(d)                                 cause the computer records of the Seller which contain particulars of the Pool Assets to contain notations, marks or other designations sufficient to identify that an interest in the Pool Assets has been sold by the Seller to the Trust hereunder;

 

(e)                                  deliver copies or originals of all Records (including computer diskettes or tapes containing all information necessary or reasonably desirable to enable the Trust or its agent to collect the amounts owing under the Pool Receivables and the Related Security, together with a printed copy or microfiche of all such information) to the Trust or as it may direct in writing (or retain the same in segregated storage if so directed), and provide the Trust or its agent with all reasonable assistance necessary to decipher the information contained on the computer diskettes or tapes; and

 

(f)                                   perform any and all acts and execute and deliver any and all documents as may reasonably be requested by the Trust in order to effect the purposes of this Agreement or to enable the Replacement Servicer to collect and enforce the Pool Receivables and any Related Security and Collections related thereto.

 

5.15                                                                        Trust Rights Following a Servicer Transfer

 

Upon a Servicer Transfer, the Trust may, but is not required to, at any time (unless prior to such time the Seller shall have purchased from the Trust and satisfied all of its obligations with respect to such purchase, all of the Pool Receivables), directly or through the Replacement Servicer, without limitation:

 

(a)                                 perform the services, duties and functions of the Servicer specified in Article 5 of this Agreement with respect to the Pool Assets as the Trust reasonably deems fit;

 

(b)                                 notify any Obligor of the purchase by the Trust and the sale, transfer and assignment by the Seller of any Pool Assets under this Agreement;

 

(c)                                  contact any Obligor for any reasonable purpose, including for the performance of audits and verification analyses, and the determination of account balances and other data maintained by the predecessor Servicer;

 

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(d)                                 direct any Obligor to make all payments on account of any Pool Receivables or Related Security directly to the Trust at an address designated by the Trust or to such third party (including the Replacement Servicer) or bank or depositary as may be designated by the Trust;

 

(e)                                  request any Obligor to change the instructions for any direct debit or electronic funds transfer otherwise payable to the Seller or the Servicer; and

 

(f)                                   proceed directly against any Obligor and take any and all other actions, in the Seller’s name or otherwise, necessary or reasonably desirable to collect the Pool Receivables, enforce the Related Security or effect any related result.

 

5.16                                                                        Power of Attorney; Further Assurances

 

(a)                                 The Seller hereby grants to the Trust an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of the Seller or in the name of the Trust, acting reasonably, all steps necessary or advisable to endorse or negotiate an instrument, bill of exchange or other writing or to otherwise enforce or realize on any Pool Asset or other right of any kind held or owned by the Seller or transmitted to or received by the Seller or the Trust as payment on account or otherwise in respect of the Pool Asset, and to execute and deliver, in the Seller’s name and on the Seller’s behalf, such instruments and documents necessary or desirable to evidence or protect the ownership of the Trust in the Pool Assets and to execute and file, in the Seller’s name and on the Seller’s behalf, such recording, registration, financing or similar statements (including any amendments, renewals and continuation statements) under applicable laws, including the PPSA, in such jurisdictions where it may be necessary to validate, perfect or protect the ownership of the Trust as aforesaid.  The Seller shall execute and deliver such additional documents and shall take such further actions as the Trust may reasonably request to effect or evidence the sale, assignment and transfer of the Pool Assets, and the Trust’s ownership interest therein or otherwise necessary or desirable in furtherance of the foregoing.  The Seller shall execute and deliver to the Trust such powers of attorney as may be necessary or appropriate to enable the Trust to endorse for payment any cheque, draft or other instrument delivered to the Trust in payment of any amount under or in respect of a Pool Asset.

 

(b)                                 The Trust hereby covenants and agrees that it will not exercise any of the rights conferred by Section 5.16(a) except upon the occurrence of a Trigger Event and then only in respect of the Pool Assets.

 

5.17                                                                        Deemed Collections

 

(a)                                 If, on any day prior to the Final Termination Date, any Pool Receivable is either (i) reduced or cancelled as a result of any breach by the Seller or the Servicer of its obligations hereunder or of the terms of the related Contract; or (ii) reduced or cancelled as a result of a set-off in respect of any claim by the applicable Obligor against the Seller or the Servicer (whether such claim arises out of the same or a related transaction or an unrelated transaction or the loss of or interference with the right of the Obligor to quiet enjoyment of, and continued possession of, the Financed Vehicle), the Servicer or the Seller and the Servicer (on a joint and several basis), so long as the Servicer is the Seller or an Affiliate thereof, as the case may be shall, for all

 

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purposes hereof, be irrebuttably deemed to have received a Collection of such Receivable in the amount of such reduction or cancellation and shall deposit such amount to the Deposit Accounts in accordance with the terms of Section 5.6.

 

(b)                                 If on any day prior to the Final Termination Date any Security Interest, other than a Blocked Account Claim, is validly asserted by any Person (other than the Trust) against any Pool Receivable (as determined by a court of competent jurisdiction or due to the agreement or acquiescence of the Seller or Servicer), and such Security Interest has arisen by or through the action or inaction of the Seller or the Servicer, and, with respect to any Security Interest granted by or arising through an Obligor and asserted against a Financed Vehicle, such Security Interest ranks in priority to or pari-passu with the interest of the Trust, the Seller shall, for all purposes hereof, be irrebuttably deemed to have received on such day, a Collection of any affected Pool Receivable in full and shall deposit such amounts to the Deposit Accounts in accordance with the terms of Section 5.6.

 

(c)                                  If on any day prior to the Final Termination Date it is discovered or determined (i) that any Pool Receivable included as an Eligible Receivable in the calculation of the Net Receivables Pool Balance was not an Eligible Receivable on the date of such calculation, or (ii) the Servicer, so long as the Servicer is the Seller or an Affiliate thereof, has extended, amended or otherwise modified a Contract in contravention of Section 5.10(c), the Seller shall be deemed to have received on such day a Collection of such Pool Receivable in full.

 

(d)                                 If the Seller or Servicer has been deemed, pursuant to Section 5.17(a), (b) or (c) to have received a Collection of any Pool Receivable in full, upon deposit by the Seller or Servicer to the Collection Account of the amount thereof, the Trust will be deemed to have sold to the Seller or Servicer, as the case may be, without further instrument or formality, the related Pool Receivables together with the Related Security in respect thereof free and clear of all Security Interests arising through the Trust but otherwise on an “as is, where is” basis without recourse to, or representation or warranty of the Trust.

 

ARTICLE 6 
 TRIGGER EVENTS

 

6.1                                                                               Meaning of Trigger Event

 

The term “Trigger Event” means any of the following events or circumstances:

 

(a)                                 the Seller or the Servicer fails to make any payment or deposit to be made by it hereunder and such failure continues for two Business Days after the occurrence of such failure;

 

(b)                                 any failure on the part of the Seller to duly perform or observe any material term, condition, covenant or agreement of the Seller set forth in this Agreement (other than Section 7.3(c)) or any document executed in connection herewith, other than such as are specifically referred to in paragraph (a) above, which failure continues unremedied for a period of 30 

 

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days after the date on which the Seller receives written notice thereof from the Trust specifying the default or breach;

 

(c)                                  a Servicer Termination Event occurs;

 

(d)                                 any representation or warranty made by the Seller (or any of its officers) in or pursuant to this Agreement, the Purchase Request, any Increase Request, any Portfolio Report, any Portfolio Certificate or any document executed in connection herewith or therewith proves to have been false or incorrect in any material respect when made and has not been cured within 30 days after written notice thereof has been received by the Seller from the Trust;

 

(e)                                  the taking or possession by an encumbrancer (including a receiver, receiver manager or trustee) of any assets of the Seller (other than solely to perfect a security interest therein) or the levying or enforcement or a distress or execution or any similar process against any of the assets of the Seller that remains unsatisfied for 30 days after the Seller becoming aware thereof, which materially adversely affects the Seller’s ability to perform its obligations hereunder;

 

(f)                                   the issuance or levying of a writ of execution, attachment or similar process against all or a substantial portion of the property of the Seller, in connection with any judgment against the Seller in any amount that materially affects the property of the Seller if such writ of execution, attachment or similar process shall not have been stayed or dismissed after 45 days;

 

(g)                                  any failure on the part of the Seller to duly perform or observe the terms of Section 7.3(c);

 

(h)                                 the filing by the Seller of a notice of intention to make a proposal under the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act or any other similar legislation in the applicable jurisdiction, to some or all of its creditors;

 

(i)                                     the Seller shall generally not pay its debts as they become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceedings shall be instituted by or against the Seller seeking to adjudicate it bankrupt or insolvent, or seeking liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking the entry of an order for relief by the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property and, if such proceeding has been instituted against the Seller either such proceeding has not been stayed or dismissed within 45 days or any of the actions sought in such proceeding (including the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official) are granted, or the 

 

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Seller take any corporate action to authorize any of the actions described in this Section 6.1(i);

 

(j)                                    the Seller shall fail to transfer to any Replacement Servicer when required any rights, pursuant to the Agreement, which the Seller then has with respect to the servicing of the Pool Receivables;

 

(k)                                 (i) a default shall occur in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Indebtedness of the Seller, AFC or the Performance Guarantor or (ii) a default shall occur in the performance or observance of any obligation or condition with respect to such Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness, and, in the case of either clause (i) or clause (ii), the Indebtedness with respect to which non-payment and/or non-performance shall have occurred and is continuing exceeds, at any point in time, with respect to the Seller and AFC, $1,000,000 and with respect to the Performance Guarantor, $35,000,000, in the aggregate for all such occurrences;

 

(l)                                     this Agreement, the Purchase or any Increases shall for any reason (other than pursuant to the terms hereof) cease to create, or shall for any reason cease to be, a valid and enforceable perfected co-ownership interest in each Pool Receivable and the Collections with respect thereto;

 

(m)                             as of any Settlement Date, the arithmetic average of the Default Ratios for the most recent [*] shall exceed [*] or the Default Ratio as of any Settlement Date shall exceed [*];

 

(n)                                 as of any Settlement Date, the arithmetic average of the Delinquency Ratios for the most recent [*] shall exceed [*] or the Delinquency Ratio as of any Settlement Date shall exceed [*];

 

(o)                                 the Net Spread shall be [*] at any time;

 

(p)                                 the Tangible Net Worth of the Seller shall be less than [*] or the Tangible Net Worth of AFC shall be less than [*];

 

(q)                                 any material adverse change shall occur in the reasonable business judgment of the Trust  in the collectibility of the Receivables or the business, operations, property or financial condition of the Seller or the Performance Guarantor;

 

(r)                                    this Agreement shall cease to be in full force and effect with respect to the Performance Guarantor, the Performance Guarantor shall fail to comply with or perform any provision of this Agreement, or the Performance Guarantor (or any Person by, through or on behalf of the Performance Guarantor) shall contest in any manner the validity, binding nature or enforceability of this Agreement with respect to the Performance Guarantor;

 

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(s)                                   the sum of all of the Seller’s Indebtedness, net of [*], exceeds [*];

 

(t)                                    the Seller’s debt (excluding guarantees) to equity ratio is [*];

 

(u)                                 the aggregate of the Principal Balances of all Eligible Receivables shall be less than $30 million;

 

(v)                                 the blocked account agreement in favour of the Trust in place with respect to any Deposit Account shall have terminated other than as a result of any action by the Trust (and not been replaced) or shall be of no force and effect or otherwise unenforceable;

 

(w)                               AFC shall not hold, directly or indirectly, all of the outstanding share capital of the Seller, or the Performance Guarantor shall not hold, directly or indirectly, at least 80% of all of the outstanding share capital of AFC; provided that, for greater certainty, the pledge as security by the Seller or the Performance Guarantor, as the case may be, of all or any of such shares shall not be a Trigger Event hereunder;

 

(x)                                 the amount on deposit in the Cash Reserve Account shall at any time before the Termination Date fail to equal or exceed the Cash Reserve Required Amount for a period of [*];

 

(y)                                 (i) any of the Seller or the Servicer shall have asserted that this Agreement or any document executed herewith to which it is a party is not valid and binding on the parties thereto; or (ii) any court, governmental authority or agency having jurisdiction over any of the parties to any of such documents or any property thereof shall find or rule that any material provisions of any of such documents is not valid and binding on the parties thereto and all appeals therefrom have been decided or the time to appeal has run;

 

(z)                                  the Seller shall not have approved the appointment of the Eligible Backup Servicer proposed by the Trust as initial Backup Servicer hereunder within 15 Business Days of receiving such proposal from the Trust, provided, however, no Trigger Event shall occur pursuant to this paragraph (z) if the Eligible Backup Servicer was rejected by the Seller, acting reasonably, (i) in order to protect the competitive or proprietary business interests of the Seller, the Servicer (if the Seller is the Servicer) and their Affiliates or (ii) because of a material incompatability of data information systems between the Servicer and the relevant Eligible Backup Servicer, which determination may be based on, without limitation, the cost to the Servicer of aligning its data information systems with those of such Eligible Backup Servicer;

 

(aa)                          if appointed, the Backup Servicer shall resign or be terminated and no successor Backup Servicer reasonably acceptable to the Trust shall have been appointed pursuant to a replacement Backup Servicing Agreement, within 90 days of such resignation or termination, as applicable; unless on or prior to the first day on which a Backup Servicer is required to be appointed pursuant 

 

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to this paragraph (aa), the Performance Guarantor’s senior unsecured debt shall be rated at least “BBB-” by S&P and “Baa3” by Moody’s; provided, that a Trigger Event shall be deemed to occur if no Backup Servicer reasonably acceptable to the Trust shall have been appointed within 90 days following any subsequent withdrawal, suspension or downgrade of such senior unsecured debt ratings of the Performance Guarantor below “BBB-” by S&P or below “Baa3” by Moody’s or, if the applicable rating is “BBB-” by S&P or “Baa3” by Moody’s, the placement of such ratings on credit watch or similar notation; and

 

(bb)                          the occurrence of a KAR Financial Covenant Termination Event.

 

6.2                                                                               Action Upon Occurrence of a Trigger Event

 

Upon the occurrence of any Trigger Event described in Sections 6.1(a), (b), (c), (d), (g), (l), (m), (n), (o), (p), (q), (r), (s), (t), (u), (v), (w) (x), (z), (aa) and (bb), provided such Trigger Event has not been subsequently waived in writing by the Trust, the Trust or its authorized agent may, by notice to the Seller declare the Trigger Date to have occurred on the date specified in such notice.  Upon the occurrence of any other Trigger Event described in Section 6.1, the Trigger Date will occur automatically, without the necessity of any notice.  Upon any such declaration or automatic occurrence, the Trust will have, in addition to its rights and remedies hereunder and under any documents related hereto, all other rights and remedies under applicable laws and otherwise, which rights and remedies will be cumulative.  Notwithstanding the above, the Securitization Agent may waive any Trigger Event in its sole discretion and, if given, such waiver shall be irrevocable.

 

6.3                                                                               Optional Repurchase of Pool Receivables

 

If, at any time the Pool Balance is less than 10% of the highest ever Pool Balance, the Servicer may elect, by notice to the Trust, to purchase all of the Pool Receivables and the Related Security.  The purchase by the Servicer of all of the Pool Receivables and the Related Security shall be effective upon the payment by the Servicer to the Trust of an amount equal to the sum of (i) the then outstanding Investment, (ii) the Funding Discount, and (iii) any other fees, costs and expenses incurred by the Trust in connection with this Agreement to the date of or as a result of such purchase, including any interest and other costs required to be paid on outstanding Notes.  Upon the payment to the Trust of such amount by deposit to the Collection Account, the Trust shall transfer, assign and convey to the Servicer or as it may direct all of the Trust’s right, title and interest in, to and under such Pool Receivables and the Related Security related thereto, without recourse, and subject only to the representations and warranties of the Trust that such right, title and interest is held beneficially by it and is transferred, assigned and conveyed to the Servicer or as it may direct free and clear of any Security Interests created, suffered or permitted to exist by the Trust.

 

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ARTICLE 7 
 GENERAL COVENANTS AND POWER OF ATTORNEY

 

7.1                                                                               Affirmative Covenants of the Seller

 

From the date hereof until the Final Termination Date, the Seller covenants and agrees that it will, unless the Trust shall otherwise consent in writing:

 

(a)                                 comply in all respects with all applicable laws, rules, regulations and orders with respect to it, its business and properties and all Pool Assets, such compliance to include paying before the same become delinquent all Taxes and Security Interests imposed upon the Seller or its property in accordance with its normal policies with respect thereto, except to the extent the same are contested in good faith and by appropriate proceedings or where failure to do so could not reasonably be expected to have a Material Adverse Effect;

 

(b)                                 preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified as an extra-provincial corporation or other out-of-jurisdiction corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification could reasonably be expected to have a Material Adverse Effect;

 

(c)                                  at any time and from time to time during regular business hours, upon five Business Days’ prior written notice, subject to Section 10.9, (A) assemble such of the Records or copies thereof in its possession or control as may reasonably be required by the Trust and make same available to the Trust at the principal place of business of the Seller and, if the Records cannot be provided solely at such office, at such other offices of the Seller or its Affiliates where Records are kept, and permit the Trust, its agents or representatives, to examine and make copies, as reasonably requested, of such Records and (B) permit the Trust or its agents to visit the offices and properties of the Seller and its Affiliates for the purpose of discussing matters relating to the Pool Assets and the Seller’s performance hereunder with any of the Seller’s officers or employees having knowledge of such matters, provided that the Trust shall act reasonably to minimize any disruption to the Seller in connection therewith; provided that prior to the occurrence of a Cash Reserve Event or a Trigger Event, the Trust shall not be reimbursed for more than two such examinations in any year, if a Cash Reserve Event has occurred and is continuing, the Trust shall not be reimbursed for more than four such examinations in any year and, if a Trigger Event has occurred and is continuing, the Trust shall be reimbursed for all such examinations;

 

(d)                                 at its expense, timely and fully perform and comply in all material respects with all material provisions, covenants and other obligations required to be observed, complied with or performed by the Seller under the Contracts relating to the Pool Assets;

 

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(e)                                  give the Trust at least 30 days’ prior written notice of any change in the address of its chief place of business and chief executive office, and written notice promptly after any change in the address of an office listed under the heading “Location of Records” in Schedule B, and each such notice shall be deemed to amend Schedule B accordingly;

 

(f)                                   provide to the Trust not less than 30 days’ prior notice of any change in the name of the Seller as stated in its constating documents;

 

(g)                                  co-operate with, and offer such assistance as may reasonably be requested by, the chartered accountants selected by the Trust to furnish reports in respect of the Trust, the Purchase and any Increase and the servicing of the Pool Assets under this Agreement, and furnish in respect of the preceding fiscal year, addressed to the Trust and such other Persons as the Trust may reasonably designate, a certificate of an officer who is familiar with this Agreement certifying that, to the knowledge of such officer, the Seller complied in such calendar year with its obligations hereunder except to the extent non-compliance therewith did not materially adversely affect the interest of the Trust and except as further set forth in such certificate;

 

(h)                                 upon request of the Trust and with the Seller’s written consent, such consent not to be unreasonably withheld, request the Seller’s auditors to assist the Trust’s auditors to the extent and in such manner as is reasonably required for the Trust’s auditors to report on the status of the Pool Assets under this Agreement;

 

(i)                                     conduct Lot Checks of each Obligor in accordance with the Seller’s customary practices or on such more frequent intervals as may be reasonably requested by the Trust;

 

(j)                                    promptly after becoming aware thereof, but in any event no later than two Business Days thereafter, provide the Trust with notice of any Servicer Termination Event that is continuing when the Seller becomes aware thereof; and

 

(k)                                 make or cause to be made all filings, recordings, and registrations and take all other actions in each jurisdiction necessary or appropriate to validate, preserve, perfect or protect the co-ownership interests of the Trust in the Pool Assets, including the right to enforce the Related Security.

 

7.2                                                                               Reporting Requirements of the Seller

 

From the date hereof until the Final Termination Date, the Seller covenants and agrees that it will, unless the Trust shall otherwise consent in writing, deliver to the Trust:

 

(a)                                 within five Business Days after the Seller becomes aware of a material adverse change in the business, operations, properties or condition (financial or otherwise) (other than matters of a general economic nature) of the Seller,

 

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the Backup Servicer or the Performance Guarantor, or of an occurrence of a breach of its obligations under this Agreement, notice of such change or occurrence together with a statement by a responsible officer of the Seller specifying the facts, the nature and period of existence of any such breach, condition or event and the action the Seller has taken, is taking and proposes to take with respect thereto;

 

(b)                                 within five Business Days of the Seller becoming aware thereof, notice of any litigation or other court or arbitration proceeding affecting the Seller which could reasonably be expected to have a Material Adverse Effect;

 

(c)                                  within five Business Days of the Seller becoming aware thereof, notice of any litigation or other court or arbitration proceeding affecting the Backup Servicer or the Performance Guarantor which could reasonably be expected to have a Material Adverse Effect;

 

(d)                                 as soon as available and in any event within 60 days after the end of each fiscal quarter of the Seller, the unaudited financial statements of the Seller and, as soon as available but in any event within 90 days after the end of the fiscal year of the Seller, the unaudited financial statements of the Seller;

 

(e)                                  as soon as available and in any event within 90 days after the end of the fiscal year of the Performance Guarantor, the audited consolidated balance sheet of the Performance Guarantor and its consolidated subsidiaries as of the end of such year and the related audited consolidated statements of income and of cash flows for such year; reported on by KPMG LLP or other independent certified public accountants of nationally recognized standing;

 

(f)                                   promptly after the sending or filing thereof, copies of all reports which the Seller sent to any holders of securities which it has offered to the public;

 

(g)                                  forthwith after the occurrence of each Trigger Event and each event or the existence of any fact which, with the giving of notice or lapse of time or both, may constitute a Trigger Event, a statement of a senior financial officer or accounting officer of the Seller setting forth details as to such Trigger Event or fact or event and the action which the Seller has taken and is proposing to take with respect thereto; and

 

(h)                                 promptly, from time to time, such other documents, records, information or reports with respect to the Pool Assets or the conditions or operations, financial or otherwise, of the Seller as the Trust may from time to time reasonably request.

 

7.3                                                                              Negative Covenants of the Seller

 

From the date of this Agreement until the Final Termination Date, the Seller covenants and agrees that it will not, unless the Trust shall otherwise consent in writing:

 

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(a)                                 except as otherwise provided herein, and whether by operation of law or otherwise, purport to sell, assign or otherwise dispose of, or create or suffer to exist any Security Interest upon or with respect to the Seller’s or the Trust’s interest in the Pool Assets if the effect of such Security Interest would be to cause the related Pool Receivable not to be an Eligible Receivable, or assign any right to receive payment under, or to enforce the Seller’s interest in, any of the Pool Assets;

 

(b)                                 take any action that adversely affects the perfection, validity or protection of the Trust’s rights to collect amounts owing pursuant to the Pool Assets and the proceeds thereof, including the right to enforce the Related Security, except to the extent that the Seller would have done so in a similar situation with respect to other similar receivables administered by it on its own behalf; or

 

(c)                                  enter into any transaction of reorganization, amalgamation or arrangement, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution) or, other than with respect to sales, assignments, leases, licences or transfers of computer hardware and software, or of leases and licences relating thereto or any rights or benefits thereunder, in the ordinary course of business, sell, lease or otherwise dispose of its assets as an entirety or substantially as an entirety; except that the Seller may enter into a transaction of reorganization, amalgamation, or arrangement, so long as (i) such transaction could not reasonably be expected to have a Material Adverse Effect, (ii) as a condition to the completion of such transaction, the continued or reorganized corporation shall have executed an agreement of assumption to perform every obligation of the Seller hereunder and under the other agreements, instruments and documents executed and delivered by the Seller hereunder or otherwise contemplated hereby, (iii) the Backup Servicer shall have provided its written consent and acknowledged its continuing obligations under the Backup Servicer Agreement in respect of the obligations of such continued or reorganized corporation and (iv) the Performance Guarantor shall have provided its written consent and acknowledged its continuing obligations under this Agreement in respect of the obligations of such continued or reorganized corporation.

 

7.4                                                                               Covenants of the Trust

 

The Trust covenants and agrees that it will:

 

(a)                                 until the Final Termination Date, use commercially reasonably efforts to ensure that the fair value of the Pool Assets held by it will constitute no more than one-half of the total fair value of all assets owned by it; and

 

(b)                                 not use personal information relating to Obligors received from the Seller other than in connection with the collection, servicing and administration of

 

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the Pool Assets and for other reasonable purposes ancillary thereto, all in accordance with and as allowed by applicable law.

 

ARTICLE 8

PERFORMANCE GUARANTEE

 

8.1                                                                               Performance Guarantee

 

The Performance Guarantor hereby unconditionally and irrevocably guarantees to the Trust, the due and prompt performance, payment and observance by the Servicer (to the extent the Servicer is the Seller or an Affiliate thereof) of all of the terms, conditions, covenants, agreements, indemnities, liabilities and obligations of any kind whatsoever (collectively, the “Guaranteed Obligations”) strictly in accordance with the terms hereof (the “Performance Guarantee”).  If for any reason whatsoever, the Servicer shall fail to perform, pay or observe any of the Guaranteed Obligations, the Performance Guarantor shall forthwith perform, pay and observe, as applicable, any such of the Guaranteed Obligations as they may be required to be performed, paid or observed in accordance with the terms of this Agreement.

 

8.2                                                                               Guarantee Unconditional

 

The obligations of the Performance Guarantor pursuant to this Article 8 are continuing, unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged, diminished, limited, impaired or otherwise affected by (and the Performance Guarantor hereby waives, to the fullest extent permitted by applicable law):

 

(a)                                 any extension, modification, amendment or renewal of, or indulgence with respect to, or substitutions for, the Guaranteed Obligations or any part thereof or any agreement relating thereto at any time;

 

(b)                                 any failure or omission to enforce any right, power or remedy with respect to the Guaranteed Obligations or any part thereof or any agreement relating thereto, or any collateral securing the Guaranteed Obligations or any part thereof;

 

(c)                                  any waiver of any right, power or remedy or of any default with respect to the Guaranteed Obligations or any part thereof or any agreement relating thereto or with respect to any collateral securing the Guaranteed Obligations or any part thereof;

 

(d)                                 any release, surrender, compromise, settlement, waiver, subordination or modification, with or without consideration, of any collateral securing the Guaranteed Obligations or any part thereof, any other guarantees with respect to the Guaranteed Obligations or any part thereof, or any other obligation of any person or entity with respect to the Guaranteed Obligations or any part thereof;

 

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(e)                                  the enforceability or validity of the Guaranteed Obligations or any part thereof or the genuineness, enforceability or validity of any agreement relating thereto or with respect to any collateral securing the Guaranteed Obligations or any part thereof;

 

(f)                                   the application of payments received from any source to the payment of indebtedness of the Seller or the Servicer other than the Guaranteed Obligations, any part thereof or amounts which are not covered by this Agreement, even though the Trust might lawfully have elected to apply such payments to any part or all of the Guaranteed Obligations;

 

(g)                                  any other act, or omission to act, or delay of any kind by any of the Servicer, the Seller, the Trust or any other person or any other circumstance whatsoever, whether similar or dissimilar to the foregoing, which might, but for the provisions of this Section 8.2, constitute a legal or equitable discharge, defense, limitation or reduction of the Performance Guarantor’s obligations hereunder (other than the payment or extinguishment in full of all of the Guaranteed Obligations); or

 

(h)                                 the existence of any claim, set-off or other rights which the Performance Guarantor may have at any time against the Seller, the Servicer or any other Person, including any Obligor, whether in connection with any transactions under this Agreement, any related document or any other transaction,

 

The foregoing provisions apply (and the foregoing waivers by the Performance Guarantor will be effective) even if the effect of any action (or failure to take action) by the Trust is to destroy or diminish the Performance Guarantor’s subrogation rights, the Performance Guarantors’ right to proceed against the Servicer or Seller for reimbursement, the Performance Guarantors’ right to recover contribution from any other guarantor or any other right or remedy which may be available to the Performance Guarantor.

 

8.3                                                                               Recourse against Servicer

 

The Trust shall not be required to exhaust its recourse against the Servicer, Seller or any other person, or under any other security or guarantee, before being entitled to performance by the Performance Guarantor under this Agreement.

 

8.4                                                                               Authorization by the Performance Guarantor

 

The Trust may continue to effect Increases without notice to or authorization from the Performance Guarantor regardless of the Servicer’s or Seller’s financial or other condition at the time of any such transaction.  The Performance Guarantor represents and warrants to the Trust that it has adequate means to obtain from the Servicer and the Seller on a continuing basis all information concerning the financial condition of the Servicer and the Seller, and agrees with the Trust that the Trust shall not have any obligation to disclose or discuss with the Performance Guarantor any information which it has respecting the financial condition of the Servicer and the Seller.

 

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8.5                                                                               No Subrogation

 

Until all of the Guaranteed Obligations have been paid or performed in full, the Performance Guarantor shall not exercise any right of subrogation to, and the Performance Guarantor waives, to the fullest extent permitted by law, any right to enforce, any remedy which the Trust now has or may hereafter have against the Servicer or the Seller in respect of the Guaranteed Obligations and the Performance Guarantor waives any benefit of, and any right to participate in, any security now or hereafter held by the Trust for the Guaranteed Obligations.  The Performance Guarantor authorizes the Trust, subject to applicable law, to take any action or exercise any remedy which the Trust now has or may hereafter have against the Servicer or the Seller in respect of the Guaranteed Obligations, without notice to the Performance Guarantor.

 

8.6                                                                               Stay of Acceleration

 

If acceleration of the time for payment of any amount payable by the Servicer or the Seller in respect of the Guaranteed Obligations is stayed upon the insolvency, bankruptcy or reorganization of the Seller or the Servicer or any moratorium affecting the payment of the Guaranteed Obligations, all such amounts otherwise subject to acceleration will nonetheless be payable by the Performance Guarantor hereunder forthwith upon demand by the Trust.

 

8.7                                                                               Representations and Warranties

 

The Performance Guarantor represents and warrants to the Trust, that as at the date hereof and at each date that an Increase occurs:

 

(a)                                 it is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware;

 

(b)                                 it has full power and authority to execute and deliver this Agreement and to perform the terms and conditions hereof and is duly qualified, licensed or registered in each relevant jurisdiction to carry on its present business and operations except where the failure to be so qualified, licensed or registered does not and will not materially adversely affect such operations or its ability to perform its obligations hereunder, as applicable;

 

(c)                                  the execution, delivery and performance by the Performance Guarantor of this Agreement, and the transactions contemplated hereby, are within the powers of the Performance Guarantor, have been duly authorized by all necessary corporate or other action (as applicable) and do not contravene (i) the constating documents or by-laws of the Performance Guarantor, or (ii) any law or any contractual restriction binding on or affecting the Performance Guarantor, the contravention of which could be expected to materially adversely affect the Performance Guarantor’s ability to perform its obligations hereunder, does not result in or require the creation of any Security Interest upon or with respect to the Performance Guarantor’s properties, and the consummation of the transactions contemplated hereby does not require approval of shareholders or partners or approval or consent

 

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of any Person under any contract to which the Performance Guarantor is a party, except, to the extent such approvals have been granted;

 

(d)                                 no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or regulatory body is required for the due execution, delivery and performance by the Performance Guarantor of this Agreement, other than those that have been obtained or made, as the case may be, or any filings required after the date hereof with any securities regulators;

 

(e)                                  this Agreement constitutes a legal, valid and binding obligation of the Performance Guarantor, enforceable against it in accordance with its terms subject to (i) applicable bankruptcy, reorganization, winding-up, insolvency, moratorium and other laws of general application limiting the enforcement of creditors’ rights; (ii) the fact that the granting of equitable remedies such as specific performance and injunction is within the discretion of a court of competent jurisdiction; and (iii) general principles of equity;

 

(f)                                   there has been no material adverse change in the business of the Performance Guarantor since the date of the most recent audited financial statements of the Performance Guarantor delivered to the Trust;

 

(g)                                  there is no order, judgment or decree of any court, arbitrator or similar tribunal or Governmental Authority purporting to enjoin or restrain, and there are no proceedings before any court, arbitrator or similar tribunal or Governmental Authority which might materially adversely affect the Performance Guarantor’s ability to perform its obligations hereunder; and

 

(h)                                 there are no actions, suits or proceedings in existence or, to the Performance Guarantor’s knowledge, pending or threatened, against or affecting it or its property in any court, or before any arbitrator of any kind, or before or by any governmental body, in respect of which there is a reasonable possibility of an adverse determination that could materially adversely affect the Performance Guarantor’s financial condition or materially adversely affect the ability of the Performance Guarantor to perform its obligations under this Agreement.

 

8.8                                                                               Payments

 

All payments to be made by the Performance Guarantor under this Performance Guarantee shall be made in full, without set-off or counterclaim and without deduction for any taxes, levies, duties, fees, deductions, withholdings, restrictions or conditions of any nature whatsoever.  If at any time, or from time to time, any applicable law, regulation or international agreement requires the Performance Guarantor to make any such deduction or withholding from any such payment other than as a result of the Trust or any assignee thereof being a non-resident of Canada for purposes of the Income Tax Act (Canada), the sums due from the Performance Guarantor with respect to such payment shall be increased to the extent necessary to ensure that,

 

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after the making of such deduction or withholding, the Trust receives a net sum equal to the sum which it would have received had no deduction or withholding been required, and the Performance Guarantor shall indemnify the Trust on an after tax basis with respect to any such deduction or withholding, including with respect to any taxes payable by the Trust on any increased amounts payable under this Article 8.

 

ARTICLE 9

INDEMNIFICATION

 

9.1                                                                               Indemnification by the Seller

 

Without limiting any other rights which the Trust may have hereunder or under applicable law, the Seller hereby agrees to indemnify the Trust and the Securitization Agent, and their respective officers, agents, trustees and assigns (collectively, the “Indemnified Parties”), from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable legal fees and disbursements, and any costs associated with the appointment of a Replacement Servicer, resulting from the Seller’s or Servicer’s breach of any of its duties or obligations hereunder (all of the foregoing being collectively referred to as “Indemnified Amounts”) awarded against or reasonably incurred by any of the Indemnified Parties and arising out of or as a result of the Seller’s or Servicer’s breach or violation of this Agreement, excluding, however, amounts (i) resulting solely from the failure of any Obligor to pay an amount owing under a Pool Receivable, or (ii) resulting from gross negligence or wilful misconduct on the part of the Trust or the Securitization Agent.  Without limiting the generality of the foregoing but subject to the restrictions in clauses (i) and (ii) above, the Seller shall indemnify the Indemnified Parties for Indemnified Amounts awarded or incurred as aforesaid relating to or resulting from:

 

(a)                                 the failure of any information contained in a Portfolio Report or a Portfolio Certificate to be true and correct (including the failure of a Pool Receivable included in the calculation of Net Receivables Pool Balance to be an Eligible Receivable as of the date of such calculation), or the failure of any other information provided to the Trust or the Securitization Agent with respect to Receivables or this Agreement to be true and correct;

 

(b)                                 the failure of any representation or warranty or statement made or deemed made by the Seller (or any of its officers) under or in connection with this Agreement to have been true and correct in all respects when made;

 

(c)                                  the failure by the Seller to comply with any applicable law, rule or regulation with respect to any Pool Assets or the related Contract; or the failure of any Pool Assets or the related Contract to conform to any such applicable law, rule or regulation;

 

(d)                                 the failure to vest in the Trust a valid and enforceable perfected first ranking (as against the Seller and creditors of the Seller) co-ownership interest in the Pool Receivables and the Related Security and Collections with respect thereto;

 

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(e)                                  the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the PPSA of any applicable jurisdiction or other applicable laws with respect to any Pool Receivables and the Related Security and Collections in respect thereof, whether at the time of the Purchase or any Increase at any subsequent time;

 

(f)                                   any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Pool Receivable (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from or relating to the transaction giving rise to such Receivable or relating to collection activities with respect to such Receivable (if such collection activities were performed by the Seller or any of its Affiliates acting as Servicer or by any agent or independent contractor retained by the Seller or any of its Affiliates);

 

(g)                                  any failure of the Seller to perform its duties or obligations in accordance with the provisions hereof or to perform its duties or obligations under the Contracts;

 

(h)                                 any products liability or other claim, investigation, litigation or proceeding arising out of or in connection with goods, insurance or services that are the subject of or secure any Contract;

 

(i)                                     the commingling of Collections of Pool Assets at any time with other funds;

 

(j)                                    any investigation, litigation or proceeding related to this Agreement or the use of proceeds of Purchases or in respect of any Pool Receivable, Related Security or Contract;

 

(k)                                 any reduction in the Investment as a result of the payment of allocations of Collections pursuant to Sections 2.6(c), 2.6(e) or 2.10(e), in the event that all or a portion of such payments shall thereafter be rescinded or otherwise must be returned for any reason;

 

(l)                                     any tax or governmental fee or charge (other than any tax upon or measured by net income or gross receipts), all interest and penalties thereon or with respect thereto, and all reasonable out-of-pocket costs and expenses, including the reasonable fees and expenses of counsel in defending against the same, which may arise by reason of the purchase or ownership of the Trust’s Co-Ownership Interest or other interests in the Receivables Pool or in any Related Security or Contract;

 

(m)                             the failure by the Seller or the Servicer to pay when due any taxes payable by it, including, without limitation, the franchise taxes and sales, excise or personal property taxes payable in connection with the Receivables;

 

60

 

(n)                                 the failure by the Seller or the Servicer to be duly qualified to do business, to be in good standing or to have filed appropriate registration documents in any jurisdiction;

 

(o)                                 the failure to vest and maintain vested in the Trust a perfected ownership interest in respect of the Trust’s Co-Ownership Interest free and clear of any Security Interest created by or through the Seller, whether existing at the time of the consummation of the transactions contemplated hereby or at any time thereafter, other than Security Interests created by or arising through the Trust;

 

(p)                                 any claim for personal injury, death, property damage or product liability which may arise by reason of, result from or be caused by, or relate to the use, operation, maintenance or ownership of, the Financed Vehicles; and

 

(q)                                 any material failure of the Seller to perform its duties or obligations, as Servicer or otherwise, in accordance with the provisions of this Agreement.

 

9.2                                                                               Notification of Potential Liability

 

The Seller will, upon becoming aware of circumstances that could reasonably be expected to result in material liability of the Seller under this Article 9, promptly notify the Trust thereof.

 

9.3                                                                               Litigation

 

At the request of the Trust, the Seller shall, at its expense, co-operate with the Trust in any action, suit or proceeding brought by or against the Trust relating to any of the transactions contemplated by this Agreement or any of the Pool Assets (other than an action, suit or proceeding by the Seller, the Backup Servicer, the Performance Guarantor or any of their respective Affiliates against the Trust or by the Trust against the Seller, the Backup Servicer, the Performance Guarantor or any of their respective Affiliates).  In addition, the Seller agrees to notify the Trust and the Trust agrees to notify the Seller, at the Seller’s expense, promptly upon learning of any pending or threatened action, suit or proceeding, if the judgment or expenses of defending such action, suit or proceeding would be covered by Section 9.1 (except for an action, suit or proceeding by the Seller, the Backup Servicer, the Performance Guarantor or any of their respective Affiliates against the Trust or by the Trust against the Seller, the Backup Servicer, the Performance Guarantor or any of their respective Affiliates and except for ordinary course litigation relating to the enforcement of the Pool Assets) and to consult with the Trust, concerning the defence and prior to settlement; provided, however, that if (i) the Seller shall have acknowledged that Section 9.1 would cover any judgment or expenses in any action, suit or proceeding, and (ii) in the sole determination of the Trust, acting reasonably, the Seller has the financial ability to satisfy such judgment or expenses, then the Seller shall have the right, on behalf of the Trust but at the Seller’s expense, to defend such action, suit or proceeding with counsel selected by the Seller, and shall have sole discretion as to whether to litigate, appeal or enter into an exclusively monetary settlement.

 

61

 

9.4                                                                               Tax Indemnity

 

The Seller agrees to defend and to save the Indemnified Parties harmless from and against any and all liabilities arising out of the transactions contemplated by this Agreement with respect to or resulting from any delay by the Seller in paying or any omission to pay any Taxes otherwise required under this Agreement to be paid or withheld and remitted by or on behalf of the Seller on its own behalf, on behalf of the Trust or on behalf of any Obligor.  If the Seller shall be required by law to deduct or withhold any Taxes from or in respect of any sum payable by or on behalf of the Seller on its own behalf or on behalf of any Obligor to the Trust hereunder or in connection with the execution, delivery, filing and recording hereof and of the other documents to be delivered hereunder and the consummation of the transactions contemplated hereby, or if the Trust shall be required to pay any Taxes in respect of any sum received by the Trust from the Seller hereunder:

 

(a)                                 the sum payable to the Trust shall be increased as may be necessary (or an amount shall be owed to the Trust) so that, after all required deductions, withholdings or payments in respect of such Taxes have been made, the Trust receives or retains an amount equal to the sum that the Trust would have received or retained had no such deductions, withholdings or payments been made;

 

(b)                                 the Seller shall make such deductions or withholdings; and

 

(c)                                  the Seller shall pay forthwith the full amount deducted or withheld to the relevant taxation authority or other authority in accordance with applicable law and will provide to the Trust copies of such forms as are required to be provided to such authority evidencing the payment by the Seller.

 

For greater certainty, it is hereby acknowledged by the parties hereto that the Seller shall not be liable to indemnify the Indemnified Parties under this Section for any Taxes payable by, or required to be withheld by, the Seller on account of Taxes payable on the income or gains of the Trust, Taxes payable by virtue of the non-resident status of the Trust or Taxes payable on the capital of the Trust.

 

9.5                                                                               Tax Credit

 

If a payment (a “Grossed-up Payment”) made by the Seller includes an amount (a “Gross-up”) referred to in Section 9.4, and the Trust is able to apply for or otherwise take advantage of any tax credit, deduction in computing income or similar benefit by reason of any withholding or deduction made by the Seller in respect of the Grossed-up Payment (such credit, deduction or benefit hereinafter being referred to as a “Tax Credit”), then the Trust will, at the expense of the Seller, use reasonable endeavours to obtain the Tax Credit and, if it realizes the Tax Credit (whether by way of reducing taxes payable, receiving a tax refund, or otherwise), the Trust shall, subject to the provisos to this Section 9.5, pay to the Seller such amount, if any (not exceeding the Gross-up) as is determined by the Trust to be equal to the net after-tax value to the Trust of such part of the Tax Credit as is reasonably attributable to such withholding or deduction having regard to all dealings giving rise to similar credits, deductions or benefits in

 

62

 

relation to the same tax period and to the cost of obtaining the same.  Any such reimbursement shall be conclusive evidence of the amount due to the Seller absent manifest error and shall be accepted by the Seller in full and final settlement of its rights of reimbursement hereunder; provided that notwithstanding the foregoing, (i) nothing herein contained shall interfere with the right of the Trust to arrange its tax affairs in whatever manner it deems fit and, in particular, the Trust shall not be under any obligation to claim relief from its income or similar tax liability in respect of any such deduction or withholding in priority to any other relief, claims, credits or deductions available to it; and (ii) the Trust shall not be obligated to disclose to the Seller any information regarding its tax affairs or tax computations; provided, further, that if, as a result of (x) an audit of the Trust by its auditors or by a taxing authority, or (y) any change to the affairs of the Trust or to the available information concerning such affairs, which change is relevant to the determination that reimbursement with respect to a Tax Credit is payable to the Seller hereunder, the Trust determines, in its reasonable discretion, that any such payment made by the Trust to the Seller hereunder would not have been made had the Trust known the results of such audit or anticipated such change, or would have been made in a smaller amount, then the Seller shall pay to the Trust the amount of such payment which the Trust so determines, acting reasonably, to have been an overpayment.

 

ARTICLE 10

MISCELLANEOUS

 

10.1                                                                        Liability of the Trust and the Securitization Agent

 

Neither BNY Trust Company or the Securitization Agent, nor any of their respective directors, officers, agents or employees, will be liable pursuant to this Agreement for any action taken or omitted to be taken by it or them hereunder or in connection herewith, except for its or their own negligence or wilful misconduct.  Without limiting the generality of the foregoing, and notwithstanding any term or provision hereof to the contrary, the Seller hereby acknowledges and agrees that the Securitization Agent acts as agent for the Trust and, except as otherwise provided in the first sentence of this Section, has no duties or obligations to, will incur no liability to, and does not act as an agent in any capacity for, the Seller.

 

10.2                                                                        Delegation in Favour of Securitization Agent

 

The Trust may delegate to the Securitization Agent all or any of its powers, rights and discretion hereunder, and the Securitization Agent may from time to time take such actions and exercise such powers for and on behalf of the Trust as are delegated to it or contemplated hereby and all such actions and powers as are reasonably incidental thereto.  Each of the Seller and the Servicer shall be entitled to and be fully protected in relying on any instruction made or given by the Securitization Agent, and shall have no liability to the Trust in respect of such reliance.

 

10.3                                                                        Change in Circumstances

 

If, at any time:

 

63

 

(a)                                 the introduction of, or any change in, or in the interpretation or administration of, any applicable law or regulation by any court or Governmental Authority, in each case, after the date hereof;

 

(b)                                 the compliance by any of the Trust or the Securitization Agent, or any of their Affiliates (each, an “Affected Person”), with any changed or introduced guideline, direction or request, or any change in the interpretation or administration thereof made after the date hereof, from or by any Governmental Authority or professional self-regulating or governing body (including, for greater certainty, the Office of the Superintendent of Financial Institutions Canada, the Board of Governors of the United States Federal Reserve System or any other body or entity governing accounting treatment or reserve requirements) (whether or not having the force of law);

 

(c)                                  any Affected Person is required pursuant to any change in the interpretation or administration of any legal or regulatory requirement, request, direction or guideline (including with respect to reserve, deposit, capital adequacy or similar requirements), from or by any Governmental Authority or other body described in (b) above, to post or allocate additional capital to that which is maintained by any such Affected Person and any such posting or allocation of additional capital (or any portion thereof) is determined by the Affected Person (as set out in the certificate of the Trust referred to below) to be due to, related to or as a result of the Affected Person’s direct or indirect obligations under or related to this Agreement; or

 

(d)                                 any change in the interpretation, administration or application, as it relates to any Affected Person, of Canadian Accounting Guideline 15 (“ACG-15”) or Financial Accounting Standards Board Financial Interpretation Number 46 (“FIN 46”), or any amended version of ACG-15 or FIN 46, or any replacement policy or guideline relating thereto, or any equivalent policy of any other accounting or regulatory board, whether in Canada, the United States or otherwise,

 

has the effect of:

 

(i)             (A) increasing the costs, expenses or liabilities of any Affected Person (including as a result of a change in the Affected Person’s capital position), as such costs, expenses or liabilities relate to the Trust making, funding or maintaining the Investment hereunder, provided that in the case of the Securitization Agent or any of its Affiliates, such increased costs, liabilities or expenses shall be limited to those that are directly attributable to increases in regulatory capital of the Securitization Agent or such Affiliates, (B) reducing the rate of return (on capital or otherwise) to any Affected Person in connection with, or as a result of the Affected Person either having to raise additional capital or incurring a deteriorated capital position as a result of the Trust making, funding or maintaining the Investment hereunder, (C) requiring the payment of any Taxes on or

 

64

 

calculated with reference to the capital or debt of any Affected Person or (D) requiring any Affected Person to make any payment it would not otherwise be required to make; or

 

(ii)          reducing the amount received or receivable by the Trust under this Agreement or in respect of any Pool Receivable,

 

the Seller shall, from time to time upon demand by the Trust, pay to the Trust or the applicable Affected Person, either directly or indirectly through the Trust,  the amount of any such increased costs, expenses or liabilities incurred, reduction in amounts received or receivable, reduction in rate of return or required payment made or to be made.  The Trust shall deliver to the Seller a certificate setting forth the cause and computation of the amount of any such increased costs, expenses or liabilities, reduction in amounts received or receivable, reduction in rate of return, or required payment made or to be made, which computation may utilize such averaging and attribution methods as the Trust, or the applicable Affected Person, believes to be fair, acting reasonably.  Upon becoming aware thereof, the Trust shall, as soon as reasonably possible thereafter, notify the Seller of any event or circumstance which will result in any payment being required to be made by the Seller pursuant to this Section 10.3.

 

10.4                                                                        Amendments, Waivers, Etc.

 

No amendment or waiver of any provision of this Agreement nor consent to any departure by the Seller or the Trust therefrom shall be effective unless the same shall be in writing and signed by (i) the Seller, the Trust and the Performance Guarantor (with respect to an amendment) or (ii) the Trust (with respect to a waiver or consent by it) or the Seller (with respect to a waiver or consent by the Seller), as the case may be, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given.

 

10.5                                                                        Notices, Etc.

 

All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telecopied or electronic transmission) and telecopied, mailed or delivered, to each party hereto, at its address set forth under its name on the signature page hereof or at such other address as shall be designated by such parties in a written notice to the other party hereto.  All such notices and communications shall be effective, in the case of written notice, on the Business Day it is delivered, and, in the case of notice by telecopy or electronic transmission, when telecopied or electronically transmitted against receipt of answer back, in each case addressed as aforesaid.

 

10.6                                                                        No Waiver; Remedies

 

No failure on the part of the Trust to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right.  The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

 

65

 

10.7                                                                        Binding Effect; Assignability

 

This Agreement shall be binding upon and enure to the benefit of the Seller, the Performance Guarantor and the Trust, and their respective successors and permitted assigns; provided, however, that (i) neither the Seller nor the Performance Guarantor may assign its rights hereunder or any interest herein without the prior written consent of the Trust, such consent not to be unreasonably withheld or delayed, and (ii) prior to the occurrence of a Trigger Date, the Trust may not assign its rights hereunder or any interest herein, without the prior written consent of the Seller, such consent not to be unreasonably withheld, provided that the Trust shall be permitted to assign its rights hereunder and interests herein without consent of the Seller to any other asset-backed commercial paper conduit administered by the Securitization Agent, to the Securitization Agent and as security for the benefit of the holders of Notes.

 

10.8                                                                        Costs and Expenses

 

In addition to the rights of indemnification granted to the Trust under Article 9, the Seller shall pay to the Trust all reasonable out-of-pocket costs and expenses (including the reasonable fees and disbursements of counsel on a substantial indemnity basis) incurred by the Trust and its agents in connection with the preparation of this Agreement, the consummation of the transactions contemplated hereby and the enforcement of the Seller’s obligations and liabilities under this Agreement or under any related documents.  The Servicer shall also pay to the Securitization Agent such expenses as the Trust and the Securitization Agent may reasonably incur and such fees as the Trust and the Seller agree the Trust or the Securitization Agent may charge in respect of each amendment to this Agreement and each waiver of any provision of this Agreement requested by the Seller or required or initiated as a result of the Seller’s actions.

 

10.9                                                                        Confidentiality

 

Each of the Trust, the Seller, the Servicer, the Performance Guarantor and the Securitization Agent shall make all reasonable efforts to hold all non-public information obtained pursuant to this Agreement and the transactions contemplated hereby or effected in connection herewith in accordance with its customary procedures for handling its confidential information of this nature, provided that, notwithstanding the foregoing, the Trust, the Seller, the Servicer, the Performance Guarantor and the Securitization Agent may make disclosure of such non-public information as requested or required by any governmental agency or representative thereof or pursuant to legal process or when required under applicable law, and to its professional advisors; provided that, unless specifically prohibited by applicable law or court order, each party hereto shall notify the other party hereto of any request by any governmental agency or representative thereof for disclosure of any such non-public information prior to disclosure of such information to permit the party affected to contest such disclosure, if possible.

 

10.10                                                                 Effect of Agreement

 

Each of the Seller and the Trust hereby expressly acknowledges that this Agreement, except as specifically provided with respect to the duties and obligations of the Servicer, is intended to create a relationship of purchaser and vendor.  Each of the Seller and the Trust hereby expressly disclaims any intention to establish a trust relationship (except to the

 

66

 

extent expressly provided herein) or to constitute either the Seller or the Trust as the agent of the other except to the extent that the Seller, in its capacity as the Servicer, is acting as an agent of the Trust.  The Seller, on the one hand, and the Trust, on the other, covenant with each other that they will not, at any time, allege or claim that a relationship of trust or agency is created hereby, except as otherwise expressly provided for herein.

 

10.11                                                                 Agreement Non-Exclusive

 

The parties hereby acknowledge and agree that this Agreement does not create any rights of exclusivity between them.

 

10.12                                                                 No Set-off

 

All payments to be made by the Seller or the Servicer hereunder shall be made without any deduction, set-off or counterclaim.

 

10.13                                                                 Termination

 

This Agreement shall remain in full force and effect until the Final Termination Date; provided, however, that the Trust’s rights and remedies with respect to any incorrect representation or warranty made or deemed to be made by the Seller herein and the indemnification and payment provisions hereof shall be continuing and will survive any termination hereof for a period of six years commencing on the Final Termination Date.

 

10.14                                                                 Discharge of Certain Registrations in the Province of Québec

 

So long as no Servicer Termination Event shall have occurred, the Servicer shall have the authority to sign, for and on behalf of the Trust, any document reasonably required to be signed by the Trust and the Seller and filed in the Register of Personal and Movable Real Rights (Québec) (the “Register”) for the purpose of effecting the discharge of any hypothec, lease, sale with a reservation of ownership, sale with a right of repurchase or any other registration forming part of the Pool Assets and registered in the Register, provided such discharge is granted by the Servicer in the ordinary course of its business.

 

10.15                                                                 Execution in Counterparts

 

This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement.

 

67

 

IN WITNESS WHEREOF the parties have caused this Agreement to be executed by their respective duly authorized officers as of the date first written above.

 

	
 
    	
AUTOMOTIVE FINANCE CANADA   INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ James E. Money II
    
	
 
    	
 
    	
Name: 
    	
James E. Money II
    
	
 
    	
 
    	
Title: 
    	
Chief Financial Officer and Treasurer
    
	
 
    	
 
    
	
 
    	
Address:
    
	
 
    	
1717 Burton Road
    
	
 
    	
Vars, ON
    
	
 
    	
K0A 3H0
    
	
 
    	
 
    
	
 
    	
Attention: Vice   President of Legal
    
	
 
    	
Telecopier No.:   613.443.3436
    
	
 
    	
 
    
	
 
    	
With a copy to:
    
	
 
    	
Automotive Finance   Corporation
    
	
 
    	
13085 Hamilton   Crossing Blvd.
    
	
 
    	
Suite 300
    
	
 
    	
Carmel, Indiana
    
	
 
    	
46032
    
	
 
    	
 
    
	
 
    	
Attention: Vice President   of Legal 
    
	
 
    	
Telecopier No.:   866-929-3430
    
	
 
    	
 
    
	
 
    	
And To:
    
	
 
    	
 
    
	
 
    	
Automotive Finance   Corporation
    
	
 
    	
13085 Hamilton   Crossing Blvd.
    
	
 
    	
Suite 300
    
	
 
    	
Carmel, Indiana
    
	
 
    	
46032
    
	
 
    	
 
    
	
 
    	
Attention: 
    	
Jim Money
    
	
 
    	
Telecopier: 
    	
No.: 317-815-8687
    
					

 

68

 

	
 
    	
KAR AUCTION   SERVICES, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Eric M. Loughmiller
    
	
 
    	
 
    	
Name:
    	
Eric M. Loughmiller
    
	
 
    	
 
    	
Title: 
    	
Executive Vice President and Chief Financial   Officer
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    
	
 
    	
Address:
    
	
 
    	
13085 Hamilton   Crossing Blvd.
    
	
 
    	
Carmel, IN   46032
    
	
 
    	
USA
    
	
 
    	
 
    
	
 
    	
Attention: 
    	
Becca C. Polak 
    
	
 
    	
 
    	
Executive Vice President and General Counsel
    
	
 
    	
 
    
	
 
    	
Telecopier No.: 317.249.4518
    
					

 

69

 

	
 
    	
BNY TRUST COMPANY OF CANADA,
    
	
 
    	
in its capacity as trustee of PRECISION  TRUST, by   its 
    
	
 
    	
Securitization Agent, BMO NESBITT BURNS INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ John Vidinovski
    
	
 
    	
 
    	
Name: 
    	
John Vidinovski
    
	
 
    	
 
    	
Title: 
    	
Director
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Kevin Brown
    
	
 
    	
 
    	
Name: 
    	
Kevin Brown
    
	
 
    	
 
    	
Title: 
    	
Director
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
c/o BMO Nesbitt Burns Inc.
    
	
 
    	
3rd Floor Podium
    
	
 
    	
1 First Canadian Place
    
	
 
    	
Toronto, Ontario
    
	
 
    	
M5X 1H3
    
	
 
    	
 
    
	
 
    	
Attention: 
    	
Managing Director, Securitization
    
	
 
    	
 
    
	
 
    	
Telecopier No.: (416) 359-1910
    

 

70

 

SCHEDULE A

 

FORM OF PURCHASE REQUEST

 

TO:                           PRECISION TRUST
 c/o BMO NESBITT BURNS INC.
 3rd Floor Podium
 1 First Canadian Place
 Toronto, Ontario
 M5X 1H3
 Telecopier No.: (416) 359-1910

 

This Purchase Request is delivered to you pursuant to Section 2.1(a) of the receivables purchase agreement dated as of February 8, 2010 (the “Receivables Purchase Agreement”) between Automotive Finance Canada Inc. (the “Seller”), KAR Auction Services, Inc. (the “Performance Guarantor”) and BNY Trust Company of Canada, in its capacity as trustee of Precision Trust (in such capacity, the “Trust”).  All initially capitalized terms used herein, but not otherwise defined herein, have the meanings ascribed to them in the Receivables Purchase Agreement.

 

The Seller represents and warrants as of the date hereof as follows:

 

(i)                  the representations and warranties of the Seller contained in Section 4.1 of the Receivables Purchase Agreement are correct on and as of the date of the Purchase as though made on and as of such date;

 

(ii)               no event has occurred and is continuing, or would result from the effecting of such Purchase, that constitutes a Trigger Event or would constitute a Trigger Event by further requirement that notice be given or time elapse or both;

 

(iii)            the attached Portfolio Certificate (Schedule E) fully and accurately reflects the Pool Receivables and adjusted Principal Balances; and

 

	
Date of Purchase:
    
	
Cash Payment:
    
	
Cash Deposit Amount [*]:
    
	
Net Cash Payment:
    
	
Transferred to [*]:
    

 

 

DATED the          day of   .

 

	
 
    	
AUTOMOTIVE FINANCE CANADA INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    

 

2

 

SCHEDULE B

 

LOCATION OF RECORDS

 

Calgary — Branch 54

ADESA Calgary

1621 Veterans Boulevard NE

Airdrie, AB T4A 2G6

 

Edmonton — Branch 129

ADESA Edmonton

1701 9th Street

Nisku, AB T9E 8M8

 

Halifax — Branch 61

ADESA Halifax

300 Sky Boulevard

Enfield, NS B2T1K3

 

Kitchener — Branch 53

218 Boida Ave. Unit #2, RR #1

Ayr, ON N0B1E0

 

Montreal — Branch 21

ADESA Montreal

300 Albert Mondou

St. Eustache, PQ J7R7A7

 

Ottawa — Branch 14

ADESA Ottawa

1717 Burton Rd

Vars, ON K0A3H0

 

Toronto — Branch 56

ADESA Toronto

55 Auction Lane

Brampton, ON L6T 5P4

 

Vancouver — Branch 49

ADESA Vancouver

7111 No. 8 Road

Richmond, BC V6W 1L9

 

 

Winnipeg — Branch 113

ADESA Winnipeg

Box 19, Group 242, RR # 2

Winnipeg, MB R3C 2E6

 

Saskatoon — Branch 1155

ADESA Saskatchewan

608 — 48th Street East

Saskatoon, Saskatchewan

S7K 6K4

 

Carmel Office

Automotive Finance Canada Inc.

c/o Automotive Finance Corporation

13085 Hamilton Crossing Blvd., Suite 300

Carmel, IN  46032

 

2

 

SCHEDULE C

 

FORM OF CONTRACTS

 

(see attached)

 

 

TERM SHEET FOR

DEMAND PROMISSORY NOTE AND SECURITY AGREEMENT

 

Dealer:      ,

 

Dealer #:        Contract #:        Branch #:

 

The following terms, as defined in the Demand Promissory Note and Security Agreement, shall apply effective immediately:

 

Floorplan Fee:  The Floorplan Fee shall be:

 

Interest:  Interest shall accrue on the Obligations at a variable rate (based on a 360 day year), adjusted each business day, equal to the prime rate then charged by the Canadian Imperial Bank of Commerce (the “Prime Rate”) plus:

 

Number of Curtailment Date Extensions: The Number of Curtailment Date Extensions shall be limited to:

 

Period:  The Period shall be:

 

Executed by the undersigned duly authorized representatives effective as of the      .

 

	
Dealer:
    	
 
    	
Automotive Finance Canada Inc.
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
An AFC Officer
    
	
 
    	
 
    	
 
    	
To be executed at AFC corporate office
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
						

 

 

TERM SHEET FOR

DEMAND PROMISSORY NOTE AND SECURITY AGREEMENT

 

Dealer:      ,

 

Dealer #:        Contract #:        Branch #:

 

The following terms, as defined in the Demand Promissory Note and Security Agreement, shall apply effective immediately:

 

Floorplan Fee:  The Floorplan Fee shall be:

 

Interest:  Interest shall accrue on the Obligations at a variable rate (based on a 360 day year), adjusted each business day, equal to the prime rate then charged by the Canadian Imperial Bank of Commerce (the “Prime Rate”) plus:

 

Number of Curtailment Date Extensions: The Number of Curtailment Date Extensions shall be limited to:

 

Period:  The Period shall be:

 

Executed by the undersigned duly authorized representatives effective as of the      .

 

	
Dealer:
    	
 
    	
Automotive Finance Canada Inc.
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
An AFC Officer
    
	
 
    	
 
    	
 
    	
To be executed at AFC corporate office
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
						

 

 

CANADIAN BUY HERE PAY HERE TERM SHEET FOR THE

DEMAND PROMISSORY NOTE AND SECURITY AGREEMENT

 

Dealer:

 

The following terms if not defined in the Note, then as defined below, shall apply effective immediately:

 

Number of Curtailment Date Extensions and Period:

 

If Dealer: a) is in compliance with all provisions of the Note; and b) sells an item of Purchase Money Inventory pursuant to a Retail Installment Contract, then upon payment of: i)      ; ii) applicable Interest; and iii) an amount equal to a least      % of the original Advance amount, then notwithstanding the sections in the Note pertaining to Repayment of Purchase Money Inventory Obligations and Obligations and extensions of the Curtailment Date, then the Curtailment Date for such item shall be extended, at AFC’s sole discretion for no longer than       days.

 

AFC may, in its sole discretion, permit up to       additional extensions of the Curtailment Date for such item of Purchase Money Inventory, each for a BHPH Period equal to       days, upon the payment, via EFT, of $     , applicable Interest, plus an amount equal to at least      % of the original Advance amount for each such extension.

 

Executed by the undersigned duly authorized representative’s effective as of the            ,      .

 

	
Dealer:
    	
 
    	
Automotive Finance Canada, Inc.
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
An AFC Officer
    
	
 
    	
 
    	
 
    	
To be executed at AFC corporate office
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
BHPH   Dealer Number
    	
 
    	
Branch
    
							

 

 

The parties have requested that this Agreement be drawn in English.

Les parties ont demandé que cette convention soit rédigée en anglais.

 

Dealer:

 

Dealer #:        Contract #:         Branch #:

 

The following terms, as defined in the Installment Sales Agreement, shall apply effective immediately:

 

Floorplan Fee:  The Installment Fee shall be assessed each Period and will be applied as follows:

 

Interest:  Interest shall accrue on all Advances pursuant to the Note at a variable rate, adjusted each business day, based upon the most recent prime rate charged by the Canadian Imperial Bank of Commerce to its best commercial customers plus:

 

Number of Curtailment Date Extensions: The Number of Curtailment Date Extensions shall be limited to:

 

Period:  The Period shall be:

 

Executed by the undersigned duly authorized representatives effective as of the      .

 

	
Dealer:
    	
 
    	
Automotive Finance Canada Inc.
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
An AFC Officer
    
	
 
    	
 
    	
 
    	
To be executed at AFC corporate office
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
						

 

 

RAC Application  (CANADA)

 

Dealership

 

	
Line   Requested:
    	
 
    	
Plate Number:
    
	
Company   Name:
    	
 
    	
 
    
	
Address:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Phone:
    	
Fax:
    	
 
    
	
Type   of Business:
    	
 
    	
#   of years in Business:
    
	
Organization   Type:
    	
 
    	
 
    
	
Doing   Business As:
    	
 
    	
 
    

 

Officer and Owners

 

	
Officer   1:
    	
 
    	
Title:
    	
 
    	
Officer   1’s SSN:
    
	
Officer   2:
    	
 
    	
Title:
    	
 
    	
Officer   2’s SSN:
    
	
Officer   3:
    	
 
    	
Title:
    	
 
    	
Officer   3’s SSN:
    
	
Officer   4:
    	
 
    	
Title:
    	
 
    	
Officer   4’s SSN:
    
	
Stockholder   1:
    	
 
    	
Percent   owned:
    	
 
    	
Stockholder   1’s SSN:
    
	
Stockholder   2:
    	
 
    	
Percent   owned:
    	
 
    	
Stockholder   2’s SSN:
    
	
Stockholder   3:
    	
 
    	
Percent   owned:
    	
 
    	
Stockholder   3’s SSN:
    
	
Stockholder   4:
    	
 
    	
Percent   owned:
    	
 
    	
Stockholder   4’s SSN:
    

 

Insurance

 

	
Type:
    	
Policy   #:
    	
Insurance   Company:
    	
Amt:
    
	
Type:
    	
Policy   #:
    	
Insurance   Company:
    	
Amt:
    	
 
    
							

 

Banking Relations

 

	
Bank:
    	
 
    	
Account:
    	
 
    	
Bank   Phone #:
    
	
Bank:
    	
 
    	
Account:
    	
 
    	
Bank   Phone #:
    

 

	
I   hereby certify that the information contained within this application and on   any accompanying financial statements is true, complete, and accurate and   portrays a correct and precise financial picture of the dealership, the   officers (if applicable), the stockholders (if applicable), and the   guarantors. I authorize Automotive Finance Canada Inc. (“AFC”) to obtain   credit information from a credit bureau and any financial institution or   trade creditor that I have provided as well as any other credit investigation   that AFC in AFC’s sole discretion deems necessary for the purposes of   assessing my credit worthiness. I also authorize AFC to contact any third   parties and to disclose information, including information contained in this   application, for the purpose of, among other things, obtaining intercreditor   agreements and perfecting AFC’s security interest. I also authorize AFC to   disclose the information to any of its affiliates and subsidiaries and parent   companies. Further, if a credit line is granted, I authorize AFC to   review my account periodically, which could include obtaining additional   credit reports for the purposes of assessing my credit worthiness and   collection of any outstanding debt. I authorize AFC to disclose credit   information into any credit database. I authorize AFC to a) send facsimile   transmissions to me at the facsimile numbers listed as my facsimile number in   any communication sent or to be sent to AFC by me; b) make telephone calls to   me at the telephone numbers listed as my telephone number in any   communication sent or to be sent to AFC by me; c) send emails to me at the   email addresses listed as my email address in any communication sent or to be   sent to AFC by me; and e) communicate to me via any and all other forms of   communications, for the purposes of marketing, collection and any other   communication needs. I agree that this permission will remain in effect until   cancelled by me in writing.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
Date
    	
 
    	
Date
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
Date
    	
 
    	
Date
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
Date
    	
 
    	
Date
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
Date
    	
 
    	
Date
    

 

AFC Use Only

 

	
Checked   with Auction GM
    	
 
    	
 
    	
GM   Initials
    	
 
    

 

	
Line Amt.:
    	
Dealer Number:
    	
Branch Number:
    
	
Contract Date:
    	
Contract Number:
    	
 
    
	
Fee:
    	
 
    	
Interest:
    	
 
    
	
Terms:
    	
 
    	
 
    
				

 

	
Auction City:
    	
Auction Province:
    

 

 

DEMAND PROMISSORY NOTE AND SECURITY AGREEMENT

 

FOR VALUE RECEIVED, the undersigned dealer (“RAC”) hereby promises to pay to the order of Automotive Finance Canada Inc., an Ontario corporation (“AFC”), with its principal office at 13085 Hamilton Crossing Blvd, Suite 300, Carmel, IN 46032 or a successor thereto or such other place as AFC may designate, the principal sum of         ($     ) (the “Aggregate Advance Limit”) or such greater or lesser principal amount as may be outstanding pursuant hereto, with interest on said outstanding balance prior to an Event of Default, as defined in Section 7.0 hereof, at the rate of interest set forth in the Term Sheet and as amended from time to time.  In the event that no Term Sheet is executed or effective, then interest shall accrue at a variable rate, adjusted each business day, equal to the prime rate then charged by the Canadian Imperial Bank of Commerce to its best business customers (“Prime Rate”) plus      .  Interest shall accrue from the earlier of the date of a requested Advance or the date that an Obligation is incurred and shall be compounded daily.  Said variable rate of interest at the time of the execution  of this Agreement is equal to a maximum effective annual, non-default rate of      .  Said variable rate, and the effective annual rate, shall change from time to time with any change of the Prime Rate.  After an Event of Default, interest shall accrue at a variable rate, adjusted each business day, equal to the Prime Rate plus      , with such interest compounded daily and accruing from the date on which the Event of Default first occurred.  Said variable rate of interest at the time of the execution of this Agreement is equal to an effective annual rate of      .  Said variable rate, and the effective annual rate shall change from time to time with any change of the Prime Rate.  At the time the Prime Rate changes the new effective annual interest rate shall be posted in an electronic location accessible to RAC or the general public within a reasonable time period thereafter.  All payments shall be made in lawful money of Canada and in immediately available funds.

 

Until demand by AFC or until an Event of Default (at which time the Obligations shall at AFC’s option and without notice become immediately due and payable in full), RAC shall pay the Obligations as provided in Section 2.6.

 

RAC: (a) waives demand and presentment for payment, protest, notice of protest and notice of non-payment or dishonour of this Note; (b) consents to any extension of the time of payment hereof; (c) waives all defences based on suretyship or impairment of collateral; and (d) waives any defences which RAC may assert on the Obligations including but not limited to failure of consideration, breach of warranty, fraud, payment, statute of frauds, bankruptcy, lack of legal capacity, statute of limitations, lender liability, accord and satisfaction, and usury.

 

In consideration of the premises and the mutual covenants and conditions contained herein, the parties further agree as follows:

 

AGREEMENT

 

1.0                               DEFINITIONS.  When used herein, the following terms shall have the following meanings:

 

1.1                               Advance - discretionary loan(s) to RAC or payment(s) on behalf of RAC by AFC pursuant to the terms of this Note.

 

1.2                               Aggregate Advance Limit - the maximum lending limit, as set forth above.

 

1.3                               Check - a payment by or on behalf of RAC to AFC which is other than a payment in cash or via certified funds.

 

1.4                               Collateral — all of RAC’s assets and properties wherever located, including without limitation (a) all machinery, furniture, and Equipment of any kind now owned or hereafter acquired by RAC, (b) all Vehicles, vehicle parts, and other inventory of any kind now owned or hereafter acquired by RAC, including, without limitation, the Purchase Money Inventory as hereinafter defined, (c) all documents, including but not limited to accounts, Retail Installment Contracts, chattel paper, electronic chattel paper, leases, Lease Agreements, insurance policies, instruments, fixtures, investment property, monies, certificates of deposit, deposit accounts, letter of credit rights, supporting obligations, and general intangibles (including payment intangibles) now owned or hereafter acquired by RAC, (d) any and all proceeds, products, additions, accessions, accessories, and replacements of the foregoing, (e) all of RAC’s computer records, software, business papers, ledger sheets, files, books, and records relating to the foregoing, now owned or hereafter acquired, and (f) the following:

 

1.5                               Curtailment Date - that certain day at the end of the Period when all Obligations concerning or relating to an item of Purchase Money Inventory become due and payable.

 

1.6                               RAC’s Place of Business - any or all of the following locations: (a) the place where the Collateral and RAC’s books and records are kept; (b) the place from which RAC’s business affairs and operations are conducted, unless otherwise disclosed in writing to AFC by RAC; and (c) the place where RAC’s registered office is located.

 

1.7                               Equipment — all goods, other than inventory, of any kind and wherever located.

 

1.8                               Floorplan Fee - that non-refundable fee payable to AFC by RAC in the amount set forth on the Term Sheet for each Period, or portion thereof, in which an Advance for each individual item of Purchase Money Inventory is outstanding, provided that in the event no Term Sheet is executed and effective, then the Floorplan Fee shall be equal to      .  Notwithstanding the foregoing or any provision in the Term Sheet to the contrary, AFC reserves the right to charge a Floorplan Fee in a higher amount as a condition to making an Advance if, in its sole discretion, AFC determines that the circumstances so warrant.

 

1.9                               Interest - those finance charges owed by RAC to AFC on all Obligations, which charges shall begin to accrue on the earliest of (i) the date of each request for an Advance or (ii) the date that an Obligation is incurred, or (iii) the date the item of Purchase Money Inventory is purchased by RAC.  Prior to an Event of Default, Interest shall accrue at the rate of interest (based on a 360 day year) listed on the Term Sheet, as amended form time to time.  If no Term Sheet is executed or effective, then interest shall accrue on the Obligations at a variable rate (based on a 360 day year), adjusted each business day , equal to the prime rate then charged by the Canadian Imperial Bank of Commerce (“Prime Rate”) plus      .  After an Event of Default, interest shall accrue at a variable rate (based upon a 360 day year), equal to the Prime Rate at the time Interest began to accrue for the Obligations associated with each item of Purchase Money Inventory plus      .  For purposes of the Interest Act (Canada), where an interest quoted in this agreement is based on a year of 360 days, the yearly rate to which such interest rate is equivalent is calculated by multiplying such interest rate by the actual number of days in the relevant calendar year and dividing the product thereof by 360.

 

1.10                        Late Fee - that non-refundable fee payable to AFC by RAC, in the amount equal to the Floorplan Fee for each item of Purchase Money Inventory, assessed each week, or portion thereof, that RAC fails to repay Obligations under this Note when due as provided by this Note.  RAC agrees that this Late Fee is a reasonable estimate of AFC’s probable losses due to the delay, inconvenience, and administrative expenses associated with late payment. AFC may also include in the Late Fee an amount equal to the greater of       or the maximum amount permitted by law for each Check tendered to AFC, by or on behalf of RAC, that is subsequently dishonoured, in addition to any charge or fee imposed by the financial institution for each returned or dishonoured item and any other charges or fees permitted by law.

 

1.11                        Lease Agreement — that agreement between RAC as lessor or rentor and third party as lessee or rentee that grants lessee or rentee certain

 

1

 

rights in an item or items of Purchase Money Inventory for a definite term.

 

1.12                        Mileage Limit — unless otherwise stated in the Term Sheet, the lower of (a)       or       as measured by the odometer that each item of Purchase Money Inventory can be driven before payment to AFC is required under Section 2.6 or (b)       or       as measured by the odometer that each item of Purchase Money Inventory can be driven after the date of Advance before payment to AFC is required under Section 2.6.

 

1.13                        Note - this Demand Promissory Note and Security Agreement.

 

1.14                        Number of Curtailment Date Extensions - that number of times set forth on the Term Sheet, that the Curtailment Date may be extended for an item of Purchase Money Inventory pursuant to this Note, provided that in the event no Term Sheet is executed and effective, the Number of Curtailment Date Extensions shall be zero (0).

 

1.15                        Obligations - all Advances, debts, Purchase Money Inventory Obligations, liabilities, financial obligations, charges, expenses, fees, legal fees, costs of collection, covenants, and duties owing, arising, due, or payable from RAC to AFC of any kind or nature, present or future, under any instrument, guaranty, or other document whether arising under this Note or any other agreement, whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or become due, now existing or hereafter arising and however acquired including, without limitation, all Interest, Floorplan Fee(s) and Late Fee(s), and other expenses, costs or fees provided for herein.

 

1.16                        Ownership Certificate - the document issued by a duly authorized province or government agency evidencing ownership of a Vehicle.

 

1.17                        Period - that number of days set forth on the Term Sheet, beginning on the date of an Advance and ending on the Curtailment Date that an item of Purchase Money Inventory will be financed by AFC pursuant to this Note, provided that in the event no Term Sheet is executed and effective, then the Period shall be      .

 

1.18                        PPSA - the Personal Property Security Act as enacted and in force.

 

1.19                        Purchase Money Inventory - any and all Vehicles, vehicle parts, or goods of any kind, now or hereafter acquired by RAC with an Advance.

 

1.20                        Purchase Money Inventory Obligations - the liabilities owing, arising, due, or payable from RAC to AFC with respect to specific Advances for specific items of Purchase Money Inventory now existing or hereafter arising including, without limitation, all Interest, Floorplan Fee(s) and Late Fee(s), and other expenses, costs or fees provided for herein..

 

1.21                        Retail Installment Contract - that contract of sale and security agreement, whether or not constituting chattel paper, whereby RAC sells Purchase Money Inventory to a retail customer in the ordinary course of RAC’s business.

 

1.22                        Term Sheet - that agreement in effect from time to time executed by RAC and AFC containing information including but not limited to the Floorplan Fee, Interest and Period, in the form similar to Exhibit A.

 

1.23                        Terms and Conditions — All provisions of this Note, excluding any language specifically referencing RAC by the specific individual or business name or address, or specifically referencing the dollar amount of RAC’s Aggregate Advance Limit.

 

1.24                        Vehicle - a vehicle, driven or drawn by mechanical power, manufactured primarily for use on the public streets, roads, and highways.

 

2.0                               FINANCING PROCEDURES.

 

2.1                               Discretionary Advances.  AFC may, in its sole discretion, from time to time make an Advance to or on behalf of RAC for the purpose of enabling RAC to purchase and/or hold an item of Purchase Money Inventory for resale or for lease under a Lease Agreement, and for other purposes as provided herein.  RAC acknowledges and agrees that AFC may, with or without cause, refuse to make an Advance.  RAC further agrees that AFC’s decision to make an Advance shall be binding only if it is in writing and signed by AFC.  RAC and AFC agree that RAC is not obligated to finance any Purchase Money Inventory, or any other assets, through AFC.

 

2.2                               Advance Requests: Purchase Money Inventory.  RAC may request an Advance for the purpose of enabling RAC to purchase and hold an item of Purchase Money Inventory for resale by providing AFC with: (a) a copy of the bill of sale which indicates the vendor and the actual purchase price of the Purchase Money Inventory; and (b) as to Vehicles, a provincial vehicle ownership certificate or similar document duly assigned to RAC.

 

2.3                               Advance Requests: Other Purposes.  RAC may request an Advance for purposes other than enabling RAC to purchase and hold an item of Purchase Money Inventory for resale by providing AFC with: (a) a written request setting forth the purpose for the requested Advance, and (b) such other information as AFC may require.  If AFC elects to make any such Advance, the Advance shall be deemed an additional Obligation under this Note from the date on which the Advance is made.

 

2.4                               Conditions to Advances.  As a condition precedent to an Advance, RAC shall deliver to AFC, at AFC’s request, a certificate in a form acceptable to AFC certifying that (a) no Event of Default has occurred or is continuing, (b) RAC is in complete compliance with the terms and conditions of this Note, (c) all prior Advances made for the purpose of enabling RAC to purchase an item of Purchase Money Inventory have only been used to purchase Vehicles encumbered by this Note, (d) no material adverse effect to the operation or prospects of RAC (financial, business, labor or otherwise) exists or is threatened, (e) no checks issued by RAC to AFC have been dishonored, and (f) such other information as AFC may request.  In addition, if the Advance request is for the purpose of enabling RAC to purchase and hold an item of Purchase Money Inventory for resale, RAC shall deliver to AFC, at AFC’s request, a certificate in a form acceptable to AFC, certifying that the Advance will only be used to purchase Vehicles encumbered by this Note.

 

2.5                               Advances Without Request.  If at any time RAC is in default on any obligation to a third party, AFC may in its sole discretion elect, but is not required, to make payment or transfer on RAC’s behalf to the third party, in any amount up to the total obligation owed by RAC to the third party, as a means of satisfying RAC’s obligation to the third party in whole or in part.  If AFC elects to make any such payments or transfers, they shall be deemed additional Obligations under this Note from the date on which the payment or transfer is made.  Such payments or transfers may be made without prior notice to RAC and without regard to any Aggregate Advance Limit then in effect for RAC.

 

2.6                               Repayment of Purchase Money Inventory Obligations and Obligations.  RAC shall pay to AFC at the offices of AFC the Purchase Money Inventory Obligations, on demand and without notice, with respect to an item of Purchase Money Inventory on the earliest of: (a)       after the disposition by sale or otherwise, excepting disposition pursuant to a Lease Agreement, of an item of Purchase Money Inventory; (b) the Curtailment Date; or (c) the date on which the Mileage Limit is surpassed.  AFC shall apply such payments to the Purchase Money Inventory Obligations incurred from said item of Purchase Money Inventory.  Notwithstanding anything herein to the contrary including Sections 3.0 and 4.0 if, after the disposition by sale or otherwise and subsequent payment to AFC as delineated above, a shortage exists between any payments received by AFC and the Purchase Money Inventory Obligations with respect to an item of Purchase Money Inventory, that shortage

 

2

 

shall be considered an Obligation owed by RAC to AFC and secured with Collateral other than Purchase Money Inventory.  RAC shall pay to AFC at the offices of AFC all Obligations, on demand and without notice, relating to an item of Purchase Money Inventory on the earlier of: (a)       after the disposition by sale or otherwise, excepting disposition pursuant to a Lease Agreement, of an item of Purchase Money Inventory; (b) the Curtailment Date; or (c) the date on which the Mileage Limit is surpassed.  RAC shall pay to AFC at the offices of AFC all other Obligations, on demand and without notice.  The order and method of application of such payments of the Obligations, excluding payments with respect to Purchase Money Inventory Obligations, shall be in the discretion of AFC.

 

2.7                               Extension of Curtailment Date.  If RAC is in compliance with all other provisions of this Note, AFC may, in its sole discretion, permit an extension of the Curtailment Date relative to an item of Purchase Money Inventory for a Period, upon the payments to AFC as set out in the Term Sheet.

 

2.8                               Presumptions Regarding Outstanding Balance.  The date and amount of each Advance made by AFC and of each repayment of principal or interest thereon shall be recorded by AFC.  The aggregate unpaid principal amount, interest, fees, and other Obligations so recorded by AFC shall constitute prima facie evidence of the sums owing and unpaid under this Note; provided, however, that the failure by AFC to so record any such amount or any error in so recording any such amount shall not limit or otherwise affect the liability of RAC under this Note to repay the Obligations.

 

2.9                               Purchase Money Inventory and Ownership Certificate Control.  At any and all reasonable times RAC shall allow AFC’s officers, employees, agents, lawyers, designees and representatives (including but not limited to representatives of AutoVin, Inc.) access to RAC’s books and records and RAC’s Place of Business for the purpose of conducting an audit of RAC’s inventory, books and records to determine that any and all items of Purchase Money Inventory for which an Advance is outstanding are in fact in RAC’s custody and control or subject to a Lease Agreement.  RAC agrees to pay all of AFC’s expenses in conducting such audit.  With respect to each item of Purchase Money Inventory, if the Ownership Certificate has not been issued by a duly authorized state, province, or government agency, unless otherwise agreed in writing by AFC, RAC represents and warrants that RAC shall redeliver to AFC within       of the Advance for such item of Purchase Money Inventory an Ownership Certificate issued by a duly authorized state, province, or government authority.  RAC authorizes AFC to further represents and warrants that AFC shall be registered as the sole lienholder, pursuant to the PPSA under the PPSA.

 

2.10                        Authorization of AFC.  By execution of this Note, RAC authorizes AFC and any of its officers or employees to execute and file, on behalf of RAC and without RAC’s signature, financing statements, financing change statements and all other types of documents specified by applicable personal property security and other laws, and any other documents AFC deems necessary or desirable to protect its interests.  RAC authorizes AFC to supply any omitted information and correct errors in any document executed by or on behalf of RAC, and to contact any bank or other financial institution to obtain account information concerning RAC.  RAC authorizes AFC to obtain credit information from a credit bureau, and any financial institutions or trade creditor that RAC has provided as and further authorizes AFC to conduct any other credit investigation that AFC in AFC’s sole discretion deems necessary.  RAC also authorizes AFC to contact any third parties to disclose information, including information submitted to AFC by RAC or garnered by AFC pursuant to this Note, for the purpose of, among other things, obtaining intercreditor agreements and perfecting AFC’s security interest.  Further, if a credit line is granted, RAC authorizes AFC to review RAC’s account periodically, which could include obtaining additional credit reports.  In addition, RAC shall execute the Power of Attorney attached hereto as Exhibit B.

 

3.0                               GRANT OF SECURITY INTEREST.  As security for the payment and performance of the Obligations, RAC grants to AFC a continuing security interest in the Collateral.  RAC understands and agrees that AFC at all times intends to maintain the status of a purchase money secured creditor with priority rights in the Purchase Money Inventory as provided under the applicable laws.

 

4.0                               SALES OR LEASE OF PURCHASE MONEY INVENTORY.  Unless and until an Event of Default shall have occurred, RAC may (a) sell the Purchase Money Inventory to bona fide buyers in the ordinary and regular course of RAC’s business or (b) lease the Purchase Money Inventory pursuant to a Lease Agreement, but nothing herein shall be deemed to waive or release any interest AFC may have hereunder or under any other agreement in any proceeds or replacements of the Purchase Money Inventory.  Upon the sale of any item of Purchase Money Inventory, RAC shall hold the amount received from the disposition of inventory in trust for the benefit of AFC and RAC shall pay to AFC, in accordance with Section 2.6, an amount equal to the unpaid balance of the Purchase Money Inventory Obligations and Obligations relating to such Purchase Money Inventory.

 

5.0                               RAC’S COVENANTS.  Until payment in full of all of the Obligations or unless AFC shall otherwise consent in writing, RAC covenants and agrees as follows:

 

5.1                               Disposition of Purchase Money Inventory.  RAC shall not, except as provided under Section 4.0, attempt to or actually, sell, lease, transfer, mortgage, encumber, or otherwise dispose of the Purchase Money Inventory, any part thereof, or any interest therein, or remove, for a period exceeding twenty-four (24) hours, any item of Purchase Money Inventory from RAC’s Place of Business. In addition, RAC shall keep the Purchase Money Inventory free from any lien, security interest, mortgage, claim, charge or other encumbrance, other than those granted pursuant to this Note or permitted in writing by AFC.

 

5.2                               Unconditional Payment Obligation.  RAC’s obligation to make full payment under this Note is unconditional and shall not be affected by claims or disputes RAC may have against any other person, including but not limited to claims or disputes RAC may have against any person or entity who transferred, conveyed, or sold one or more Vehicles to RAC.

 

5.3                               Maintenance of Collateral.  RAC shall keep and maintain the Purchase Money Inventory in good repair and safe condition, and shall not cannibalize, alter or substantially modify the Collateral, nor secrete or conceal the Collateral.

 

5.4                               RAC’s Books and Records.  RAC has kept and shall continue to keep true and accurate books and records concerning its business affairs and the Collateral.  Such books and records shall contain full and correct entries of all business transactions and shall be kept in accordance with generally accepted accounting principles consistently applied.  RAC shall at least annually and upon request furnish financial statements to AFC based upon said books and records and upon request shall permit AFC to make extracts from and receive from RAC originals or true copies of RAC’s books and records and any papers relating to the Collateral.  All financial statements submitted to AFC shall fairly present the financial condition of RAC and any other person or entity identified in such financial statements as of the preparation date.  RAC shall notify AFC, in writing, of any material adverse change in the financial condition of RAC as compared to any prior financial statements submitted to AFC.

 

5.5                               Insurance.  RAC shall keep the Collateral insured against such risks and in an amount equal to the Aggregate Advance Limit or such lesser amount as AFC may from time to time permit and with such insurer or insurers as AFC may from time to time approve.  RAC shall provide AFC, or AFC’s designees, with copies of its policies of insurance covering the Collateral together with evidence that the premium therefore has been paid and that AFC has been named as loss payee or additional insured on such

 

3

 

policies.  The proceeds of loss under such policies are hereby assigned to AFC.  If AFC determines, in its sole discretion, that RAC has not maintained adequate insurance coverage for the Collateral, AFC may, but has no obligation to, purchase a policy or policies of insurance (through forced placement or otherwise) any may treat amounts so expended as additional Obligations.  The risk of loss or damage to the Collateral shall at all times remain solely with RAC.

 

5.6                               Litigation Notice.  RAC shall provide to AFC within five (5) days after service of process, notice of any litigation, arbitration, or other proceeding by or before any court, governmental agency, or entity affecting RAC.

 

5.7                               Taxes.  RAC has paid and shall pay all taxes and assessments relating to its business affairs and shall pay all taxes and assessments at any time levied on the Collateral as and when the same become due and payable in the ordinary course.  If RAC fails to pay taxes or assessments relating to the Collateral, AFC may, but has no obligation to, pay said taxes or assessments and may treat amounts so expended as additional Obligations.

 

5.8                               Further Assurances.  RAC shall execute any and all documents necessary to confirm an Advance or perfect AFC’s lien and security interest in the Collateral.  RAC shall, at any time and at the request of AFC, assign in writing any or all Retail Installment Contracts and Lease Agreements and deliver the originally executed Retail Installment Contracts and Lease Agreements to AFC.

 

5.9                               Acknowledgments.  RAC acknowledges that AFC has relied on RAC’s Covenants and RAC’s Representations and Warranties as delineated in this Note, and is not charged with any contrary knowledge that may be ascertained by examination of the public records, or that may have been received by any officer, director, agent, employee, representative or shareholder of AFC.

 

5.10                        Changes in RAC’s Business.  Upon the execution of this Note, RAC shall provide AFC with a document listing RAC’s Place of Business.  RAC shall provide AFC written notice within 30 days of any of the following: (a) any change in RAC’s Place of Business or chief executive office, (b) any change in the corporate, business or ownership structure of RAC, (c) any change in the  jurisdiction of incorporation, organization or business entity registration of RAC, (d) any change in the legal name or trade name of RAC, (e) any consolidation or merger with any other person or entity, (f) any change in control of RAC, (g) any sale, transfer or issuance of equity securities or reclassification, readjustment or other change in capital structure, or (h) any amendment to RAC’s articles, by-laws or other organizational documents.

 

5.11                        Notice to Account Debtors.  RAC shall, at any time and at the request of AFC, notify any or all account debtors or obligors that AFC has the right to enforce RAC’s rights against the account debtors or obligors, that AFC has a security interest in the accounts, Retail Installment Contracts, Lease Agreements, and chattel paper, and that the account debtors and obligors must direct payment to AFC.

 

5.12                        Guaranties.  At the request of AFC prior to the execution of this Note and at any time thereafter, RAC shall deliver to AFC a duly executed guaranty or guaranties of a third party or parties in the form attached hereto as Exhibit C.

 

5.13                        Control Agreements.  RAC shall cooperate with AFC in obtaining control agreements in form and substance satisfactory to AFC with respect to Collateral consisting of deposit accounts, certificates of deposit, investment property, letter of credit rights and electronic chattel paper.  In the event satisfactory control agreements cannot be obtained, RAC shall cooperate with AFC in placing the account or other property in AFC’s name as owner or co-owner.

 

6.0                               RAC’S REPRESENTATIONS AND WARRANTIES.  On the date of this Note and until the Obligations are paid in full and RAC has performed all of its obligations hereunder, the representations and warranties contained in this Note and every factual matter in any other document delivered to AFC by or on behalf of RAC shall be true and correct in all material respects and will remain true and correct.

 

6.1                               Permits and Licenses.  RAC has all applicable permits and licenses necessary to conduct business as a retail or wholesale seller, as applicable, of the Collateral.  RAC has all required government certificates, licenses, registrations, and charters to operate as the entity or business type identified and is in good standing with all applicable governmental authorities.  RAC shall comply with, and not permit any violation by its agents or employees of, all applicable laws, regulations, and orders of public authorities relating to RAC’s business affairs and the Collateral.

 

6.2                               Authority.  The undersigned is legally competent, and has been duly authorized by all necessary action, to execute and deliver this Note and consummate all of the transactions contemplated hereby.  RAC has now and will have at the time of each Advance full right, power, and authority to borrow in the manner and on the terms and conditions set out in this Note, and to grant AFC the lien and security interest granted in this Note without the consent or approval of any third party or public authority.

 

6.3                               Ownership.  RAC has now and will have at the time of each Advance good and marketable title to the Purchase Money Inventory, free and clear of all liens, security interests, mortgages, charges, claims, and other encumbrances or interests whatsoever, except the lien and security interest granted under this Note, or except as permitted by AFC in writing or acknowledged by AFC’s written notification to such third party advising such third party of AFC’s purchase money security interest in the Purchase Money Inventory and the proceeds thereof.

 

6.4                               Enforceability.  This Note, and any other agreements or documents contemplated herein or executed in connection herewith, constitute valid and binding obligations of RAC and all are enforceable in accordance with their respective terms.

 

6.5                               Litigation.  No legal, arbitration, or administrative proceedings are pending or threatened against RAC which could reasonably affect the Collateral or which materially and adversely affect the properties, business, prospects, or condition, financial or otherwise, of RAC or RAC’s ability to honor its obligations hereunder.

 

6.6                               Check Representations.  With each and every payment to AFC by Check, RAC represents and warrants (regardless of whether RAC is the drawer of the Check), that, at the time of issuance of the Check and at the time such Check may be presented for payment, the account upon which such Check is drawn contains immediately available funds sufficient for payment of that Check and all other Checks issued or outstanding at that time.

 

6.7                               Lease Agreement Representations.  With respect to each Lease Agreement:  (a) RAC is the owner thereof; (b) RAC has not assigned to any third party any of the lease payments, monies, or payments owed by lessee to RAC; (c) such Lease Agreement is the result of a bona fide transaction entered into in the ordinary course of RAC’s operations; (d) such Lease Agreement is true, valid, genuine, binding, and enforceable in accordance with the written terms thereof; (e) such Lease Agreement is and will continue to be free from all defenses, setoffs, and counterclaims of any kind; (f) such Lease Agreement conforms with all applicable laws; (g) that the lessee has taken possession of the item of Purchase Money Inventory that is the subject of the Lease Agreement; and (h) the term of such Lease Agreement does not extend beyond the last day of the final Curtailment Date Extension.

 

6.8.                            Lot Representation.  All Vehicles located at RAC’s Place of Business constitute inventory for resale or lease in the ordinary

 

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course of RAC’s business unless the Vehicle is plainly marked otherwise. None of the Vehicles are in RAC’s possession pursuant to a consignment or other agreement providing that someone other than RAC is the Vehicle’s owner or has rights in the Vehicle superior to the rights of RAC or AFC, unless (a) AFC has been notified in writing that such Vehicles are in RAC’s possession and (b) the Vehicles are plainly so marked and identified.

 

6.9.                            Name of RAC.  RAC’s legal name is precisely the name set forth as such on the last page of this Note.

 

6.10.                     Jurisdiction of Organization.  RAC’s jurisdiction of incorporation, organization or other business entity registration is the jurisdiction set forth as such on the last page of this Note.  Upon request, RAC shall furnish to AFC an official certificate from the appropriate governing authority evidencing the current legal status of RAC’s business organization.

 

7.0                               EVENT OF DEFAULT.  Each and every one of the following events shall be considered an Event of Default:

 

7.1                               the default in any payment or repayment when due of any of the Purchase Money Inventory Obligations or Obligations, as provided in the Note;

 

7.2                               AFC’s deeming itself insecure regarding the Collateral or the possibility of RAC’s default in any payment or repayment of any of the Obligations;

 

7.3                               AFC’s receipt of any report indicating that AFC is not prior to all other liens, security interests, mortgages, charges, claims, encumbrances or interests of any kind in the Purchase Money Inventory;

 

7.4                               the default in payment or performance of any debt or obligation of RAC whether to AFC or to a third party;

 

7.5                               AFC determining, in its sole discretion, that any covenant, warranty, representation, or statement made by RAC in connection with this Note, related documents, any Advance or otherwise to or for the benefit of AFC has been breached or is false or misleading;

 

7.6                               the loss, theft, damage, destruction, sale (except as permitted by Section 4.0), or encumbrance of the Collateral, or the making of any levy, seizure, attachment, or execution against RAC or any of its property;

 

7.7                               the inability of RAC or any guarantor to pay debts as they mature, insolvency of RAC or any guarantor, appointment of a receiver for RAC or any guarantor, assignment for the benefit of creditors by RAC, commencement of any proceeding under any bankruptcy or insolvency law by or against RAC or any guarantor, or entry of or issuance of any order of attachment, execution, sequestration, or other order in the nature of a writ is levied upon the Collateral;

 

7.8                               the death or incompetency of RAC if RAC is an individual or any guarantor, or the death, incompetency, or resignation of a principal stockholder, officer, or manager of RAC or any guarantor;

 

7.9                               dissolution, merger or consolidation, or transfer of any substantial part of the property of RAC or of any guarantor; or

 

7.10                        AFC’s determination, in its sole discretion, that control contests or other management disputes within or regarding RAC threaten or may threaten the timely repayment of the Obligations by RAC.

 

8.0                               REMEDIES.

 

8.1                               Whenever an Event of Default shall exist, or at any time thereafter (such a default not having previously been cured), AFC, at its option and without demand or notice of any kind, may declare the Obligations to be immediately due and payable.  Upon such Event of Default, AFC shall have the rights and remedies of a secured party under applicable laws with respect to the Collateral, and any other rights or remedies at law, in equity by agreement or otherwise.  In addition, AFC may by instrument in writing appoint any person to act as a receiver or receiver and manager for all or any part of the Collateral.  AFC may from time to time remove or replace such receiver.  Any receiver or receiver and manager so appointed shall be considered to be the agent of RAC.  AFC shall have the right to pursue any of its rights and remedies separately, successively or concurrently, and the exercise of any right or remedy shall not preclude its subsequent exercise at a later time or the exercise of other rights or remedies.  Without limiting the foregoing, AFC may (a) notify any or all account debtors or obligors of the security interest of AFC in RAC’s accounts or chattel paper and direct payment of same to AFC; (b) demand, receive, sue for and give receipts or acquittances for any moneys due or to become due on any account receivable, Retail Installment Contract, or under any chattel paper or endorse any item representing any payment on or proceeds of the Collateral; (c) assent to any or all extensions or postponements of time of payment or any other indulgence in release of the Collateral, to the addition or release of acceptance of partial payments and the settlement, compromise or adjustment of such claims, all in a manner and at times as AFC shall deem advisable; (d) execute and deliver for value all necessary or appropriate bills of sale, documents of title, and other documents and instruments in connection with the management or disposition of the Collateral or any part thereof; (e) hold, store, keep idle, lease, operate, remove, or otherwise use or permit the use of the Collateral or any part of it, for that time and upon those terms as AFC, in its sole discretion, deems it to be in its own best interests; and (f) take possession of the Collateral and sell the same.  For all such purposes, AFC or any receiver appointed by AFC may, without prior notice, enter upon the premises on which the Collateral is situated (or is believed to be situated) and either cause the Collateral to remain on, be stored on, or managed at such premises at RAC’s expense, pending sale or other disposition of the Collateral or remove the Collateral to such other place as AFC shall determine.  Notwithstanding the foregoing rights, RAC shall, upon AFC’s demand, make the Collateral available to AFC at a place to be designated by AFC which is reasonably convenient to both parties.  RAC hereby consents to the appointment of a receiver by any court of competent jurisdiction without necessity of notice, hearing, or bond.

 

8.2                               Procedures.  AFC may comply with any provision of this Note and any applicable laws in connection with a disposition of the Collateral, and compliance will not be considered adversely to affect the commercial reasonableness of any sale of Collateral.  AFC may sell Collateral without giving any warranties and may specifically disclaim warranties, including warranties of title and the like.  AFC shall not be liable or accountable for the failure to seize, collect, realize, sell, or obtain possession or payment of all or any part of the Collateral and shall not be bound to institute proceedings for the purpose of seizing, collecting, realizing, selling or obtaining possession or payment of same or for the purpose of preserving any rights of AFC, RAC or any other person.  AFC shall not have any obligation to take any steps to preserve rights against prior parties to any Collateral, whether or not in AFC’s possession, and shall not be liable for failure to do so.

 

8.3                               No Obligation to Pursue Others.  AFC shall have no obligation to attempt to satisfy the Obligations by collecting them from any other person liable for them, and AFC may release, modify or waive any Collateral provided by any other person to secure any of the Obligations, all without affecting AFC’s rights against RAC.  RAC waives any right it may have to require AFC to pursue any third person for any of the Obligations.

 

8.4                               Sales on Credit.  If AFC sells any of the Collateral on credit, RAC will be credited only with payments actually made by the purchaser, received by AFC and applied to the indebtedness of the purchaser.  In the event the purchaser fails to pay for the Collateral, AFC may resell the Collateral and RAC shall be credited with the proceeds of the sale.

 

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8.5                               Notice of Sale.  RAC agrees that the Vehicles are a type of collateral customarily sold on a recognized market and that AFC therefore has no obligation to notify RAC, or any other person, prior to their sale.  In the event AFC does send notice prior to sale of any Collateral, RAC agrees that the sending of notice, whether delivered personally, by courier service or by certified or registered mail to any address of RAC set forth in this Note, of the time and place of any public sale or the time after which any private sale or other intended disposition is to be made, shall be deemed reasonable notice thereof.  AFC may, without further notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place at which it was announced at the sale so adjourned.

 

8.6                               Action Against Bond.  To the extent not prohibited by law, RAC authorizes AFC to proceed in an action to collect on or against any bond posted by RAC with any state or local authorities.

 

8.7                               No Marshalling.  AFC shall have no obligation to marshal any assets in favor of RAC, or against or in payment of the Note, any Obligations or any other obligation owed to AFC by RAC or any other person.

 

8.8                               Right of Set-Off.  Upon the occurrence and during the continuance of an Event of Default, AFC is authorized at any time and from time to time, without notice to RAC, to set-off and apply, directly or through any of AFC’s affiliates, any and all deposits (whether general or special, time or demand, provisional or final, or otherwise) and other assets and properties at any time held in the possession, custody or control of AFC or its affiliates, and any indebtedness at any time owing by AFC or its affiliates to or for the credit, account or benefit of RAC, against any and all of RAC’s Obligations.

 

9.0                               GENERAL.

 

9.1                               Indemnification.  RAC shall indemnify and hold AFC harmless from and against any and all liabilities, loss, damage, costs, or expenses of whatever kind or nature relating to claims of third parties arising out of or in any way connected to this Note or RAC’s business affairs including, without limitation, legal fees and expenses incurred both in the defense of any action against AFC and in any action to enforce these indemnity rights as against RAC.

 

9.2                               No Partnership; Joint Venture; RAC’s Business Affairs.  Notwithstanding anything to the contrary herein contained or implied, AFC, by this Note or by any action pursuant hereto, shall not be deemed to be a partner or joint venturer of RAC.  RAC furthermore agrees that notwithstanding the conditions of lending herein, the purchase, lease, or sale of Vehicles or Equipment by RAC is in the ordinary course and, prior to an Event of Default, at the discretion and subject to the business judgment of RAC.  AFC has no responsibility or liability of any kind with regard to the quantity, quality, condition, purchase price, or marketability of any item of Purchase Money Inventory.  AFC is not a party to any loss or gain in the sale of any Purchase Money Inventory sold by RAC.

 

9.3                               Expenses.  RAC agrees to pay in the ordinary course all AFC’s expenses and costs incidental to the financing provided for under this Note.  Such costs shall include, but are not limited to, fees and out-of-pocket expenses incurred by AFC or its counsel (including paralegals and similar persons) and any filing fees, stamp taxes, insurance or other charges associated with the creation, perfection, or maintenance of the security interest granted herein.  RAC agrees that if it fails or refuses to pay any taxes or assessments relating to the Collateral or maintain proper insurance coverage for the Collateral, AFC may, but has no obligation to, pay said taxes or assessments and purchase a policy or policies of insurance and may treat amounts so expended as additional Obligations.  Any amount so paid or advanced by AFC, plus related costs, shall be repaid by RAC on demand and shall bear interest at the highest rate permitted by law from the date of such payment or advance.

 

9.4                               Notices.  All notices, requests, or other communications by RAC required by, permitted under, or relating to this Note shall be in writing.  Any notice shall be effective (a) if delivered personally (or by courier) with signed receipt therefore, or (b) three days after dispatch, if delivered via certified or registered mail, postage prepaid and addressed as follows:

 

If intended for RAC

 

If intended for AFC: then addressed to AFC at the AFC corporate headquarters street address as listed on the web site currently located at URL www.AFCDEALER.com or a successor thereto.

 

All such notices shall be deemed reasonably and promptly given if the effective date thereof is at least five days prior to the event with respect to which notice is given.

 

9.5                               Merger, Modification; Headings; Waiver.  This Note and the documents contemplated hereby are intended by the parties as an amendment and restatement of any prior Promissory Note and Security Agreement or agreements with regard to the subject matter hereof.  Notwithstanding the foregoing, this Note and the documents contemplated hereby contain the entire agreement of the parties with regard to the subject matter hereof, and shall be binding upon and inure to the benefit of the successors and assigns of the parties; however, no obligation or rights of RAC shall be assignable.  RAC authorizes AFC to alter, amend or modify the Terms and Conditions of this Note at any time by posting a copy of such altered, amended or modified Terms and Conditions on the website currently located at URL www.AFCDEALER.COM or any successor website.  Any request for an Advance by RAC and subsequent Advance by AFC pursuant to Sections 2.1, 2.2 or 2.3 shall constitute the assent of the parties to the Terms and Conditions in effect at that time.  The provisions of this Note may not be altered, amended, or modified by RAC except in a writing signed by both parties.  The parties acknowledge that the headings herein are for convenience only and shall not be considered in the interpretation of this Note.

 

9.6                               Usury.  Any provisions of this Note to the contrary notwithstanding, at no time shall RAC be obligated to pay interest at a rate which subjects AFC to either civil or criminal liability as a result of interest being in excess of the maximum rate RAC is permitted by law to contract or agree to pay.  In such circumstances, the rate of interest hereunder shall be deemed to be immediately reduced to such maximum rate, and such interest and the portion of all prior interest payments in excess of such maximum rate shall be applied and shall be deemed to have been payments in reduction of the principal balance of the Obligations as of the date such payment was made.  Any such excess shall be held by AFC for RAC’s benefit without interest and shall be subject to setoff by AFC.

 

9.7                               No Waiver.  No delay or omission by AFC to exercise any right or remedy shall (a) impair any right or remedy, (b) waive any default or operate as an acquiescence to any Event of Default, or (c) affect any subsequent default, right or remedy of the same or of a different nature.

 

9.8                               PPSA.  RAC waives all rights to obtain a verification statement from AFC pertaining to the security interest in favour of AFC, granted by RAC and perfected pursuant to the terms of this Agreement.

 

9.9                               Demand Nature of Credit Facility.  RAC acknowledges and agrees that the financing evidenced by this Note is payable upon demand.  Nothing in this Note is intended to nor shall be deemed to change the demand nature of this Note, including, without limitation, any

 

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reference to Events of Default, to annual financial statements, to Curtailment Dates, to Periods, or otherwise.  RAC acknowledges and agrees that AFC, at any time, without notice and with or without reason, may demand that the Obligations be immediately paid in full.  RAC acknowledges that demand may be made by AFC even if RAC is in compliance with each and every term of this Note.

 

9.10                        Signature.  AFC and RAC expressly agree that AFC may, at AFC’s option, execute this Note and the documents contemplated hereby by way of a signature stamp or other authorized facsimile signature of an AFC officer.  AFC and RAC expressly agree that except as authorized under Section 2.10 or the attached Power of Attorney, RAC may only execute this Note and the documents contemplated hereby by way of an original signature and not by way of a facsimile thereof.

 

9.8                               Enforcement.  AFC and RAC intend and believe that each provision in this Note complies with all applicable laws, statutes and judicial and administrative decisions; however, if any provision in this Note is found by a court of law to be in violation of any applicable laws, statutes, judicial or administrative decisions, or public policy, then it is the intent of the parties of this Note that such provision be given force to the fullest possible extent that it is legal, valid and enforceable, that the remainder of this Note shall be construed as if such provision were not contained herein and that the remainder of this Note continue in full force and effect.

 

9.9                               JURISDICTION AND CHOICE OF LAW.  THIS NOTE AND ANY AND ALL AGREEMENTS OR AUTHORIZATIONS EXECUTED BY RAC OR AFC IN CONNECTION HEREWITH, AS WELL AS ANY GUARANITES HEREOF, SHALL BE GOVERNED BY THE SUBSTANTIVE LAWS OF THE PROVINCE OF ONTARIO, AS AMENDED FROM TIME TO TIME, WITHOUT RESORT TO PRINCIPLES OF CONFLICTS OF LAWS.  BY EXECUTION HEREOF, RAC SUBMITS TO THE PERSONAL JURISDICTION OF THE COURTS OF THE PROVINCE OF ONTARIO.  ANY ACTION INITIATED BY RAC AGAINST AFC RELATING TO THIS NOTE SHALL BE FILED AND CONDUCTED SOLELY IN SAID COURTS.  BY EXECUTION HEREOF, RAC ACKNOWLEDGES THAT IT HAS CONSIDERED ANY AND ALL CONSEQUENCES OF THE CONSENTS TO PERSONAL JURISDICTION, INCLUDING THE POTENTIAL INCONVENIENCES AND INCREASED COSTS THEREOF, AND IS VOLUNTARILY AGREEING TO SAID TERMS AND WAIVING ANY OBJECTIONS THERETO.  NOTWITHSTANDING THE FOREGOING, AFC MAY BRING ANY SUIT AGAINST RAC UNDER OR RELATED TO THIS NOTE IN ANY COURT OF COMPETENT JURISDICTION, AND RAC HEREBY CONSENTS TO AFC’S CHOICE IN FORUM.  RAC FURTHER WAIVES ANY RIGHT WHICH IT MAY HAVE TO REMOVE SUCH LITIGATION OR MATTER TO A FEDERAL COURT OR TO REQUIRE THAT ANY SUCH LITIGATION OR MATTER TAKE PLACE IN A FEDERAL COURT.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR AFC ENTERING INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.

 

9.10                        WAIVER OF JURY TRIAL RIGHTS.  EACH PARTY, AFTER CONSULTING, OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE, HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY, FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN RESPECT TO ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THIS NOTE AND RELATED AGREEMENT(S), INSTRUMENTS OR TRANSACTIONS, OR ANY ASPECT OF THE PAST, PRESENT, OR FUTURE RELATIONSHIP OF THE PARTIES.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR AFC ENTERING INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.

 

9.14                        Arbitration. Except as expressly provided elsewhere in this Agreement, or as otherwise expressly agreed to in writing by Automotive Finance Canada Inc., any and all questions or disputes arising from the operation of, the interpretation of, or, in any way connected with, this Agreement may, at the unilateral discretion and direction of AFC, be submitted for final determination under the provisions of the Arbitration Act, 1991, S.O. 1991, c. 17, (including as amended or replaced during the term of this Agreement). In the event that litigation has been commenced by the Dealer or guarantor(s), (if any), against AFC prior to such submission, the Dealer or guarantor(s), (if any), hereby agree(s) to discontinue, without delay, such litigation permanently. The arbitration shall be conducted by a single arbitrator to be unilaterally selected by AFC, which arbitrator shall be qualified to conduct commercial arbitrations under the provisions of the Arbitration Act, 1991. The proceedings before the arbitrator shall take place in Toronto, Ontario or such other place as the arbitrator may direct. The parties to this Agreement, including guarantor(s), (if any), agree and represent to one another that the decision or award of the arbitrator so appointed shall be final and binding upon such parties and shall not be subject to appeal or judicial review. The parties to this Agreement, including the guarantor(s), (if any), represent to one another that this section constitutes an express agreement between them to arbitrate in the event that AFC, in its sole discretion, decides to submit a question or dispute to arbitration. The parties to this Agreement hereby agree that the costs of the arbitration shall be Obligations as defined in this Agreement.

 

9.15                        Ownership Certificate Processing Fees.  If AFC determines that it is necessary or desirable to transfer or convert the Ownership Certificate or obtain a new or replacement Ownership Certificate for any Vehicle, RAC agrees to pay AFC an Ownership Certificate transfer or processing fee not to exceed for each Ownership Certificate processed, in addition to all of AFC’s expenses and costs incidental thereto, which shall include, but are not limited to, fees and out-of-pocket legal expenses incurred by and any filing fees or taxes.

 

9.16                        Legal Fees Expenses and Costs.  In addition to all other amounts payable hereunder by RAC, RAC agrees to reimburse AFC on demand for any and all legal (including paralegals’ and similar persons’) fees (not less than 15% of the outstanding Obligations where not prohibited by law), accountants’ fees, appraisers’ fees, and all expenses and costs incurred in collecting or enforcing payment of the Obligations hereunder or in curing any default and any and all taxes thereon, including without limitation those fees and costs incurred (a) with or without suit; (b) in any appeal; (c) in any bankruptcy, insolvency or receivership proceeding; and (d) in any post-judgment collection proceedings, plus interest at the rate provided herein.

 

9.17                        Waiver.  If the Dealer is a corporation, the Dealer agrees that no provision of The Limitation of Civil Rights Act (Saskatchewan) shall have application to this Note or any renewal or extension of this Note, and hereby waives any and all benefits and remedies provided by that Act.

 

9.17                        Waiver of Notice.  The Dealer waives the right to receive a copy of any financing statement or financing change statement, or any verification statement issued by any registry confirming the registration of a financing statement or a financing change statement, relating to this Note.

 

9.18                        Communication.  Dealer authorizes AFC to a) send facsimile transmissions to Dealer at the facsimile numbers listed as Dealer’s facsimile number in any communication sent or to be sent to AFC by Dealer; b) make telephone calls to Dealer at the telephone numbers listed as Dealer’s telephone number in any 

 

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communication on sent or to be sent to AFC by Dealer; c) send emails to Dealer at the email addresses listed as Dealer’s email address in any communication sent or to be sent to AFC by Dealer; and e) communicate to Dealer via any and all other forms of communications for the purpose of marketing, collection, and for any other communication needs.  This permission will remain in effect until cancelled in writing by the Dealer.

 

RAC’s Name and RAC’s Place(s) of Business:

 

WHEREFORE, the parties have, by their duly authorized representatives, executed this Note on the       .

 

	
Dealer:
    	
 
    	
Automotive Finance Canada Inc.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
An AFC Officer
    
	
 
    	
 
    	
To be executed at AFC corporate office
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    

 

8

 

TERM SHEET FOR

DEMAND PROMISSORY NOTE AND SECURITY AGREEMENT

 

RAC:  LEGAL NAME

 

Date of Original Note:

 

The following terms, as defined in the Demand Promissory Note and Security Agreement, shall apply effective immediately:

 

Floorplan Fee:  The Floorplan Fee shall be      .  Notwithstanding anything to the contrary herein, RAC shall pay AFC the Floorplan Fee for at least         Periods (“Minimum Periods”), regardless of whether such item of Purchase Money Inventory has been paid in full or disposed of by RAC before those Periods have expired (“Additional Payment”).  If an item of Purchase Money Inventory has been sold or paid in full before the end of the Minimum Periods, this Additional Payment shall be considered part of the Purchase Money Inventory Obligation for that item of Inventory and shall be paid when the remaining Purchase Money Inventory Obligations for that item of Inventory are due.

 

Interest:  Interest shall accrue on all Advances under this Note at a variable rate, adjusted each business day, based upon the most recent Prime Rate plus      .

 

Mileage Limit — shall be:  The lower of (a)        or        as measured by the odometer that each item of Purchase Money Inventory can be driven before payment to AFC is required under section 2.5 or (b)       or       as measured by the odometer that each item of Purchase Money Inventory can be driven after the date of Advance before payment to AFC is required under Section 2.5.

 

Number of Curtailment Date Extensions:  The Number of Curtailment Date Extensions shall be limited to      .  If Dealer is in compliance with all other provisions of this Note, AFC may, in its sole discretion, permit an extension of the Curtailment Date for an item of Purchase Money Inventory for a Period, upon the payment of Interest, Floorplan Fee(s), and a principal reduction of a minimum of      % of the Advance (excluding any payments with respect to such Advance) relating to such item of Purchase Money Inventory.  Notwithstanding the foregoing for any item of Purchase Money Inventory was manufactured either directly or indirectly by the manufacturers commonly known as       or any of their subsidiaries or sister companies, then such principal reduction shall equal a minimum of       of the Advance (excluding any payments with respect to such Advance) relating to such item of Purchase Money Inventory.

 

Period:  The Period shall be      .

 

Executed by the undersigned duly authorized representatives effective as of the      .

 

	
RAC:
    	
 
    	
Automotive   Finance Canada Inc.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
An AFC Officer
    
	
 
    	
 
    	
To be executed at AFC corporate office.
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    

 

 

EXHIBIT A

 

POWER OF ATTORNEY

 

KNOW ALL BY THESE PRESENTS:

 

In accordance with the Demand Promissory Note and Security Agreement between Automotive Finance Canada Inc. (“AFC”) and (“RAC”), to which reference is made for the meaning of all capitalized terms used herein, a power of attorney is hereby conferred by RAC upon AFC, an Ontario corporation, the principal office of which is located at 13085 Hamilton Crossing Blvd, Suite 300, Carmel, IN 46032 to:

 

(a)         act with general authority with respect to all personal property of the RAC and transactions involving or relating to the same;

(b)         act on behalf of RAC to assign, reassign, or obtain evidence of ownership in connection with transactions involving Purchase Money Inventory, Collateral and other property of RAC;

(c)          act on behalf of RAC to prepare, sign, endorse, execute and deliver documents including, but not limited to financing statements, financing charge statements, notes, checks, drafts in connection with transactions involving Purchase Money Inventory, Collateral and other property of RAC;

(d)         act with general authority with respect to claims and litigation of or relating to Purchase Money Inventory, Collateral, and other property of RAC;

(e)          act with general authority with respect to delegating authority;

(f)           act with general authority with respect to insurance, and accounts or transactions with banks and other financial institutions, of or relating to Purchase Money Inventory, Collateral, and other property of RAC; and

(g)          act with general authority regarding all other matters which AFC may, in its sole discretion, deem expedient, reasonable, or necessary in the discharge of the authority hereby conferred — all as if done by RAC directly.

 

RAC shall indemnify, defend and hold harmless AFC, its affiliates, subsidiaries, officers, directors, employees, representatives, successors, and assigns from and against any and all loss, damage, liability, claims, cause of action, and expenses of whatever kind, arising from the exercise of authority hereunder.  The liability of AFC and/or any person to whom it delegates authority hereunder, to RAC or any third person shall be limited to acts in bad faith.  This power of attorney shall be irrevocable until such time as each and every Obligation of RAC to AFC has been satisfied in full.  The revocation or termination hereof shall be ineffective unless and until actual notice or knowledge of such revocation or termination shall have been received by the parties acting under this power of attorney.  This power of attorney shall be governed by the substantive laws of the Province of Ontario without resort to principles of conflicts of law.  This power of attorney is to continue notwithstanding any mental incapacity or infirmity that occurs after the execution of the power of attorney.

 

	
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EXHIBIT B

 

UNCONDITIONAL AND CONTINUING GUARANTY

 

TO:                         AUTOMOTIVE FINANCE CANADA INC.

 

	
DATE:
    	
 
    	
[NOTE: Maker/Primary obligor on Note should   also sign Guaranty]
    

 

FOR VALUE RECEIVED, and in consideration of credit and services given or to be given to              (“Debtor”) by Automotive Finance Canada Inc. (“AFC”), the undersigned hereby severally guaranty the full and prompt payment, when due, whether by acceleration or otherwise, together with interest and all costs, expenses and legal fees, of any and all obligations of the Debtor to AFC including such indebtedness as may be encompassed by the term “Obligations” as defined in the Demand Promissory Note and Security Agreement executed by and between AFC and Debtor, as amended, supplemented or modified from time to time, whether or not such amounts exceed any advance limit applicable to Debtor or communicated to the undersigned (hereinafter collectively referred to as the “Liabilities”).  This is an irrevocable, unconditional and continuing guaranty; it shall cover and secure any amount at any time owing on the Liabilities.

 

The undersigned each hereby waive any and all presentment, demand, protest and notice of dishonor, non-payment or other default with respect to any of the Liabilities.  The undersigned each hereby grant to AFC full power to deal in any manner with the Liabilities without notice to the undersigned, including, but without limiting the generality of the foregoing, the following powers: (a) to modify or otherwise change any terms of all or any part of the Liabilities or the rate of interest thereon, to grant any extension or renewal thereof, and any other indulgence with respect thereto, and to effect any release, compromise or settlement with respect thereto; and (b) to enter into any agreement of forbearance with respect to all or any part of the Liabilities or with respect to all or any part of the collateral related thereto and to change the terms of any such agreement.  The obligations of the undersigned hereunder shall not be released, discharged or in any way affected, nor shall the undersigned have any rights or recourse against AFC by reason of any action AFC may take or omit to take under the foregoing powers.

 

If a claim is made upon AFC at any time for repayment or recovery of any amount(s) or other value received by AFC, from any source, in payment of or on account of any of the Liabilities of the Debtor guarantied hereunder and AFC repays or otherwise becomes liable for all or any part of such claim by reason of: (a) any judgment, decree or order of any court or administrative body having competent jurisdiction; or (b) any settlement or compromise of any such claim, the undersigned shall remain severally liable to AFC hereunder for the amount so repaid or for which AFC is otherwise liable to the same extent as if such amount(s) had never been received by AFC, notwithstanding any termination hereof or the cancellation of any note, instrument, or other agreement evidencing any of the Liabilities.

 

In case the Debtor shall fail to pay all or any part of the Liabilities when due, whether by acceleration or otherwise, according to the terms thereof, the undersigned will immediately pay the amount due and unpaid by the Debtor in like manner as if such amount constituted the direct and primary obligation of the undersigned.  AFC shall not be required, prior to any such payment by or demand on the undersigned, to make any demand upon or pursue or exhaust any of its rights or remedies against the Debtor or others with respect to the payment of any of the Liabilities.

 

Notwithstanding anything to the contrary in this guaranty, the undersigned each hereby irrevocably waive(s) all rights he/she may have at law or in equity (including, without limitation, any law subrogating the undersigned to the rights of AFC) to seek contribution, indemnification, or any other form of reimbursement from the Debtor, any other guarantor, or any other person hereafter primarily or secondarily liable for any obligations of the Debtor to AFC, for any payment made by the undersigned under or in connection with this guaranty or otherwise.  The undersigned furthermore waive: (a) all defenses based on suretyship, notice, or impairment of collateral; and (b) any defenses which the Debtor may assert on the Liabilities including but not limited to failure of consideration, breach of warranty, fraud, payment, statute of frauds, bankruptcy, lack of legal capacity, statute of limitations, lender liability, accord and satisfaction, and usury.

 

This guaranty is in addition to and not in substitution for any other guaranty or other securities which AFC may now or hereafter hold for all or any part of the Liabilities, and AFC shall not be under any other obligation to marshal in favor of the undersigned any other guaranties or other securities or any monies or other assets which AFC may be entitled to receive or may have a claim upon.  No loss of or in respect of or unenforceability of any other guaranties or other securities which AFC may now or hereafter hold in respect of any of the Liabilities, whether resulting from the fault of AFC or otherwise, shall in any way limit or lessen the undersigned’s liability under this guaranty.

 

The undersigned understand and agree that no loans made by the undersigned to the Debtor are permitted to be repaid by the Debtor while this guaranty or any indebtedness to AFC is outstanding.  All debts and liabilities, present and future, of Debtor to the undersigned are hereby assigned to AFC and postponed to the Liabilities, and all monies received by the undersigned in respect thereof shall be received in trust for AFC and forthwith upon receipt shall be paid over to AFC, unless prior written authorization to the contrary has been obtained from AFC, without in any way lessening or limiting the liability of the undersigned under this guaranty.  This assignment and postponement is independent of the guaranty and shall remain in full force and effect until repayment in full to AFC of all the Liabilities, notwithstanding that the liability of the undersigned under this guaranty may have been discharged or terminated.

 

This guaranty shall not be discharged or otherwise affected by the death or loss of capacity of the Debtor, by any change in the name of the Debtor, or (if a partnership, limited liability company or other membership organization) by any change in the membership of the Debtor or (if a corporation) by any change in the officers, capital structure, by-laws or articles of the Debtor, by the sale of the Debtor’s business or any part thereof, by the Debtor being reorganized or being amalgamated with one or more other corporations or other entities, by the Debtor becoming bankrupt or insolvent or by any other matter or thing whatsoever but shall continue to apply to all Liabilities whether incurred before or after any such event.  In the case of a change in the membership of the Debtor or in the case of the Debtor being reorganized or being amalgamated with one or more other entities, this guaranty shall apply to the liabilities of the resulting entity, and the term “Debtor” includes each such resulting entity.  This guaranty shall not be discharged or otherwise affected by the death of the undersigned.

 

The undersigned hereby warrants to AFC that the undersigned has by independent means made himself/herself fully aware of Debtor’s financial condition.  The undersigned agrees to pay all costs, expenses, and legal fees incurred by AFC in the enforcement of this guaranty.

 

Whenever possible each provision of this guaranty shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this guaranty.

 

1

 

EXHIBIT C

 

THIS GUARANTY SHALL BE GOVERNED BY THE SUBSTANTIVE LAWS OF THE PROVINCE OF ONTARIO, AS AMENDED FROM TIME TO TIME, WITHOUT RESORT TO PRINCIPLES OF CONFLICTS OF LAWS.  BY EXECUTION OF THIS GUARANTY, THE UNDERSIGNED SUBMITS TO THE PERSONAL JURISDICTION OF THE COURTS OF THE PROVINCE OF ONTARIO AND THE UNDERSIGNED WAIVES ANY OBJECTIONS THERETO.  ANY ACTION INITIATED BY THE UNDERSIGNED AGAINST AFC RELATING TO THIS GUARANTY SHALL BE FILED AND CONDUCTED SOLELY IN SAID COURTS.  AFC MAY BRING ANY SUIT RELATING TO THIS GUARANTY IN ANY COURT OF COMPETENT JURISDICTION, AND THE UNDERSIGNED HEREBY CONSENTS TO AFC’S CHOICE OF FORUM.

 

EACH PARTY, AFTER CONSULTING, OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE, HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY, FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN RESPECT TO ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR AFC ENTERING INTO THIS GUARANTY AND THE TRANSACTIONS CONTEMPLATED HEREBY.

 

All rights, powers, privileges and immunities of AFC hereunder shall inure to the benefit of the successors and assigns of AFC, and shall be binding upon each of the undersigned, his/her personal representatives, heirs and assigns.

 

Witness the hand and seal of the undersigned the day and year first above written.

 

 

 

 

 

 

	
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[Alberta Guarantor(s) Only]

 

THE GUARANTEES ACKNOWLEDGEMENT ACT (ALBERTA) CERTIFICATE OF NOTARY PUBLIC

 

I HEREBY CERTIFY THAT:

 

1.                                                                                                            of                                                                                               , the Guarantor in the above Guarantee, appeared in person before me and acknowledged that he/she had executed the Guarantee;

2.              I satisfied myself by examination of him/her that he/she is aware of the contents of the Guarantee and understands it.

 

Given at                                                                            this                                  day of                                                                                                   , under my hand and seal of office.

 

	
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Dealer Application (CANADA)

 

Dealership

 

Line Requested:                                                        Plate Number:

Company Name:

Address:

 

Phone:                                                                                                          Fax:

Type of Business:                                               # of years in Business:

Organization Type:                                                                                       GST ID#:

Doing Business As: (Yes or No)

 

Officers and Owners

 

	
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Insurance

 

Type:                                                                                                                Policy #:                                                                                                 Insurance Company:                                                                                                                                                                            Amt:

Type:                                                                                                                Policy #:                                                                                                 Insurance Company:                                                                                                                                                                            Amt:

 

Banking Relations

 

Bank:                                                                                                                                                                                                                                                              Account:                                                                                                                                              Bank Phone #:

Bank:                                                                                                                                                                                                                                                              Account:                                                                                                                                              Bank Phone #:

 

I hereby certify that the information contained within this application and on any accompanying financial statements is true, complete, and accurate and portrays a correct and precise financial picture of the dealership, the officers (if applicable), the stockholders (if applicable), and the guarantors.  I authorize Automotive Finance Canada Inc. (“AFC”) to obtain credit information from a credit bureau and any financial institution or trade creditor that I have provided as well as any other credit investigation that AFC in AFC’s sole discretion deems necessary for the purposes of assessing my credit worthiness.  I also authorize AFC to contact any third parties and to disclose information, including information contained in this application, for the purpose of, among other things, obtaining intercreditor agreements and perfecting AFC’s security interest.  I also authorize AFC to disclose the information to any of its affiliates and subsidiaries and parent companies.  Further, if a credit line is granted, I authorize AFC to review my account periodically, which could include obtaining additional credit reports for the purposes of assessing my credit worthiness and collection of any outstanding debt.  I authorize AFC to disclose credit information into any credit database.  I authorize AFC to a) send facsimile transmissions to me at the facsimile numbers listed as my facsimile number in any communication sent or to be sent to AFC by me; b) make telephone calls to me at the telephone numbers listed as my telephone number in any communication sent or to be sent to AFC by me; c) send emails to me at the email addresses listed as my email address in any communication sent or to be sent to AFC by me; and e) communicate to me via any and all other forms of communications, for the purposes of marketing, collection and any other communication needs.  I agree that this permission will remain in effect until cancelled by me in writing.

 

	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
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AFC Use Only

 

	
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Line Amt.:

Contract Date:                                     Computer Number:                              Dealer Number:

Fee:                                        Interest:                             Branch Number:

Terms:

Auction City:                                                                                                                                                                                                                                                                                                                                              Auction Province:

 

 

DEMAND PROMISSORY NOTE AND SECURITY AGREEMENT

 

FOR VALUE RECEIVED, the undersigned dealer (“Dealer”) hereby promises to pay to the order of Automotive Finance Canada Inc., an Ontario corporation (“AFC”), with an office address in the United States listed on the web site currently located at URL www.AFCDEALER.com or a successor thereto or such other place as AFC may designate, the principal sum of       ($     ) (the “Aggregate Advance Limit”) or such greater or lesser principal amount as may be outstanding pursuant hereto and all other Obligations, as defined herein.

 

Until demand by AFC or until an Event of Default (at which time the Obligations shall at AFC’s option and without notice become immediately due and payable in full), Dealer shall pay the Obligations as provided in Section 2.6.

 

The Dealer: (a) waives demand and presentment for payment, protest, notice of protest and notice of non-payment or dishonour of this Note; (b) consents to any extension of the time of payment hereof; (c) waives all defences based on suretyship or impairment of collateral; and (d) waives any defences which the Dealer may assert on the Obligations including but not limited to failure of consideration, breach of warranty, fraud, payment, statute of frauds, bankruptcy, lack of legal capacity, statute of limitations, lender liability, accord and satisfaction, and usury.

 

In consideration of the premises and the mutual covenants and conditions contained herein, the parties further agree as follows:

 

AGREEMENT

 

1.0                               DEFINITIONS.  When used herein, the following terms shall have the following meanings:

 

1.1                               Advance - discretionary loan(s) to Dealer or payment(s) on behalf of Dealer by AFC pursuant to the terms of this Note.

 

1.2                               Aggregate Advance Limit - the maximum lending limit, as set forth above.

 

1.3                               Check - a payment by or on behalf of Dealer to AFC which is other than a payment in cash or via certified funds.

 

1.4                               Collateral — all of Dealer’s assets and properties wherever located, including without limitation (a) all machinery, furniture, and Equipment of any kind now owned or held, or hereafter acquired or held by Dealer, (b) all Vehicles, vehicle parts, and other inventory of any kind now owned or held, or hereafter acquired or held by Dealer, including, without limitation, the Purchase Money Inventory as hereinafter defined, (c) all documents, including but not limited to accounts, Retail Installment Contracts, chattel paper, electronic chattel paper, leases, insurance policies, instruments, fixtures, investment property, monies, certificates of deposit, deposit accounts, letter of credit rights, supporting obligations, and general intangibles (including payment intangibles) now owned or hereafter acquired by Dealer, (d) any and all proceeds, products, additions, accessions, accessories, and replacements of the foregoing, (e) all of Dealer’s computer records, software, business papers, ledger sheets, files, books, and records relating to the foregoing, now owned or hereafter acquired, and (f) the following:

 

1.5                               Curtailment Date - that certain day at the end of the Period when all Obligations concerning or relating to an item of Purchase Money Inventory become due and payable.

 

1.6                               Dealer’s Place of Business - any or all of the following locations: (a) the place where the Collateral and Dealer’s books and records are kept; (b) the place from which Dealer’s business affairs and operations are conducted, unless otherwise disclosed in writing to AFC by Dealer; and (c) the place where Dealer’s registered office is located.

 

1.7                               Equipment — all goods, other than inventory, of any kind and wherever located.

 

1.8                               Floorplan Fee - that non-refundable fee payable to AFC by Dealer in the amount set forth on the Term Sheet for each Period, or portion thereof, in which an Advance for each individual item of Purchase Money Inventory is outstanding, provided that in the event no Term Sheet is executed and effective, then the Floorplan Fee shall be equal to      .  Notwithstanding the foregoing or any provision in the Term Sheet to the contrary, AFC reserves the right to charge a Floorplan Fee in a higher amount as a condition to making an Advance if, in its sole discretion, AFC determines that the circumstances so warrant.

 

1.9                               Interest - those finance charges owed by Dealer to AFC on all Obligations, which charges shall begin to accrue on the earliest of (i) the date of each request for an Advance or (ii) the date that an Obligation is incurred, or (iii) the date the item of Purchase Money Inventory is purchased by Dealer.  Prior to an Event of Default, Interest shall accrue at the rate of interest (based on a 360 day year) listed on the Term Sheet, as amended form time to time.  If no Term Sheet is executed or effective, then interest shall accrue on the Obligations at a variable rate (based on a 360 day year), adjusted each business day , equal to the prime rate then charged by the Canadian Imperial Bank of Commerce (“Prime Rate”) plus       per annum.  After an Event of Default, interest shall accrue at a variable rate (based upon a 360 day year), equal to the Prime Rate at the time Interest began to accrue for the Obligations associated with each item of Purchase Money Inventory plus       per annum.  For purposes of the Interest Act (Canada), where an interest quoted in this agreement is based on a year of 360 days, the yearly rate to which such interest rate is equivalent is calculated by multiplying such interest rate by the actual number of days in the relevant calendar year and dividing the product thereof by 360.

 

1.10                        Late Fee - that non-refundable fee payable to AFC by Dealer, in the amount equal to the Floorplan Fee for each item of Purchase Money Inventory, assessed each week, or portion thereof, that Dealer fails to repay Obligations under this Note when due as provided by this Note.  Dealer agrees that this Late Fee is a reasonable estimate of AFC’s probable losses due to the delay, inconvenience, and administrative expenses associated with late payment. AFC may also include in the Late Fee an amount equal to the greater of       or the maximum amount permitted by law for each Check tendered to AFC, by or on behalf of Dealer, that is subsequently dishonoured, in addition to any charge or fee imposed by the financial institution for each returned or dishonoured item and any other charges or fees permitted by law.

 

1.11                        Note - this Demand Promissory Note and Security Agreement.

 

1.12                        Number of Curtailment Date Extensions - that number of times set forth on the Term Sheet, that the Curtailment Date may be extended for an item of Purchase Money Inventory pursuant to this Note, provided that in the event no Term Sheet is executed and effective, the Number of Curtailment Date Extensions shall be zero (0).

 

1.13                        Obligations - all Advances, debts, liabilities, financial obligations, charges, expenses, costs, fees, legal fees, costs of collection, covenants, and duties owing, arising, due, or payable from Dealer to AFC or from AFC to any third party on behalf of Dealer of any kind or nature, present or future, under any instrument, guaranty, or other document whether arising under this Note or any other agreement, whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or become due, now existing or hereafter arising and however acquired including, without limitation, all Interest, Floorplan Fee(s) and Late Fee(s), and other expenses, costs or fees provided for herein.

 

1.14                        Ownership Certificate - the document issued by a duly authorized province or government agency evidencing ownership of a Vehicle.

 

1

 

 

1.15                        Period - that number of days set forth on the Term Sheet, beginning on the date of an Advance and ending on the Curtailment Date that an item of Purchase Money Inventory will be financed by AFC pursuant to this Note, provided that in the event no Term Sheet is executed and effective, then the Period shall be       days.

 

1.16                        Purchase Money Inventory - any and all Vehicles, vehicle parts, or property of any kind, now or hereafter acquired by Dealer with an Advance or which served as the basis for an Advance.

 

1.17                        Retail Installment Contract - that contract of sale and the related security agreement, whether or not constituting chattel paper, whereby Dealer sells Purchase Money Inventory to a retail customer in the ordinary course of Dealer’s business.

 

1.18                        Term Sheet - that agreement in effect from time to time executed by Dealer and AFC containing information including but not limited to the Floorplan Fee, Interest and Period, in the form similar to Exhibit A.

 

1.19                        Terms and Conditions — All provisions of this Note, excluding any language specifically referencing the dollar amount of Dealer’s Aggregate Advance Limit.

 

1.20        Vehicle - a vehicle, driven or drawn by mechanical power, manufactured primarily for use on the public streets, roads, and highways.

 

2.3                               FINANCING PROCEDURES.

 

2.4                               Discretionary Advances.  AFC may, in its sole discretion, from time to time make an Advance to or on behalf of Dealer for the purpose of enabling Dealer to purchase and/or hold Purchase Money Inventory for resale, and for other purposes as provided herein.  Dealer acknowledges and agrees that AFC may, with or without cause, refuse to make an Advance.  Dealer further agrees that AFC’s decision to make an Advance shall be binding only if it is in writing and signed by AFC.  Dealer and AFC agree that Dealer is not obligated to finance any Purchase Money Inventory, or any other assets, through AFC.

 

2.5                               Advance Requests: Purchase Money Inventory.  Dealer may request an Advance for the purpose of enabling Dealer to purchase and hold an item of Purchase Money Inventory for resale by providing AFC with: (a) a copy of the bill of sale which indicates the vendor and the actual purchase price of the Purchase Money Inventory; and (b) as to Vehicles, an Ownership Certificate or similar document duly assigned to Dealer.

 

2.6                               Advance Requests: Other Purposes.  Dealer may request an Advance for purposes other than enabling Dealer to purchase and hold an item of Purchase Money Inventory for resale by providing AFC with: (a) a written request setting forth the purpose for the requested Advance, and (b) such other information as AFC may require.  If AFC elects to make any such Advance, the Advance shall be deemed an additional Obligation under this Note from the date on which the Advance is made.

 

2.7                               Conditions to Advances.  At AFC’s election, as a condition precedent to an Advance, Dealer shall deliver to AFC, at AFC’s request, a certificate in a form acceptable to AFC certifying that (a) no Event of Default has occurred or is continuing, (b) Dealer is in complete compliance with the terms and conditions of this Note, (c) all prior Advances made for the purpose of enabling Dealer to purchase an item of Purchase Money Inventory have only been used to purchase Vehicles encumbered by this Note, (d) no material adverse effect to the operation or prospects of Dealer (financial, business, labor or otherwise) exists or is threatened, (e) no checks issued by Dealer to AFC have been dishonored, and (f) such other information as AFC may request.  In addition, if the Advance request is for the purpose of enabling Dealer to purchase and hold an item of Purchase Money Inventory for resale, Dealer shall deliver to AFC, at AFC’s request, a certificate in a form acceptable to AFC, certifying that the Advance will only be used to purchase Vehicles encumbered by this Note.

 

2.8                               Advances Without Request.  If at any time Dealer is in default on any obligation to a third party, AFC may in its sole discretion elect, but is not required, to make payment or transfer on Dealer’s behalf to the third party, in any amount up to the total obligation owed by Dealer to the third party, as a means of satisfying Dealer’s obligation to the third party in whole or in part.  If AFC elects to make any such payments or transfers, they shall be deemed additional Obligations under this Note from the date on which the payment or transfer is made.  Such payments or transfers may be made without prior notice to Dealer and without regard to any Aggregate Advance Limit then in effect for Dealer.

 

2.11                        Repayment of Obligations.  Dealer shall pay to AFC at the offices of AFC all Obligations, on demand and without notice, with respect to an item of Purchase Money Inventory on the earlier of: (a)       hours after the disposition by sale or otherwise of an item of Purchase Money Inventory; or (b) the Curtailment Date.  All payments shall be made in lawful money of Canada and in immediately available funds.  The order and method of application of such payments of the Obligations shall be in the discretion of AFC.

 

2.12                        Extension of Curtailment Date.  If Dealer is in compliance with all other provisions of this Note, AFC may, in its sole discretion, permit an extension of the Curtailment Date relative to an item of Purchase Money Inventory for a Period, upon the payment of Interest, Floorplan Fee(s) and a minimum of       Percent (     %) of the outstanding Advance relating to such item of Purchase Money Inventory.

 

2.13                        Presumptions Regarding Outstanding Balance.  The date and amount of each Advance made by AFC and of each repayment of principal or interest thereon shall be recorded by AFC.  The aggregate unpaid principal amount, interest, fees, and other Obligations so recorded by AFC shall constitute prima facie evidence of the sums owing and unpaid under this Note; provided, however, that the failure by AFC to so record any such amount or any error in so recording any such amount shall not limit or otherwise affect the liability of Dealer under this Note to repay the Obligations.

 

2.14                        Purchase Money Inventory.  At any and all reasonable times Dealer shall allow AFC’s officers, employees, agents, lawyers, designees and representatives (including but not limited to representatives of AutoVin, Inc.) access to Dealer’s books and records and the Dealer’s Place of Business for the purpose of conducting an audit of Dealer’s inventory to determine that any and all items of Purchase Money Inventory for which an Advance is outstanding are in fact in Dealer’s custody and control.  Dealer agrees to pay all of AFC’s expenses in conducting each such audit.

 

2.15                        Authorization of AFC.  By execution of this Note, Dealer authorizes AFC and any of its officers or employees to execute and file, on behalf of Dealer and without Dealer’s signature, financing statements, financing change statements and all other types of documents specified by applicable personal property security and other laws, and any other documents AFC deems necessary or desirable to protect its interests.  Dealer authorizes AFC to supply any omitted information and correct errors in any document executed by or on behalf of Dealer, and to contact any bank or other financial institution to obtain account information concerning Dealer.  Dealer authorizes AFC to obtain credit information from a credit bureau, and any financial institutions or trade creditor that Dealer has provided as well as other credit investigation that AFC in AFC’s sole discretion deems necessary.  Dealer also authorizes AFC to contact any third parties to disclose information, including information contained in this application, for the purpose of, among other things, obtaining intercreditor agreements and perfection of AFC’s security interest.  Further, if a credit line is granted, Dealer authorizes AFC to review Dealer’s account periodically, which could include obtaining

 

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additional credit reports.  In addition, Dealer shall execute the Power of Attorney attached hereto as Exhibit B.

 

3.1                               GRANT OF SECURITY INTEREST.  As security for the payment and performance of the Obligations,  Dealer grants to AFC a continuing security interest in the Collateral.  Dealer understands and agrees that AFC at all times intends to maintain the status of a purchase money secured creditor with priority rights in the Purchase Money Inventory as provided under the applicable laws.

 

4.1                               SALES OF PURCHASE MONEY INVENTORY.  Unless and until an Event of Default shall have occurred, Dealer may sell the Purchase Money Inventory to bona fide buyers in the ordinary and regular course of Dealer’s business, but nothing herein shall be deemed to waive or release any interest AFC may have hereunder or under any other agreement in any proceeds or replacements of the Purchase Money Inventory.  Upon the sale of any item of Purchase Money Inventory, Dealer shall hold the amount received from the disposition of inventory in trust for the benefit of AFC and Dealer shall pay to AFC, in accordance with Section 2.6, an amount equal to the unpaid balance of the Obligations relating to such Purchase Money Inventory.

 

5.14                        DEALER’S COVENANTS.  Until payment in full of all of the Obligations or unless AFC shall otherwise consent in writing, Dealer covenants and agrees as follows:

 

5.15                        Disposition of Purchase Money Inventory.  Unless Purchase Money Inventory is the subject of a Retail Installment Contract that satisfies the requirements of Section 6.7 or is sold pursuant to Section 4.0, Dealer shall not attempt to or actually, sell, lease, transfer, mortgage, encumber, or otherwise dispose of the Purchase Money Inventory, any part thereof, or any interest therein, or remove, for a period exceeding twenty-four (24) hours, any item of Purchase Money Inventory from the Dealer’s Place of Business. In addition, Dealer shall keep the Purchase Money Inventory free from any lien, security interest, mortgage, claim, charge or other encumbrance, other than those granted pursuant to this Note or permitted in writing by AFC.

 

5.16                        Unconditional Payment Obligation.  Dealer’s obligation to make full payment under this Note is unconditional and shall not be affected by claims or disputes Dealer may have against any other person, including but not limited to claims or disputes Dealer may have against any person or entity who transferred, conveyed, or sold one or more Vehicles to Dealer.

 

5.17                        Maintenance of Collateral.  Dealer shall keep and maintain the Purchase Money Inventory in good repair and safe condition, and not cannibalize, alter or substantially modify the Collateral, nor secrete or conceal the Collateral.

 

5.18                        Dealer’s Books and Records.  Dealer has kept and shall continue to keep true and accurate books and records concerning its business affairs and the Collateral.  Such books and records shall contain full and correct entries of all business transactions and shall be kept in accordance with generally accepted accounting principles consistently applied. Dealer shall at least annually and upon request furnish financial statements to AFC based upon said books and records and upon request shall permit AFC to make extracts from and receive from Dealer originals or true copies of Dealer’s books and records and any papers relating to the Collateral.  All financial statements submitted to AFC shall fairly present the financial condition of Dealer and any other person or entity identified in such financial statements as of the preparation date.  Dealer shall notify AFC, in writing, of any material adverse change in the financial condition of Dealer as compared to any prior financial statements submitted to AFC.

 

5.19                        Insurance.  Dealer shall keep the Collateral insured against such risks and in an amount equal to the Aggregate Advance Limit or such lesser amount as AFC may from time to time permit and with such insurer or insurers as AFC may from time to time approve.  Dealer shall provide AFC, or AFC’s designees, with copies of its policies of insurance covering the Collateral together with evidence that the premium therefor has been paid and that AFC has been named as loss payee or additional insured on such policies.  The proceeds of loss under such policies are hereby assigned to AFC.  If AFC determines, in its sole discretion, that Dealer has not maintained adequate insurance coverage for the Collateral, AFC may, but has no obligation to, purchase a policy or policies of insurance (through forced placement or otherwise) and may treat amounts so expended as additional Obligations.  The risk of loss or damage to the Collateral shall at all times remain solely with Dealer.

 

5.20                        Litigation Notice.  Dealer shall provide to AFC within five (5) days after service of process, notice of any litigation, arbitration, or other proceeding by or before any court, governmental agency, or entity affecting Dealer.

 

5.21                        Taxes.  Dealer has paid and shall pay all taxes and assessments relating to its business affairs and shall pay all taxes and assessments at any time levied on the Collateral as and when the same become due and payable in the ordinary course.  If Dealer fails to pay taxes or assessments relating to the Collateral, AFC may, but has no obligation to, pay said taxes or assessments and may treat amounts so expended as additional Obligations.

 

5.22                        Further Assurances.  Dealer shall execute any and all documents necessary to confirm an Advance or perfect AFC’s lien and security interest in the Collateral.  Dealer shall, at any time and at the request of AFC, assign in writing any or all Retail Installment Contracts and deliver the originally executed Retail Installment Contracts to AFC.

 

5.23                        Acknowledgments.  Dealer acknowledges that AFC has relied on Dealer’s Covenants and Dealer’s Representations and Warranties as delineated in this Note, and is not charged with any contrary knowledge that may be ascertained by examination of the public records, or that may have been received by any officer, director, agent, employee, representative or shareholder of AFC.

 

5.24                        Changes in Dealer’s Business.  Upon the execution of this Note, Dealer shall provide AFC with a document listing Dealer’s Place of Business.  Dealer shall provide AFC written notice within 30 days of any of the following: (a) any change in Dealer’s Place of Business or chief executive office, (b) any change in the corporate, business or ownership structure of Dealer, (c) any change in the jurisdiction of incorporation, organization or business entity registration of Dealer, (d) any change in the legal name or trade name of Dealer, (e) any consolidation or merger with any other person or entity, (f) any change in control of Dealer, (g) any sale, transfer or issuance of equity securities or reclassification, readjustment or other change in capital structure, or (h) any amendment to Dealer’s articles, by-laws or other organizational documents.

 

5.25                        Notice to Account Debtors.  Dealer shall, at any time and at the request of AFC, notify any or all account debtors or obligors that AFC has the right to enforce Dealer’s rights against the account debtors or obligors, that AFC has a security interest in the accounts and chattel paper, and that the account debtors and obligors must direct payment to AFC.

 

5.26                        Guaranties.  At the request of AFC prior to the execution of this Note and at any time thereafter, Dealer shall deliver to AFC a duly executed guaranty or guaranties of a third party or parties in the form attached hereto as Exhibit C.

 

5.27                        Control Agreements.  Dealer shall cooperate with AFC in obtaining control agreements or other agreements in form and substance satisfactory to AFC with respect to Collateral consisting of deposit accounts, certificates of deposit, investment property, letter of credit rights and electronic chattel paper.  In the event satisfactory control agreements or other agreements cannot be obtained, Dealer

 

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shall cooperate with AFC in placing the account or other property in AFC’s name as owner or co-owner.

 

6.3                               DEALER’S REPRESENTATIONS AND WARRANTIES.  On the date of this Note and until the Obligations are paid in full and Dealer has performed all of its obligations hereunder, the representations and warranties contained in this Note and every factual matter in any other document delivered to AFC by or on behalf of Dealer shall be true and correct in all material respects and will remain true and correct.

 

6.4                               Permits and Licenses.  Dealer has all applicable permits and licenses necessary to conduct business as a retail or wholesale seller, as applicable, of the Collateral.  Dealer has all required government certificates, licenses, registrations, and charters to operate as the entity or business type identified and is in good standing with all applicable governmental authorities.  Dealer shall comply with, and not permit any violation by its agents or employees of, all applicable laws, regulations, and orders of public authorities relating to Dealer’s business affairs and the Collateral.

 

6.5                               Authority.  The undersigned is legally competent, and has been duly authorized by all necessary action, to execute and deliver this Note and consummate all of the transactions contemplated hereby.  Dealer has now and will have at the time of each Advance full right, power, and authority to borrow in the manner and on the terms and conditions set out in this Note, and to grant AFC the lien and security interest granted in this Note without the consent or approval of any third party or public authority.

 

6.4                               Ownership.  Dealer has now and will have at the time of each Advance good and marketable title to the Purchase Money Inventory, free and clear of all liens, security interests, mortgages, charges, claims, and other encumbrances or interests whatsoever, except the lien and security interest granted under this Note, or except as permitted by AFC in writing or acknowledged by AFC’s written notification to such third party advising such third party of AFC’s purchase money security interest in the Purchase Money Inventory and the proceeds thereof.

 

6.8                               Enforceability.  This Note, and any other agreements or documents contemplated herein or executed in connection herewith, constitute valid and binding obligations of the Dealer and all are enforceable in accordance with their respective terms.

 

6.9                               Litigation.  No legal, arbitration, or administrative proceedings are pending or threatened against Dealer which could reasonably affect the Collateral or which materially and adversely affect the properties, business, prospects, or condition, financial or otherwise, of the Dealer or Dealer’s ability to honor its obligations hereunder.

 

6.10                        Check Representations.  With each and every payment to AFC by Check, Dealer represents and warrants (regardless of whether Dealer is the drawer of the Check), that, at the time of issuance of the Check and at the time such Check may be presented for payment, the account upon which such Check is drawn contains immediately available funds sufficient for payment of that Check and all other Checks issued or outstanding at that time.

 

6.11                        Retail Installment Contract Representations.  With respect to each Retail Installment Contract: (a) Dealer is the owner thereof; (b) Dealer has made all registrations, and has taken all necessary actions which are required to perfect Dealer’s interest with respect to the Collateral therein; (c) such Retail Installment Contract is the result of a bona fide transaction entered into in the ordinary course of Dealer’s operations; (d) such Retail Installment Contract is true, valid, genuine, binding, and enforceable in accordance with the written terms thereof; (e) there is no other Retail Installment Contract or chattel paper with respect to the subject thereof; (f) such Retail Installment Contract is and will continue to be free from all defenses, setoffs, and counterclaims of any kind; (g) such Retail Installment Contract conforms with all applicable laws; (h) except as to any interest disclosed in writing to AFC, such Retail Installment Contract is free from all security, liens, and/or encumbrances; and (i) the property which is the subject of the Retail Installment Contract has been delivered to the retail purchaser under such Retail Installment Contract.

 

6.11.       Lot Representation.  All Vehicles located at Dealer’s Place of Business constitute inventory for resale in the ordinary course of Dealer’s business unless the Vehicle is plainly marked otherwise. None of the Vehicles are in Dealer’s possession pursuant to a consignment or other agreement providing that someone other than Dealer is the Vehicle’s owner or has rights in the Vehicle superior to the rights of Dealer or AFC, unless (a) AFC has been notified in writing that such Vehicles are in Dealer’s possession and (b) the Vehicles are plainly so marked and identified.

 

6.12.       Name of Dealer.  Dealer’s legal name is precisely the name set forth as such on the last page of this Note.

 

6.13.       Jurisdiction of Organization.  Dealer’s jurisdiction of incorporation, organization or other business entity registration is the jurisdiction set forth as such on the last page of this Note.  Upon request, Dealer shall furnish to AFC an official certificate from the appropriate governing authority evidencing the current legal status of Dealer’s business organization.

 

7.3                               EVENT OF DEFAULT.  Each and every one of the following events shall be considered an Event of Default:

 

7.4                               the default in any payment or repayment when due of any of the Obligations, as provided in the Note;

 

7.5                               AFC’s deeming itself insecure regarding the Collateral or the possibility of Dealer’s default in any payment or repayment of any of the Obligations;

 

7.4                               AFC’s receipt of any report indicating that AFC is not prior to all other liens, security interests, mortgages, charges, claims, encumbrances or interests of any kind in the Purchase Money Inventory;

 

7.11                        the default in payment or performance of any debt or obligation of Dealer whether to AFC or to a third party;

 

7.12                        AFC determining, in its sole discretion, that any covenant, warranty, representation, or statement made by Dealer in connection with this Note, related documents, any Advance or otherwise to or for the benefit of AFC has been breached or is false or misleading;

 

7.13                        the loss, theft, damage, destruction, sale (except as permitted by Section 4.0), or encumbrance of the Collateral, or the making of any levy, seizure, attachment, or execution against Dealer or any of its property;

 

7.14                        the inability of Dealer or any guarantor to pay debts as they mature, insolvency of Dealer or any guarantor, appointment of a receiver for Dealer or any guarantor, assignment for the benefit of creditors by Dealer, commencement of any proceeding under any bankruptcy or insolvency law by or against Dealer or any guarantor, or entry of or issuance of any order of attachment, execution, sequestration, or other order in the nature of a writ is levied upon the Collateral;

 

7.15                        the death or incompetency of Dealer if Dealer is an individual or any guarantor, or the death, incompetency, or resignation of a principal stockholder, officer, or manager of Dealer or any guarantor;

 

7.16                        dissolution, merger or consolidation, or transfer of any substantial part of the property of Dealer or of any guarantor; or

 

7.17                        AFC’s determination, in its sole discretion, that control contests or other management disputes within or regarding the Dealer threaten or may threaten the timely repayment of the Obligations by Dealer.

 

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8.3                               REMEDIES.

 

8.4                               Whenever an Event of Default shall exist, or at any time thereafter (such a default not having previously been cured), AFC, at its option and without demand or notice of any kind, may declare the Obligations to be immediately due and payable.  Upon such Event of Default, AFC shall have the rights and remedies of a secured party under applicable laws with respect to the Collateral, and any other rights or remedies at law, in equity by agreement or otherwise.  In addition, AFC may by instrument in writing appoint any person to act as a receiver or receiver and manager for all or any part of the Collateral.  AFC may from time to time remove or replace such receiver.  Any receiver or receiver and manager so appointed shall be considered to be the agent of Dealer.  AFC shall have the right to pursue any of its rights and remedies separately, successively or concurrently, and the exercise of any right or remedy shall not preclude its subsequent exercise at a later time or the exercise of other rights or remedies.  Without limiting the foregoing, AFC may (a) notify any or all account debtors or obligors of the security interest of AFC in Dealer’s accounts or chattel paper and direct payment of same to AFC; (b) demand, receive, sue for and give receipts or acquittances for any moneys due or to become due on any account receivable, Retail Installment Contract, or under any chattel paper or endorse any item representing any payment on or proceeds of the Collateral; (c) assent to any or all extensions or postponements of time of payment or any other indulgence in release of the Collateral, to the addition or release of acceptance of partial payments and the settlement, compromise or adjustment of such claims, all in a manner and at times as AFC shall deem advisable; (d) execute and deliver for value all necessary or appropriate bills of sale, documents of title, and other documents and instruments in connection with the management or disposition of the Collateral or any part thereof; (e) hold, store, keep idle, lease, operate, remove, or otherwise use or permit the use of the Collateral or any part of it, for that time and upon those terms as AFC, in its sole discretion, deems it to be in its own best interests; and (f) take possession of the Collateral and sell the same.  For all such purposes, AFC or any receiver appointed by AFC may, without prior notice, enter upon the premises on which the Collateral is situated (or is believed to be situated) and either cause the Collateral to remain on, be stored on, or managed at such premises at Dealer’s expense, pending sale or other disposition of the Collateral or remove the Collateral to such other place as AFC shall determine.  Notwithstanding the foregoing rights, Dealer shall, upon AFC’s demand, make the Collateral available to AFC at a place to be designated by AFC which is reasonably convenient to both parties.  Dealer hereby consents to the appointment of a receiver by any court of competent jurisdiction without necessity of notice, hearing, or bond.

 

8.5                               Procedures.  AFC may comply with any provision of this Note and any applicable laws in connection with a disposition of the Collateral, and compliance will not be considered adversely to affect the commercial reasonableness of any sale of Collateral.  AFC may sell Collateral without giving any warranties and may specifically disclaim warranties, including warranties of title and the like.  AFC shall not be liable or accountable for the failure to seize, collect, realize, sell, or obtain possession or payment of all or any part of the Collateral and shall not be bound to institute proceedings for the purpose of seizing, collecting, realizing, selling or obtaining possession or payment of same or for the purpose of preserving any rights of AFC, Dealer or any other person.  AFC shall not have any obligation to take any steps to preserve rights against prior parties to any Collateral, whether or not in AFC’s possession, and shall not be liable for failure to do so.

 

8.4                               No Obligation to Pursue Others.  AFC shall have no obligation to attempt to satisfy the Obligations by collecting them from any other person liable for them, and AFC may release, modify or waive any Collateral provided by any other person to secure any of the Obligations, all without affecting AFC’s rights against Dealer.  Dealer waives any right it may have to require AFC to pursue any third person for any of the Obligations.

 

8.9                               Sales on Credit.  If AFC sells any of the Collateral on credit, Dealer will be credited only with payments actually made by the purchaser, received by AFC and applied to the indebtedness of the purchaser.  In the event the purchaser fails to pay for the Collateral, AFC may resell the Collateral and Dealer shall be credited with the proceeds of the sale.

 

8.10                        Notice of Sale.  Dealer agrees that the Vehicles are a type of collateral customarily sold on a recognized market and that AFC therefore has no obligation to notify Dealer, or any other person, prior to their sale.  In the event AFC does send notice prior to sale of any Collateral, Dealer agrees that the sending of notice, whether delivered personally, by courier service or by certified or registered mail to any address of Dealer set forth in this Note, of the time and place of any public sale or the time after which any private sale or other intended disposition is to be made, shall be deemed reasonable notice thereof.  AFC may, without further notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place at which it was announced at the sale so adjourned.

 

8.11                        Action Against Bond.  To the extent not prohibited by law, Dealer authorizes AFC to proceed in an action to collect on or against any bond posted by Dealer with any province or local authorities.

 

8.12                        No Marshalling.  AFC shall have no obligation to marshal any assets in favor of Dealer, or against or in payment of the Note, any Obligations or any other obligation owed to AFC by Dealer or any other person.

 

8.13                        Right of Set-Off.  Upon the occurrence and during the continuance of an Event of Default, AFC is authorized at any time and from time to time, without notice to Dealer, to set-off and apply, directly or through any of AFC’s affiliates, any and all deposits (whether general or special, time or demand, provisional or final, or otherwise) and other assets and properties at any time held in the possession, custody or control of AFC or its affiliates, and any indebtedness at any time owing by AFC or its affiliates to or for the credit, account or benefit of Dealer, against any and all of Dealer’s Obligations.

 

9.6                               GENERAL.

 

9.7                               Indemnification.  Dealer shall indemnify and hold AFC harmless from and against any and all liabilities, loss, damage, costs, or expenses of whatever kind or nature relating to claims of third parties arising out of or in any way connected to this Note or Dealer’s business affairs including, without limitation, legal fees and expenses incurred both in the defense of any action against AFC and in any action to enforce these indemnity rights as against the Dealer.

 

9.8                               No Partnership; Joint Venture; Dealer’s Business Affairs.  Notwithstanding anything to the contrary herein contained or implied, AFC, by this Note or by any action pursuant hereto, shall not be deemed to be a partner or joint venturer of Dealer.  Dealer furthermore agrees that notwithstanding the conditions of lending herein, the purchase or sale of Vehicles or Equipment by Dealer is in the ordinary course and, prior to an Event of Default, at the discretion and subject to the business judgment of Dealer.  AFC has no responsibility or liability of any kind with regard to the quantity, quality, condition, purchase price, or marketability of any item of Purchase Money Inventory.  AFC is not a party to any loss or gain in the sale of any Purchase Money Inventory sold by Dealer.

 

9.9                               Expenses.  Dealer agrees to pay in the ordinary course all AFC’s expenses and costs incidental to the financing provided for under this Note.  Such costs shall include, but are not limited to, fees and out-of-pocket expenses incurred by AFC or its counsel (including paralegals and similar persons) and any filing fees, stamp taxes, insurance or other charges associated with the creation, perfection, or maintenance of the security interest granted herein.  Dealer agrees

 

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that if it fails or refuses to pay any taxes or assessments relating to the Collateral or fails to maintain proper insurance coverage for the Collateral, AFC may, but has no obligation to, pay said taxes or assessments and purchase a policy or policies of insurance and may treat amounts so expended as additional Obligations.  Any amount so paid or advanced by AFC, plus related costs, shall be repaid by Dealer on demand and shall bear interest at the highest rate permitted by law from the date of such payment or advance.

 

9.10                        Notices.  All notices, requests, or other communications by Dealer required by, permitted under, or relating to this Note shall be in writing.  Any notice shall be effective (a) if delivered personally (or by courier) with signed receipt therefore, or (b) three days after dispatch, if delivered via certified or registered mail, postage prepaid and addressed as follows:

 

If intended for AFC

 

then addressed to AFC at the AFC corporate headquarters as listed on the web site currently located at URL www.AFCDEALER.com or a successor thereto.

 

If intended for Dealer

 

All such notices shall be deemed reasonably and promptly given if the effective date thereof is at least five days prior to the event with respect to which notice is given.

 

9.11                        Merger, Modification; Headings; Waiver.  This Note and the documents contemplated hereby are intended by the parties as an amendment and restatement of any prior Promissory Note and Security Agreement or agreements with regard to the subject matter hereof.  Notwithstanding the foregoing, this Note and the documents contemplated hereby contain the entire agreement of the parties with regard to the subject matter hereof, and shall be binding upon and inure to the benefit of the successors and assigns of the parties; however, no obligation or rights of Dealer shall be assignable.  Dealer authorizes AFC to alter, amend or modify the Terms and Conditions of this Note at any time by posting a copy of such altered, amended or modified Terms and Conditions on its web site currently located at URL www.AFCDEALER.com or any successor web site.  Any request for an Advance by Dealer and subsequent Advance by AFC pursuant to Sections 2.1, 2.2 or 2.3 shall constitute the assent of the parties to the Terms and Conditions in effect at that time.  The provisions of this Note may not be altered, amended, or modified by Dealer except in a writing signed by both parties.  The parties acknowledge that the headings herein are for convenience only and shall not be considered in the interpretation of this Note.

 

9.10                        Usury.  Any provisions of this Note to the contrary notwithstanding, at no time shall Dealer be obligated to pay interest at a rate which subjects AFC to either civil or criminal liability as a result of interest being in excess of the maximum rate Dealer is permitted by law to contract or agree to pay.  In such circumstances, the rate of interest hereunder shall be deemed to be immediately reduced to such maximum rate, and such interest and the portion of all prior interest payments in excess of such maximum rate shall be applied and shall be deemed to have been payments in reduction of the principal balance of the Obligations as of the date such payment was made.  Any such excess shall be held by AFC for Dealer’s benefit without interest and shall be subject to setoff by AFC.

 

9.11                        No Waiver.  No delay or omission by AFC to exercise any right or remedy shall (a) impair any right or remedy, (b) waive any default or operate as an acquiescence to any Event of Default, or (c) affect any subsequent default, right or remedy of the same or of a different nature.

 

9.12                        Demand Nature of Credit Facility.  Dealer acknowledges and agrees that the financing evidenced by this Note is payable upon demand.  Nothing in this Note is intended to nor shall be deemed to change the demand nature of this Note, including, without limitation, any reference to Events of Default, to annual financial statements, to Curtailment Dates, to Periods, or otherwise.  Dealer acknowledges and agrees that AFC, at any time, without notice and with or without reason, may demand that the Obligations be immediately paid in full.  The Dealer acknowledges that demand may be made by AFC even if the Dealer is in compliance with each and every term of this Note.

 

9.7                               Signature.  AFC and Dealer expressly agree that AFC may, at AFC’s option, execute this Note and the documents contemplated hereby by way of a signature stamp or other authorized facsimile signature of an AFC officer.  AFC and Dealer expressly agree that except as authorized under Section 2.10 or the attached Power of Attorney, Dealer may only execute this Note and the documents contemplated hereby by way of an original signature and not by way of a facsimile thereof.

 

9.11                        Enforcement.  AFC and Dealer intend and believe that each provision in this Note complies with all applicable laws, statutes and judicial and administrative decisions; however, if any provision in this Note is found by a court of law to be in violation of any applicable laws, statutes, judicial or administrative decisions, or public policy, then it is the intent of the parties of this Note that such provision be given force to the fullest possible extent that it is legal, valid and enforceable, that the remainder of this Note shall be construed as if such provision were not contained herein and that the remainder of this Note continue in full force and effect.

 

9.12                        JURISDICTION AND CHOICE OF LAW.  THIS NOTE AND ANY AND ALL AGREEMENTS OR AUTHORIZATIONS EXECUTED BY DEALER OR AFC IN CONNECTION HEREWITH SHALL BE GOVERNED BY THE SUBSTANTIVE LAWS OF THE PROVINCE OF ONTARIO, AS AMENDED FROM TIME TO TIME, WITHOUT RESORT TO PRINCIPLES OF CONFLICTS OF LAWS.  BY EXECUTION OF THIS NOTE, DEALER SUBMITS TO THE PERSONAL JURISDICTION OF THE COURTS OF THE PROVINCE OF ONTARIO.  SUBJECT TO SECTION 9.13 BELOW, ANY ACTION INITIATED BY DEALER AGAINST AFC RELATING TO THIS NOTE SHALL BE FILED AND CONDUCTED SOLELY IN SAID COURTS.  AFC MAY BRING ANY SUIT AGAINST DEALER UNDER OR RELATED TO THIS NOTE IN ANY COURT OF COMPETENT JURISDICTION, AND DEALER HEREBY CONSENTS TO AFC’S CHOICE OF FORUM.  DEALER FURTHER WAIVES ANY RIGHT WHICH IT MAY HAVE TO REMOVE SUCH LITIGATION OR MATTER TO A FEDERAL COURT OR TO REQUIRE THAT ANY SUCH LITIGATION OR MATTER TAKE PLACE IN A FEDERAL COURT.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR AFC ENTERING INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.

 

9.13                        WAIVER OF JURY TRIAL RIGHTS.  SUBJECT TO SECTION 9.13 BELOW, EACH PARTY, AFTER CONSULTING, OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE, HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY, FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN RESPECT TO ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THIS NOTE AND RELATED AGREEMENT(S), INSTRUMENTS OR TRANSACTIONS, OR ANY ASPECT OF THE PAST, PRESENT, OR FUTURE RELATIONSHIP OF THE PARTIES.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR AFC ENTERING INTO THIS

 

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AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.

 

9.13                        Arbitration. Except as expressly provided elsewhere in this Agreement, or as otherwise expressly agreed to in writing by Automotive Finance Canada Inc., any and all questions or disputes arising from the operation of, the interpretation of, or, in any way connected with, this Agreement may, at the unilateral discretion and direction of AFC, be submitted for final determination under the provisions of the Arbitration Act, 1991, S.O. 1991, c. 17, (including as amended or replaced during the term of this Agreement). In the event that litigation has been commenced by the Dealer or guarantor(s), (if any), against AFC prior to such submission, the Dealer or guarantor(s), (if any), hereby agree(s) to discontinue, without delay, such litigation permanently. The arbitration shall be conducted by a single arbitrator to be unilaterally selected by AFC, which arbitrator shall be qualified to conduct commercial arbitrations under the provisions of the Arbitration Act, 1991. The proceedings before the arbitrator shall take place in Toronto, Ontario or such other place as the arbitrator may direct. The parties to this Agreement, including guarantor(s), (if any), agree and represent to one another that the decision or award of the arbitrator so appointed shall be final and binding upon such parties and shall not be subject to appeal or judicial review. The parties to this Agreement, including the guarantor(s), (if any), represent to one another that this section constitutes an express agreement between them to arbitrate in the event that AFC, in its sole discretion, decides to submit a question or dispute to arbitration. The parties to this Agreement hereby agree that the costs of the arbitration shall be Obligations as defined in this Agreement.

 

9.14                        Processing Fees and Other Fees.  If AFC determines that it is necessary or desirable to transfer or convert the Ownership Certificate or obtain a new or replacement Ownership Certificate for any Vehicle, Dealer agrees to pay AFC an Ownership Certificate transfer or processing fee not to exceed $100 for each Ownership Certificate processed, in addition to all of AFC’s expenses and costs incidental thereto, which shall include, but are not limited to, fees and out-of-pocket legal expenses incurred by and any filing fees or taxes.  In addition Dealer agrees to reimburse AFC on demand for any other fees including but not limited to postage or other processing fees incurred by AFC.

 

9.15                        Legal Fees Expenses and Costs.  In addition to all other amounts payable hereunder by Dealer, Dealer agrees to reimburse AFC on demand for any similar persons’ fees (not less than 15% of the Obligations where not prohibited by law), accountants’ fees, appraisers’ fees, and all expenses and costs incurred in collecting or enforcing payment of the Obligations hereunder or in curing any default and any and all taxes thereon, including without limitation those fees and costs incurred (a) with or without suit; (b) in any appeal; (c) in any bankruptcy, insolvency or receivership proceeding; and (d) in any post-judgment collection proceedings, plus interest at the rate provided herein.

 

9.16        Waiver.  If the Dealer is a corporation, the Dealer agrees that no provision of The Limitation of Civil Rights Act (Saskatchewan) shall have application to this Note or any renewal or extension of this Note, and hereby waives any and all benefits and remedies provided by that Act.

 

9.17                        Waiver of Notice.  The Dealer waives the right to receive a copy of any financing statement or financing change statement, or any verification statement issued by any registry confirming the registration of a financing statement or a financing change statement, relating to this Note.

 

9.18                        Communication.  Dealer authorizes AFC to a) send facsimile transmissions to Dealer at the facsimile numbers listed as Dealer’s facsimile number in any communication sent or to be sent to AFC by Dealer; b) make telephone calls to Dealer at the telephone numbers listed as Dealer’s telephone number in any communication on sent or to be sent to AFC by Dealer; c) send emails to Dealer at the email addresses listed as Dealer’s email address in any communication sent or to be sent to AFC by Dealer; and e) communicate to Dealer via any and all other forms of communications for the purpose of marketing, collection, and for any other communication needs.  This permission will remain in effect until cancelled in writing by the Dealer.

 

Dealer’s Name and Dealer’s Place(s) of Business:

 

WHEREFORE, the parties have, by their duly authorized representatives, executed this Note on the      .

 

	
Dealer:
    	
 
    	
Automotive   Finance Canada Inc.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
An AFC Officer
    
	
 
    	
 
    	
To be executed at AFC corporate office
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    

 

7

 

TERM SHEET FOR

DEMAND PROMISSORY NOTE AND SECURITY AGREEMENT

 

Dealer:

 

Date of Original Demand Promissory Note and Security Agreement Note:

 

The following terms, as defined in the Demand Promissory Note and Security Agreement, shall apply effective immediately:

 

Floorplan Fee: The Floorplan Fee shall be:

 

Interest: Interest shall accrue on the Obligations at a variable rate (based on a 360 day year), adjusted each business day, equal to the prime rate then charged by the Canadian Imperial Bank of Commerce (the “Prime Rate”) plus:

 

Number of Curtailment Date Extensions: The Number of Curtailment Date Extensions shall be limited to:

 

Period: The Period shall be:

 

Executed by the undersigned duly authorized representatives effective as of the        .

 

	
 Dealer:
    	
 
    	
Automotive Finance Canada Inc.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
An AFC Officer
    
	
 
    	
 
    	
 
    	
To be executed at AFC corporate office.
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    

 

 

EXHIBIT A

 

POWER OF ATTORNEY

 

KNOW ALL BY THESE PRESENTS:

 

In accordance with the Demand Promissory Note and Security Agreement between Automotive Finance Canada Inc. (“AFC”) and (“Dealer”), to which reference is made for the meaning of all capitalized terms used herein, an irrevocable power of attorney, coupled with an interest, is hereby conferred by the Dealer upon AFC, an Ontario corporation, the principal office address in the United States listed on the web site currently located at URL www.AFCDEALER.com or a successor thereto or such other place as AFC may designate:

 

(a)         act with general authority with respect to all personal property of the Dealer and transactions involving or relating to the same;

(b)         act on behalf of the Dealer to assign, reassign, or obtain evidence of ownership in connection with transactions involving Purchase Money Inventory, Collateral and other property of the Dealer;

(c)          act on behalf of the Dealer to prepare, sign, endorse, execute and deliver documents including, but not limited to financing statements, financing charge statements, notes, checks, drafts in connection with transactions involving Purchase Money Inventory, Collateral and other property of the Dealer;

(d)         act with general authority with respect to claims and litigation of or relating to Purchase Money Inventory, Collateral, and other property of the Dealer;

(e)          act with general authority with respect to delegating authority;

(f)           act with general authority with respect to insurance, and accounts or transactions with banks and other financial institutions, of or relating to Purchase Money Inventory, Collateral, and other property of the Dealer; and

(g)          act with general authority regarding all other matters which AFC may, in its sole discretion, deem expedient, reasonable, or necessary in the discharge of the authority hereby conferred — all as if done by the Dealer directly.

 

Dealer shall indemnify, defend and hold harmless AFC, its affiliates, subsidiaries, officers, directors, employees, representatives, successors, and assigns from and against any and all loss, damage, liability, claims, cause of action, and expenses of whatever kind, arising from the exercise of authority hereunder.  The liability of AFC and/or any person to whom it delegates authority hereunder, to the Dealer or any third person shall be limited to acts in bad faith.  This power of attorney shall be irrevocable until such time as each and every Obligation of the Dealer to AFC has been satisfied in full.  The revocation or termination hereof shall be ineffective unless and until actual notice or knowledge of such revocation or termination shall have been received by the parties acting under this power of attorney.  This power of attorney shall be governed by the substantive laws of the Province of Ontario without resort to principles of conflicts of law.  This power of attorney is to continue notwithstanding any mental incapacity or infirmity that occurs after the execution of the power of attorney.

 

Executed this        .

 

 

	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    

 

 

	
Witnessed By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
Signature
    	
 
    	
 
    	
Print Name
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Witnessed By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
Signature
    	
 
    	
 
    	
Print Name
    

 

 

EXHIBIT B

 

UNCONDITIONAL AND CONTINUING GUARANTY

 

TO:        AUTOMOTIVE FINANCE CANADA INC.

 

	
DATE:
    	
[NOTE: Maker/Primary obligor on Note should   also sign Guaranty]
    

 

FOR VALUE RECEIVED, and in consideration of credit and services given or to be given to             (“Debtor”) by Automotive Finance Canada Inc. (“AFC”), the undersigned hereby severally guaranty the full and prompt payment, when due, whether by acceleration or otherwise, together with interest and all costs, expenses and legal fees, of any and all obligations of the Debtor to AFC including such indebtedness as may be encompassed by the term “Obligations” as defined in the Demand Promissory Note and Security Agreement executed by and between AFC and Debtor, as amended, supplemented or modified from time to time, whether or not such amounts exceed any advance limit applicable to Debtor or communicated to the undersigned (hereinafter collectively referred to as the “Liabilities”).  This is an irrevocable, unconditional and continuing guaranty; it shall cover and secure any amount at any time owing on the Liabilities.

 

The undersigned each hereby waive any and all presentment, demand, protest and notice of dishonor, non-payment or other default with respect to any of the Liabilities.  The undersigned each hereby grant to AFC full power to deal in any manner with the Liabilities without notice to the undersigned, including, but without limiting the generality of the foregoing, the following powers: (a) to modify or otherwise change any terms of all or any part of the Liabilities or the rate of interest thereon, to grant any extension or renewal thereof, and any other indulgence with respect thereto, and to effect any release, compromise or settlement with respect thereto; and (b) to enter into any agreement of forbearance with respect to all or any part of the Liabilities or with respect to all or any part of the collateral related thereto and to change the terms of any such agreement.  The obligations of the undersigned hereunder shall not be released, discharged or in any way affected, nor shall the undersigned have any rights or recourse against AFC by reason of any action AFC may take or omit to take under the foregoing powers.

 

If a claim is made upon AFC at any time for repayment or recovery of any amount(s) or other value received by AFC, from any source, in payment of or on account of any of the Liabilities of the Debtor guarantied hereunder and AFC repays or otherwise becomes liable for all or any part of such claim by reason of: (a) any judgment, decree or order of any court or administrative body having competent jurisdiction; or (b) any settlement or compromise of any such claim, the undersigned shall remain severally liable to AFC hereunder for the amount so repaid or for which AFC is otherwise liable to the same extent as if such amount(s) had never been received by AFC, notwithstanding any termination hereof or the cancellation of any note, instrument, or other agreement evidencing any of the Liabilities.

 

In case the Debtor shall fail to pay all or any part of the Liabilities when due, whether by acceleration or otherwise, according to the terms thereof, the undersigned will immediately pay the amount due and unpaid by the Debtor in like manner as if such amount constituted the direct and primary obligation of the undersigned.  AFC shall not be required, prior to any such payment by or demand on the undersigned, to make any demand upon or pursue or exhaust any of its rights or remedies against the Debtor or others with respect to the payment of any of the Liabilities.

 

Notwithstanding anything to the contrary in this guaranty, the undersigned each hereby irrevocably waive(s) all rights he/she may have at law or in equity (including, without limitation, any law subrogating the undersigned to the rights of AFC) to seek contribution, indemnification, or any other form of reimbursement from the Debtor, any other guarantor, or any other person hereafter primarily or secondarily liable for any obligations of the Debtor to AFC, for any payment made by the undersigned under or in connection with this guaranty or otherwise.  The undersigned furthermore waive: (a) all defenses based on surety ship, notice, or impairment of collateral; and (b) any defenses which the Debtor may assert on the Liabilities including but not limited to failure of consideration, breach of warranty, fraud, payment, statute of frauds, bankruptcy, lack of legal capacity, statute of limitations, lender liability, accord and satisfaction, and usury.

 

This guaranty is in addition to and not in substitution for any other guaranty or other securities which AFC may now or hereafter hold for all or any part of the Liabilities, and AFC shall not be under any other obligation to marshal in favor of the undersigned any other guaranties or other securities or any monies or other assets which AFC may be entitled to receive or may have a claim upon.  No loss of or in respect of or unenforceability of any other guaranties or other securities which AFC may now or hereafter hold in respect of any of the Liabilities, whether resulting from the fault of AFC or otherwise, shall in any way limit or lessen the undersigned’s liability under this guaranty.

 

The undersigned understand and agree that no loans made by the undersigned to the Debtor are permitted to be repaid by the Debtor while this guaranty or any indebtedness to AFC is outstanding.  All debts and liabilities, present and future, of Debtor to the undersigned are hereby assigned to AFC and postponed to the Liabilities, and all monies received by the undersigned in respect thereof shall be received in trust for AFC and forthwith upon receipt shall be paid over to AFC, unless prior written authorization to the contrary has been obtained from AFC, without in any way lessening or limiting the liability of the undersigned under this guaranty.  This assignment and postponement is independent of the guaranty and shall remain in full force and effect until repayment in full to AFC of all the Liabilities, notwithstanding that the liability of the undersigned under this guaranty may have been discharged or terminated.

 

This guaranty shall not be discharged or otherwise affected by the death or loss of capacity of the Debtor, by any change in the name of the Debtor, or (if a partnership, limited liability company or other membership organization) by any change in the membership of the Debtor or (if a corporation) by any change in the officers, capital structure, by-laws or articles of the Debtor, by the sale of the Debtor’s business or any part thereof, by the Debtor being reorganized or being amalgamated with one or more other corporations or other entities, by the Debtor becoming bankrupt or insolvent or by any other matter or thing whatsoever but shall continue to apply to all Liabilities whether incurred before or after any such event.  In the case of a change in the membership of the Debtor or in the case of the Debtor being reorganized or being amalgamated with one or more other entities, this guaranty shall apply to the liabilities of the resulting entity, and the term “Debtor” includes each such resulting entity.  This guaranty shall not be discharged or otherwise affected by the death of the undersigned.

 

The undersigned hereby warrants to AFC that the undersigned has by independent means made himself/herself fully aware of Debtor’s financial condition.  The undersigned agrees to pay all costs, expenses, and legal fees incurred by AFC in the enforcement of this guaranty.

 

                Whenever possible each provision of this guaranty shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this guaranty.

 

1

 

EXHIBIT C

 

THIS GUARANTY SHALL BE GOVERNED BY THE SUBSTANTIVE LAWS OF THE PROVINCE OF ONTARIO, AS AMENDED FROM TIME TO TIME, WITHOUT RESORT TO PRINCIPLES OF CONFLICTS OF LAWS.  BY EXECUTION OF THIS GUARANTY, THE UNDERSIGNED SUBMITS TO THE PERSONAL JURISDICTION OF THE COURTS OF THE PROVINCE OF ONTARIO.  ANY ACTION INITIATED BY THE UNDERSIGNED AGAINST AFC RELATING TO THIS GUARANTY SHALL BE FILED AND CONDUCTED SOLELY IN SAID COURTS.  AFC MAY BRING ANY SUIT RELATING TO THIS GUARANTY IN ANY COURT OF COMPETENT JURISDICTION, AND THE UNDERSIGNED HEREBY CONSENTS TO AFC’S CHOICE OF FORUM.

 

EACH PARTY, AFTER CONSULTING, OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE, HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY, FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN RESPECT TO ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR AFC ENTERING INTO THIS GUARANTY AND THE TRANSACTIONS CONTEMPLATED HEREBY.

 

All rights, powers, privileges and immunities of AFC hereunder shall inure to the benefit of the successors and assigns of AFC, and shall be binding upon each of the undersigned, his/her personal representatives, heirs and assigns.

 

Witness the hand and seal of the undersigned the day and year first above written.

 

	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    

 

 

	
Witnessed By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
Signature
    	
 
    	
 
    	
Print Name
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Witnessed By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
Signature
    	
 
    	
 
    	
Print Name
    

 

[Alberta Guarantor(s) Only]

 

THE GUARANTEES ACKNOWLEDGEMENT ACT (ALBERTA) CERTIFICATE OF NOTARY PUBLIC

 

I HEREBY CERTIFY THAT:

 

1.                                                                                                         of                                                                               , the Guarantor in the above Guarantee, appeared in person before me and acknowledged that he/she had executed the Guarantee;

2.              I satisfied myself by examination of him/her that he/she is aware of the contents of the Guarantee and understands it.

 

Given at                                                                   this                                  day of                                                                         , under my hand and seal of office.

 

	
Seal
    	
A   notary Public in and for
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
STATEMENT OF GUARANTOR
    
	
I   am the Person named in this certificate.
    	
 
    
	
 
    	
 
    
	
 
    	
SIGNATURE   OF GUARANTOR
    

 

 

Dealer Application  (Quebec)

 

The parties have requested that this application and all related documents be drawn in English.

Les parties ont rédigée que cette application soit et tous documents qui s’y rattachent soient rédigées en anglais

 

Dealership

 

	
Line   Requested:
    	
Plate   Number:
    	
 
    
	
Company   Name:
    	
 
    	
 
    
	
Address:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Phone: 
    	
Fax:
    	
 
    
	
Sales   Tax Exemption Certificate #:
    	
Type   of Business:
    	
#   of years in Business:
    
	
Organization   Type:
    	
GST   ID #:
    	
PST   ID #:
    	
 
    
	
Doing   Business As: (Yes or No)
    	
 
    	
 
    
							

 

Officers and Owners

 

	
Officer   1:
    	
 
    	
Title:
    	
 
    	
Officer   1’s SSN:
    
	
Officer   2:
    	
 
    	
Title:
    	
 
    	
Officer   2’s SSN:
    
	
Officer   3:
    	
 
    	
Title:
    	
 
    	
Officer   3’s SSN:
    
	
Officer   4:
    	
 
    	
Title:
    	
 
    	
Officer   4’s SSN:
    
	
Stockholder   1:
    	
 
    	
Percent   owned:
    	
 
    	
Stockholder   1’s SSN:
    
	
Stockholder   2:
    	
 
    	
Percent   owned:
    	
 
    	
Stockholder   2’s SSN:
    
	
Stockholder   3:
    	
 
    	
Percent   owned:
    	
 
    	
Stockholder   3’s SSN:
    
	
Stockholder   4:
    	
 
    	
Percent   owned:
    	
 
    	
Stockholder   4’s SSN:
    

 

Insurance

 

	
Type:
    	
Policy   #:
    	
Insurance   Company:
    	
Amt:
    
	
Type:
    	
Policy   #:
    	
Insurance   Company:
    	
Amt:
    

 

Banking Relations

 

	
Bank:
    	
Account:
    	
Bank   Phone #:
    
	
Bank:
    	
Account:
    	
Bank   Phone #:
    

 

I hereby certify the information contained within this application and on any accompanying financial statements is true, complete, and accurate.  I authorize AFC to obtain credit information from a credit bureau and any financial institution or trade creditor that I have provided as well as any other credit investigation that AFC in AFC’s sole discretion deems necessary.  I also authorize AFC to contract any third parties and to disclose information, including information contained in this application, for the purpose of, among other things, obtaining intercreditor agreements and perfecting AFC’s security interest.

 

Further, if a credit line is granted, I authorize AFC to review my account periodically, which could include obtaining additional credit reports.

 

Si mon application est approuvé, je desire recévoir mon contrat en Anglais.

If my application is approved, I wish to receive my contracts in English.

 

	
 
    	
 
    	
 
    	
 
    
	
 
    	
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Date
    	
 
    	
Date
    

 

AFC Use Only

 

	
Checked   with Auction GM
    	
 
    	
 
    	
GM   Initials
    	
 
    

 

	
Line Amt.:
    	
Dealer Number:
    	
Branch Number:
    	
 
    
	
Contract Date:
    	
Contract Number:
    	
 
    
	
Fee:
    	
Interest:
    	
 
    
	
Terms:
    	
 
    
	
Auction City:
    	
Auction County:
    	
Auction State:
    
					

 

 

MEMORANDUM OF AGREEMENT REGARDING CREDIT LINE

 

The parties have requested that this Agreement and all related documents be drawn in English.

Les parties ont rédigéé que cette convention soit et tous documents qui s’y rattachent soient rediges en anglais

 

This MEMORANDUM OF AGREEMENT REGARDING CREDIT LINE is entered into in the City and District of Montreal, this        by and between Automotive Finance Canada Inc., a body politic, duly incorporated and having its principal place of business at       (“Lender”) and             a body politic, duly incorporated and having its principal place of business at       ,       , hereinacting and represented by      , its duly authorized representative (“Borrower”).

 

LENDER and BORROWER hereby agree as follows:

 

SECTION 1:  CREDIT LINE

 

The Borrower has requested and the Lender agreed on this day to grant to the Borrower an operating credit line (the “Credit Line”) in the Borrower’s favour in the maximum amount of        ($     ), subject to the terms of this Agreement and any schedule attached hereto (the “Agreement”).

 

SECTION 2:  SELLER FINANCED PURCHASES

 

The Borrower may only utilize the Credit Line from time to time by taking the equivalent of the monetary amount granted in this Credit Line in purchases of merchandise from Lender (“Seller Financed Purchases”).  The Borrower shall notify the Lender from time to time as to the amounts in merchandise the Borrower wishes to borrow by way of Seller Financed Purchases.  The Borrower may borrow, repay and reborrow or otherwise utilize or reutilize amounts under the Credit Line from time to time at the sole, absolute discretion of the Lender.

 

SECTION 3:  DISBURSEMENT

 

The Credit Line shall be disbursed to the Borrower in one or more installments at the Lender’s sole and absolute discretion and providing that any prerequisite condition applicable to the Credit Line has been fulfilled and by way of example, when publication of the Agreement of Hypothec has been effected in the Register of Personal and Movable Real Rights.  Notwithstanding the foregoing, if the Borrower is in default with respect to any obligation hereunder or under any other agreement or should it appear to the Lender that the Borrower’s financial condition is or has deteriorated and the Lender has not yet disbursed any or all of the capital under the Credit Line, the Lender may, at its sole and absolute discretion and without prior notice, temporarily delay or permanently cease all installments and/or any further installments, without prejudice to Lender’s other rights and recourses.

 

The said installments shall be evidenced by the Borrower in favour of the Lender by means of negotiable promissory notes, acknowledgments of debt or such other documentary form acceptable to the Lender such as by way of example, Installment Agreement(s); and any such acceptable documentary form shall remain discounted and in the hands of the Lender and may be renewed, extended or replaced by other acceptable documentary form, without novation or derogation of any kind resulting therefrom with respect to the Lender’s rights and without affecting the validity of the present Agreement and/or any Installment Agreement.  It is furthermore understood that in view of the possibility of disbursing in successive installments, the Borrower hereby authorizes the Lender to deduct any interest accrued on previous installments from any future installment of the present Credit Line.

 

SECTION 4:  OTHER AGREEMENTS

 

Upon the execution of this Agreement, the Borrower’s obligations to repay its indebtedness and liability to the Lender shall be subject to the terms and conditions of this Agreement as well as to such other agreements as executed by the parties.

 

The exercise by the Lender of any recourse under this Agreement shall not preclude the Lender from exercising any other recourse provided herein or under any other agreement with Borrower or by law.  All the recourses of the Lender are cumulative and not alternative.  Notwithstanding the foregoing should a court of competent jurisdiction decide that certain of Lender’s recourses are incompatible or should said Court require Lender to choose between such recourses, in such case Lender shall then have the option at its sole discretion which recourse it wishes to avail itself of and this without prejudice to any and all rights, recourses and remedies which the Lender may otherwise possess.

 

SECTION 5:  REPAYMENT OF THE CREDIT LINE

 

The Borrower agrees to repay its indebtedness and liability under the Credit Line in accordance with each Installment Agreement between Lender and Borrower (the said Installment Agreement(s) and schedule(s) attached thereto shall form an integral part hereof).  Any sum collected by the Lender in the exercise of its rights provided herein or under any other agreement with Borrower or by law may be kept by the Lender, as mortgaged property or may be applied to the payment of the obligations as secured hereunder or under any other agreement with Borrower, whether due or not.  The Lender shall have the choice of how any such sum will be applied.

 

SECTION 6:  DEFAULT

 

6.1  An event of default shall occur under this Agreement if:

 

(a)   the Borrower or any guarantor fails to make when due, either on demand or on a fixed payment date, by acceleration or otherwise, any payment of capital, interest, fees or other amounts payable to the Lender under this Agreement or under any other agreements to which the Borrower and the Lender are parties or payable to any other lender;

 

(b)   the Borrower or any guarantor breaches any other term or condition contained in this Agreement or in any other agreements to which the Borrower and the Lender are parties and has or have not remedied such default within ten (10) days of written notice thereof;

 

(c)   any default occurs under any security under this Agreement or in any Schedule attached hereto or under any credit, loan or security agreement to which the Borrower or any guarantor is party to;

 

(d)   any bankruptcy, reorganization, compromise, arrangement, insolvency or liquidation proceedings or other proceedings for the relief of debtors are instituted by or against the Borrower and, if instituted against the Borrower,

 

 

are allowed against or consented to by the Borrower or are not dismissed or stayed within 60 days after institution;

 

(e)   a receiver is appointed over any of the Borrower’s property or any judgment or order or any process of any court becomes enforceable against the Borrower or any of the Borrower’s property or any creditor takes possession of any of the Borrower’s property;

 

(f)    any course of action is undertaken by the Borrower or with respect to the Borrower which would result in the Borrower’s reorganization, amalgamation or merger with another corporation or the transfer of all or substantially all of the Borrower’s assets;

 

(g)   any adverse change occurs in the financial condition of the Borrower and/or of any guarantor of indebtedness and liability under the Credit Line; or

 

(h)   any adverse change occurs in the environmental condition of:  (i) the Borrower or any guarantor of indebtedness and liability under the Credit Line; or (ii) any of the property, equipment or business activities of the Borrower or any guarantor of indebtedness and liability under the Credit Line.

 

6.2  In the event where a default arises from the non-fulfillment of an obligation in a prescribed period of time, the Borrower shall be considered in default by the mere lapse of time, without the necessity of any notice or demand.

 

6.3  Upon the occurrence of an event of default, the Lender may:

 

(a)   refuse to allow the Borrower to borrow further by way of Seller Financed Purchases and the Lender may in its discretion terminate the Credit Line entirely;

 

(b)   demand payment of all of the Borrower’s indebtedness and liability under the Credit Line together with interest and interest on overdue interest;

 

(c)   exercise all of Lender’s rights and remedies under any Installment Agreement(s) as if the default had occurred under the Installment Agreement(s); and/or

 

(d)   at Borrower’s cost, take such other steps as may be permitted by law or as provided under this Agreement and/or any Schedule attached hereto or any other credit, loan or security agreement and as it deems fit to sue for and recover payment for the Borrower’s indebtedness and liability to the Lender, including, without limitation, realization of any security held.

 

6.4  Upon the Borrower’s default and subject to applicable law, the Borrower shall pay to the Lender on demand all of Lender’s reasonable costs, including but not limited to legal fees and expenses (on a solicitor and his own client basis) incurred (i) in collecting the balance due to the Lender under the Credit Line, whether or not a legal action is brought against the Borrower and (ii) in protecting the Lender from any loss which the Lender may suffer as a result of the Borrower’s default.

 

SECTION 7:  BORROWER’S DECLARATIONS AND WARRANTIES

 

The Borrower agrees to:

 

7.1       obey all applicable laws and requirements of any federal, provincial, or any other governmental authority relating to the environment and the operation of its business activities; and

 

7.2       allow the Lender and/or any duly authorized representative of the Lender access at all times to its business premises to monitor and inspect all property and business activities.

 

SECTION 8:  MAINTENANCE OF RECORDS

 

The Lender will maintain records of the Borrower’s indebtedness and liability to the Lender under the Credit Line and such records shall evidence such indebtedness and liability.  In the absence of manifest error, such records shall be considered conclusively binding upon the Borrower as to its indebtedness and liability to the Lender by way of Seller Financed Purchases under the Credit Line unless the Borrower notifies the Lender to the contrary within five (5) days from the date on which the statement was sent to the Borrower, provided that any error by the Lender in keeping its records or in the statement shall not affect the Borrower’s obligation to pay or repay its indebtedness and liability under the Credit Line.

 

SECTION 9:  SECURITY

 

The following security, evidenced by documents satisfactory to the Lender and published as required by the Lender, are to be provided to the Lender by the Borrower and the guarantors prior to any Seller Financed Purchases under the Credit Line being permitted, failing which same shall constitute a default under the Agreement:

 

9.1       Security Agreement/Hypothec over all inventories; and

 

9.2       General Security Agreement/Hypothec on universality of property.

 

SECTION 10:  TERM

 

This Agreement shall be in effect for an initial term of one year from the date hereof and may be extended or renewed with Lender’s written agreement.

 

SECTION 11:  GOVERNING LAW

 

This Agreement is to be governed by and construed in accordance with the Laws of the Province of Quebec.

 

SECTION 12:  NOTICES

 

Any notice or other communication by the terms hereof required or permitted to be given shall be in writing, mailed by registered mail, postage prepaid, and addressed as follows:

 

If intended for the Lender

 

Automotive Finance Canada Inc.

300 Albert Mondou

St. Eustache, Quebec

 

If intended for the Borrower

 

Any notice sent by registered mail, prepaid postage shall be deemed to have been received on the third business day following the date of mailing.

 

 

SECTION 13: SCHEDULES

 

All Schedules attached hereto shall form an integral part of this Agreement and shall be deemed to be embodied herein.

 

IN WITNESS WHEREOF the parties have executed this Agreement on the day and date first hereinabove set forth.

 

	
Borrower:
    	
 
    	
Automotive Finance Canada Inc.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
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Witness
    	
 
    	
 
    	
Witness
    	
 
    

 

INTERVENTION  GUARANTEE

 

In consideration of the Lender executing the present Agreements(s) of Loan and Hypothec dated       by and between Automotive Finance Canada Inc. and       the undersigned does hereby covenant and agree with the Lender, its successors and assigns, that if default shall be made at any time by Borrower, its successors and assigns, in the payment of any sums due and/or in the performance of the covenants in the said Loan & Hypothec Agreement, the undersigned will pay the said sums due and any balance thereof that may remain due and/or perform the covenants and also acquit any and all damages that may arise in consequence of the non-payment of the said sums and/or the non-performance of the said covenants or any of them.  It shall not be necessary to notify the undersigned of any such default and the undersigned hereby waives the benefit of division and discussion binding himself solidarily with the said Borrower as principal debtor and not merely as surety, making the whole his personal affair and hereby agrees to be bound to Lender as if he was Borrower.  In the event of the liability of Borrower being terminated for any reason whatsoever inclusive of the bankruptcy or insolvency of Borrower, the undersigned shall at the option of the Lender take over and perform each and every obligation of Borrower of this Agreement for the entire duration thereof notwithstanding any statutory right to the contrary.

 

DATED this       at Montreal, Quebec.

 

	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    

 

 

TERM SHEET

 

The parties have requested that this Agreement be drawn in English.

Les parties ont demandé que cette convention soit rédigée en anglais.

 

Dealer:

 

Date of Original Note:

 

The following terms, as defined in the Installment Sales Agreement(s) between Dealer as Purchaser and various Vendors, shall apply effective immediately:

 

Installment Fee:  The Installment Fee shall be:

 

Interest:  Interest shall accrue on the Purchase Price and other Obligations pursuant to the Installment Sales Agreement(s) at a variable rate, adjusted each business day, based upon the most recent prime rate charged by the Canadian Imperial Bank of Commerce from time to time to its best commercial customers plus:

 

Number of Payment Date Extensions: The Number of Payment Date Extensions shall be limited to:

 

Period:  The Period shall be:

 

Executed by the undersigned duly authorized representatives effective as of the.

 

	
Dealer:
    	
 
    	
Automotive Finance Canada Inc.
    
	
 
    	
 
    	
 
    
	
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By:
    	
 
    
	
By:
    	
 
    	
 
    	
An AFC Officer
    
	
 
    	
 
    	
 
    	
To be executed at AFC corporate office
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    

 

SCHEDULE A

 

 

MEMORANDUM OF AGREEMENT OF HYPOTHEC ON A UNIVERSALITY OF MOVABLE PROPERTY

 

The parties have requested that this Agreement and all related documents be drawn in English.

Les parties ont rédigéé que cette convention soit et tous documents qui s’y rattachent soient rediges en anglais

 

This MEMORANDUM OF AGREEMENT OF HYPOTHEC ON A UNIVERSALITY OF MOVABLE PROPERTY (“Agreement of Hypothec”) is entered into in the City and District of Montreal, this       by and between Automotive Finance Canada Inc., a body politic, duly incorporated and having its principal place of business at 300 Albert Mondou, St. Eustache, Quebec (“LENDER”) and             , a body politic, duly incorporated and having its principal place of business at      ,       , hereinacting and represented by      , its duly authorized representative (“BORROWER”).

 

LENDER and BORROWER hereby agree as follows:

 

SECTION 1:  PREAMBLE

 

The BORROWER has borrowed from the LENDER under and pursuant to the terms of a loan agreement in the form of a revolving line of credit dated       (which said loan agreement and all its amendments, extensions or renewals thereof, if any, being hereinafter collectively called the “Loan Agreement”), which Loan Agreement shall form an integral part of this Agreement of Hypothec, the Loan Agreement being annexed hereto after having been initialed as true for the purposes of identification hereof.  The BORROWER has consented to grant to the LENDER a moveable hypothec to secure each and every one of its obligations incumbent upon it pursuant to the Loan Agreement.

 

SECTION 2:  HYPOTHEC

 

As continuing and general collateral security for the payment of the indebtedness and liability of the BORROWER to the LENDER (inclusive of repayment of capital, payment of interest, costs and accessories) under the Loan Agreement and hereunder and for the due performance of the covenants and agreements of the BORROWER under the Loan Agreement and herein set forth, the BORROWER hereby hypothecates in favour of the LENDER, to the extent of the said sum of       ($   ), in lawful money of CANADA with interest thereon as set forth in the Loan Agreement, the present and future movable property comprising the universalities (including without restriction any present and future moveable property in replacement, repaired, transformed, additions to, accessories, present and future thereof as well as the proceeds of alienation resulting therefrom) which are described as follows:  all Inventory, machinery, equipment, furniture and fixtures.

 

SECTION 3:  INSURANCE

 

3.1    The BORROWER binds and obliges itself to insure and keep insured during the currency hereof against loss by fire, and all other risks and perils normally insured against, the property which is or will be affected by the present hypothec for its full replacement value or, with the LENDER’s express written consent, to the extent of an amount which must never be less than the amount of the debt plus all other sums secured by a higher ranking hypothec or a prior claim on the property.

 

3.2    The BORROWER hereby binds and obliges itself to ensure, as the LENDER’S mandatary, that the policies include the usual hypothecary clause in favour of the LENDER, to inform the insurer of the LENDER’s hypothecary rights, to deliver the policies to the LENDER, which policies shall contain the clauses usually stipulated in policies covering the same kind of risks, to maintain the policies in effect until full repayment of the loan, and to deliver to the LENDER, at least fifteen days prior to the expiry of all such policies, receipts evidencing their renewal.

 

3.3    Should the BORROWER fail to fulfill any of these obligations, the LENDER, without prejudice to any of its other recourses, may take out but shall not be obliged to do so, any new insurance policies on the BORROWER’S behalf and claim the immediate repayment of premiums with interest from the day of their payment at the rate stipulated hereinabove.  The LENDER may also but shall not be obliged to do so, at the BORROWER’S expense, notify any interested insurance company of the present hypothec, a copy or extract of these presents being sufficient for this purpose.

 

3.4    The BORROWER shall advise the LENDER of any loss or damage without delay and shall not undertake any repairs until the LENDER has examined the property and approved the proposed work.  All insurance proceeds shall be paid directly to the LENDER to the extent of its claim.  Notwithstanding any law, usage, or custom to the contrary, the LENDER may impute the proceeds to the payment of its claim or it may return it, in whole or in part, to the BORROWER to enable the latter to repair the damaged property or replace it with new property which shall be hypothecated in favour of the LENDER, the BORROWER undertaking to sign, at the LENDER’S request, all acts necessary to that effect.  In either case, the LENDER’S hypothec or other rights shall not be reduced, diminished, or affected in any whatsoever, save by the signature of an acquaintance acknowledging a reduction in the amount of the present loan.

 

SECTION 4:  CHARGES AND CONDITIONS

 

4.1            Costs

 

The BORROWER shall pay the fees and costs of these presents, publication costs, the costs of evaluating and inspecting the property, and all other expenses, including those arising for any renewal, notice, hypothec, renunciation, granting of priority, acquittance, or release relating hereto as well as any costs incurred by the Lender to have and/or attempt to have its rights rendered opposable to any third party.

 

The LENDER is authorized to withhold from the proceeds of the present loan those amounts which are sufficient to pay such costs.

 

4.2            Putting the BORROWER in default

 

The BORROWER shall be in default to execute its obligations hereunder by the mere lapse of time foreseen for the fulfillment of said obligations or by the arrival of any term without the necessity of any pre-notice, notice or other form of a formal written and/or verbal notice of default.

 

4.3           Hypothecs or prior claims

 

The BORROWER undertakes to keep the property free of all prior claims, hypothecs, or encumbrances whatsoever including those which might have precedence over the LENDER’s rights, save those declared hereinbelow.  The BORROWER binds and obliges itself to furnish at its expense, to the LENDER on request, any renunciation, granting of priority, acquittance, or release which the latter may deem necessary to protect the priority of its rights on the hypothecated property.

 

4.4            Cancellation of hypothec or prior claims

 

The LENDER is hereby authorized but shall not obligated to do so at the BORROWER’s expense and from the proceeds of the present loan, to effect the cancellation of all hypothecary inscriptions and charges whatsoever, save those declared hereinbelow, which may effect the property and have priority over the hypothec granted hereby.  Should the proceeds be insufficient for this purpose, the LENDER is authorized to make no further advances, and despite the term stipulated herein, to exact repayment of the sums already disbursed, without prejudice to its other rights and recourses.

 

4.5            Payment of taxes

 

The BORROWER binds and obliges itself to pay, as and when they fall due, all direct or indirect assessments, rates, and taxes which may be imposed or assessed on the property, itself, by any relevant authority, and to have always available for the LENDER sufficient evidence of the payment, without subrogation in favour of third persons, of such rates, taxes and assessments.

 

4.6            Repayment of sums expended by the LENDER

 

The BORROWER shall repay to the LENDER, on demand, all monies advanced by the latter to pay insurance premiums, taxes, assessments, or other expenses arising from the loan, for the preservation of its security or to ensure the execution of any of the BORROWER’s obligations, with interest on all such monies at the rate stipulated hereinabove from the date of such advance by the LENDER.

 

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4.7            Preservation of the property

 

The BORROWER undertakes to maintain the said property in good condition and to exercise the care of a reasonable person with regard thereto, the whole so as not to diminish the LENDER’s security.  The BORROWER shall from time to time allow the LENDER to have access to the property for the purpose of inspection.

 

4.8            Lease and alienation of the property

 

Except with respect to Inventory, as defined in any Installment Sales Agreement between BORROWER and LENDER, which shall only be sold in accordance with such Installment Sales Agreement, so long as the BORROWER is not in default, it may lease, sell, or otherwise dispose of property which is intended for lease or sale, and to retain the proceeds resulting therefrom, provided that such activity occurs in the ordinary course of the business and to ensure its continuation.

 

With respect to property which is not intended for lease or sale, the BORROWER shall give prior notice to the LENDER of any future lease, sale, transfer, or alienation thereof.

 

The LENDER may then release the property from the present hypothec, subject to any conditions it may deem appropriate, otherwise, the BORROWER shall ensure that the subsequent purchaser assumes solidarily with it, and as the case may be, with any co-owner, the payment of the present loan.  The BORROWER shall also ensure that the purchaser adheres to the present hypothec and to the terms and conditions hereof and furnishes the LENDER with proof of property insurance which is in conformity with the requirements of these presents.

 

After the sale, transfer, or alienation of the property, the BORROWER shall formally notify the LENDER by written notice indicating the names of the vendor and purchaser and a description of the relevant property.  Such notice shall be accompanied by copies of all the acts and documents pertaining to the sale, transfer, or alienation of the said property, as well as a certified copy of the registration of a notice of preservation of hypothec under the purchaser’s name and proof that such notice was transmitted to him.

 

4.9            Moving the property

 

The BORROWER may not move the property without the LENDER’s written consent, unless it is done in the ordinary course of the BORROWER’s business.

 

4.10     Transformation of the property

 

The BORROWER may not incorporate the property into an immovable without first notifying the LENDER and obtaining its consent, under the conditions the latter may stipulate, nor may the BORROWER allow the property to be transformed, mixed or combined with one or more other movables so as to form a new movable, unless such other movables belong to the BORROWER in full and absolute ownership and free of all prior claims, charges and hypothecs whatsoever, and unless the resulting new movable is also subject, because of its nature, to the present hypothec.

 

4.11     Additional hypothec

 

The BORROWER binds and obliges itself to grant to the LENDER, on demand, any additional hypothec which the latter may deem necessary or useful to maintain the value of the security granted in virtue hereof.

 

4.12     Continuation of the business

 

The BORROWER hereby expressly binds and obliges itself for the entire duration of the loan, to continue the normal operation of its business and to refrain from any undertaking the purpose whereof is to cease operation or liquidate the property.

 

The BORROWER shall administer and operate its business in an appropriate and efficient manner, and shall respect the credit arrangements agreed upon with the LENDER.

 

4.13     Information, visits and documentary evidence

 

The BORROWER shall furnish to the LENDER, on demand any information which the latter may reasonably require concerning the operation of the business.  The BORROWER shall allow the LENDER to examine, from time to time its accounting records and shall furnish LENDER, on demand, with all documentary evidence attesting to the respect of its obligations.

 

4.14     Payment of employees and suppliers

 

The BORROWER shall pay its employees and suppliers on time and shall inform the LENDER of any delay in paying them.

 

4.15     Change in the legal structure

 

If the BORROWER is a partnership or a corporation, it undertakes to obtain prior authorization from the LENDER before any change in the partnership structure or in any issue, distribution, or transfer of shares and/or any reorganization of the Partnership or Corporation.

 

SECTION 5:  DECLARATIONS OF THE BORROWER

 

The BORROWER makes the following declarations, which it warrants to be entirely true and which are essential for the present loan, namely:

 

5.1    except for Inventory, as defined in any Installment Sales Agreement between BORROWER and LENDER, in the possession of BORROWER pursuant to such Installment Sales Agreement, the property is in its lawful possession and belongs to it and is free of all prior claims, hypothecs, and other charges whatsoever;

 

5.2    the property is situated at:      ,       and the BORROWER is duly qualified to conduct its enterprise, in each jurisdiction where the nature and extent of its enterprise and property require the same;

 

5.3    none of the property has been acquired from an enterprise outside of its business and the property herein charged constitutes property of an enterprise;

 

5.4    none of the property has been, by accession, incorporated into, united with, or attached or joined to an immovable so as to be considered an immovable by law;

 

5.5    none of the property furnishes the principal residence of one of the officers and/or directors of the enterprise and if the Grantor herein is a physical person, he exploits and carries on an enterprise;

 

5.6    none of the property is presently in the possession of a creditor with a right of retention;

 

5.7    all taxes, rates, and assessments imposed by a competent authority on either the business or the BORROWER have been paid to their due dates, without subrogation in favour of third persons, and there are no arrears thereof;

 

5.8    neither the BORROWER’s name nor the BORROWER’S trade name(s), if any, have ever been modified (such trade name(s), if any, being);

 

5.9    if the BORROWER is a corporation, it is duly incorporated and validly existing and is in good standing under the laws of its jurisdiction of incorporation and the BORROWER has all necessary power and authority to enter into this Agreement and to incur the indebtedness as provided for herein; and

 

5.10  the transaction herein contemplated will not result in any breach of any of the terms, conditions or provisions of, or constitute a default under any statute, indenture, agreement or other instrument to which the BORROWER is a party or by which it may be bound; and the BORROWER is not in default under any existing agreement, written or otherwise, evidencing indebtedness for borrowed money or monies owed.

 

SECTION 6:  ADDITIONAL HYPOTHEC

 

To secure the payment of all sums not secured by the principal hypothec created hereinabove, and in particular, interest due for the current and subsequent years, interest on interest, and all other amounts expended by the LENDER to protect its hypothecary claim, including but not limited to, insurance premiums, taxes, costs, and other accessories, an additional hypothec equal to twenty-five percent (25%) of the original amount of the present loan is hereby created by the BORROWER on the said property.

 

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SECTION 7:  DEFAULT

 

7.1    The BORROWER shall be in default in any one of the following events if it:

 

(a)      fails to fulfill the obligations arising from the insurance clause, the clause of charges and conditions hereinabove, or any other clause hereof;

 

(b)      fails to pay, on their respective due dates, the installment of capital and interest due under the terms hereof and/or under the terms of the Loan Agreement;

 

(c)      makes an assignment of property in favour if its creditors, is put into bankruptcy or liquidation, becomes insolvent, makes a proposal, or avails itself of the Companies’ Creditors Arrangement Act;

 

(d)      fails to obtain the release of any seizure of the property in execution of a judgment;

 

(e)      fails to obtain the release of any prior notice of the exercise of a hypothecary right or any other right registered against the property or fails to remedy any default under the terms of another hypothec or charge affecting the property;

 

(f)       makes a false or inaccurate declaration herein; or

 

(g)      fails to fulfill any of its obligations and/or is in breach of any of the terms and conditions under the Loan Agreement.

 

7.2    In the event of the default, the LENDER shall be entitled, without prejudice to its other rights and recourses;

 

(a)      to exact the immediate payment of the whole of its claim, in capital, interest, costs and accessories from the BORROWER and/or from any other person guaranteeing and/or indebted to the BORROWER;

 

(b)      to execute any obligation which has not been fulfilled by the BORROWER, in the place and at the expense of the latter;

 

(c)      notwithstanding which hypothecary recourse the LENDER shall avail itself of, the following provisions shall apply:

 

(i)        the LENDER shall be entitled, at the sole cost and expense of the BORROWER, to use all information it may have obtained in exercising its rights under the Loan Agreement and/or hereof, perform and/or complete any engagement undertaken by the BORROWER, exercise all rights attached to the property charged herein and use the premises of where the property herein charged is situated in order to exercise one and/or any of its rights;

 

(ii)       the LENDER shall be entitled to acquire either directly or indirectly the property herein charged;

 

(iii)      the LENDER shall not be required to make and/or provide an inventory, to insure the property and/or to provide any security whatsoever;

 

(iv)     if the LENDER, exercises the recourse of taking in payment, and the BORROWER requires the LENDER instead of same to proceed to the sale of the property charged, the BORROWER agrees and recognizes that the LENDER will not be required to abandon its recourse of taking in payment unless, before the expiry of the delay allotted to the BORROWER to surrender the property the BORROWER has provided the LENDER with security in amounts deemed sufficient by the LENDER in order for the latter party to be integrally reimbursed for the debt due and owing and the BORROWER has as well integrally reimbursed the LENDER for all costs and expenses inclusive of all attorney and consultant fees incurred by the latter and the BORROWER has advanced the necessary sums in the amounts as stipulated by the LENDER in order to proceed to the sale; it being furthermore understood that the LENDER shall in its sole discretion decide which mode of sale to employ;

 

(v)      the BORROWER shall be deemed to have irrevocably surrendered the property charged to the LENDER if within the delay allotted to surrender by law or by the Court in the event of a shorter delay being allotted, the LENDER has not received a written notice from the BORROWER to the effect that the latter party opposes the LENDER’s recourse of taking in payment;

 

(vi)     if the LENDER proceeds to the sale of the property charged, the Lender shall not be required to obtain prior thereto from any person an evaluation of the property being sold nor shall the Lender in any case whatsoever be held liable for selling the property charged below any normal distress selling price of similar property;

 

(vii)    the sale of the property charged may be made with legal warranty on the part of the BORROWER or, at the choice of the LENDER, with total or partial exclusion of warranty.

 

SECTION 8.  ELECTION OF DOMICILE

 

The BORROWER, and intervenants and sureties as the case may be, elect domicile at their addresses mentioned herein, however in the event any BORROWER has its head office and/or principal place of business situated outside the judicial district of Montreal then in such case, the BORROWER consents and agrees that its elected domicile shall be at                                                                    or in the event that such address shall become invalid for whatever reason, the BORROWER elects domicile at the office of the clerk of the Superior Court of the District of Montreal.

 

SECTION 9.  SOLIDARITY

 

If the term “BORROWER” includes more than one person, each of them is solidarily liable to the LENDER with respect to the obligations stipulated herein.

 

SECTION 10.  INDIVISIBILITY

 

The BORROWER’s obligations are indivisible and may be claimed in their totality from each of its heirs, legatees, or legal representatives, in accordance with Article 1520 of the Civil Code of Quebec, and similarly with respect to any surety or purchaser of the movable and his heirs, as the case may be.

 

SECTION 11.  INTERPRETATION CLAUSE

 

Whenever the context so requires, the singular shall be interpreted as plural, and vice versa, and the masculine gender as feminine or neuter.  In particular, the term “property” when used herein without any other qualifier means each and every movable hypothecated hereinabove.

 

SECTION 12.  HEADINGS

 

In the present Agreement, the headings have only been employed as a means of reference and shall not under any circumstances be employed or serve in or to the interpretation of this document.

 

SECTION 13.  PREAMBLE AND SCHEDULES

 

The Preamble and all Schedules and documents attached hereto shall form an integral part of these presents and shall be construed as being embodied herein.  In the event of any inconsistency existing between this Agreement and the Loan Agreement, the latter agreement shall prevail to the exclusion of the former agreement to the extent of such inconsistency;  otherwise, this Agreement shall be deemed to be complementary in nature.  This Agreement as well as all Schedules attached hereto faithfully and integrally reflect the agreements concluded between the parties and contain all the promises, conventions, representations, conditions and agreements concluded by the parties with respect to the present hypothec and in this regard there does not exist any other promise, convention, condition or agreement, verbal or written other than what is stipulated in these presents and all schedules attached hereto and unless otherwise foreseen herein, no modification, addition, amendment, change or alteration arising after the execution of the present agreement shall bind the BORROWER or LENDER unless same be reduced to writing and signed by all the parties.

 

SECTION 14.  SEVERABILITY

 

In the event of one or any of the provisions of the present agreement being declared null or rendered inoperative for any reason whatsoever, this nullity and/or the provision(s) rendered inoperative shall not in any case whatsoever affect the validity of the present agreement or any remainder thereof.

 

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SECTION 15.  ADDITION

 

The present hypothec shall be in addition to any other hypothec or surety held by the LENDER without replacement and/or substitution thereof; it shall not affect the LENDER’s rights of compensation.

 

SECTION 16.  CONTINUOUS GUARANTEE

 

The hypothec herein granted shall constitute a continuous guarantee which shall subsist notwithstanding the occasional, total or partial acquittance of the obligations herein secured and shall continue to have its full force and effect until such time as the LENDER has voluntarily executed a discharge in relation thereto.

 

SECTION 17.  WAIVER AND RENUNCIATION

 

The exercising by the LENDER of any of its rights hereunder shall not preclude LENDER from its right to exercise any other recourse resulting from the present Agreement or by law; the LENDER’s rights shall be deemed as cumulative and not alternative.  The failure of the LENDER to exercise one or any of its rights shall not constitute a waiver of its rights hereunder.  The LENDER may exercise its rights hereunder without first having exercised such rights against any other person liable for the payment of the obligation herein secured and without first having to realize any other security guaranteeing such obligations.

 

SECTION 18.  APPOINTMENT

 

The LENDER shall by these presents be the irrevocable mandatary of the BORROWER with the power of substitution as foreseen in paragraph 19 hereinbelow as well as for the ends of performing any act or signing any document, proxy or written instrument that it deems useful for the ends of exercising its rights or that the BORROWER neglects or refuses to sign or so perform.

 

SECTION 19.  PERFORMANCE

 

The LENDER may, without being so obliged to do so, perform any obligation incumbent upon the BORROWER herein.  It may claim immediately from the BORROWER the payment of any expense incurred thereto with interest at the rate as foreseen herein.

 

SECTION 20.  DELEGATION OF RECOURSES

 

The LENDER shall be entitled to delegate to any other person, the exercising of its rights, recourses as well as the fulfillment of its obligations resulting from these presents, by law, or from a lease and in such case the LENDER shall be entitled to provide such other person with any information it may so possess concerning the BORROWER and upon the property charged.

 

SECTION 21.  EXONERATION OF LIABILITY

 

The LENDER shall not in any manner whatsoever be liable for any damages and/or prejudice sustained by the BORROWER resulting from any fault, negligence, acts or omission by the LENDER and/or its subordinates, and the BORROWER shall in all cases save the LENDER and its subordinates harmless from same.

 

SECTION 22  NOTICES

 

All notices to the BORROWER shall be deemed as having been validly received by the latter within:

 

(a)              three (3) working days of sending if mailed by ordinary post;

 

(b)              immediately if forwarded by facsimile or served by bailiff.  All notices shall be given to the Borrower and the Lender at its address as indicated hereinabove.

 

SECTION 23. NOVATION

 

In the event of novation, the present hypothec shall remain in force and continue to apply.

 

SECTION 24. SUSPENSION OF PAYMENT OF LOAN

 

The Lender shall be entitled to suspend the payment of any loan or advance as long as the hypothec has not been published in accordance with the law.

 

SECTION 25. GOVERNING LAW

 

The present Agreement shall be governed by and construed in accordance with the laws of the Province of Quebec.

 

4

 

IN WITNESS WHEREOF the parties have executed this Agreement on the day and date first hereinabove set forth.

 

	
Dealer:
    	
 
    	
Automotive   Finance Canada Inc.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Witness
    	
 
    	
Witness
    

 

 

TERM SHEET FOR

SALVAGE VEHICLES

 

Dealer:

 

The following terms, as defined or redefined below or in your floorplan agreement with AFC shall apply effective immediately:

 

Floorplan Fee:  The Floorplan Fee for each Salvage Vehicle shall be assessed each Period as follows:

$      for advances up to $     ,

$      for advances between $      to $     ,

$      for advances between $      to $     ,

$      for advances greater than $     .

 

Interest:  Interest shall accrue on all Advances for Salvage Vehicles pursuant to the Note at a variable rate, adjusted each business day, based upon the most recent prime rate charged by the Canadian Imperial Bank of Commerce to its best commercial customers plus:

% per annum.

 

Number of Curtailment Date Extensions:  For Salvage Vehicles the Number of Curtailment Date Extensions shall be limited to       times.  If Dealer is in compliance with all other provisions of this Agreement, AFC may, in its sole discretion, permit an extension of the Curtailment Date relative to a Salvage Vehicle, upon the payment of Interest, Floorplan Fee(s), and a minimum of       Percent (     %) of the outstanding Advance relating to such Salvage Vehicle.

 

Period:  The Period for Salvage Vehicles shall be:

days.

 

Salvage Vehicle a Vehicle which is junked, scrapped, irreparable, written off by insurer of such Vehicle, or listed as a total loss by the insurer or manufacturer of record of such Vehicle.

 

Executed by the undersigned duly authorized representatives effective as of the      .

 

	
Dealer:
    	
 
    	
Automotive Finance Canada Inc.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
An AFC Officer
    
	
 
    	
 
    	
 
    	
 
    	
To be executed at AFC corporate office
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    

 

Only for AFC office use

 

	
Dealer #:
    	
 
    	
Contract #:
    	
 
    	
Branch#:
    

 

 

AGGREGATE ADVANCE LIMIT AMENDMENT

TO THE DEMAND PROMISSORY NOTE AND SECURITY AGREEMENT

 

IN ACCORDANCE with the Demand Promissory Note and Security Agreement (“Note”) between Automotive Finance Canada Inc. (“AFC”) and the undersigned, said Note incorporated herein by reference, and in consideration of credit and/or services given or to be given to the undersigned by AFC under the Note, the undersigned and AFC expressly agree as follows:

 

1) The Aggregate Advance Limit under the Note shall be       ($     ).

 

2) The Unconditional Guarantor(s), hereinafter collectively referred to as “Guarantor”, reaffirms the terms and obligations of Guarantor’s Unconditional Guaranty with respect to the Note including but not limited to the increase in the Aggregate Advance Limit as set out above.

 

Executed by the undersigned duly authorized representatives effective as of the      .

 

	
Dealership:         ,      
    	
 
    	
Automotive Finance Canada Inc.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
An AFC Officer
    
	
 
    	
 
    	
 
    	
To   be executed at AFC corporate office
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Dealer #:        Contract #:      
    
	
 
    	
 
    	
 
    	
Branch #:      
    

 

	
Unconditional Guarantor
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Witness Signature
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Witness Print Name
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Witness Signature
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Witness Print Name
    
	
 
    	
 
    	
 
    	
 
    

 

[Alberta Guarantor(s) Only]

 

THE GUARANTEES ACKNOWLEDGEMENT ACT (ALBERTA) CERTIFICATE OF NOTARY PUBLIC

 

I HEREBY CERTIFY THAT:

 

3.                                                                                        of                                                                                               , the Guarantor in the above Amendment, appeared in person before me and acknowledged that he/she had executed the Amendment;

4.              I satisfied myself by examination of him/her that he/she is aware of the contents of the Amendment and understands it.

 

Given at                                                                            this                                  day of                                                                                                   , under my hand and seal of office.

 

	
Seal
    	
A   notary Public in and for
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
STATEMENT OF GUARANTOR
    
	
I   am the Person named in this certificate.
    	
 
    
	
 
    	
 
    
	
 
    	
SIGNATURE   OF GUARANTOR
    
	
 
    	
 
    
			

 

 

CREDIT LINE AMENDMENT

TO MEMORANDUM OF AGREEMENT REGARDING CREDIT LINE

 

The parties have requested that this Agreement be drawn in English.

Les parties ont demandé que cette convention soit rédigée en anglais.

 

IN ACCORDANCE with the Memorandum of Agreement Regarding Credit Line (“Note”) between Automotive Finance Canada Inc. (“AFC”) and the undersigned, said Note incorporated herein by reference, and in consideration of credit and/or services given or to be given to the undersigned by AFC under the Note, the undersigned and AFC expressly agree as follows:

 

1) The Credit Line under the Note shall be       ($     ).

 

2) The Unconditional Guarantor(s), hereinafter collectively referred to as “Guarantor”, reaffirms the terms and obligations of Guarantor’s Unconditional Guaranty with respect to the Note including but not limited to the increase in the Aggregate Advance Limit as set out above.

 

Executed by the undersigned duly authorized representatives effective as of the      .

 

	
Dealership:
    	
 
    	
Automotive Finance Canada Inc.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
An   AFC Officer
    
	
 
    	
 
    	
 
    	
To   be executed at AFC corporate office
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Dealer #:        Contract #:      
    
	
 
    	
 
    	
 
    	
Branch #:      
    

 

	
Unconditional Guarantor
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    

 

 

	
 
    	
 
    	
 
    
	
Witness,   Signature
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Witness, Print Name
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Witness, Signature
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Witness, Print Name
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    

 

 

TERM SHEET FOR

SALVAGE VEHICLES

 

The parties have requested that this Agreement be drawn in English.

Les parties ont demandé que cette convention soit rédigée en anglais.

 

Dealer:

 

The following terms, as defined or redefined below or in the Installment Sales Agreement(s), shall apply effective immediately:

 

Installment Fee:  The Installment Fee for each Salvage Vehicle shall be assessed each Period as follows:

for advances up to      ,

for advances between       to      ,

for advances between       to      ,

for advances greater than      .

 

Interest:  Interest shall accrue on the Purchase Price for Salvage Vehicles and other Obligations pursuant to the Installment Sales Agreement(s) at a variable rate, adjusted each business day, based upon the most recent prime rate charged by the Canadian Imperial Bank of Commerce to its best commercial customers plus:

per annum.

 

Number of Payment Date Extensions:  For Salvage Vehicles the Number of Payment Date Extensions shall be limited to       times.  If Dealer is in compliance with all other provisions of this Agreement, AFC may, in its sole discretion, permit an extension of the Payment Date relative to a Salvage Vehicle, upon the payment of Interest, Installment Fee(s), and a minimum of       of the outstanding Purchase Price relating to such Salvage Vehicle.

 

Period:  The Period for Salvage Vehicles shall be:

days.

 

Salvage Vehicle a Vehicle which is junked, scrapped, irreparable, written off by insurer of such Vehicle, or listed as a total loss by the insurer or manufacturer of record of such Vehicle.

 

Executed by the undersigned duly authorized representatives effective as of the      .

 

	
Dealer:
    	
 
    	
Automotive Finance Canada Inc.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
An AFC Officer
    
	
 
    	
 
    	
 
    	
 
    	
To be executed at AFC corporate office
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    

 

Only for AFC office use

 

	
Dealer #:
    	
 
    	
Contract #:
    	
 
    	
Branch#:
    

 

 

AMENDMENT TO DEMAND PROMISSORY NOTE AND SECURITY AGREEMENT

 

IN ACCORDANCE with the Demand Promissory Note and Security Agreement (“Note”) between Automotive Finance Canada Inc. (“AFCI”) and the [Current Dealership name], said Note incorporated herein by reference, and in consideration of credit and/or services given or to be given to [New Dealership name] by AFCI under the Note, the undersigned hereby represents and warrants that the following are additions and/or changes to business name, and/or business’ address.

 

Account#              Branch:

 

Current Information:

 

	
NAME:
    
	
 
    
	
ADDRESS:
    

 

	
BUSINESS   STRUCTURE: 
    	
Corporation   o
    	
Sole   Proprietor o
    	
Partnership   o
    	
LLC   o
    	
LLP   o
    

 

Changes to current information:

 

	
NEW   NAME:
    
	
 
    
	
NEW   ADDRESS:
    

 

Add the following o

 

ADDRESS: (use this line for adding an additional lot address)

 

I (We) hereby certify that the information contained within this amendment is true, complete, and accurate.  I (we) authorize Automotive Finance Corporation (“AFC’) on its own behalf and as agent for AFCI to file personal property registrations, amendments, renewal statements, and other documents they deem necessary to protect their interest against myself (ourselves), and the dealership without notice, and to review my (our) account periodically, which may include obtaining additional credit reports.

 

Executed by the undersigned duly authorized representatives effective as of the [Day] day of [Month], [Year].

 

	
Dealership:   [Dealership Name]
    	
 
    	
Automotive Finance Canada Inc
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
[Print   Name and Title]
    	
 
    	
 
    	
An AFCI Officer
    
	
 
    	
 
    	
 
    	
 
    	
To be executed at AFCI Corporate office
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
[Print   Name and Title]
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
[Print   Name and Title]
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
[Print   Name and Title]
    	
 
    	
 
    

 

	
Unconditional   Guarantor:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
[Print   Name]
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
[Print   Name]
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
[Print   Name]
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
[Print   Name]
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    

 

	
Amnd   Canada Rev. June 11, 2007
    	
Canadian Status Change Amendment
    

 

 

AMENDMENT TO MEMORANDUM OF AGREEMENT REGARDING CREDIT LINE

 

The parties have requested that this Agreement be drawn in English.

Les parties ont rédlgéé que cette convention solt redlge en anglals

 

IN ACCORDANCE  with the Mernorandum of Agreement Regarding Credit Line (“Note”) between Automotive Finance Canada Inc. (“AFCI”) and the [Current Dealership name], said Note incorporated herein by reference, and in consideration of credit and/or services given or to be given to [New Dealership name] by AFCI under the Note, the undersigned hereby represents and warrants that the following are additions and/or changes to business’ name, and/or business’ address:

 

Account #             Branch:

 

Current Information:

 

	
NAME:
    
	
 
    
	
ADDRESS:
    

 

	
BUSINESS   STRUCTURE: 
    	
Corporation   o
    	
Sole   Proprietor o
    	
Partnership   o
    	
LLC   o
    	
LLP   o
    

 

Changes to current information:

 

	
NEW   NAME:
    
	
 
    
	
NEW   ADDRESS:
    

 

Add the following o

 

ADDRESS: (Use this line for adding an additional lot address.)

 

I (We) hereby certify that the information contained within this amendment is true, complete, and accurate. I (We) authorize Automotive Finance Corporation (“AFC”) on its own behalf and as agent for AFCI to file hypothec registrations, amendments, renewal statements, and other documents they deem necessary to protect their interest against myself (ourselves), and the dealership without notice, and to review my (our) account periodically, which may include obtaining additional credit reports.

 

Executed by the undersigned duly authorized representatives effective as of the [Day] day of [Month], [Year].

 

	
Dealership:   [Dealership Name]
    	
 
    	
Automotive Finance Canada Inc.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
[Print   Name and Title]
    	
 
    	
 
    	
An AFCI Officer
    
	
 
    	
 
    	
 
    	
 
    	
To be executed at AFCI Corporate office
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
[Print   Name and Title]
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
[Print   Name and Title]
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
[Print   Name and Title]
    	
 
    	
 
    

 

	
Unconditional   Guarantor:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
[Print   Name]
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
[Print   Name]
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
[Print   Name]
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
[Print   Name]
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    

 

	
Amnd   Quebec Rev. June 11, 2007
    	
Quebec Status Change Amendment
    

 

 

SCHEDULE D

 

FORM OF PORTFOLIO REPORT

 

(see attached)

 

	
  

  	
  Automotive Finance Canada, Inc. Servicer Report Dated: 30-Jan-10
  Inputs # of Days in Month: 30 Receivables Purchase Agreement dated as of
  February 8, 2010 Automotive Finance Canda, Inc., as Seller and Service, KAR
  Auction Services, Inc., as Performance Guarantor, and Precision Trust, as
  Noteholder. Part I. Purchase Limit, Investment Amount, and Participation as
  of 30-Jan-10 Precision Trust A. Purchase Limit 75,000,000 B. Investment #REF!
  C. Cash wired to paydown Investment #REF! D. adjusted Investment #REF! E.
  Loss Reserve #REF! F. Net Receivables Pool Balance #REF! G. Trust's Share =
  [(D+E /F)] #REF! Part II. Receivables Rollforward and Aging Report See
  Section I details on Receivables Pool Balance calculated as of the Month End
  Date. Part III. Concentration Limits and Net Portfolio Balance See Section II
  details on Receivables Pool Balance calculated as of the Month End Date. Part
  IV. Required Reserves (Section III) $ CAD % A. Loss Reserve (incl Cash Res)
  Loss Reserves and Percentage #REF! #REF! Minimum Level (Min % * Investment)
  #REF! #REF! B. Cash Reserve (part of LR) Minimum Level (Min % * Investment)
  [*] [*] Part V. Performance Triggers (Section IV) Actual Trigger Level A.
  Aggregate Investments + Loss Reserve - Cash wired Collateral Balance + Excess
  Cash in Liq Account #REF! [*] #REF! B. Eligible Receivables < $30 million
  #REF! 30,000,000 #REF! C. 1-month Delinquency Ratio (1-30 days) #REF! [*]
  #REF! D. 3-month Arithmetic Average Delinquency Ratio (1-30 days) #REF! [*]
  #REF! E. 1-month Default Ratio #REF! [*] #REF! F. 3-month Arithmetic Average
  Default Ratio #REF! [*] #REF! G. Net Spread Test #REF! [*] #REF! Part VI.
  Financial Triggers & Covenants (Section V) Actual Trigger Level A.
  Bankruptcy N Y In Compliance B. Material Adverse Change N Y In Compliance C.
  Change in Control (RPA s. 6.1(w)) N Y In Compliance D. Cash Reserve Event N Y
  In Compliance E. KAR Financial Covenant violation N Y In Compliance F. Cross
  Acceleration of KAR Corporate Debt $ - 35,000,000.00 In Compliance G. Cross
  Acceleration of AFC or AFCI Corporate Debt $ - 1,000,000.00 In Compliance H.
  Seller's Debt Limitation #REF! [*] #REF! I. Tangible Net Worth Test (AFC)
  #REF! [*] #REF! J. Tangible Net Worth Test (Seller) #REF! [*] #REF! K. [*]
  [*] [*] Part VII. Reporting Requirements Timing A. Reporting Period Each week
  for Portfolio Certificates & each month Portfolio Reports B. Reporting
  Dates First Business Day of each week and 15th day following last day of each
  calendar month C. Quarterly Financial Statements - Seller & Servicer 60
  days after end of first three quarters of each fiscal year D. Annual
  Financial Statements - Seller & Servicer 90 days after end of each fiscal
  year E. KAR Compliance Certificate 60 days after end of first three quarters
  of each fiscal year F. Material Changes to Servicer Report Promptly upon
  reasonable request Part VIII. Representations & Warranties The Servicer
  certifies the figures on the Servicer Report to be true and complete, no
  Termination Events as forth in Exhibit V have occurred, and the representations
  and warranties set forth in Exhibit III of the Receivables Purchase Agreement
  are true and correct as of the date hereof. AFC FUNDING CORPORATION By:         The Loss Percentage at [DATE] was
  #REF! Name Printed: Jim Money Title:  
  Chief Financial Officer & Treasurer Date:

  

 

	
  

  	
   SECTION I - Receivables
  Information I. Receivables Rollforward Current Month #REF! #REF! #REF! #REF!
  #REF! A) Beginning Principal Balance #REF! #REF! #REF! #REF! #REF! #REF! B)
  Pre-existing Rental Receivables #REF! #REF! #REF! #REF! #REF! #REF! C)
  Receivables Floorplanned #REF! #REF! #REF! #REF! #REF! #REF! D) Principal
  Receipts #REF! #REF! #REF! #REF! #REF! #REF! E) Write-Offs #REF! #REF! #REF!
  #REF! #REF! #REF! F) A/R Converted to Notes #REF! #REF! #REF! #REF! #REF!
  #REF! G) Ending Principal Balance [A + B - C - D - E] #REF! #REF! #REF! #REF!
  #REF! #REF! Finance Charge Collections G) Interest #REF! #REF! #REF! #REF!
  #REF! H) Floorplan Fee #REF! #REF! #REF! #REF! #REF! I) Other Fees #REF!
  #REF! #REF! #REF! #REF! J) Finance Charge Collections #REF! #REF! #REF! #REF!
  #REF! Write-Offs K) Total Write-Offs #REF! #REF! #REF! #REF! #REF! L)
  Write-Offs > [*] #REF! #REF! #REF! #REF! #REF! M) Total Converted to Notes
  #REF! #REF! #REF! #REF! #REF! N) Converted to Notes >[*] #REF! #REF! #REF!
  #REF! #REF! II. Receivables Aging Report A) Current #REF! #REF! #REF! #REF!
  #REF! B) [*] Days Past Due #REF! #REF! #REF! #REF! #REF! C) [*] Days Past Due
  #REF! #REF! #REF! #REF! #REF! D) [*] Days Past Due #REF! #REF! #REF! #REF!
  #REF! E) [*] Days Past Due #REF! #REF! #REF! #REF! #REF! F) [*] Days Past Due
  #REF! #REF! #REF! #REF! #REF! Total Receivables [A + B + C + D + E + F] #REF!
  #REF! #REF! #REF! #REF! Average Maturity (ref purposes only) #REF! #REF!
  #REF! #REF! #REF! Difference #REF! #REF! #REF! #REF! #REF! III. Payment Rate
  / Implied Turnover A) Principal Receipts (from rollforward) #REF! Specified
  Ineligible Receivables B) Beginning Principal Balance (from rollforward)
  #REF! (Assets that are not eligible for the Net Receivables Pool Balance.
  Implied Turnover [B / A * 30] #REF! These items are not included in the
  rollforward and are not aged. V. Delinquent Receivables #REF! Receivables [*]
  days past due New Motorcycles - VI. Defaulted Receivables Salvage Vehicles -
  Receivables [*] days past due #REF! Affiliated Obligors - Auto Source -
  225011 - - SECTION II - Concentrations & NRPB VII. Obligor Information
  Number of Active Dealers #REF! Average Dealer Size #REF! VIII. Net
  Receivables Pool Balance Calculation Total Receivables #REF! Less: Specified
  Inelgibile Receivables 0 Total Receivables excluding Specified Ineligible
  Receivables #REF! Recv excluded from NRPB (incl exclusion for Spec Curt &
  Rentals)* Delinquent Receivables - Defaulted Receivables - Non-Eligible
  Vehicles - Tractor Receivables > CAD [*] - Recreational Vehicle
  Receivables > [*] - Used Motorcycles > [*] - Obligors with >[*]
  defaulted (not previously excluded) - Ineligible Term Exclusions - Other
  Ineligible (incl delinquent) - Total Pool Receivables [*] terms (excl. Spec.
  Curt.) [*] Day Terms (w/o curtailments) Max [*] - - [*] days, New Car max [*]
  (Not Rental or Spec. Curt. - Terms > [*] payoff - Short Pays (P
  Exclusions) - NSF - Total Specified Curtailment Exclusion (includes 90x1,
  that has been curtailed) - Spec Curt Receivables > [*] days: - Spec Curt
  Receivables Delq [*] days: - Receivables of bankrupt obligors not already
  excluded - Rental Receivables Delinquent - Rental Receivables Defaulted -
  Total Rental Receivables - TA excl (rental) - Rental Receivables bankrupt
  (not Delinq or Defaulted) - Outstanding Balance of Eligible Receivables #REF!
  Rental Receivables - Other Ineligible (NSF,Sht Pay, etc.) - (before Specified
  Curtailment and Rentals Add-back) Static Rental Recv Pool Net Loss Rate
  Specified Curtailment Receivables - Jul-Dec 2009 Jan-Jun 2009 Jul-Dec 2008
  Jan-Jun 2008 Jul-Dec 2007 Jan-Jun 2007 Rental Receivables - Total Write offs
  - - - - - - Add: [*] of Spec Cur Recv - Recoveries - - - - - - Add: [*] of
  Rental Recv #DIV/0! #DIV/0! Net Write-offs - - - - - - Less Specified
  Curtailment Receivables Advance in excess of 8% #REF! Agg Initial Pool Bal -
  - - - - - Less Rental Receivables Advance in excess of 5% #DIV/0! Net Loss
  Rate 0.00% 0.00% #DIV/0! #DIV/0! #DIV/0! #DIV/0! O/s Bal.of Eligible Recv.
  (incl. Specified Curtailment Recv.) #REF! pass pass #DIV/0! #DIV/0! #DIV/0!
  #DIV/0! #DIV/0! #DIV/0! 

  
	
   

  	
   

  

 

	
  

  	
   Concentration Limits
  (including Specified Curtailment Receivables) Normal Concentrations (List all
  obligors in excess of [*] CAD$ Equivalent) Largest Obligors O/S Eligible Elig
  Rec Limit Excess Dealer Number Balance - NPE [*] Concentrations 2 - #REF!
  #REF! 3 - #REF! #REF! 4 - #REF! #REF! 5 - #REF! #REF! 6 - #REF! #REF! 7 -
  #REF! #REF! 8 - - 9 Total Excess Concentrations - Normal #REF! Excluded
  Obligors N/A Special Concentrations (List all obligors in excess of [*] -
  CAD$ Equivalent that has been approved as a special obligor) Per Third
  Amended Restated Agmt new dealers added to this list O/S Eligible Elig Rec
  Limit Excess Dealer Number Balance - NPE [*] Concentrations 1 [*] - #REF!
  #REF! 2 [*] - #REF! #REF! 3 [*] - #REF! #REF! Total Excess Concentrations -
  Special [*] #REF! Rental Special Concentrations (List Total Receivables all
  obligors having any Rental Receivablesl; limited to [*] - CAD$ Equivalent
  that has been approved as a special obligor) [*] 1 - #REF! #REF! 2 - #REF!
  #REF! 3 - #REF! #REF! 4 - #REF! #REF! 5 #REF! #REF! Total Excess
  Concentrations - Special [*] #REF! TOTAL EXCESS CONC - SPECIAL #REF! Net
  Receivables Pool Balance #REF! SECTION III - Required Reserves IX. Investment
  & Discount (Discount Tab) Precision Total A) Aggregate Investments #REF!
  #REF! B) Total Discount #REF! #REF! C) Accrued & Unpaid Discount #REF!
  #REF! D) Average Investment (from Billing) 0 0  X. Loss Percentage (Calculated Monthly)
  Month Delinquency Ratio A) [*] #REF! #REF! #REF! B) [*] #REF! #REF! #REF! C)
  Loss Reserve Ratio (Calculated Below) #REF! #REF! #REF! D) Minimum Loss
  Percentage [*] #REF! #REF! E) Loss Percentage [*] #REF! #REF! #REF! #REF!
  #REF! Loss Percentage (1-Loss Percentage) #REF! #REF! #REF! #REF! #REF! XI.
  Loss Reserve Calculation Precision Total #REF! #REF! A) [*] #REF! #REF! #REF!
  #REF! B) [*] #REF! #REF! #REF! C) [*] #REF! #REF! #REF! Loss Reserve [A - B *
  C] #REF!  [*] Avg Default Ratio Loss
  Reserve Ratio: #REF! #REF! F) [*] #REF! #REF! #REF! G) [*] #REF! #REF! #REF!
  H) [*] #REF! #REF! #REF! I) [*] #REF! #REF! #REF! Loss Reserve Ratios [G *
  H/I] #REF! #REF! #REF! #REF! #REF! XII. Cash Reserve Account #REF! #REF! A)
  Excess Spread [*] #REF! #REF! #REF! B) Excess Spread [*] #REF! #REF! #REF! C)
  [*] #REF! #REF! #REF! [*] [*] #REF! #REF! #REF! D) [*] #REF! [*] [*] #REF!
  Current Month- C less than [*] or D greater than [*] #REF! E) Required
  Reserve Calculation: Has Cash Reserve Event ever o?ccurred [*] (Must enter
  either "Yes" or "No") [*] Calculation Date of Most Recent
  Cash Reserve Event (C less than [*] or D greater than [*]) (fill in manually)
  [*] Has the Most Recent Cash Reserve Event Been Cured [*] (Must enter either
  "Yes" or "No") Calculation Date Cash Reserve Event was Cured
  (fill in manually) Has the Cash Reserve Event been cured for [*]? [*] Cash
  Reserve Event applicable (occurred and not cured for [*]) ? [*] F) Cash
  Reserve Percentage [*] G) [*] #REF! H) Required Cash Reserve Amount [*] #REF!
  I) Actual Cash Reserve Balance #REF! #REF! #REF! 

  

 

	
  

  	
  XIII. Total Reserves A) Loss Reserve #REF! B) Cash Reserve [from
  XII. H)] #REF! Total Reserve $ [A + B] #REF! Total Reserve % [A + B] #REF! C)
  Investment + [Total][Loss] Reserve [A + F] #REF! XIV. Collection Account
  Balance Precision Total A) Collection Account Balance #REF! B) Last Billing
  Paid #REF! Replacement Servicer Fee #REF! #REF! C) Funding Discount #REF!
  #REF! D) Collection Costs #REF! #REF! E) Backup Servicing Fees #REF! #REF!
  Standby Fees #REF! #REF! F) amts owed to Indemnified Parties #REF! #REF! G)
  Transition Expenses (if Any) #REF! #REF! H) [Reserved] #REF! #REF! Minimum
  Balance #REF! Excess Cash/(Deficit) #REF! Compliance? #REF! Note: Items D, E
  and F are limited to [*] XV. [Reserved]  
  SECTION IV - Performance Triggers XVI. Termination Events - Month End
  Only A) Participation Test 1) Investment #REF! 2) Loss Reserve #REF! 3) Cash
  wired to paydown Investment #REF! 5) Investment + Loss Reserve - Cash wired
  #REF! 6) Net Receivable Pool Balance #REF! 7) Trust's Share % [5) / 6)] #REF!
  8) Trust's Share % Limit #REF! 100.00% B) Default Ratio Test 1) Receivables
  [*] days past due + Write-offs and Notes <[*] past due Jan-10 #REF! #REF!
  + A/R conv to Notes <[*] past due (Ref Tab 1 for details) #REF! #REF!
  #REF! 2) Receivables Originated [*] months prior (Cash Disbur.) #REF! #REF!
  #REF! 3) Default Ratio [1/2] #REF! #REF! #REF! Maximum [*] Default Ratio In
  Compliance [*] 4) [*] Avg Default Ratio #REF! Maximum [*] Avg Default Ratio
  #REF! [*] C) Delinquency Ratio Test Jan-10 #REF! #REF! 1) Total Delinquent
  Receivables #REF! #REF! #REF! 2) Outstanding Balance of Pool Receivables
  #REF! #REF! #REF! 3) Delinquency Ratio [1/2] #REF! #REF! #REF! Maximum [*]
  Delinquency Ratio In Compliance [*] 4) [*] Avg Delinquency Ratio #REF!
  Maximum [*] Avg Delinquency Ratio #REF! [*]

  

 

	
  

  	
  D) Net Spread Test Jan-10 #REF! #REF! 30 days #REF! #REF! 1)
  Finance Charge Collections #REF! #REF! #REF! 2) Discount Expensed During
  Month (actual) #REF! #REF! #REF! 3) Monthly Facility Fees (includes pgm fee
  & insur premium) #REF! #REF! #REF! 4) Monthly Utilization Fee #REF! #REF!
  #REF! 5) Backup Servicing Fees and Unaffiliated Servicer Fees #REF! #REF!
  #REF! 6) Transition Expenses (if any) #REF! #REF! #REF! 7) Notional Servicer
  Fee [*] #VALUE! #VALUE! #VALUE! 8) Other Fees > $100 #REF! #REF! #REF! 9)
  Receivables [*] Days Past Due #REF! #REF! #REF! 10) Write-offs/Non-Cash AJE's
  #REF! #REF! #REF! 11) A/R Converted to Notes #REF! #REF! #REF! Subtotal #REF!
  #REF! #REF! 12) Add Back 10) & 11) greater than [*] days old #REF! #REF!
  #REF! 13) Recoveries #REF! #REF! #REF! 14) Collections on defaulted
  receivables #REF! #REF! #REF! 15) Excess Finance Collections #REF! #REF!
  #REF! 16) Average Aggregate Balance Pool Receivables #REF! #REF! #REF!
  Applicable Net Spread Trigger 17) Net Spread [*] #REF! #REF! #REF! [*] [*]
  18) Minimum Net Spread [*] [*] [*] [*] Compliance [*] #REF! 2010 [*] [*] 18)
  [*] Avg Net Spread (level I) #REF! E) Minimum Eligible Receivables 1)
  Eligible Receivables #REF! 2) Minimum Eligible Receivables 30,000,000
  Compliance [1 > 2] #REF! F) Minimum Cash Reserve 1) Amount on Deposit in
  Cash Reserve #REF! 2) Minimum Cash Reserve Amount #REF! Compliance [1 > 2]
  #REF! SECTION V - Financial Triggers & Covenants A) Tangible Net Worth
  Test 1. AFC A) AFC's Shareholder's Equity #REF! B) AFC's Intangible Assets
  #REF! C) Tangible Net Worth [A-B] #REF! D) Minimum Tangible Net Worth [*]
  Compliance [C > D] #REF! 2. Seller - AFCI A) AFCI Shareholder's Equity
  #REF! B) AFCI's Intangible Assets #REF! C) Tangible Net Worth [A-B] #REF! D)
  Minimum Tangible Net Worth [*] Compliance [C > D] #REF! B) Seller's Debt
  (including Investment) A) Maximum Debt [*] B) All Debt [*] & Receivables
  Sold #REF! C) Compliance (A > B) #REF! C) Contract Images Sent 12/03/09 

  

 

 

 

SCHEDULE E

 

FORM OF PORTFOLIO CERTIFICATE

 

(see attached)

 

 

Schedule E

Portfolio Certificate

Automotive Finance Canada Inc.

 

To:          Precision Trust

 

Reference is made to the Receivables Purchase Agreement, dated as of February 8, 2010 (as amended or otherwise modified from time to time, the “Receivables Purchase Agreement) among Automotive Finance Canada Inc. (the “Seller”), KAR Auction Services, Inc. (the “Performance Guarantor”), and BNY Trust Company of Canada, in its capacity as trustee of Precision Trust (in such capacity, the “Trust”).  Capitalized terms used but not otherwise defined are used as defined in the Receivables Purchase Agreement.

 

The Seller hereby certifies and warrants to you that the following is a true and correct computation as of: 

Date:

 

	
 
    	
 
    	
 
    	
 
    	
Amount
    	
 
    
	
(1)
    	
Net Receivables   Pool Balance
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
A.
    	
Total of all Receivables in the Receivables   Pool
    	
 
    	
 
    	
 
    	
CAD 0.00
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
B.
    	
Specified Ineligible Receivables
    	
 
    	
 
    	
 
    	
CAD 0.00
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
C.
    	
Sum of Principal Balances of all Receivables   in the Receivables Pool that are excluded from the Net Receivables Pool   Balance 
    	
 
    	
 
    	
 
    	
CAD 0.00
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
D.
    	
Amount by which the Principal Balances of all   Eligible Receivables of each Obligor exceeds the product of the Normal   Concentration Percentage for such Obligor (or, in the case of a Special   Obligor, the Special Concentration Percentage) multiplied by the Principal   Balance of all Eligible Receivables.
    	
 
    	
 
    	
 
    	
CAD 0.00
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
E.
    	
Net Receivables Pool Balance
    	
 
    	
 
    	
 
    	
CAD 0.00
    	
 
    
	
 
    	
 
    	
(1A - 1B - 1C - 1D)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
(2)
    	
Investment
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
A.
    	
Investment
    	
 
    	
 
    	
 
    	
CAD 0.00
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
[*]
    	
 
    	
 
    	
 
    	
CAD 0.00
    	
 
    
	
 
    	
 
    	
plus, with respect to an Increase Request,   the amount of such Increase
    	
 
    	
 
    	
 
    	
CAD 0.00
    	
 
    
	
 
    	
B.
    	
Loss Reserve
    	
 
    	
 
    	
 
    	
CAD 0.00
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
C.
    	
Investment + Loss Reserve
    	
 
    	
 
    	
 
    	
CAD 0.00
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Trust’s Share TEST: (1E must be greater than   or equal to 2C)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
[1E]
    	
 
    	
CAD 0.00
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
[2C]
    	
 
    	
CAD 0.00
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Is Trust’s Share less than or equal to 100%
    	
 
    	
#DIV/0!
    	
 
    	
#DIV/0!
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
(3)
    	
Cash Reserve [*]
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Is Cash Reserve Event   applicable?
    	
 
    	
 
    	
 
    	
No
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
A.
    	
Cash Reserve Account balance
    	
 
    	
 
    	
 
    	
CAD 0.00
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
B.
    	
Cash Reserve Required Amount
    	
 
    	
 
    	
 
    	
CAD 0.00
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Cash Reserve TEST: (4A must be greater than   or equal to 4B)
    	
 
    	
 
    	
 
    	
COMPLIES
    	
 
    

 

IN WITNESS WHEREOF, the SELLER has caused this Certificate to be executed and delivered by its duly authorized officer this [   ]th day of [   ].

 

	
 
    	
Automotive Finance Canada Inc.
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
 
    

 

 

SCHEDULE F

 

FORM OF INCREASE REQUEST

 

TO:                           PRECISION TRUST
 c/o BMO NESBITT BURNS INC.
 3rd Floor Podium
 1 First Canadian Place
 Toronto, Ontario
 M5X 1H3
 Telecopier No.: (416) 359-1910

 

This Increase Request is delivered to you pursuant to Section 2.1(b) of the receivables purchase agreement dated as of February 8, 2010 (the “Receivables Purchase Agreement”) between Automotive Finance Canada Inc. (the “Seller”), KAR Auction Services, Inc. (the “Performance Guarantor”) and BNY Trust Company of Canada, in its capacity as trustee of Precision Trust (in such capacity, the “Trust”).  All initially capitalized terms used herein, but not otherwise defined herein, have the meanings ascribed to them in the Receivables Purchase Agreement.

 

The Seller represents and warrants as of the date hereof as follows:

 

(i)      the representations and warranties of the Seller contained in Section 4.1 of the Receivables Purchase Agreement are correct on and as of the date of purchase as though made on and as of such date; and

 

(ii)     no event has occurred and is continuing, or would result from the effecting of such Purchase, that constitutes a Trigger Event or would constitute a Trigger Event by further requirement that notice be given or time elapse or both; and

 

(iii)    the attached Weekly Portfolio Certificate fully and accurately reflects The Pool Receivables and adjusted Principal Balances.

 

	
Remittance Date:
    
	
Current aggregate   Investment:
    
	
Increase/decrease   to Investment (cash payment) 

(at least   Cdn$500,000, increments of Cdn$100,000):
    
	
Cash Reserve   Required Amount [*]:
    
	
Current Cash   Reserve Account balance:
    
	
Cash Deposit Amount   (if req’d)
    
	
Transferred to   Precision Trust Cash Reserve Account [*]:
    
	
Net Cash Payment:
    

 

 

	
Transferred to Seller’s Account No.:
    	
 
    

 

DATED the          day of   .

 

	
 
    	
AUTOMOTIVE FINANCE CANADA INC.
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    

 

 

SCHEDULE G

 

DEPOSIT ACCOUNTS

 

	
Branch
    	
 
    	
Account Number
    
	
[*]
    	
 
    	
[*]
    
	
[*]
    	
 
    	
[*]
    
	
[*]
    	
 
    	
[*]
    
	
[*]
    	
 
    	
[*]
    
	
[*]
    	
 
    	
[*]
    
	
[*]
    	
 
    	
[*]
    
	
[*]
    	
 
    	
[*]
    
	
[*]
    	
 
    	
[*]
    
	
[*]
    	
 
    	
[*]
    
	
[*]
    	
 
    	
[*]
    

 

 

SCHEDULE H

 

FORM OF QUÉBEC ASSIGNMENT

 

(see attached.)

 

 

QUÉBEC ASSIGNMENT

 

Reference is made to a receivables purchase agreement dated as of February 8, 2010 (as may be amended, restated, supplemented or otherwise modified, the “Purchase Agreement”) by and among Automotive Finance Canada Inc./Financement d’Automobiles Canada Inc., a corporation existing under the laws of Ontario (the “Seller”), KAR Auction Services, Inc., a corporation existing under the laws of Delaware, as performance guarantor, and BNY Trust Company of Canada, in its capacity as trustee of Precision Trust, a trust established under the laws of the Province of Ontario (the “Trust”) concerning the sale and assignment by the Seller to the Trust of an interest in the Receivables Pool.  For good and valuable consideration, the Trust and the Seller agree as follows:

 

ARTICLE 1
 INTERPRETATION

 

1.1                               Definitions

 

In this Québec Assignment, the following terms shall have the following meanings:

 

“Contract” means, with respect to any Obligor, collectively, the Dealer Note issued by such Obligor, or similar agreement between such Obligor and the Seller, any guarantee issued in connection therewith and each other agreement or instrument executed by an Obligor pursuant to or in connection with any of the foregoing, the purpose of which is to evidence, secure or support such Obligor’s obligations to the Seller under such Dealer Note or other similar agreement;

 

“Credit and Collection Policies” means the customary policies and practices of the Servicer that have been delivered to the Trust relating to the creditworthiness of Obligors, the making of collections and the enforcement of Receivables and the Related Security as such policies and practices may be amended from time to time in accordance with the Purchase Agreement;

 

“Dealer Note” means a demand promissory note and security agreement and any other promissory note issued, or agreement made by, an Obligor in favour of the Seller;

 

“Financed Vehicle” means [*];

 

“Obligor” means any Person who is from time to time obligated to make payments on a Receivable including any co-signer or guarantor;

 

“Person” means an individual, partnership, corporation, limited liability company, trust, joint venture, unincorporated organization, association, board or body established by statute, government (or any agency or political subdivision thereof) or other entity;

 

“Québec Collections” means, with respect to Québec Receivables, (a) all funds which are received by the Seller, the Servicer or the Trust in payment of any amounts owed in respect of such Québec Receivables (including, without limitation, principal payments, finance charges, floorplan fees, curtailment fees, interest and all other charges), or applied (or to be applied) to amounts owed in respect of such Québec Receivables (including, without limitation, insurance payments and net proceeds of the sale or other disposition of vehicles or other collateral or property of the related Obligors or any other Person directly or indirectly liable for the payment

 

 

of Québec Receivables applied (or to be applied) thereto), (b) all Collections in respect of Québec Receivables deemed to have been received pursuant to Section 5.17 of the Purchase Agreement, (c) all other proceeds of Québec Receivables, and (d) without duplication, all other amounts deposited to the Deposit Accounts or the Collection Account under the Purchase Agreement;

 

“Québec Pool Assets” means the universality of all present and future Québec Receivables together with all Related Security, all Québec Collections, and all rights of action with respect to the foregoing;

 

“Québec Receivable” means each Receivable where either one of the following conditions is satisfied:

 

(a)                               the Obligor of such Receivable is located in the Province of Québec; or

 

(b)                               such Receivable is payable to an address or an account in the Province of Québec;

 

“Receivable” means any claim or right to payment from an Obligor arising under a Contract, arising from the providing of financing and other services by the Seller to new, used and wholesale automobiles or other motor vehicle dealers, including the obligation to pay any finance charges and other obligations with respect thereto;

 

“Records” means all contracts, books, records, microfiche and other documents and information (including computer programmes, tapes, diskettes, data processing software and related property and rights) maintained by or on behalf of the Seller evidencing or otherwise relating to any Receivables, including the Contracts related thereto, or relating to any of the related Financed Vehicles, Obligors, Related Security, Collections or the Deposit Accounts and shall include all such records, information and material maintained or required to be maintained by the Servicer in respect thereof but excluding for greater certainty the financial statements of the Seller and its Affiliates;

 

“Recreational Vehicle” means [*];

 

“Related Security” means, with respect to any Québec Receivable:

 

(a)                                 the Related Vehicle and Proceeds Security;

 

(b)                                 all of the Seller’s interest in all warranties, indemnities, service obligations and other contract rights issued or granted by, or otherwise existing under applicable law against, the Obligor or the manufacturer in respect of the related Financed Vehicle;

 

(c)                                  all guarantees and Security Interests (other than the Related Vehicle and Proceeds Security) from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Québec Receivable, or otherwise, together with all financing statements or other instruments describing any collateral securing such Receivable, and including all Security Interests (other than the Related Vehicle and Proceeds Security) granted by any Person (whether or not the primary Obligor on such Québec Receivable) under or

 

2

 

in connection therewith and purporting to secure payment of such Québec Receivable;

 

(d)                                 all Records relating to such Québec Receivable, including all original Contracts;

 

(e)                                  all service contracts and other contracts and agreements relating to such Québec Receivable; and

 

(f)                                   all proceeds of or relating to any of the foregoing, including proceeds of or relating to the Québec Receivable;

 

“Related Vehicle and Proceeds Security” means with respect to any Receivable, the Seller’s Security Interest in the related Financed Vehicle, and all proceeds thereof including proceeds of Insurance Policies;

 

“Security Interest” means a lien, security interest, hypothec, title retention agreement, pledge, assignment (whether or not by way of security), charge, encumbrance, mortgage, right of set-off, lease or other right or claim of any Person;

 

“Tractors” means [*].

 

1.2                               Definitions

 

Terms with initial capital letters in this Québec Assignment which are not defined herein shall have the meanings given to them in the Purchase Agreement.

 

ARTICLE 2
 SALE AND ALLOCATIONS

 

2.1                               Assignment and Sale

 

The Seller hereby sells and assigns to the Trust, and the Trust hereby acquires from the Seller, the Québec Pool Assets.  Such sale and assignment of the Québec Pool Assets constitutes an absolute sale and assignment of the Québec Pool Assets.

 

Notwithstanding anything to the contrary, whenever the expression “Trust’s Co-Ownership Interest” is used in the Purchase Agreement, it shall include a 100% ownership interest in the Quebec Receivables.

 

2.2                               Purchase Price

 

The purchase price for the sale by the Seller to the Trust of the Québec Pool Assets hereunder shall be calculated and paid in accordance with the terms of the Purchase Agreement.

 

2.3                               Entitlements

 

Quebec Collections shall be allocated with other Collections under Sections 2.5, 2.6, 2.8 and 2.9 of the Purchase Agreement provided that amounts allocated and paid to the Seller under Sections 2.5(c) or 2.8 (c) of the Purchase Agreement in respect of Quebec Collections shall be paid to the

 

3

 

Seller as additional Deferred Purchase Price rather than payments made in respect of the Seller’s Retained Interest.

 

2.4                               Reconveyances

 

Following the Final Termination Date, the Trust shall, upon the written request of the Seller, reconvey to the Seller the Québec Pool Assets consisting of (i) the universality of all Québec Receivables arising on the Final Termination Date or thereafter (and excluding, for greater certainty, the universality of all Québec Receivables arising or existing at any time before the Final Termination Date) and all related Québec Collections, (ii) all Related Security with respect to each such Québec Receivable and (iii) all rights of action with respect to the foregoing.  Moreover, upon the written request of the Seller and in furtherance of an optional repurchase of Pool Receivables under Section 6.3 of the Purchase Agreement, the Purchaser shall reconvey to the Seller all of the Quebec Pool Assets.  Each reconveyance by the Trust to the Seller under this Section 2.4 shall be effected without any representation or warranty (express, implied, statutory or otherwise) except for the Trust’s warranty that the reconveyed assets are not subject to any lien, hypothec, charge, security interest, ownership interest, encumbrance or any other right or claim created by, through, or in favour of, the Trust.  The Trust shall sign all documents required by the Seller in order to give effect to each such reconveyance, and shall make all requisite registrations and give all required notices to render it opposable to third parties.

 

ARTICLE 3
 MISCELLANEOUS

 

3.1                               Purchase Agreement

 

This Québec Assignment shall be construed as having been executed in furtherance of the Purchase Agreement and shall form an integral part thereof, provided that the ownership of the Québec Pool Assets shall be determined in accordance with the terms of this Québec Assignment and not by the terms of the Purchase Agreement.

 

3.2                               Notices

 

Notices for the purposes of this Québec Assignment shall be given in accordance with the Purchase Agreement.

 

3.3                               Governing Law

 

This Québec Assignment shall be governed by and construed in accordance with the laws of the Province of Québec.

 

4

 

3.4                               Severability

 

If, in any jurisdiction, any provision of this Québec Assignment or its application to any party to this Québec Assignment or circumstance is restricted, prohibited or unenforceable, such provision shall, as to such jurisdiction, be ineffective only to the extent of such restriction, prohibition or unenforceability without invalidating the remaining provisions of this Québec Assignment and without affecting the validity or enforceability of such provision in any other jurisdiction or without affecting its application to other parties or circumstances.

 

3.5                               Counterparts

 

This Québec Assignment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement.  Delivery of an executed counterpart of a signature page to this Québec Assignment by facsimile shall be effective as delivery of a manually executed counterpart of this Québec Assignment.

 

3.6                               Successors and Assigns

 

This Québec Assignment may be assigned by the parties hereto only in accordance with the provisions governing the assignment of the Purchase Agreement.

 

3.7                               Section Headings

 

Section headings in this Québec Assignment are included herein for convenience of reference only and shall not affect in any way the interpretation of any of the provisions hereof.

 

3.8                               Paramountcy

 

In the event of an inconsistency or conflict between the terms of this Québec Assignment and the Purchase Agreement, the terms of this Québec Assignment shall govern.

 

3.9                               Limitation of Liability

 

This Québec Assignment has been entered into by BNY Trust Company of Canada (the “Trustee”) solely in its capacity as trustee of the Trust and by the Securitization Agent as agent for the Trust and is not binding on the Trustee or the Securitization Agent in any other capacity.  Save and except where a claim is based on its own negligence or wilful misconduct, resort may not be had to, nor recourse or satisfaction be sought from, the private property of the Trustee or the Securitization Agent, or their respective directors, officers, employees, or agents, and resort will be had solely to the property of the Trust held in trust by the Trustee for the payment, performance or satisfaction of any liability or obligation of the Trust or the Trustee hereunder.

 

3.10                        Language.

 

The parties hereby confirm their express wish that the present agreement and all documents, notices and agreements directly and indirectly related thereto be drawn up in English. Les parties reconnaissent leur volonté expresse que la présente convention ainsi que tous les documents, avis et conventions qui s’y rattachent directement ou indirectement soient rédigés en langue anglaise.

 

5

 

The parties have executed this Québec Assignment as of February       , 2010.

 

 

	
 
    	
AUTOMOTIVE FINANCE CANADA   INC./FINANCEMENT D’AUTOMOBILES CANADA INC.
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Title:
    

 

	
 
    	
BNY TRUST COMPANY OF CANADA,   solely in its capacity as trustee of PRECISION TRUST, by its Securitization   Agent, BMO NESBITT BURNS INC.
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Title:
    

 

6Exhibit 10.1

 

	
 
    

 

AMENDED AND RESTATED

 

LIMITED LIABILITY COMPANY AGREEMENT

 

OF

 

HCP DR MCD, LLC,

 

a Delaware limited liability company

 

Dated as of February 9, 2007

 

	
 
    

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE I. DEFINED TERMS
    	
 
    	
1
    
	
 
    	
 
    	
 
    
	
ARTICLE II. ORGANIZATIONAL MATTERS
    	
 
    	
21
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
2.1
    	
Formation
    	
 
    	
21
    
	
 
    	
2.2 
    	
Name
    	
 
    	
21
    
	
 
    	
2.3
    	
Registered Office and Agent; Principal Place of Business; Other   Places of Business
    	
 
    	
21
    
	
 
    	
2.4
    	
Power of Attorney
    	
 
    	
22
    
	
 
    	
2.5
    	
Term
    	
 
    	
23
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE III. PURPOSE
    	
 
    	
23
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
3.1
    	
Purpose and Business
    	
 
    	
23
    
	
 
    	
3.2
    	
Powers
    	
 
    	
23
    
	
 
    	
3.3
    	
Specified Purposes
    	
 
    	
24
    
	
 
    	
3.4
    	
Representations and Warranties by the Members; Disclaimer of Certain   Representations
    	
 
    	
24
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE IV. CAPITAL CONTRIBUTIONS
    	
 
    	
27
    
	
 
    	
 
    	
 
    
	
 
    	
4.1
    	
Capital Contributions of the Initial Members
    	
 
    	
27
    
	
 
    	
4.2
    	
Additional Members
    	
 
    	
27
    
	
 
    	
4.3
    	
Loans and Incurrence and Payment of Debt
    	
 
    	
27
    
	
 
    	
4.4
    	
Additional Funding and Capital Contributions
    	
 
    	
28
    
	
 
    	
4.5
    	
No Interest; No Return
    	
 
    	
29
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE V. DISTRIBUTIONS
    	
 
    	
29
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
5.1
    	
Requirement and Characterization of Distributions
    	
 
    	
29
    
	
 
    	
5.2
    	
Distributions in Kind
    	
 
    	
30
    
	
 
    	
5.3
    	
Amounts Withheld
    	
 
    	
30
    
	
 
    	
5.4
    	
Distributions Upon Liquidation
    	
 
    	
31
    
	
 
    	
5.5
    	
Restricted Distributions
    	
 
    	
31
    
	
 
    	
5.6
    	
Distributions of Proceeds from Sale of Properties and Refinancing   Debt
    	
 
    	
31
    
	
 
    	
5.7
    	
Distributions Following Redemption
    	
 
    	
33
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE VI. ALLOCATIONS
    	
 
    	
33
    
	
 
    	
 
    	
 
    
	
 
    	
6.1
    	
Timing and Amount of Allocations of Net Income and Net Loss
    	
 
    	
33
    
	
 
    	
6.2
    	
General Allocations
    	
 
    	
33
    
	
 
    	
6.3
    	
Additional Allocation Provisions
    	
 
    	
35
    
	
 
    	
6.4
    	
Tax Allocations
    	
 
    	
37
    
	
 
    	
6.5
    	
Other Provisions
    	
 
    	
37
    
	
 
    	
6.6
    	
Amendments to Allocation Reflect Issuance of Additional Membership   Interests
    	
 
    	
38
    

 

i

 

	
ARTICLE VII. MANAGEMENT AND OPERATION OF BUSINESS
    	
 
    	
38
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
7.1
    	
Management
    	
 
    	
38
    
	
 
    	
7.2
    	
Certificate of Formation
    	
 
    	
42
    
	
 
    	
7.3
    	
Restrictions on Managing Member’s Authority
    	
 
    	
42
    
	
 
    	
7.4
    	
Compensation of the Managing Member
    	
 
    	
48
    
	
 
    	
7.5
    	
Other Business of Managing Member
    	
 
    	
49
    
	
 
    	
7.6
    	
Contracts with Affiliates
    	
 
    	
49
    
	
 
    	
7.7
    	
Indemnification
    	
 
    	
50
    
	
 
    	
7.8
    	
Liability of the Managing Member
    	
 
    	
52
    
	
 
    	
7.9
    	
Other Matters Concerning the Managing Member
    	
 
    	
52
    
	
 
    	
7.10
    	
Title to Company Assets
    	
 
    	
53
    
	
 
    	
7.11
    	
Reliance by Third Parties
    	
 
    	
53
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE VIII. RIGHTS AND OBLIGATIONS OF MEMBERS
    	
 
    	
54
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
8.1
    	
Limitation of Liability
    	
 
    	
54
    
	
 
    	
8.2
    	
Managing of Business
    	
 
    	
54
    
	
 
    	
8.3
    	
Outside Activities of Members
    	
 
    	
54
    
	
 
    	
8.4.
    	
Return of Capital
    	
 
    	
55
    
	
 
    	
8.5
    	
Rights of Non-Managing Members Relating to the Company
    	
 
    	
55
    
	
 
    	
8.6
    	
Redemption Rights
    	
 
    	
56
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE IX. BOOKS, RECORDS, ACCOUNTING AND REPORTS
    	
 
    	
58
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
9.1
    	
Records and Accounting
    	
 
    	
58
    
	
 
    	
9.2
    	
Fiscal Year
    	
 
    	
59
    
	
 
    	
9.3
    	
Reports
    	
 
    	
59
    
	
 
    	
9.4
    	
Cooperation Regarding Tax Matters Relating to Contributed Property
    	
 
    	
59
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE X. TAX MATTERS
    	
 
    	
60
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
10.1
    	
Preparation of Tax Returns
    	
 
    	
60
    
	
 
    	
10.2
    	
Tax Elections
    	
 
    	
60
    
	
 
    	
10.3
    	
Tax Matters Partner
    	
 
    	
60
    
	
 
    	
10.4
    	
Organizational Expenses
    	
 
    	
61
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE XI. TRANSFERS AND WITHDRAWALS
    	
 
    	
61
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
11.1
    	
Transfer
    	
 
    	
61
    
	
 
    	
11.2
    	
Transfer of Managing Member’s Membership Interest
    	
 
    	
61
    
	
 
    	
11.3
    	
Non-Managing Members’ Rights to Transfer
    	
 
    	
62
    
	
 
    	
11.4
    	
Substituted Members
    	
 
    	
64
    
	
 
    	
11.5
    	
Assignees
    	
 
    	
64
    
	
 
    	
11.6
    	
General Provisions
    	
 
    	
65
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
ARTICLE XII. ADMISSION OF MEMBERS
    	
 
    	
66
    
	
 
    	
 
    	
 
    
	
 
    	
12.1
    	
Admission of Initial Non-Managing Members
    	
 
    	
66
    
	
 
    	
12.2
    	
Admission of Successor Managing Member
    	
 
    	
67
    
	
 
    	
12.3
    	
Admission of Additional Members 
    	
 
    	
67
    
	
 
    	
12.4
    	
Amendment of Agreement and Certificate
    	
 
    	
68
    

 

ii

 

	
 
    	
12.5
    	
Limitation on Admission of Members
    	
 
    	
68
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE XIII. DISSOLUTION, LIQUIDATION AND TERMINATION
    	
 
    	
68
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
13.1
    	
Dissolution
    	
 
    	
68
    
	
 
    	
13.2
    	
Redemption of Non-Managing Member Units
    	
 
    	
69
    
	
 
    	
13.3
    	
Winding Up
    	
 
    	
69
    
	
 
    	
13.4
    	
Deemed Contribution and Distribution
    	
 
    	
71
    
	
 
    	
13.5
    	
Rights of Members
    	
 
    	
71
    
	
 
    	
13.6
    	
Notice of Dissolution
    	
 
    	
71
    
	
 
    	
13.7
    	
Cancellation of Certificate
    	
 
    	
71
    
	
 
    	
13.8
    	
Reasonable Time for Winding-Up
    	
 
    	
71
    
	
 
    	
13.9
    	
Liability of Liquidator
    	
 
    	
72
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE XIV. PROCEDURES FOR ACTIONS AND CONSENTS OF MEMBERS;   AMENDMENTS; MEETINGS
    	
 
    	
72
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
14.1
    	
Procedures for Actions and Consents of Members
    	
 
    	
72
    
	
 
    	
14.2
    	
Amendments
    	
 
    	
72
    
	
 
    	
14.3
    	
Meetings of the Members; Written Consent Without a Meeting
    	
 
    	
72
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE XV. GENERAL PROVISIONS
    	
 
    	
73
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
15.1
    	
Addresses and Notice
    	
 
    	
73
    
	
 
    	
15.2
    	
Titles and Captions
    	
 
    	
74
    
	
 
    	
15.3
    	
Pronouns and Plurals
    	
 
    	
74
    
	
 
    	
15.4
    	
Further Action
    	
 
    	
74
    
	
 
    	
15.5
    	
Binding Effect
    	
 
    	
74
    
	
 
    	
15.6
    	
Creditors
    	
 
    	
74
    
	
 
    	
15.7
    	
Waiver
    	
 
    	
74
    
	
 
    	
15.8
    	
Counterparts
    	
 
    	
74
    
	
 
    	
15.9
    	
Applicable Law
    	
 
    	
75
    
	
 
    	
15.10
    	
Entire Agreement
    	
 
    	
75
    
	
 
    	
15.11
    	
Invalidity of Provisions
    	
 
    	
75
    
	
 
    	
15.12
    	
No Partition
    	
 
    	
75
    
	
 
    	
15.13
    	
Uniform Commercial Code Article 8 (Opt-In)
    	
 
    	
75
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Exhibit A
    	
Member Information
    	
 
    	
A-1
    
	
Exhibit B
    	
Notice of Redemption
    	
 
    	
B-1
    
	
Exhibit C
    	
Form of Joinder Agreement
    	
 
    	
C-1
    
	
Exhibit D
    	
Example of Certain Calculations Pursuant to Section 5.6.C
    	
 
    	
D-1
    
	
Exhibit E
    	
Form of Bottom Dollar Guarantee
    	
 
    	
E-1
    
	
Exhibit F-1
    	
Form of Managing Member Note
    	
 
    	
F-1-1
    
	
Exhibit F-2
    	
Form of Managing Member Note (Subordinate Note)
    	
 
    	
F-2-1
    

 

iii

 

AMENDED AND RESTATED
 LIMITED LIABILITY COMPANY AGREEMENT
 OF
 HCP DR MCD, LLC

 

THIS LIMITED LIABILITY COMPANY AGREEMENT (this “Agreement”)  is made and entered into as of February 9, 2007, by and among Health Care Property Investors, Inc., a Maryland corporation (the “Managing Member”),  and the Persons whose names are set forth on Exhibit A  attached hereto as “Non-Managing Members” (collectively, the “Non-Managing Members,” and together with the Managing Member, the “Members”),  for the purpose of forming HCP DR MCD, LLC, a Delaware limited liability company (the “Company”).

 

RECITALS

 

A.                                   The Managing Member, the Company and Medical City Dallas Limited Partnership, a Texas limited partnership (“Contributor”)  entered into that certain Contribution Agreement and Joint Escrow Instructions dated as of February 6, 2007 (the “Contribution Agreement”), providing, among other things, for the contribution of certain assets to, and the acquisition of certain interests in, the Company.

 

B.                                     The Contributor has, in accordance with the limited partnership agreement of Contributor and subject to the terms of the Contribution Agreement, concurrent with the Effective Date (as hereinafter defined) distributed and assigned to its constituent partners all or a portion of Contributor’s rights to receive Non-Managing Member Units pursuant to and in accordance with Sections 4.1 and 12.1 hereof.

 

C.                                     It is a condition to the closing of the transactions contemplated by the Contribution Agreement that the Members enter into this Agreement, and the Members desire to adopt this Agreement in accordance with the Act.

 

AGREEMENT

 

NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

ARTICLE I.
  DEFINED TERMS

 

The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement.

 

“Accounting Firm”  has the meaning set forth in Section 7.3H hereof.

 

“Act”  means the Delaware Limited Liability Company Act, as it may be amended from time to time, and any successor to such statute.

 

 

“Actions”  has the meaning set forth in Section 7.7 hereof. 

 

“Additional Funds”  has the meaning set forth in Section 4.4A hereof.

 

“Additional Member”  means a Person admitted to the Company as a Member pursuant to Section 4.2 hereof.

 

“Adjusted Capital Account Deficit”  means, with respect to any Member, the deficit balance, if any, in such Member’s Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments:

 

(a)                                  decrease such deficit by any amounts that such Member is obligated to restore pursuant to this Agreement or by operation of law upon liquidation of such Member’s Membership Interest or is deemed to be obligated to restore pursuant to Regulation Section 1.704-1(b)(2)(ii)(c) or the penultimate sentence of each of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and

 

(b)                                 increase such deficit by the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).

 

The foregoing definition of “Adjusted Capital Account Deficit” is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

 

“Adjustment Factor”  means 1.0; provided, however, that: (a) in the event that the Managing Member (i) declares or pays a dividend on its outstanding REIT Shares in REIT Shares or makes a distribution to all holders of its outstanding REIT Shares in REIT Shares, (ii) splits or subdivides its outstanding REIT Shares or (iii) effects a reverse stock split or otherwise combines its outstanding REIT Shares into a smaller number of REIT Shares, the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor in effect immediately prior to such adjustment by a fraction, (1) the numerator of which shall be the number of REIT Shares issued and outstanding on the record date for such dividend, distribution, split, subdivision, reverse split or combination (assuming for such purposes that such dividend, distribution, split, subdivision, reverse split or combination has occurred as of such time) and (2) the denominator of which shall be the actual number of REIT Shares issued and outstanding on the record date for such dividend, distribution, split, subdivision, reverse split or combination (assuming for such purposes that such dividend, distribution, split, subdivision, reverse split or combination has not occurred as of such time) ; (b) the Managing Member distributes any rights, options or warrants to all holders of its REIT Shares to subscribe for or to purchase or to otherwise acquire REIT Shares (or other securities or rights convertible into, exchangeable for or exercisable for REIT Shares) at a price per share less than the Value of a REIT Share on the record date for such distribution (each a “Distributed Right”), then the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor previously in effect by a fraction, (i) the numerator of which shall be the number of REIT Shares issued and outstanding on the record date plus the maximum number of REIT Shares purchasable under such Distributed Rights and (ii) the denominator of which shall be the number of REIT Shares issued and outstanding on the record date plus a fraction, (1) the numerator of which is the maximum number of REIT Shares

 

2

 

purchasable under such Distributed Rights times the minimum purchase price per REIT Share under such Distributed Rights and (2)  the denominator of which is the Value of a REIT Share as of the record date; provided, however, that, if any such Distributed Rights expire or become no longer exercisable, then the Adjustment Factor shall be adjusted, effective retroactive to the date of distribution of the Distributed Rights, to reflect a reduced maximum number of REIT Shares or any change in the minimum purchase price for the purposes of the above fractions; and (c) the Managing Member shall, by dividend or otherwise, distribute to all holders of its REIT Shares evidences of its indebtedness or assets (including securities, but excluding any dividend or distribution referred to in subsection (a) above), which evidences of indebtedness or assets relate to assets not received by the Managing Member pursuant to a pro rata distribution by the Company, then the Adjustment Factor shall be adjusted to equal the amount determined by multiplying the Adjustment Factor in effect immediately prior to the close of business on the date fixed for determination of shareholders entitled to receive such distribution by a fraction, (i) the numerator shall be such Value of a REIT Share on the date fixed for such determination and (ii) the denominator shall be the Value of a REIT Share on the dated fixed for such determination less the then fair market value (as reasonably determined by the Managing Member) of the portion of the evidences of indebtedness or assets so distributed applicable to one REIT Share. Any adjustments to the Adjustment Factor shall become effective immediately after the effective date of such event, retroactive to the record date, if any, for such event.

 

“Affirmative Consent of the Non-Managing Members”  means the Consent of the Non-Managing Members other than pursuant to a Deemed Consent of any Non-Managing Member.

 

“Affirmative Consent of a Supermajority of the Non-Managing Members”  means the Consent of a Supermajority of the Non-Managing Members other than pursuant to a Deemed Consent of any Non-Managing Member.

 

“Affiliate”  means, with respect to any Person, any Person directly or indirectly Controlling or Controlled by or under common Control with such Person.

 

“Aggregate Sharing Amount”  means, with respect to any taxable disposition of all or any portion of the Contributed Property or any Successor Property, an amount equal to the excess, if any, of (i) the Property Appreciation with respect to all or such portion of the Contributed Property or any Successor Properties being sold or previously sold by the Company, over (ii) the Unit Appreciation with respect to all or such portion of the Contributed Property or any Successor Properties being sold or previously sold by the Company.

 

“Agreement”  means this Amended and Restated Limited Liability Company Agreement of HCP DR MCD, LLC, as it may be amended, supplemented or restated from time to time.

 

“Appraisal”  means, with respect to any assets, the written opinion of an independent third party experienced in the valuation of similar assets in the general location of the property being appraised, selected by the Managing Member in good faith. Such opinion may be in the form of an opinion by such independent third party that the value for such property or asset as set by the Managing Member is fair, from a financial point of view, to the Company.

 

3

 

“Assignee” means a Person to whom one or more LIC Units have been Transferred in a manner permitted under this Agreement, but who has not become a Substituted Member, and who has the rights set forth in Section 11.5 hereof.

 

“Available Cash”  means, with respect to any period for which such calculation is being made:

 

(a)                                  the sum, without duplication, of:

 

(i)                                     the Company’s net income or net loss (as the case may be) for such period determined in accordance with GAAP,

 

(ii)                                  depreciation and all other non-cash charges to the extent deducted in determining net income or net loss for such period pursuant to the foregoing clause (a)(i),

 

(iii)                               the amount of any reduction in reserves of the Company (including, without limitation, reductions resulting because the Managing Member determines such amounts are no longer necessary and straight-line rent adjustments), and

 

(iv)                              all other cash received (including, but not limited to amounts previously accrued as net income and amounts of deferred income but excluding any net amounts borrowed by the Company for such period) that was not included in determining net income or net loss for such period pursuant to the foregoing clause (a)(i),

 

(b)                                 less the sum, without duplication, of:

 

(i)                                     all regularly scheduled (including at maturity) principal debt payments made during such period by the Company,

 

(ii)                                  capital expenditures made by the Company during such period,

 

(iii)                               all other expenditures and payments (including any loans made by the Company pursuant to the terms of this Agreement) not deducted in determining net income or net loss for such period pursuant to the foregoing clause,

 

(iv)                              straight-line rental revenue to the extent added in determining net income or net loss for such period pursuant to the foregoing clause (a)(i),

 

(v)                                 the amount of any increase in reserves (including, without limitation, working capital reserves) established during such period that the Managing Member determines are necessary or appropriate in its sole and absolute discretion, and

 

4

 

(vi)                              amounts included in determining net income or net loss for such period where cash was not received during such period for such amounts.

 

Notwithstanding the foregoing, Available Cash shall not include (1) any cash received or reductions in reserves, or take into account any disbursements made, or reserves established, after dissolution and the commencement of the liquidation and winding up of the Company, (2) any Capital Contributions, whenever received, (3) any Disposition Proceeds or (4) any Refinancing Debt Proceeds.

 

“Bankruptcy Law”  means Title 11, U.S. Code or any similar federal or state law for the relief of debtors.

 

“Beneficial Ownership”  means ownership of REIT Shares by a Person who is or would be treated as an owner of such REIT Shares either actually or constructively through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The terms “Beneficially Own,” “Beneficially Owned,” “Beneficially Owns”  and “Beneficial Owner”  shall have the correlative meanings.

 

“Bottom Guarantee” has the meaning set forth in Section 7.3E.(4) hereof.

 

“Built-in Gain”  means the excess of (a) the gross  fair market value of the Contributed Property or any Successor Properties (or any applicable portion(s) thereof) over (b) the adjusted tax basis of the Contributed Property or Successor Properties (or any applicable portion(s) thereof) (as the case may be) for federal income tax purposes, as determined as of the Effective Date and as reduced from time to time in accordance with applicable provisions of the Code and Regulations.

 

“Business Day” means any day except a Saturday, Sunday or other day on which the Federal Reserve Bank of San Francisco is closed.

 

“Calendar Quarter” means each of the following periods of each year: January 1 through and including March 31; April 1 through and including June 30; July 1 through and including September 30; and October 1 through and including December 31.

 

“Call Notice”  means a written notice to the Non-Managing Members informing them of the Managing Member’s election to call their Non-Managing Member Units pursuant to Section 13.2 hereof.

 

“Capital Account”  means, with respect to any Member, the Capital Account maintained for such Member on the Company’s books and records in accordance with the following provisions:

 

(a)                                  To each Member’s Capital Account, there shall be added such Member’s Capital Contributions, such Member’s allocable share of Net Income and any items of income or gain specially allocated pursuant to Section 6.3 hereof, and the amount of any Company liabilities assumed by such Member or that are secured by any property distributed to such Member.

 

5

 

(b)                                 From each Member’s Capital Account, there shall be subtracted the amount of cash and the Gross Asset Value of any property distributed to such Member pursuant to any provision of this Agreement, such Member’s allocable share of Net Loss and any items of loss or deductions specially allocated pursuant to Section 6.3 hereof, and the amount of any liabilities of such Member assumed by the Company or that are secured by any property contributed by such Member to the Company.

 

(c)                                  In the event any interest in the Company is Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent that it relates to the Transferred interest.

 

(d)                                 In determining the principal amount of any liability for purposes of subsections (a) and (b) above there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations.

 

(e)                                  The provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Sections 1.704-1(b) and 1.704-2, and shall be interpreted and applied in a manner consistent with such Regulations. If the Managing Member shall determine that it is prudent to modify the manner in which the Capital Accounts are maintained in order to comply with such Regulations, the Managing Member may make such modification provided that such modification will not have a material effect on the amounts distributable to any Member without such Member’s Consent. The Managing Member also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of Company capital reflected on the Company’s balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q) and (ii) make any appropriate modifications in the event that unanticipated events might otherwise cause this Agreement not to comply with Regulations Sections 1.704-1(b) or 1.704-2 provided that such modification will not have a material effect on the amounts distributable to any Member without such Member’s Consent.

 

“Capital Contribution”  means, with respect to any Member, the amount of money and the initial Gross Asset Value of any property or other assets (including, without limitation, the Contributed Property) that such Member contributes to the Company pursuant to Sections 4.1, 4.2 or 4.4 hereof and, with respect to the Initial Non-Managing Members, the Contribution Agreement.

 

“Cash Amount”  means an amount of cash per LLC Unit equal to the product of (a) the Value of a REIT Share and (b) the REIT Shares Amount determined as of the applicable Valuation Date.

 

“Certificate”  means the Certificate of Formation of the Company filed in the office of the Secretary of State of the State of Delaware, as amended from time to time in accordance with the terms hereof and the Act.

 

“Charter”  means the Articles of Incorporation of the Managing Member, as amended, supplemented or restated from time to time.

 

6

 

“Closing Price”  means the closing price of a REIT Share on the New York Stock Exchange.

 

“Code”  means the Internal Revenue Code of 1986, as amended and in effect from time to time or any successor statute thereto, as interpreted by the applicable Regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law.

 

“Company”  has the meaning set forth in the Preface hereof, and any successor thereto.

 

“Company Minimum Gain”  has the meaning set forth in Regulations Section 1.704-2(b)(2) for the phrase “partnership minimum gain,”  and the amount of Company Minimum Gain, as well as any net increase or decrease in Company Minimum Gain, for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(d).

 

“Consent”  means the consent to, approval of, or vote on a proposed action by a Member given in accordance with Article XIV hereof or any other written consent to, approval of, or vote on a proposed action or matter by a Member as otherwise provided herein.

 

“Consent of the Non-Managing Members”  means the Consent of a Majority in Interest of the Non-Managing Members, which Consent shall be obtained prior to the taking of any action for which it is required by this Agreement and, except as otherwise provided in this Agreement, may be given or withheld by a Majority in Interest of the Non-Managing Members, in their reasonable discretion.

 

“Consent of Supermajority of the Non-Managing Members”  means the Consent of a Supermajority in Interest of the Non-Managing Members, which Consent shall be obtained prior to the taking of any action for which it is required by this Agreement and, except as otherwise provided in this Agreement, may be given or withheld by a Supermajority in Interest of the Non-Managing Members in their reasonable discretion.

 

“Constructive Ownership”  means ownership of REIT Shares, or any other interest in an entity, by a Person who is or would be treated as an owner thereof either actually or constructively through the application of Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The terms “Constructively Own,”  “Constructively Owned,” “Constructively Owns”  and “Constructive Owner”  shall have the correlative meanings.

 

“Contributed Property”  means the “Property”  as that term is defined in the Contribution Agreement. It is acknowledged that, pursuant to the Contribution Agreement, certain identified non-real estate assets of the “Property” (as defined in the Contribution Agreement) shall be contributed through or at the direction of the Company upon the closing of the transactions contemplated thereby.

 

“Contribution Agreement”  shall have the meaning given to such term in Recital A above, as the same may be amended or modified in accordance with the terms thereof.

 

“Contributor”  shall have the meaning given to such term Recital A above.

 

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“Contributor’s Partners”  means the constituent partners of Contributor to whom Contributor has distributed or otherwise assigned, in accordance with the limited partnership agreement of Contributor and subject to the terms of the Contribution Agreement, the right of such Contributor to receive Non-Managing Member Units pursuant to and in accordance with Sections 4.1 and 12.1 hereof.

 

“Control”  means, when used with respect to any Person, the possession directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling”  and “controlled”  have correlative meanings.

 

“Custodian”  means  any receiver, trustee, assignee, liquidator or other similar official under any Bankruptcy Law.

 

“Debt”  means, as to any Person, as of any date of determination, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services; (ii) all amounts owed by such Person to banks or other Persons in respect of reimbursement obligations under letters of credit, surety bonds and other similar instruments guaranteeing payment or other performance of obligations by such Person; (iii) all indebtedness for borrowed money or for the deferred purchase price of property or services secured by any lien on any property owned by such Person, to the extent attributable to such Person’s interest in such property, even though such Person has not assumed or become liable for the payment thereof; and (iv) lease obligations of such Person that, in accordance with GAAP, should be capitalized.

 

“Deemed Consent”  has the meaning set forth in Section 14.3B. hereof.

 

“Depreciation”  means, for each Fiscal Year or other applicable period, an amount equal to the federal income tax depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that, if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or period, Depreciation shall be in an amount that bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided, however, that, if the federal income tax depreciation, amortization or other cost recovery deduction for such year or period is zero (-0-), Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Managing Member.

 

“Disposition Proceeds”  means the net proceeds (i.e., after the repayment of any Debt and the payment of all costs related to the disposition) received by the Company upon the taxable disposition of all or any portion of the Properties.

 

“Effective Date”  means the date on which the transactions contemplated by the Contribution Agreement are consummated, at which time the contributions set forth in Section 4.1 hereof and Exhibit A hereto that are to be effective shall become effective.

 

“Effective Price”  as defined in the Contribution Agreement.

 

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“ERISA”  means the Employee Retirement Income Security Act of 1974, as amended.

 

“Excess LLC Units”  means any LLC Units held by a Non-Managing Member to the extent that, if such LLC Units were exchanged for the REIT Shares Amount pursuant to Section 8.6 hereof, such Non-Managing Member would Beneficially Own or Constructively Own REIT Shares in excess of the Ownership Limit or otherwise in violation of the Charter.

 

“Exchange Act”  means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.

 

“Fiscal Year”  means the fiscal year of the Company, which shall be the calendar year.

 

“GAAP”  means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession), or in such other statements by such entity as may be in general use by significant segments of the United States accounting profession, which are applicable to the facts and circumstances on the date of determination.

 

“Gross Asset Value”  means, with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows:

 

(a)                                 The initial Gross Asset Value of any asset contributed by a Member to the Company shall be its fair market value, as agreed to by such Member and the Managing Member, and set forth on Exhibit A  with respect to that Member or as otherwise set forth in the books and records of the Company; provided, however, that the initial Gross Asset Value of any asset contributed by the Managing Member or an Affiliate of the Managing Member to the Company shall be its fair market value as reasonably and in good faith determined by the Managing Member.

 

(b)                                 The Gross Asset Values of all Company assets immediately prior to the occurrence of any event described in clause (i), clause (ii), clause (iii), (iv) or clause (v) hereof shall be adjusted to equal their respective gross fair market values, as determined by the Managing Member using such reasonable and good faith method of valuation as it may adopt, as of the following times:

 

(i)                                     the acquisition of an additional interest in the Company (other than in connection with the execution of this Agreement but including, without limitation, acquisitions pursuant to Section 4.2 hereof or contributions or deemed contributions by the Managing Member pursuant to Section 4.4 hereof) by a new or existing Member in exchange for more than a de minimis Capital Contribution, if the Managing Member reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Members in the Company;

 

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(ii)                                  the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for an interest in the Company, if the Managing Member reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Members in the Company;

 

(iii)                               in connection with the grant of an interest in the Company (other than a de minimis interest) as consideration for the performance of services to or for the benefit of the Company by an existing Member acting in a capacity as a Member of the Company or by a new Member acting in a capacity as a member of the Company or in anticipation of being a Member of the Company if the Managing Member reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Members in the Company;

 

(iv)                              the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); and

 

(v)                                 at such other times as the Managing Member shall reasonably determine necessary or advisable in order to comply with Regulations Sections 1.704-1(b) and 1.704-2.

 

(c)                                  The Gross Asset Value of any Company asset distributed to a Member shall be the gross fair market value of such asset on the date of distribution as determined by the distributee and the Managing Member, provided that, if the distributee is the Managing Member or if the distributee and the Managing Member cannot agree on such a determination, such gross fair market value shall be determined by Appraisal.

 

(d)                                 At the election of the Managing Member, the Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided, however,  that Gross Asset Values shall not be adjusted pursuant to this subsection (d) to the extent that the Managing Member reasonably determines that an adjustment pursuant to subsection (b) above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (d).

 

(e)                                  If the Gross Asset Value of a Company asset has been determined or adjusted pursuant to subsection (a), subsection (b) or subsection (d) above, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Income and Net Loss.

 

“HCP”  means Health Care Property Investors, Inc., a Maryland corporation, its successors and assigns.

 

“Incapacity”  or “Incapacitated”  means, (a) as to any Member who is an individual, death, total physical disability or entry by a court of competent jurisdiction

 

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adjudicating such Member incompetent to manage his or her person or his or her estate; (b) as to any Member that is a corporation or limited liability company, the filing of a certificate of dissolution, or its equivalent, for the corporation or limited liability company or the revocation of its charter; (c) as to any Member that is a partnership, the dissolution and commencement of winding up of the partnership; (d) as to any Member that is an estate, the distribution by the fiduciary of the estate’s entire interest in the Company; (e) as to any trustee of a trust that is a Member, the termination of the trust (but not the substitution of a new trustee); or (f) as to any Member, the bankruptcy of such Member. For purposes of this definition, bankruptcy of a Member shall be deemed to have occurred when (i) the Member commences a voluntary proceeding seeking liquidation, reorganization or other relief of or against such Member under any bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) the Member is adjudged as bankrupt or insolvent, or a final and non-appealable order for relief under any bankruptcy, insolvency or similar law now or hereafter in effect has been entered against the Member, (iii) the Member executes and delivers a general assignment for the benefit of the Member’s creditors, (iv) the Member files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Member in any proceeding of the nature described in clause (ii) above, (v) the Member seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator for the Member or for all or any substantial part of the Member’s properties, (vi) any proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect has not been dismissed within 120 days after the commencement thereof, (vii) the appointment without the Member’s consent or acquiescence of a trustee, receiver or liquidator has not been vacated or stayed within 90 days of such appointment, or (viii) an appointment referred to in clause (vii) above is not vacated within 90 days after the expiration of any such stay.

 

“Indemnitee”  means  (a) any Person made a party to a proceeding by reason of its status as (i) a Non-Managing Member, (ii) the Managing Member or (iii) a director of the Managing Member or an officer or employee of the Company or the Managing Member and (b) such other Persons (including Affiliates of the Managing Member or the Company) as the Managing Member may designate from time to time (whether before or after the event giving rise to potential liability), in its sole and absolute discretion.

 

“Initial Managing Member Loan Amount”  means, with respect to each initial Managing Member Loan pursuant to Section 4.3B, the applicable amount set forth in such Section 4.3B.

 

“Initial Non-Managing Members”  means the Non-Managing Members who acquired their Non-Managing Member Units in exchange for the Contributed Property on the Effective Date pursuant to the Contribution Agreement.

 

“IRS”  means the Internal Revenue Service, which administers the internal revenue laws of the United States.

 

“Joinder Agreement”  means a Joinder Agreement in substantially the form attached hereto as Exhibit C.

 

“Liquidating Event”  has the meaning set forth in Section 13.1 hereof.

 

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“Liquidator”  has the meaning set forth in Section 13.3A hereof.

 

“LLC Distribution Date”  means the date established by the Managing Member for the payment of actual distributions declared by the Managing Member pursuant to Sections 5.1 and 5.2, which date shall be the same as the date established by the Managing Member for the payment of dividends to holders of REIT Shares.

 

“LLC Record Date”  means the record date established by the Managing Member for the distribution of Available Cash pursuant to Section 5.1  hereof, which record date shall be the same as the record date established by the Managing Member for a dividend to holders of REIT Shares.

 

“LLC Units”  means the Managing Member Units and the Non-Managing Member Units, collectively.

 

“Loan-to-Value Ratio”  shall mean the ratio, as of the date of incurrence of any Debt by the Company, in which the numerator is equal to the outstanding principal balance of all Debt of the Company and the denominator is equal to the fair market value of the Properties, as reasonably and in good faith determined by the Managing Member.

 

“Majority in Interest of the Non-Managing Members”  means at any time those Non-Managing Members (other than the Managing Member or its Affiliate in its capacity as a holder of Non-Managing Member Units) holding in the aggregate more than 50% of the then aggregate outstanding Non-Managing Member Units (other than those held by the Managing Member or its Affiliate).

 

“Majority of Remaining Members” means  Non-Managing Members owning a majority of the Non-Managing Member Units held by Non-Managing Members.

 

“Make-Whole Payment”  has  the meaning set forth in Section 7.3G hereof.

 

“Managing Member”  means  HCP, in its capacity as the Managing Member, or any successor Managing Member designated pursuant to the terms of this Agreement.

 

“Managing Member Guarantee”  has  the meaning set forth in Section 11.2A. 

 

“Managing Member Loan”  has the meanings set forth in Section 4.3B hereof.

 

“Managing Member Loan Amount”  means, with respect to any Managing Member Loan (or any permitted Replacement Indebtedness pursuant to Section 7.3E.(3)), the applicable Initial Managing Member Loan Amount; provided, however, that such amount may be decreased by the Managing Member in its sole discretion on the date of any termination or withdrawal of a Bottom Guarantee with respect thereto by any Initial Non-Managing Member by the amount of such Managing Member Loan (or any permitted Replacement Indebtedness pursuant to Section 7.3E.(3)) previously guaranteed by such Initial Non-Managing Member under such Bottom Guarantee.

 

“Managing Member Note”  has the meanings set forth in Section 4.3B hereof. 

 

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“Managing Member Second Tier Distribution”  has the meaning set forth in Section 5.1A.(4).

 

“Managing Member Shortfall”  has  the meaning set forth in Section 5.1A.(2).

 

“Managing Member Unit”  means  a single unit of Membership Interest of the Managing Member issued pursuant to Article IV hereof, as the same may be modified from time to time as provided in this Agreement. The ownership of the Managing Member Units may (but need not in the sole and absolute discretion of the Managing Member) be evidenced in the form of a certificate for the Managing Member Units.

 

“Member Minimum Gain” means  an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i) with respect to “partner nonrecourse debt minimum gain.”

 

“Member Nonrecourse Debt”  has the meaning set forth in Regulations Section 1.704-2(b)(4) for the phrase “partner nonrecourse debt.”

 

“Member Nonrecourse Deductions”  has the meaning set forth in Regulations Section 1.704-2(i)(2) for the phrase “partner nonrecourse deductions,”  and the amount of Member Nonrecourse Deductions with respect to a Member Nonrecourse Debt for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(i)(2).

 

“Members”  means the Persons owning Membership Interests, including the Managing Member, Non-Managing Members and any Additional and Substituted Members, named as Members in Exhibit A  attached hereto, which Exhibit A  may be amended from time to time in accordance with the provisions of this Agreement.

 

“Membership Interest” means  an ownership interest in the Company representing a Capital Contribution by a Member and includes any and all benefits to which the holder of such Membership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Membership Interest may be expressed as a number of the Managing Member Units or Non-Managing Member Units, as applicable.

 

“Net Income”  or “Net Loss”  means, for each Fiscal Year of the Company, an amount equal to the Company’s taxable income or loss for such year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:

 

(a)                                 Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Income (or Net Loss) pursuant to this definition of “Net Income”  or “Net Loss” shall be added to (or subtracted from, as the case may be) such taxable income (or loss);

 

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(b)                                 Any expenditure of the Company described in Code Section 705(a)(2)(b) or treated as a Code Section 705(a)(2)(b) expenditure pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income (or Net Loss) pursuant to this definition of “Net Income”  or “Net Loss,”  shall be subtracted from (or added to, as the case may be) such taxable income (or loss);

 

(c)                                  In the event that the Gross Asset Value of any Company asset is adjusted pursuant to subsection (b) or subsection (c) of the definition of “Gross Asset Value,”  the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Income or Net Loss;

 

(d)                                 In lieu of the depreciation, amortization and other cost recovery deductions that would otherwise be taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year;

 

(e)                                  To the extent that an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member’s interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Net Income or Net Loss; and

 

(f)                                   Notwithstanding any other provision of this definition of “Net Income”  or “Net Loss,”  any item allocated pursuant to Section 6.3A hereof shall not be taken into account in computing Net Income or Net Loss. The amounts of the items of Company income, gain, loss or deduction available to be allocated pursuant to Section 6.3A hereof shall be determined by applying rules analogous to those set forth in this definition of “Net Income” or  “Net Loss.”

 

“NMM Sharing Amount”  means, with respect to any taxable disposition of all or any portion of the Contributed Property or any Successor Properties, the product equal to (a) the Sharing Amount multiplied by (b) the NMM Sharing Percentage.

 

“NMM Sharing Percentage”  means a percentage equal to one percent (1%) multiplied by a fraction with the numerator equal to the number of Non-Managing Member Units then outstanding and the denominator equal to the number of Non-Managing Member Units issued by the Company to all Non-Managing Members; provided, however, any NMM Units reduced pursuant to Section 5.6C hereof shall be subtracted from the denominator of such fraction.

 

“Non-Managing Member”  means any Member other than the Managing Member (except to the extent the Managing Member holds Non-Managing Member Units).

 

“Non-Managing Member Unit”  means a single unit of Membership Interest issued to a Non-Managing Member pursuant to Section 4.1 hereof, as the same may be modified from time to time as provided in this Agreement. The ownership of Non-Managing Member Units shall be evidenced in the form of a certificate for Non-Managing Member Units.

 

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“Nonrecourse Deductions” has the meaning set forth in Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(c).

 

“Nonrecourse Liability” has the meaning set forth in Regulations Section 1.752-1(a)(2).

 

“Notice of Redemption” means a Notice of Redemption substantially in the form of Exhibit B attached to this Agreement.

 

“One Hundred Member Limit” has the meaning set forth in Section 11.6E hereof.

 

“Ownership Limit” means 9.8% of the number or value (whichever is more restrictive) of outstanding REIT Shares. The number and value of REIT Shares shall be determined by the Board of Directors of the Managing Member, in good faith, which determination shall be conclusive for all purposes hereof.

 

“Payment Quarter” has the meaning set forth in Section 5.1A hereof.

 

“Percentage Interest” means, as to a Member holding a Membership Interest, its interest in the Company as determined by dividing the LLC Units owned by such Member by the total number of LLC Units then outstanding as specified in Exhibit A attached hereto, as it may be modified or supplemented from time to time, or otherwise in the books and records of the Company.

 

“Permitted Non-Managing Member Assignment” has the meaning set forth in Section 11.3A hereof.

 

“Person” means an individual or a corporation, partnership, trust, unincorporated organization, association, limited liability company or other entity.

 

“Preferred Return Per Unit” means with respect to each Non-Managing Member Unit outstanding on a LLC Record Date an amount initially equal to zero, and increased cumulatively on each LLC Record Date by an amount equal to the product of (i) the cash dividend per REIT Share declared by the Managing Member for holders of REIT Shares on that LLC Record Date, multiplied by (ii) the Adjustment Factor in effect on that LLC Record Date; provided, however, that the increase that shall occur in accordance with the foregoing on the first LLC Record Date subsequent to the Effective Date shall be the foregoing product of (i) and (ii) above multiplied by a fraction, the numerator of which shall be the number of days in the period commencing on the Effective Date and ending on the first LLC Record Date following the Effective Date, and the denominator of which shall be the number of days in the period commencing on February 5, 2007 and ending on the first LLC Record Date following the Effective Date.

 

“Preferred Return Shortfall” means, for any holder of Non-Managing Member Units, the amount (if any) by which (i) the Preferred Return Per Unit with respect to all Non-Managing Member Units held by such holder exceeds (ii) the aggregate amount previously

 

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distributed with respect to such Non-Managing Member Units pursuant to Section 5.1 A.(1)  Section 5.6A.(1) or Section 5.6B.(1) hereof, together with cumulative simple interest accruing on such excess at the Prime Rate from the applicable LLC Distribution Date to the date of distribution.

 

“Preferred Return Shortfall Per Unit” means, for any holder of Non-Managing Member Units, the amount equal to the quotient of (a) such Non-Managing Member’s Preferred Return Shortfall divided by (b) the number of Non-Managing Member Units held by such Non-Managing Member immediately prior to the day on which a Specified Redemption Date occurs with respect to any Non-Managing Member Units held by such Non-Managing Member.

 

“Prime Rate” means on any date, a rate equal to the annual rate on such date announced by the Bank of America, N.A. to be its prime, base or reference rate for 90-day unsecured loans to its corporate borrowers of the highest credit standing. If the Bank of America, N.A. discontinues its use of such prime, base or reference rate or ceases to exist, the Managing Member shall designate the prime, base or reference rate of another state or federally chartered bank based in Los Angeles, California to be used for the purpose of calculating the Prime Rate hereunder.

 

“Profit Participation Amount” means with respect to any Member the sum of (a) cumulative distributions to such Member (including its predecessors, if any) pursuant to Section 5.6A.(2) to the extent such distributions did not result in a reduction in LLC Units pursuant to Section 5.6C; and (b) the remaining amount of the cumulative distributions to such Member (including its predecessors, if any) pursuant to Section 5.6A.(2) multiplied by a fraction, the numerator of which is the excess (if any) of (i) the weighted average of the Values on each of the Reduction Dates over (ii) the Effective Price, and the denominator of which is the weighted average of the Values on each of the Reduction Dates. Exhibit D sets forth an example of the calculation of Profit Participation Amount.

 

“Properties” means any assets and property of the Company such as, but not limited to, interests in real property (including the Contributed Property and any Successor Properties) and personal property, including, without limitation, fee interests, interests in ground leases, interests in limited liability companies, joint ventures or partnerships, interests in mortgages, and Debt instruments as the Company may hold from time to time.

 

“Property Appreciation” means, with respect to a taxable disposition of all or any portion of the Contributed Property or any Successor Properties, the excess of the sales price paid in such disposition (including amounts paid through the assumption of debt) over the initial Gross Asset Value of the Contributed Property (or if the disposition was of a Successor Property, the initial Gross Asset Value of the related Contributed Property to the extent it relates to the Successor Property) (or applicable portion thereof).

 

“Redemption” has the meaning set forth in Section 8.6A hereof. 

 

“Redemption Right” has the meaning set forth in Section 8.6A hereof. 

 

“Reduction”  has the meaning set forth in Section 5.6C hereof.

 

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“Reduction Date”  has the meaning set forth in Section 5.6C hereof. 

 

“Reduction Units”  has the meaning set forth in Section 5.6C hereof.

 

“Refinancing Debt”  means any Debt (including indebtedness to the Managing Member or any Affiliate of the Managing Member), the repayment of which is secured by all or any portion of the Properties or which is incurred to repay a Managing Member Loan, subject to the provisions of Section 7.3E.(3) and 7.3E.(4) hereof.

 

“Refinancing Debt Proceeds”  means the net proceeds from any Refinancing Debt incurred by the Company which remain after the repayment of any Debt with proceeds of the Refinancing Debt and the payment of all costs related to the Refinancing Debt.

 

“Regulations”  means the applicable income tax regulations under the Code, whether such regulations are in proposed, temporary or final form, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

 

“Regulatory Allocations”  has the meaning set forth in Section 6.3A.(7) hereof.

 

“REIT”  means a real estate investment trust qualifying under Code Section 856, et seq.

 

“REIT Member”  means a Member or Assignee that is, or has made an election to qualify as, a REIT or who is Controlled by a Person that is, or has made an election to qualify as, a REIT. As of the Effective Date, it is acknowledged and agreed that the Managing Member is a REIT Member.

 

“REIT Requirements”  has the meaning set forth in Section 5.1B hereof.

 

“REIT Share”  means a share of the Common Stock of the Managing Member, par value $1.00 per share.

 

“REIT Shares Amount”  means a number of REIT Shares equal to the sum of (a) the product of (i) the number of Tendered Units and (ii) the Adjustment Factor plus (b) the quotient of (i) the product of (x) the number of Tendered Units and (y) Preferred Return Shortfall Per Unit divided by (ii) the Value of a REIT Share as of the applicable Valuation Date.

 

“Related Party”  means, with respect to any Person, any other Person whose actual ownership, Beneficial Ownership or Constructive Ownership of shares of the Managing Member’s capital stock would be attributed to the first such Person under either (i) Code Section 544 (as modified by Code Section 856(h)(1)(b) ) or (ii) Code Section 318 (as modified by Code Section 856(d)(5)).

 

“Replacement Indebtedness”  has the meaning set forth in Section 7.3E.(3) hereof.

 

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“Rights”  means rights, options, warrants or convertible or exchangeable securities entitling the Managing Member’s shareholders to subscribe for or purchase REIT Shares, or any other securities or property.

 

“SEC”  means the Securities and Exchange Commission.

 

“Second Tier Distribution Per Unit”  means with respect to each Non-Managing Member Unit outstanding on a LLC Record Date and to the extent of Available Cash, a non-cumulative amount equal to $0.085; provided, however, that such Second Tier Distribution Per Unit on the first LLC Record Date subsequent to the Effective Date shall be the foregoing amount, if any, multiplied by a fraction, the numerator of which shall be the number of days in the period commencing on the Effective Date and ending on the first LLC Record Date following the Effective Date, and the denominator of which shall be the number of days in the period commencing on November 3, 2006 and ending on the first LLC Record Date following the Effective Date.

 

“Securities Act”  means  the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.

 

“Sharing Amount”  means,  with respect to any taxable disposition of all or any portion of the Contributed Property or any Successor Properties, the excess, if any, of the Aggregate Sharing Amount over the Sharing Amounts, if any, previously used for purposes of calculating Reduction Units pursuant to Section 5.6C.

 

“Sharing Percentage”  means,  with respect to a Non-Managing Member (including the Managing Member with respect to any Non-Managing Member Units held by the Managing Member) or Assignee, its share of the NMM Sharing Percentage based on its share of the Non-Managing Member Units and, with respect to the Managing Member (in its capacity as the Managing Member), one hundred percent (100%) minus the NMM Sharing Percentage.

 

“Specified Redemption Date”  means (A) in the case of a Redemption pursuant to Section 8.6 hereof and subject to the terms thereof, the thirtieth (30th) calendar day (or, if such day is not a Business Day, the next following Business Day) after the receipt by the Managing Member of a Notice of Redemption (or such earlier date as the Managing Member may agree, in its sole and absolute discretion, after receipt by the Managing Member of any such Notice of Redemption); provided, however, that notwithstanding any provisions set forth herein to the contrary, in no event shall the Specified Redemption Date with respect to any LLC Unit occur prior to the first (1st) anniversary of the Effective Date; provided, further, that the Specified Redemption Date, as well as the closing of a Redemption on any Specified Redemption Date, may be deferred, in the Managing Member’s sole and absolute discretion, for such time (but in any event not more than 90 days in the aggregate) as may reasonably be required to effect, as applicable, (i) necessary funding arrangements, (ii) compliance with the Securities Act or other law (including, but not limited to, (a) state “blue sky” or other securities laws and (b) the expiration or termination of the applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended), and (iii) satisfaction or waiver of other commercially reasonable and customary closing conditions and requirements for a transaction of such nature, and (B) in the case of the delivery of a Call Notice pursuant to Section 13.2, the

 

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tenth (10th) calendar day (or, if such day is not a Business Day, the next following Business Day) after the mailing to the applicable Non-Managing Members of a Call Notice.

 

“Subsequent Threshold Date”  means the date that the Subsequent Threshold Test has been satisfied.

 

“Subsequent Threshold Test”  means a test which will be satisfied on the date on which seventy percent (70%) of the LLC Units issued by the Company to the Initial Non-Managing Members have been disposed of pursuant to a Taxable Disposition or Series of Taxable Dispositions.

 

“Subsidiary”  means, (a) with respect to any Person other than the Company, any corporation or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person and (b) with respect to the Company, (i) any TRS Subsidiary or (ii) any partnership or limited liability company (taxed, for federal income tax purposes, as a partnership or disregarded entity and not as an association or publicly traded partnership taxable as a corporation) of which the Company is a partner or member unless the Managing Member has received an unqualified opinion from independent counsel of recognized standing, or a ruling from the IRS, that the ownership of shares of stock of a corporation or other entity will not jeopardize a REIT Member’s status or the status of its Affiliate as a REIT, in which event the term “Subsidiary”  shall include the corporation or other entity which is the subject of such opinion or ruling.

 

“Substituted Member”  means an Assignee who is admitted as a Member to the Company pursuant to Section 11.4 hereof. The term “Substituted Member” shall not include any Additional Member.

 

“Successor Properties”  means real properties acquired by the Company in connection with a Tax-Free Disposition of all of any portion of the Contributed Property or any Successor Property (each, a “Successor Property”) (or, where applicable, the ownership interests in a Subsidiary(ies) holding title to such real properties).

 

“Supermajority in Interest of the Non-Managing Members”  means at any time those Non-Managing Members (other than the Managing Members or its Affiliate in its capacity as a holder of Non-Managing Member Units), holding in the aggregate more than 75% of the then aggregate outstanding Non-Managing Member Units (other than those held by the Managing Members or its Affiliate).

 

“Taxable Dispositions”  means a transaction in which an LLC Unit has either (a) been disposed of to the extent such disposition is a taxable transaction (including, without limitation, a Redemption or exchange pursuant to Section 8.6A hereof) or (b) otherwise received a “step-up”  in tax basis to its fair market value at the time of such “step-up”  (e.g., as a result of the death of a holder of LLC Units who is an individual).

 

“Tax-Free Disposition”  means the disposition of property in a transaction that is not subject to tax under the Code, including, without limitation, by virtue of the provisions of Section 1031 of the Code.

 

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“Tax Items”  has the meaning set forth in Section 6.1 hereof.

 

“Tax Protection Period”  means the period of time beginning on the Effective Date and ending on the first to occur of (i) the twelfth (12th) anniversary of the Effective Date or (ii) the Subsequent Threshold Date.

 

“Tendered Units”  has the meaning set forth in Section 8.6A hereof.

 

“Tendering Party”  has the meaning set forth in Section 8.6A hereof.

 

“Termination Transaction”  has the meaning set forth in Section 11.2B hereof.

 

“Terminating Capital Transaction”  means any sale or other disposition of all or substantially all of the assets of the Company or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the Company.

 

“Transfer,”  when used with respect to an LLC Unit or all or any portion of a Membership Interest, means any sale, assignment, bequest, conveyance, devise, gift (outright or in trust), pledge, encumbrance, hypothecation, mortgage, exchange, transfer or other disposition or act of alienation, whether voluntary or involuntary or by operation of law. The terms “Transferred”  and “Transferring”  have correlative meanings.

 

“Triggering Event”  has the meaning set forth in Section 7.3G hereof.

 

“TRS Subsidiary”  means a corporation, limited liability company, partnership or other legal entity taxable as a corporation and that has elected with HCP to be treated as a “taxable REIT subsidiary” as defined in Section 856(1) of the Code.

 

“Unit Amount”  means, with respect to a taxable disposition of the Contributed Property or any Successor Property, a number of LLC Units equal to the product of (i) the number of LLC Units outstanding at the time of such disposition, and (ii) the Unit Portion.

 

“Unit Appreciation”  means, with respect to any taxable disposition of all or any portion of the Contributed Property or any Successor Properties, the product of the (i) Unit Amount and (ii) excess of the Value at the time of such disposition over the Effective Price.

 

“Unit Portion”  means, with respect to a taxable disposition of all or any portion of the Contributed Property or any Successor Properties, a number determined by dividing (i) the net cash flow (ignoring payments made by the Company under any Debt related to such Property) produced by the Contributed Property or any Successor Properties (or such applicable portion(s) thereof) for the twelve month period immediately prior to such disposition, by (ii) the net cash flow (ignoring payments made by the Company under any Debt related to the Contributed Property or Successor Properties) produced by the Contributed Property or Successor Properties held by the Company for the twelve month period immediately prior to such disposition.

 

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“Valuation Date”  means (a) in the case of a Redemption pursuant to Section  8.6A hereof or a tender of Non-Managing Member Units pursuant to Section 13.2 hereof following a Call Notice, the Specified Redemption Date, (b) for purposes of Section 5.6C hereof, the Reduction Date or, if the Reduction Date is not the date the Call Notice is delivered or, if such day is not a Business Day, the immediately preceding Business Day, or (c) in any other case, the date specified in this Agreement or, if such date is not a Business Day, the immediately preceding Business Day.

 

“Value”  means, on any Valuation Date, the average of the Closing Prices for the twenty (20) consecutive trading days ending on the second trading day immediately prior to the Valuation Date.

 

ARTICLE II.

ORGANIZATIONAL MATTERS

 

2.1 Formation

 

The Company is a limited liability company formed pursuant to the provisions of the Act for the purposes stated in Section 3.1  and upon the terms and subject to the conditions set forth in this Agreement. Except as expressly provided herein, the rights and obligations of the Members and the administration and termination of the Company shall be governed by the Act.

 

2.2 Name

 

The name of the Company is HCP DR MCD, LLC. The Company’s business shall initially be conducted under the fictitious name “Medical City Dallas, LLC”; provided, however, that the Company’s business may be conducted under any other name or names deemed advisable by the Managing Member, in its reasonable discretion, including the name of the Managing Member or any Affiliate thereof. The Managing Member in its sole and absolute discretion may change the name of the Company at any time and from time to time in accordance with applicable law and shall notify the Members of such change in the next regular communication to the Members.

 

2.3 Registered Office and Agent; Principal Place of Business; Other Places of Business

 

The address of the registered office of the Company in the State of Delaware is located at c/o Corporation Service Company, 2711 Centerville, Suite 400, Newcastle County, Wilmington, Delaware 19808, and the registered agent for service of process on the Company in the State of Delaware at such registered office is Corporation Service Company, 2711 Centerville, Suite 400, Newcastle County, Wilmington, Delaware 19808. The principal office of the Company is located at 3760 Kilroy Airport Way, Suite 300, Long Beach, California 90806, or such other place as the Managing Member may from time to time designate by notice to the Members. The Company may maintain offices at such other place or places within or outside the State of Delaware as the Managing Member deems advisable.

 

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2.4 Power of Attorney

 

A.            Each Member (other than the Managing Member) and each Assignee hereby irrevocably constitutes and appoints the Managing Member, any Liquidator, and authorized officers and attorneys in fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead to:

 

(1)           execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (a) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate and all amendments or restatements thereof) that the Managing Member or any Liquidator deems appropriate or necessary to form, qualify or continue the existence or qualification of the Company as a limited liability company in the State of Delaware and in all other jurisdictions in which the Company may conduct business or own property; (b) all instruments that the Managing Member or any Liquidator deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms; (c) all conveyances and other instruments or documents that the Managing Member or any Liquidator deems appropriate or necessary to reflect the dissolution and liquidation of the Company pursuant to the terms of this Agreement, including, without limitation, a certificate of cancellation; (d) all instruments relating to the admission, withdrawal, removal or substitution of any Member pursuant to, or other events described in, Articles XI,  XII or XIII hereof or the Capital Contribution of any Member; and (e) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges of Membership Interests, so long as such instruments pursuant to this clause (e) do not affect the rights or obligations of the Members under this Agreement; and

 

(2)           execute, swear to, acknowledge and file all ballots, consents, approvals, waivers, certificates and other instruments as the Managing Member or any Liquidator deems appropriate or necessary to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action which is made or given by the Members hereunder or to facilitate or effectuate the terms or intent of this Agreement, so long as such instruments do not affect the rights or obligations of the Members under this Agreement.

 

Nothing contained in this Section 2.4 shall be construed as authorizing the Managing Member or any Liquidator to amend this Agreement except in accordance with Article XIV hereof or as may be otherwise expressly provided for in this Agreement.

 

B.            The foregoing power of attorney is hereby declared to be irrevocable and a special power coupled with an interest, in recognition of the fact that each of the Members and Assignees will be relying upon the power of the Managing Member to act as contemplated by this Agreement, and it shall survive and not be affected by the subsequent Incapacity of any Member or Assignee and the Transfer of all or any portion of such Member’s or Assignee’s LLC Units or Membership Interest and shall extend to such Member’s or Assignee’s heirs, successors, assigns and personal representatives. Each Member or Assignee shall execute and deliver to the

 

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Managing Member or any Liquidator, within 15 days after receipt of the Managing Member’s or Liquidator’s request therefor, such further designation, powers of attorney and other instruments as the Managing Member or the Liquidator, as the case may be, deems reasonably necessary to effectuate this Agreement and the purposes of the Company.

 

2.5 Term

 

The term of the Company commenced on January 17, 2007, the date that the original Certificate was filed in the office of the Secretary of State of Delaware in accordance with the Act, and shall continue until terminated pursuant the provisions of Article XIII hereof or as otherwise provided by law.

 

ARTICLE III.
  PURPOSE

 

3.1 Purpose and Business

 

The sole purposes of the Company are (i) to acquire, own, manage, operate, repair, renovate, maintain, improve, expand, redevelop, encumber, sell, lease, hold for appreciation, or otherwise dispose of, in accordance with the terms of this Agreement, the Properties and any other Properties acquired by the Company (or ownership in Subsidiaries engaged in the foregoing), and to invest and ultimately distribute funds, including, without limitation, funds obtained from owning or otherwise operating the Properties and any other Properties acquired by the Company (or ownership in Subsidiaries engaged in the foregoing) and the proceeds from the sale or other disposition of the Properties and any other Properties acquired by the Company (or ownership in Subsidiaries engaged in the foregoing), all in the manner permitted by this Agreement, and (ii) subject to and in accordance with the terms of this Agreement, to do anything necessary or incidental to the foregoing.

 

3.2 Powers

 

The Company is empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described herein and for the protection and benefit of the Company including, without limitation, full power and authority, directly or through its ownership interest in other entities, to enter into, perform and carry out contracts of any kind, borrow money and issue evidences of indebtedness, whether or not secured by mortgage, deed of trust, pledge or other lien, acquire, own, manage, improve and develop real property, and lease, sell, transfer and dispose of real property; provided, however, that notwithstanding any other provision in this Agreement, but subject to Sections 7.3E., 7.3F. and 7.3G., the Managing Member may cause the Company to take any action to avoid a result that, or refrain from taking any action that, in the reasonable and good faith judgment of the Managing Member, (i) could adversely affect the ability of a REIT Member or its Affiliate to continue to qualify as a REIT, (ii) could subject a REIT Member or its Affiliate to any additional taxes under Code Section 857 or Code Section 4981, or (iii) could violate any law or regulation of any governmental body or agency having jurisdiction over a REIT Member or its Affiliate, their securities or the Company,

 

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unless such action (or inaction) under clause (i), clause (ii) or clause (iii) above shall have been specifically consented to by such REIT Member in writing.

 

3.3 Specified Purposes

 

The Company shall be a limited liability company only for the purposes specified in Section 3.1 hereof, and this Agreement shall not be deemed to create a company, venture or partnership between or among the Members with respect to any activities whatsoever other than the activities within the purposes of the Company as specified in Section 3.1 hereof. Except as otherwise provided in this Agreement, no Member shall have any authority to act for, bind, commit or assume any obligation or responsibility on behalf of the Company, its properties or any other Member. No Member, in its capacity as a Member under this Agreement, shall be responsible or liable for any indebtedness or obligation of another Member, nor shall the Company be responsible or liable for any indebtedness or obligation of any Member, incurred either before or after the execution and delivery of this Agreement by such Member, except as to those responsibilities, liabilities, indebtedness or obligations incurred pursuant to and as limited by the terms of this Agreement and the Act.

 

3.4 Representations and Warranties by the Members; Disclaimer of Certain Representations

 

A.            Each Member that is an individual (including, without limitation, each Additional Member or Substituted Member as a condition to becoming an Additional Member or a Substituted Member) represents and warrants to the Company, the Managing Member and each other Member that (i) such Member has the legal capacity to enter into this Agreement and perform such Member’s obligations hereunder, (ii) the consummation of the transactions contemplated by this Agreement to be performed by such Member will not result in a breach or violation of, or a default under, any material agreement by which such Member or any of such Member’s property is bound, or any statute, regulation, order or other law to which such Member is subject, (iii) such Member is neither a “foreign person”  within the meaning of Code Section 1445(f) nor a “foreign partner”  within the meaning of Code Section 1446(e), and (iv) this Agreement is binding upon, and enforceable against, such Member in accordance with its terms.

 

B.            Each Member that is not an individual (including, without limitation, each Additional Member or Substituted Member as a condition to becoming an Additional Member or a Substituted Member) represents and warrants to the Company, the Managing Member and each other Member that (i) all transactions contemplated by this Agreement to be performed by it have been duly authorized by all necessary action, including, without limitation, that of its managing member(s) (or, if there is no managing member, a majority in interest of all members), committee(s), trustee(s), general partner(s), beneficiaries, directors and shareholder(s), as the case may be, as required, (ii) the consummation of such transactions will not result in a breach or violation of, or a default under, its partnership or operating agreement, trust agreement, charter or bylaws, as the case may be, any material agreement by which such Member or any of such Member’s properties or any of its partners, members, beneficiaries, trustees or shareholders, as the case may be, is or are bound, or any statute, regulation, order or other law to which such Member or any of its partners, members, trustees, beneficiaries or shareholders, as the case may

 

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be, is or are subject, (iii) such Member is neither a “foreign person”  within the meaning of Code Section 1445(f) nor a “foreign partner”  within the meaning of Code Section 1446(e), and (iv) this Agreement is binding upon, and enforceable against, such Member in accordance with its terms.

 

C.            Each Member (including, without limitation, each Additional Member or Substituted Member as a condition to becoming an Additional Member or a Substituted Member) represents and warrants that it is an “accredited investor”  within the meaning of Rule 501 of Regulation D under the Securities Act, and that it has a sufficiently high net worth that it does not anticipate a need for the funds that it has invested in the Company in what it understands to be a highly speculative and illiquid investment.

 

D.            Each Member (including, without limitation, each Additional Member or Substituted Member as a condition to becoming an Additional Member or a Substituted Member) hereby represents that it has consulted and been advised by its legal counsel and tax advisor in connection with, and acknowledges that no representations as to potential profit, tax consequences of any sort (including, without limitation, the tax consequences resulting from forming or operating the Company, conducting the business of the Company, executing this Agreement, consummating the transaction provided for in or contemplated by the Contribution Agreement, making a Capital Contribution, being admitted to the Company, receiving or not receiving distributions from the Company, redeeming Non-Managing Member Units or being allocated Tax Items), cash flows, funds from operations or yield, if any, in respect of the Company or the Managing Member have been made by the Company, any Member or any employee or representative or Affiliate of the Company or any Member, and that projections and any other information, including, without limitation, financial and descriptive information and documentation, that may have been in any manner submitted to such Member shall not constitute any representation or warranty of any kind or nature, express or implied.

 

E.            Each Member (including, without limitation, each Additional Member or Substituted Member as a condition to becoming an Additional Member or a Substituted Member) further represents that it has had access to and reviewed the Managing Member’s most current Form S-3, Form 10-Q, Form 10-K, proxy statement and other filings with the SEC under the Securities Act available on the Managing Member’s website at www.hcpi.com and this Agreement, and has been afforded the opportunity to ask questions of representatives of the Managing Member and the Company, and to receive answers to those questions, as it deemed necessary in connection with the acquisition of the Non-Managing Member Units being issued pursuant to the Contribution Agreement. Each Member represents and warrants that it has carefully considered potential risks relating to the Managing Member and the acquisition of LLC Units and fully understands that the LLC Units are speculative investments that involve a high degree of risk of loss of the Member’s entire investment.

 

F.             Each Member (including, without limitation, each Additional Member or Substituted Member as a condition to becoming an Additional Member or a Substituted Member), acknowledges that it will acquire the LLC Units issued to it in a transaction not involving any public offering within the meaning of the Securities Act and that the LLC Units have not been registered under the Securities Act. Each Member acknowledges that the LLC

 

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Units will be in the form of physical certificates and that the certificates will bear a legend to the following effect:

 

THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR “BLUE SKY” LAWS.

 

G.            Each Member (including, without limitation, each Additional Member or Substituted Member as a condition to becoming an Additional Member or a Substituted Member) represents that it will acquire its LLC Units solely for its own account for the purpose of investment only and not as a nominee or agent for any other Person and not with a view to, or for offer or sale in connection with, any distribution or resale thereof, in whole or in part, in violation of the Securities Act or state securities or “blue sky” laws, without prejudice, however, to its right to sell or otherwise dispose of all or any part of the LLC Units pursuant to an effective registration statement under the Securities Act or under an exemption from registration available under the Securities Act.

 

H.            Each Member (including, without limitation, each Additional Member or Substituted Member as a condition to becoming an Additional Member or a Substituted Member) represents and warrants to the Company, the Managing Member and each other Member that (i) it is, and in the case of the Managing Member, to its knowledge it is, in compliance with the requirements of the Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) (the “Order”)  and other similar requirements contained in the rules and regulations of the Office of Foreign Assets Control, Department of the Treasury (“OFAC”)  and in any enabling legislation or other Executive Orders or regulations in respect thereof (the Order and such other rules, regulations, legislation or orders are collectively called the (“Orders”); and (ii) neither such Member nor any of its Affiliates (A) is listed on the Specially Designated Nationals and Blocked Person List maintained by OFAC pursuant to the Order and/or on any other list of terrorists or terrorist organizations maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Orders (such lists are collectively referred to as the “Lists”), (B) is a Person (as defined in the Order) who has been determined by competent authority to be subject to the prohibitions contained in the Orders; or (C) is owned or controlled by (including without limitation by virtue of such Person being a director or owning voting shares or interests), or acts for or on behalf of, any person on the Lists or any other Person who has been determined by competent authority to be subject to the prohibitions contained in the Orders.

 

I.             The representations and warranties contained in Sections 3.4A through 3,4H, inclusive, hereof shall survive the execution and delivery of this Agreement by each Member

 

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(and, in the case of an Additional Member or a Substituted Member, the admission of such Additional Member or Substituted Member as a Member in the Company) and the dissolution, liquidation and termination of the Company.

 

ARTICLE IV.
  CAPITAL CONTRIBUTIONS

 

4.1 Capital Contributions of the Initial Members

 

At the time of their respective execution of this Agreement, the Members (or, in the event an Initial Non-Managing Member shall be one of Contributor’s Partners, Contributor) shall make the initial Capital Contributions as set forth in Exhibit A  to this Agreement and as further provided in the Contribution Agreement. The Members shall own the Managing Member Units and Non-Managing Member Units, as applicable, in the amounts set forth in the books and records of the Company. Except as required by law or as otherwise provided in Sections 4.1,  4.2, 4.3 and 4.4, no Member shall be required or permitted to make any Capital Contributions or loans to the Company.

 

4.2 Additional Members

 

The Managing Member is authorized to admit one or more Additional Members to the Company from time to time, in accordance with the provisions of Section 12.3 hereof, on terms and conditions and for such Capital Contributions as may be established by the Managing Member in its reasonable discretion, subject to the provisions of Section 12.3 hereof. The provisions of Sections 7.3 and 12.3 hereof shall govern the acquisition by the Company in the future of additional Properties (i.e., in addition to the Contributed Property and any Successor Properties) by means of Capital Contributions by other Persons, which Capital Contributions shall be set forth in the books and records of the Company. As a condition to being admitted to the Company, each Additional Member shall execute a Joinder Agreement.

 

4.3 Loans and Incurrence and Payment of Debt

 

A.                 Subject to the provisions of Sections 4.3B.,  7.3E.(3) and 7.3E.(4) hereof, the Company may incur or assume Debt, or enter into other similar credit, guarantee, financing (including, without limitation, the encumbrance of the Properties for the debt of Affiliates of the Managing Member pursuant to so-called cross-collateralized loans, or otherwise) or refinancing arrangements, repay or prepay Debt, for any purpose (including, without limitation, in connection with any further acquisition of Properties from any Person), upon such terms as the Managing Member determines appropriate; provided, however, that any Debt shall be nonrecourse to the Managing Member unless the Managing Member otherwise agrees; provided, further, that except as otherwise required for the Managing Member in order to avoid an obligation to make a Make-Whole Payment pursuant to Sections 7.3E.(3)  or 7.3E.(4), at the time of incurrence of any such Debt by the Company, (i) the Loan-to-Value Ratio shall not exceed Seventy Percent (70%) and (ii) the Managing Member shall have made a good faith determination that the Debt service payments required in connection therewith will not adversely affect the Non-Managing Members’ rights to receive distributions pursuant to Sections 5.1A.(1) and 5.1A.(3) hereof.

 

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B.                  In connection with the consummation of the transactions contemplated by the Contribution Agreement and, in addition to the initial Capital Contribution of the Managing Member as set forth on Exhibit A  hereto, the Managing Member has made two loans (each, a “Managing Member Loan”)  to the Company in the respective original principal amounts of Fifty Million and 00/100 Dollars ($50,000,000.00) and Fifty-Five Million Nine Hundred Sixty-Eight Thousand Eight Hundred Forty-Eight and 00/100 Dollars ($55,968,848.00) (each, an “Initial Managing Member Loan Amount”),  and each of which loans is evidenced by a promissory note in the original principal amount of the respective Initial Managing Member Loan Amount by the Company in favor of the Managing Member and is payable with interest thereon and at the time and manner as provided therein (each, as the same may be amended, modified, extended, recast, restated or otherwise supplemented from time to time, a “Managing Member Note”). Notwithstanding anything to the contrary contained herein, the Members hereby approve each of the Managing Member Loans and the terms of the respective Managing Member Notes therefor in substantially the form attached hereto as Exhibit F-1  and Exhibit F-2,  respectively.

 

C.                  Without limiting the foregoing, subject to Sections 7.3E.(3) and 7.3E.(4) hereof, the Managing Member is authorized, in its sole and absolute discretion, to cause the Company to repay or prepay any Debt (including any Managing Member Loan and any other Debt owing to the Managing Member or any Affiliate thereof).

 

4.4 Additional Funding and Capital Contributions

 

A.                General. The Managing Member may, at any time and from time to time, determine that the Company requires additional funds (“Additional Funds”)  for the operation of the Company. Additional Funds may be raised by the Company in accordance with the terms of Sections 4.2 or 4.3 hereof or pursuant to the terms of this Section 4.4; provided, however,  that in no event shall any Non-Managing Member be required to make additional Capital Contributions. No Person, including, without limitation, any Member or Assignee, shall have any preemptive, preferential, participation or similar right or rights to subscribe for or acquire any Membership Interest, except as set forth in this Agreement.

 

B.                  Additional Contributions. The Managing Member on behalf of the Company may raise all or any portion of the Additional Funds by making additional Capital Contributions, subject to the provisions of Section 7.3 hereof. Subject to the definition of “Gross Asset Value,”  the Managing Member shall determine in good faith the amount, terms and conditions of such additional Capital Contributions. The Managing Member shall receive that number of additional Managing Member Units in consideration for additional Capital Contributions made by the Managing Member equal to the amount of such Capital Contribution divided by the Value as of the date of such Capital Contribution. In addition to the foregoing, the Managing Member shall also be permitted to make additional Capital Contributions of cash or other property to the Company in accordance with the terms and subject to the restrictions set forth herein for any lawful purpose, including, but not limited to, in order to assist a REIT Member or any Affiliate thereof in maintaining its qualification as a REIT under the Code.

 

C.                  Timing of Additional Capital Contributions. if additional Capital Contributions are made by a Member on any day other than the first (1st) day of a Fiscal Year,

 

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then Net Income, Net Loss, each item thereof and all other items of income, gain, loss, deduction and credit allocable among Members for such Fiscal Year, if necessary, shall be allocated among such Members by taking into account their varying interests during the Fiscal Year in accordance with Code Section 706(d), using the “interim closing of the books”  or “daily proration”  method or another permissible method selected by the Managing Member.

 

4.5 No Interest; No Return

 

Except as provided herein, no Member shall be entitled to interest on its Capital Contribution or on such Member’s Capital Account. Except as provided herein or by law, no Member shall have any right to demand or receive the return of its Capital Contribution from the Company.

 

ARTICLE V.
  DISTRIBUTIONS

 

5.1 Requirement and Characterization of Distributions

 

A.     Subject to the provisions of Section 5.7 hereof, the Managing Member shall cause the Company to distribute quarterly on the LLC Distribution Date all Available Cash generated by the Company during the quarter most recently ended prior to the LLC Distribution Date (the “Payment Quarter”)  as follows:

 

(1) First, to the holders of the Non-Managing Member Units, in accordance with their relative Preferred Return Shortfalls at the end of the Payment Quarter, until the Preferred Return Shortfall for each holder of Non-Managing Member Units at the end of the Payment Quarter is zero (-0-), provided, however, that in the event a Reduction Date occurs during any Payment Quarter, a distribution shall be made under this Section 5.1A.(1) on the LLC Distribution Date associated with such Payment Quarter to the holder or holders of the Reduction Units in an amount determined by multiplying the amount that would have been distributed on the LLC Distribution Date under this Section 5.1A.(1) in respect of the Reduction Units had they been outstanding on the last day of such Payment Quarter by a fraction, the numerator of which shall be the number of days beginning on the first day of the Payment Quarter relating to the LLC Distribution Date and ending on the Reduction Date and the denominator of which shall be the number of days in the Payment Quarter in which the Reduction Date occurs.

 

(2) Second, to the Managing Member until the Managing Member has received an amount equal to the excess (the “Managing Member Shortfal”),  if any, of (A) the amount of cash that must be distributed to the Managing Member such that aggregate distributions of cash pursuant to Sections 5.1A.(1), 5.1A.(2), 5.6A.(1) and 5.6B.(l) shall have been made to all Members pro rata to the Members’ Percentage Interests, over (B) the sum of all prior distributions to the Managing Member pursuant to this Section 5.1A.(2) and Sections 5.6A.(1) and 5.6B.(l).

 

(3) Third, to the holders of the Non-Managing Member Units, in an amount equal to the Second Tier Distribution Per Unit; provided, however, that in the event a Reduction Date occurs during any Payment Quarter, a distribution shall be made

 

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under this Section 5.1A.(3) on the LLC Distribution Date associated with such Payment Quarter to the holder or holders of the Reduction Units in an amount determined by multiplying the amount that would have been distributed on the LLC Distribution Date under Section 5.1A.(3) in respect of the Reduction Units had they been outstanding on the last day of such Payment Quarter by a fraction, the numerator of which shall be the number of days beginning on the first day of the Payment Quarter relating to the LLC Distribution Date and ending on the Reduction Date and the denominator of which shall be the number of days in the Payment Quarter in which the Reduction Date occurs.

 

(4) Fourth, to the Managing Member until the Managing Member has received an amount equal to the excess (the “Managing Member Second Tier Distribution”),  if any, of (A) the amount of cash that must be distributed to the Managing Member such that aggregate distributions of cash pursuant to Sections 5.1A.(3) and 5.1A.(4) shall have been made to all Members pro rata to the Members’ Percentage Interests, over (B) the sum of all prior distributions to the Managing Member pursuant to this Section 5.1A.(4).

 

(5) Thereafter, the Managing Member may, in its sole discretion, cause the Company to distribute all Available Cash remaining after the distributions provided for in Sections 5.1A.(1), 5.1A.(2), 5.1A.(3) and 5.1A.(4) above to the Members in proportion to their Sharing Percentages.

 

B.      The Managing Member for so long as it is a REIT Member or an Affiliate of a REIT Member may take such reasonable efforts, as determined by it in its sole and absolute discretion and consistent with its qualification or the qualification of any Affiliate thereof as a REIT, to cause the Company to distribute sufficient amounts to enable such REIT Member or any Affiliate thereof to pay stockholder dividends that will (a) satisfy the requirements for qualifying as a REIT under the Code and Regulations (“REIT Requirements”),  and (b) except to the extent the Managing Member elects, in its sole discretion, not to make such distributions, avoid any federal income or excise tax liability of such REIT Member or any Affiliate thereof.

 

5.2 Distributions in Kind

 

No right is given to any Member to demand and receive property other than cash. The Managing Member may determine, with the Affirmative Consent of the Non-Managing Members, to make a distribution in kind to the Members of Company assets, and such assets shall be distributed in such a fashion as to ensure that the fair market value is distributed and allocated in accordance with Articles V and VI hereof. The fair market value of any Property distributed in kind shall be determined (i) prior to the Subsequent Threshold Date, by the Managing Member with the Affirmative Consent of the Non-Managing Members, and (ii) thereafter, by the Managing Member in its good faith determination.

 

5.3 Amounts Withheld

 

Each Member hereby authorizes the Company to withhold from or pay on behalf of or with respect to such Member any amount of federal, state, local or foreign taxes that the Managing Member determines that the Company is required to withhold or pay with respect to

 

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any amount distributable or allocable to such Member pursuant to this Agreement, including, without limitation, any taxes required to be withheld or paid by the Company pursuant to Code Section 1441, Code Section 1442, Code Section 1445 or Code Section 1446. Any amount paid on behalf of or with respect to a Member shall constitute a loan by the Company to such Member, which loan shall be repaid by such Member within 15 days after notice from the Managing Member that such payment must be made unless (i) the Company withholds such payment from a distribution that would otherwise be made to the Member or (ii) the Managing Member determines that such payment may be satisfied out of the Available Cash of the Company that would, but for such payment, be distributed to the Member. Any amounts withheld pursuant to the foregoing clauses (i) or (ii) shall be treated as having been distributed to such Member. In the event that a Member fails to pay any amounts owed to the Company pursuant to this Section 5.3 when due, the Managing Member may, in its sole and absolute discretion, elect to make the payment to the Company, either directly or through an Affiliate, on behalf of such defaulting Member, and in such event shall be deemed to have loaned such amount to such defaulting Member and shall succeed to all rights and remedies of the Company as against such defaulting Member (including, without limitation, the right to receive distributions). Any amounts payable by a Member hereunder shall bear interest at the base rate on corporate loans at large United States money center commercial banks, as published from time to time in the Wall Street Journal, plus four (4) percentage points (but not higher than the maximum lawful rate) from the date such amount is due (i.e., 15 days after demand) until such amount is paid in full. Each Member shall take such actions as the Company or the Managing Member shall request in order to perfect or enforce the security interest created hereunder.

 

5.4 Distributions Upon Liquidation

 

Notwithstanding the other provisions of this Article V, net proceeds from a Terminating Capital Transaction and any other cash received or reductions in reserves made after commencement of the liquidation of the Company shall be distributed to the Members in accordance with Section 13.3 hereof.

 

5.5 Restricted Distributions

 

Notwithstanding any provision to the contrary contained in this Agreement, neither the Company nor the Managing Member, on behalf of the Company, shall make a distribution to any Member on account of its Membership Interest or interest in LLC Units if such distribution would violate Section 18-607 of the Act or other applicable law.

 

5.6 Distributions of Proceeds from Sale of Properties and Refinancing Debt

 

A.     Subject to the provisions of Section 5.7 hereof, in the event of a taxable disposition of some, but not all, of the Properties, the Managing Member shall cause the Company to (i) reinvest (including by making loans pursuant to the terms of this Agreement) the Disposition Proceeds to the extent the Managing Member elects to do so and in the amount determined by the Managing Member to be appropriate (and to hold the Disposition Proceeds in an interest bearing account pending such reinvestment), in its sole discretion, and (ii) if the Managing Member elects, in its sole discretion, to distribute all or any portion of the Disposition Proceeds, distribute such portions of the Disposition Proceeds, to the extent thereof, as follows:

 

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(1) First, to the holders of Non-Managing Member Units in accordance with their Preferred Return Shortfalls until the Preferred Return Shortfall for each holder of Non-Managing Member Units is zero (-0-), and then to the Managing Member to the extent of its Managing Member Shortfall;

 

(2) Second, to the holders of LLC Units pro rata to their holdings of LLC Units but only to the extent that such distribution would not cause the number of LLC Units held by the Non-Managing Members to be reduced below zero (-0-) pursuant to the provisions of Section 5.6C hereof; and

 

(3) Third, the remaining balance of the Disposition Proceeds, if any, to the Managing Member.

 

B.      Subject to the provisions of Section 5.7, upon the incurrence of Refinancing Debt, the Managing Member shall cause the Company to (i) reinvest (including by making loans pursuant to the terms of this Agreement) the Refinancing Debt Proceeds to the extent the Managing Member elects to do so and in the amount determined by the Managing Member to be appropriate (and to hold the Refinancing Debt Proceeds in an interest bearing account pending such reinvestment), in its sole discretion, and (ii) if the Managing Member elects, in its sole discretion, to distribute all or any portion of the Refinancing Debt Proceeds, distribute such portion of the Refinancing Debt Proceeds, to the extent thereof, as follows:

 

(1) First, to the holders of the Non-Managing Member Units in accordance with their Preferred Return Shortfalls until the Preferred Return Shortfall for each holder of Non-Managing Member Units is zero (-0-) and then to the Managing Member to the extent of its Managing Member Shortfall; and

 

(2) Second, the remaining balance of the Refinancing Debt Proceeds, if any, to the Members in proportion to their Sharing Percentages.

 

C.      The number of LLC Units outstanding on the date of a distribution pursuant to Section 5.6A.(2) hereof will be reduced (each such reduction a “Reduction”)  by a number of LLC Units (rounded down to the nearest whole unit) (the “Reduction Units”)  on the date of the distribution (the “Reduction Date”)  by the aggregate number of LLC Units (the “Total Units”)  as follows:

 

(1) The Non-Managing Member Units shall be reduced by a number of LLC Units (rounded down to the nearest whole unit) (the “Non-Managing Member Reduction Units”)  determined by dividing (i) the excess of (a) the aggregate amount of distributions made on the Reduction Date to Non-Managing Members and Assignees pursuant to Sections 5.6A.(2) and 5.6B.(2), over (b) the NMM Sharing Amount by (ii) the product obtained by multiplying (a) Value on the Reduction Date by (b) the Adjustment Factor. The Non-Managing Member Reduction Units shall be allocated (as closely as practicable in whole units) among the holders of Non-Managing Member Units in accordance with their respective holdings of Non-Managing Member Units.

 

(2) The Managing Member Units shall be reduced by a number of Managing Member Units (rounded down to the nearest whole unit) (the “the Managing

 

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Member Reduction Units”)  equal to the product of (i) the Reduction Units with respect to the Non-Managing Members divided by the aggregate Percentage Interest of the Non-Managing Members immediately prior to the Reduction Date, times (ii) the Percentage Interest of the Managing Member immediately prior to such Reduction Date, provided the Managing Member Units shall not be reduced to less than 1  LLC Unit.

 

To reflect the foregoing reduction, each Member shall return to the Managing Member the certificate evidencing the Reduction Units allocated to him or it or the Managing Member Units so reduced which will be canceled and a new certificate evidencing the reduced number of Managing Member Units or Non-Managing Member Units shall be immediately issued to such Member by the Managing Member on behalf of the Company. In the event the number of outstanding Non-Managing Member Units held by a Non-Managing Member or Assignee is reduced (pursuant to this Section 5.6C or otherwise) to zero (-0-), such Non-Managing Member or Assignee shall cease to have an interest in the Company (other than the right to receive final distributions and allocations resulting from the liquidation of their interest). Exhibit D sets forth an example of a Reduction in Non-Managing Member Units and Managing Member Units pursuant to this Section 5.6C.

 

D.      The Managing Member shall have no obligation to incur Refinancing Debt for the purpose of making distributions pursuant to this Section 5.6 or for any other purpose, except as provided in Sections 7.3E.(3) and 7.3E.(4) hereof.

 

5.7 Distributions Following Redemption

 

Notwithstanding anything to the contrary contained herein, a Non-Managing Member shall not be entitled to any distribution pursuant to this Article V with respect to any Tendered Units or any Non-Managing Member Units for which a Call Notice pursuant to Section 13.2 has been delivered, as the case may be, if the next LLC Record Date is on or after the Specified Redemption Date for such Tendered Unit(s) or any Non-Managing Member Units for which a Call Notice pursuant to Section 13.2 has been delivered, as the case may be.

 

ARTICLE VI.
  ALLOCATIONS

 

6.1 Timing and Amount of Allocations of Net Income and Net Loss

 

Net Income and Net Loss of the Company shall be determined and allocated with respect to each Fiscal Year of the Company as of the end of each such year. Except as otherwise provided in this Article VI, an allocation to a Member of a share of Net Income or Net Loss shall be treated as an allocation of the same share of each item of income, gain, loss or deduction (collectively, “Tax Items”)that  is taken into account in computing Net Income or Net Loss.

 

6.2 General Allocations

 

A.     Operating Net Income and Net Loss. Except as otherwise provided in Sections 6.2.B, 6.2.C or 6.3 hereof:

 

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(1) Net Loss with respect to any Fiscal Year of the Company, other than Net Loss attributable to a disposition of any or all of the Properties, and other than Net Loss attributable to a Liquidating Event, shall be allocated to the Members and Assignees in proportion to their Sharing Percentages.

 

(2) Net Income with respect to any Fiscal Year of the Company, other than Net Income attributable to a disposition of any or all of the Properties, and other than Net Income attributable to a Liquidating Event, shall be allocated as follows:

 

(a)                                  First, to each Member or Assignee in proportion to, and to the extent of, the amount that cumulative Net Loss previously allocated to such Member or Assignee pursuant to Section 6.2A.(1) exceeds the cumulative amount of Net Income previously allocated to such Member or Assignee pursuant to this Section 6.2A.(2)(a); and

 

(b)                                 Second, to each Member or Assignee in an amount that will cause such allocation, together with the amount of all previous allocations of Net Income under this Section 6.2A.(2)(b) and Section 6.2B.(2)(b) to be in proportion to and to the extent of the cumulative distributions received by such Member or Assignee pursuant to Sections 5.1A, 5.6A.(1), 5.6A.(2) (but only to the extent of the Profit Participation Amount) and 5.6B.(1) for the current and all prior Fiscal Years; and

 

(c)                                  Thereafter, to each Member or Assignee pro rata to such Member’s or Assignee’s Sharing Percentage.

 

B.      Net Income and Net Loss from the Disposition of Properties. Except as otherwise provided in Sections 6.2C or 6.3:

 

(1) Net Loss attributable to a disposition of any or all of the Properties shall be allocated to the Members and Assignees in proportion to their Sharing Percentages.

 

(2) Net Income attributable to a disposition of any or all of the Properties shall be allocated as follows:

 

(a)                                  First, to each Member or Assignee in proportion to, and to the extent of, the amount that cumulative Net Loss previously allocated to such Member or Assignee pursuant to Section 6.2B.(1) exceeds the cumulative amount of Net Income previously allocated to such Member or Assignee pursuant to this Section 6.2B.(2)(a);

 

(b)                                 Second, to each Member or Assignee in an amount that will cause such allocation, together with the amount of all previous allocations of Net Income under this Section 6.2B.(2)(b) and Section 6.2A.(2)(b) to be in proportion to and to the extent of the cumulative distributions received by such Member or Assignee pursuant to Sections 5.1 A, 5.6A.(1), 5.6(A).(2) (but only to the extent of

 

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the Profit Participation Amount) and 5.6B.(1) for the current and all prior Fiscal Years; and

 

(c)                                  Thereafter, to each Member or Assignee pro rata to such Member’s or Assignee’s Sharing Percentage.

 

C.      Net Income and Net Loss Upon Liquidation. If a Liquidating Event occurs in a Fiscal Year, or if the number of LLC Units held by the Non-Managing Members have been reduced (pursuant to Section 5.6C or otherwise) to zero (-0-), Net Income or Net Loss (or, if necessary, separate items of income, gain, loss and deduction) for such Fiscal Year and any Fiscal Years thereafter shall, subject to Section 6.3, be allocated among the Members, as follows:

 

(1) First, to holders of Non-Managing Member Units, pro rata to their Percentage Interests, in such amounts as will cause, to the greatest extent possible, each such holder’s Capital Account per Non-Managing Member Unit (if any) to be equal to the sum of (a) such holder’s Preferred Return Shortfall per unit, (b) the product of (i) the Value of a REIT Share (with the date of the liquidating distribution being the Valuation Date), and (ii) the Adjustment Factor (with the product set forth in (b) being equal to zero if the number of outstanding Non-Managing Member Units has been reduced (pursuant to Section 5.6.C, or otherwise) to zero), and (c) an amount equal to (x) the NMM Sharing Amount, calculated as if all of the Properties then owned by the Company were sold in a taxable transaction at their fair market values, divided by (y) the total number of Non-Managing Member Units then outstanding; and

 

(2) Thereafter, to the Managing Member.

 

6.3 Additional Allocation Provisions

 

A.     Regulatory Allocations.

 

(1) Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(f), notwithstanding the provisions of Section 6.2 hereof, or any other provision of this Article VI, if there is a net decrease in Company Minimum Gain during any Fiscal Year, each Member shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Company Minimum Gain, as determined under Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be allocated shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 6.3A.(1) is intended to qualify as a “minimum gain chargeback” within the meaning of Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.

 

(2) Member Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(i)(4) or in Section 6.3A.(1) hereof, if there is a net decrease in Member Minimum Gain attributable to a Member Nonrecourse Debt during any Fiscal Year, each Member who has a share of the Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with

 

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Regulations Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 6.3A.(2) is intended to qualify as a “chargeback of partner nonrecourse debt minimum gain”  within the meaning of Regulations Section 1.704-2(i) and shall be interpreted consistently therewith.

 

(3) Member Nonrecourse Deductions. Any Member Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Member(s) who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable, in accordance with Regulations Section 1.704-2(i).

 

(4) Qualified Income Offset. If any Member unexpectedly receives an adjustment, allocation or distribution described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6),  items of Company income and gain shall be allocated, in accordance with Regulations Section 1.704-1(b)(2)(ii)(d), to such Member in an amount and manner sufficient to eliminate, to the extent required by such Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible, provided that an allocation pursuant to this Section 6.3A.(4) shall be made if and only to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided in this Article VI have been tentatively made as if this Section 6.3A.(4) were not in the Agreement. It is intended that this Section 6.3A.(4) qualify and be construed as a “qualified income offset” within the meaning of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

 

(5) Limitation on Allocation of Net Loss. To the extent that any allocation of Net Loss would cause or increase an Adjusted Capital Account Deficit as to any Member, such allocation of Net Loss shall be reallocated among the other Members in accordance with their respective LLC Units, subject to the limitations of this Section 6.3A.(5).

 

(6) Section 754 Adjustment. To the extent that an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of its interest in the Company, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be specially allocated to the Members in accordance with their LLC Units in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Members to whom such distribution was made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.

 

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(7) Curative Allocations. The allocations set forth in Sections 6.3A.(1) through (6) hereof (the “Regulatory Allocations”) are intended to comply with certain regulatory requirements, including the requirements of Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding the provisions of Sections 6.1 and 6.2 hereof, the Regulatory Allocations shall be taken into account in allocating other items of income, gain, loss and deduction among the Members so that, to the extent possible without violating the requirements giving rise to the Regulatory Allocations, the net amount of such allocations of other items and the Regulatory Allocations to each Member shall be equal to the net amount that would have been allocated to each such Member if the Regulatory Allocations had not occurred.

 

B.    Allocation of Excess Nonrecourse Liabilities. For purposes of determining a Member’s proportional share of the “excess nonrecourse liabilities”  of the Company within the meaning of Regulations Section 1.752-3(a)(3), each Member’s interest in Company profits shall be such Member’s Percentage Interest.

 

C.    Special Allocation of Loss or Deduction. Any deductions associated with the payment of a pre-payment premium or penalty in connection with the prepayment of any mortgage Debt encumbering the Contribution Property on the Effective Date shall be allocated to the Non-Managing Members.

 

6.4 Tax Allocations

 

A.    In General. Except as otherwise provided in this Section 6.4, for income tax purposes under the Code and the Regulations each of the Company’s Tax Items shall be allocated among the Members in the same manner as its correlative item of “book”  income, gain, loss or deduction is allocated pursuant to Sections 6.2 and 6.3 hereof.

 

B.    Allocations Respecting Section 704(c) Revaluations. Notwithstanding Section 6.4A hereof, Tax Items with respect to Property that is contributed to the Company with a Gross Asset Value that varies from its basis in the hands of the contributing Member immediately preceding the date of contribution shall be allocated among the Members for income tax purposes pursuant to the “traditional method”  as described in Regulations Section 1.704-3(b). In the event that the Gross Asset Value of any Company asset is adjusted pursuant to subsection (b) of the definition of “Gross Asset Value”  (provided in Article I hereof), subsequent allocations of Tax Items with respect to such asset (other than Tax Items governed by the previous sentence) shall take account of the variation, if any, between the adjusted basis of such asset and its Gross Asset Value in the same manner as under Code Section 704(c) and the applicable Regulations and this Section 6.4B, pursuant to any method permitted under Regulations Section 1.704-3 as selected by the Managing Member

 

6.5 Other Provisions

 

A.    Other Allocations. In the event that (i) any modifications are made to the Code or any Regulations, (ii) any changes occur in any case law applying or interpreting the Code or any Regulations, (iii) the IRS changes or clarifies the manner in which it applies or interprets the Code or any Regulations or any case law applying or interpreting the Code or any

 

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Regulations or (iv) the IRS adjusts the reporting of any of the transactions contemplated by this Agreement which, in each case as reasonably and in good faith determined by the Managing Member, either (a) requires allocations of items of income, gain, loss, deduction or credit or (b) requires reporting of any of the transactions contemplated by this Agreement in a manner different from that set forth in this Article VI, the Managing Member is hereby authorized to make new allocations or report any such transactions (as the case may be) in reliance of the foregoing, and such new allocations and reporting shall be deemed to be made pursuant to the fiduciary duty of the Managing Member to the Company and the other Members, and no such new allocation or reporting shall give rise to any claim or cause of action by any Member.

 

B.      Consistent Tax Reporting. The Members acknowledge and are aware of the income tax consequences of the allocations made by this Article VI and hereby agree to be bound by the provisions of this Article VI in reporting their shares of Net Income, Net Loss and other items of income, gain, loss, deduction and credit for federal, state and local income tax purposes.

 

6.6 Amendments to Allocation to Reflect Issuance of Additional Membership Interests

 

In the event that the Company issues additional Membership Interests to the Managing Member or any Additional Member pursuant to Article IV hereof, the Managing Member shall make such revisions to this Article VI as it determines are necessary to reflect the terms of the issuance of such additional Membership Interests, including making preferential allocations to certain classes of Membership Interests; provided, however, that any such preferential allocations shall be subject to the prior Affirmative Consent of a Supermajority of the Non-Managing Members.

 

ARTICLE VII.
  MANAGEMENT AND OPERATION OF BUSINESS

 

7.1 Management

 

A.     Except as otherwise expressly provided in this Agreement, the Managing Member, in its capacity as a Managing Member of the Company under the Act, shall have sole and complete charge and management over the business and affairs of the Company, in all respects and in all matters. The Managing Member shall at all times act in good faith in exercising its powers hereunder. The Managing Member shall be an agent of the Company’s business, and the actions of the Managing Member taken in such capacity and in accordance with this Agreement shall bind the Company. The Managing Member shall at all times be a Member of the Company. Except as otherwise expressly provided in this Agreement or required by any non-waivable provisions of applicable law, the Non-Managing Members shall not participate in the control of the Company, shall have no right, power or authority to act for or on behalf of, or otherwise bind, the Company and shall have no right to vote on or consent to any other matter, act, decision or document involving the Company or its business. The Managing Member may not be removed by the Members with or without cause, except with the Consent of the Managing Member. In addition to the powers now or hereafter granted a manager of a limited liability company under applicable law or that are granted to the Managing Member under any provision

 

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of this Agreement, the Managing Member, subject to the other provisions hereof including the limitations on the authority of the Managing Member set forth in Sections 4.3A and 7.3  hereof, shall have full power and authority to do all things deemed necessary or desirable by it to conduct the business of the Company, to exercise all powers set forth in Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1 hereof, including, without limitation:

 

(1)   except as restricted in this Agreement, the making of any expenditures, the lending or borrowing of money (including loans to the Managing Member), the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness (including the securing of the same by deed to secure debt, mortgage, deed of trust or other lien or encumbrance on the Company’s assets) and the incurring of any obligations that it deems necessary for the conduct of the activities of the Company;

 

(2)   the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Company;

 

(3)   except as restricted in this Agreement, the acquisition, sale, transfer, exchange or other disposition of any assets of the Company (including, but not limited to, the exercise or grant of any conversion, option, privilege or subscription right or any other right available in connection with any assets at any time held by the Company);

 

(4)   except as restricted in this Agreement, the mortgage, pledge, encumbrance or hypothecation of any assets of the Company (including, without limitation, any Property), the use of the assets of the Company (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement which the Managing Member believes will directly benefit the Company and on any terms that the Managing Member sees fit, including, without limitation, the financing of the conduct or the operations of the Company, the lending of funds to other Persons (including, without limitation, the Managing Member (if necessary to permit the financing or capitalization of a Subsidiary of the Managing Member or the Company)) and the repayment of obligations of the Company;

 

(5)   the management, operation, leasing, landscaping, repair, alteration, demolition, replacement or improvement of any Property, including, without limitation, any Property, or other asset of the Company or any Subsidiary of the Company;

 

(6)   the negotiation, execution and performance of any contracts, leases, conveyances or other instruments that the Managing Member considers useful or necessary to the conduct of the Company’s operations or the implementation of the Managing Member’s powers under this Agreement, including, without limitation, (i) contracting with property managers (including, without limitation, as to any Property, contracting with the contributing or any other Member or its Affiliates for property management services), contractors, developers, consultants, accountants, legal counsel, other professional advisors and other agents and the payment of their expenses and compensation out of the Company’s assets, and (ii) the execution, delivery and

 

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performance of the Contribution Agreement and the agreements and instruments referred to therein or contemplated thereby.

 

(7)   the distribution of Company cash or other Company assets in accordance with this Agreement, the holding, management, investment and reinvestment of cash and other assets of the Company consistent with established investment policies of the Managing Member, and the collection and receipt of revenues, rents and income of the Company;

 

(8)   the selection and dismissal of employees of the Company or the Managing Member (including, without limitation, employees having titles or offices such as “president,”  “vice president,”  “secretary”  and “treasurer”), and agents, outside attorneys, accountants, consultants and contractors of the Company or the Managing Member and the determination of their compensation and other terms of employment or hiring;

 

(9)   the maintenance of such insurance including (i) liability insurance for the Indemnitees hereunder and (ii) casualty, liability, earthquake and other insurance on the Properties of the Company for the benefit of the Company and the Members comparable in coverage to that maintained by the Managing Member with respect to the properties it owns and otherwise as it deems necessary or appropriate;

 

(10)  the control of any matters affecting the rights and obligations of the Company, including the settlement, compromise, submission to arbitration or any other form of dispute resolution, or abandonment, of any claim, cause of action, liability, debt or damages, due or owing to or from the Company, the commencement or defense of suits, legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, and the representation of the Company in all suits or legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, the incurring of legal expense, and the indemnification of any Person against liabilities and contingencies to the extent permitted by law;

 

(11)  subject to the provisions of Section 5.2 hereof, the determination of the fair market value of any Company property distributed in kind using such reasonable method of valuation as it may adopt; provided that such methods are otherwise consistent with the requirements of this Agreement;

 

(12)  the enforcement of any rights against any Member pursuant to representations, warranties, covenants and indemnities relating to such Member’s contribution of property or assets to the Company;

 

(13)  holding, managing, investing and reinvesting cash and other assets of the Company;

 

(14)  the collection and receipt of revenues and income of the Company;

 

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(15)  the exercise, directly or indirectly, through any attorney-in-fact acting under a general or limited power of attorney, of any right, including the right to vote, appurtenant to any asset or investment held by the Company;

 

(16)  the exercise of any of the powers of the Managing Member enumerated in this Agreement on behalf of or in connection with any Subsidiary of the Company or any other Person in which the Company has a direct or indirect interest, or jointly with any such Subsidiary or other Person;

 

(17)  the exercise of any of the powers of the Managing Member enumerated in this Agreement on behalf of any Person in which the Company does not have an interest pursuant to contractual or other arrangements with such Person;

 

(18)  the maintenance of working capital and other reserves in such amounts as the Managing Member deems appropriate and reasonable from time to time;

 

(19)  the making, execution and delivery of any and all deeds, leases, notes, deeds to secure debt, mortgages, deeds of trust, security agreements, conveyances, contracts, guarantees, warranties, indemnities, waivers, releases or legal instruments or agreements in writing necessary or appropriate in the judgment of the Managing Member for the accomplishment of any of the powers of the Managing Member enumerated in this Agreement;

 

(20)  the distribution of cash to acquire LLC Units held by a Member in connection with a Member’s exercise of its Redemption Right under Section 8.6 hereof;

 

(21)  the amendment and restatement of Exhibit A hereto or the books and records of the Company to reflect accurately at all times the Capital Accounts, LLC Units, and Percentage Interests of the Members as the same are adjusted from time to time to the extent necessary to reflect redemptions, Capital Contributions, the issuance of or reduction in the number of LLC Units, the admission of any Additional Member or any Substituted Member or otherwise, as long as the matter or event being reflected in Exhibit A hereto or in the books and records of the Company otherwise is authorized by this Agreement;

 

(22)  admit into the Company any Additional or Substituted Managing Member in accordance with Section 12.2 hereof;

 

(23)  admit into the Company any Additional Member in accordance with Section 12.3 hereof;

 

(24)  the transfer of any Property to or holding of any Property in any wholly-owned Subsidiary of Company for financing or other purposes deemed appropriate by the Managing Member.

 

B.      Each of the Non-Managing Members agrees that, except as otherwise provided in this Agreement, the Managing Member is authorized to execute, deliver and perform the above-mentioned agreements and transactions on behalf of the Company without any further

 

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act, approval or vote of the Non-Managing Members, notwithstanding any other provision of the Act or any applicable law, rule or regulation. The execution, delivery or performance by the Managing Member or the Company of any agreement authorized or permitted under this Agreement shall not constitute a breach by the Managing Member of any duty that the Managing Member may owe the Company or the Members or any other Persons under this Agreement or of any duty stated or implied by law or equity.

 

C.      At all times from and after the date hereof, the Managing Member may cause the Company to establish and maintain working capital reserves in such amounts as the Managing Member, in its sole and absolute discretion, deems appropriate and reasonable from time to time.

 

D.      Except as otherwise expressly provided in this Agreement, in exercising its permitted authority under this Agreement, the Managing Member may, but shall be under no obligation to, take into account the tax consequences to any Member (including the Managing Member) of any action taken by it. Except as otherwise provided in this Agreement, the Managing Member and the Company shall not have liability to a Member under any circumstances as a result of an income tax liability incurred by such Member as a result of an action (or inaction) by the Managing Member pursuant to its authority under this Agreement so long as the action or inaction is taken in good faith and does not otherwise violate this Agreement.

 

7.2 Certificate of Formation

 

To the extent that such action is determined by the Managing Member to be reasonable and necessary or appropriate, the Managing Member shall file amendments to and restatements of the Certificate and do all the things to maintain the Company as a limited liability company under the laws of the State of Delaware and each other state, the District of Columbia or any other jurisdiction in which the Company may elect to do business or own property. Subject to the terms of Section 8.5A.(4) hereof, the Managing Member shall not be required, before or after filing, to deliver or mail a copy of the Certificate or any amendment thereto to any Member. The Managing Member shall use all reasonable efforts to cause to be filed such other certificates or documents as may be commercially reasonable and necessary or appropriate for the formation, continuation, qualification and operation of a limited liability company in the State of Delaware and any other state, or the District of Columbia or other jurisdiction in which the Company may elect to do business or own property.

 

7.3 Restrictions on Managing Member’s Authority

 

A.     The Managing Member may not take any action in contravention of an express prohibition or limitation of this Agreement, including, without limitation:

 

(1)   take any action that would make it impossible to carry on the ordinary business of the Company, except as otherwise provided in this Agreement;

 

(2)   possess Company property, or assign any rights in specific Company property, for other than a Company purpose except as otherwise provided in this Agreement;

 

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(3)   perform any act that would subject a Member to liability as a Managing Member in any jurisdiction or any other liability except as provided herein or under the Act; or

 

(4)   enter into any contract, mortgage, loan or other agreement that expressly prohibits or restricts, or has the effect of prohibiting or restricting, the ability of (a) the Managing Member or the Company from satisfying its obligations under Article V and Section 8.6 hereof in full or (b) a Member from exercising its rights to a Redemption in full, except, in either case, with the written Consent of such Member affected by the prohibition.

 

B.      Subject to the provisions of Section 11.2 hereof, the Managing Member shall not, without the prior Consent of the Non-Managing Members undertake or have the authority to do or undertake, on behalf of the Company, any of the following actions or enter into any transaction which would have the effect of such transactions:

 

(1)   except as provided in Section 7.3C and except in connection with a dissolution or termination of the Company permitted by Section 7.3E, amend, modify or terminate this Agreement other than to reflect the admission, substitution, termination or withdrawal of Members pursuant to Article XI or Article XII hereof;

 

(2)   except as provided in Section 11.2 hereof, approve or acquiesce to the Transfer of the Membership Interest of the Managing Member to any Person other than the Company;

 

(3)   make a general assignment for the benefit of creditors or appoint or acquiesce in the appointment of a Custodian for all or any part of the assets of the Company;

 

(4)   institute any proceeding for bankruptcy on behalf of the Company;

 

(5)   acquire any real properties other than the Contributed Property and any Successor Properties and any assets or other Property subsequently acquired that are directly related to the Contributed Property or any Successor Properties; or

 

(6)   incur any Debt in violation of the provisions of Section 4.3A. hereof.

 

C.      Notwithstanding Section 7.3B, but subject to the provisions of Section 7.3D, the Managing Member shall have the exclusive power to amend this Agreement as may be required to facilitate or implement any of the following purposes:

 

(1)   to reflect the issuance of additional Membership Interests pursuant to Sections 4.2 and 4.4 and Article XII, to reflect the admission, substitution, termination, or withdrawal of Members in accordance with this Agreement and to amend Exhibit A  or the books and records of the Company in connection therewith and to reflect the redemption or other reduction in the number of LLC Units outstanding pursuant to Section 5.6 hereof and as otherwise permitted by this Agreement;

 

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(2)   (x) to reflect a change that is of an inconsequential nature (y) to cure any ambiguity, correct or supplement any provision in this Agreement, or (z) to make other changes with respect to matters arising under this Agreement, in each case to the extent that the same does not adversely affect the Non-Managing Members and is not inconsistent with law or with the provisions of this Agreement;

 

(3)   to satisfy any requirements, conditions, or guidelines contained in any order, directive, opinion, ruling or regulation of a federal or state agency or contained in federal or state law;

 

(4)   to reflect such changes as are reasonably necessary for any REIT Member or any Affiliate thereof to maintain its status as a REIT or to satisfy the REIT Requirements;

 

(5)   to modify, as set forth in the definition of “Capital Account,” the manner in which Capital Accounts are computed, subject to the provisions of such definition; and

 

(6)   to add to the obligations of the Managing Member or surrender any right or power granted to the Managing Member or any Affiliate of the Managing Member for the benefit of the Non-Managing Members.

 

D.    Notwithstanding Section 7.3B and 7.3C hereof, this Agreement shall not be amended with respect to any Member adversely affected, and no action may be taken by the Managing Member, without the Consent of such Member adversely affected if such amendment or action would (i) convert a Non-Managing Member’s interest in the Company into a Managing Member’s interest, (ii) modify the limited liability of a Non-Managing Member, (iii) alter rights of the Member to receive distributions pursuant to Article V or Section I3.3A.(4), or the allocations specified in Article VI (except as permitted pursuant to Sections 4.2, 4.3 and 4.4 and Section 7.3C.(1) hereof), (iv) alter or modify the rights to a Redemption as set forth in Section 8.6, or the rights to a Make-Whole Payment as set forth in Sections 7.3E, 7.3F, 7.3G and 7.3H hereof, and related definitions hereof, or (v) amend this Section 7.3D. Further, no amendment may alter the restrictions on the Managing Member’s authority set forth elsewhere in this Section 7.3 without the Consent specified in such section. Any such amendment or action consented to by any Member shall be effective as to that Member, notwithstanding the absence of such Consent by any other Member.

 

E.     The Company shall pay to each Non-Managing Member the Make-Whole Payment, if any, as provided below if the Company takes any of the following actions during the Tax Protection Period without the prior Consent of the Non-Managing Members, which Consent expressly states that the right to the Make-Whole Payment is being waived:

 

(1)   cause or permit the Company (x) to merge, consolidate or combine with or into any other partnership, limited partnership, limited liability company, corporation or other Person (other than with a Subsidiary of the Company), (y) to engage in any Terminating Capital Transaction or (z) to dissolve or otherwise terminate its existence; or

 

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(2)   sell, dispose, convey or otherwise transfer all or any portion of the Contributed Property or any Successor Properties, in a transaction that causes holders of Non-Managing Member Units to recognize taxable income under the Code on account of a Built-in Gain, other than (i) a casualty loss, (ii) taking by eminent domain; (iii) pursuant to the exercise of a put right by the Company (or any Subsidiary of the Company) pursuant to which the Company (or such Subsidiary) may require another Person to purchase all or any portion of the Contributed Property or one or more of the Successor Properties, which put right was granted pursuant to any document or instrument in effect at the time the Contributed Property or any Successor Property was acquired by the Company (or any Subsidiary); or (iv) pursuant to the exercise of a call or purchase right by any other Person pursuant to which such Person has the right to purchase all or any portion of the Contributed Property or one or more of the Successor Properties, which purchase right was granted pursuant to any document or instrument in effect at the time the Contributed Property or any Successor Property was contributed to or acquired by the Company (or any Subsidiary of the Company); provided that the Company has first used commercially reasonable efforts to structure such disposition as either a tax-free like-kind exchange under Section 1031 of the Code or as a tax-free investment under Section 1033 of the Code; or

 

(3)   fails to keep in place a Managing Member Loan for which a Bottom Guarantee has been executed and delivered by an Initial Non-Managing Member as of the Effective Date in an amount not less than the applicable Managing Member Loan Amount, unless such Managing Member Loan is replaced or refinanced with other Debt satisfying the requirements set for below (“Replacement Indebtedness”). Any Replacement Indebtedness shall:

 

(a)           not be less than the applicable Managing Member Loan Amount therefor;

 

(b)           not require principal repayments during such period that would cause the principal balance of such Replacement Indebtedness to be less than the applicable Managing Member Loan Amount therefor at any time during the Tax Protection Period;

 

(c)           be full recourse to the Company; and

 

(d)           provide each Initial Non-Managing Member that executed and delivered a Bottom Guarantee therefor as of the Effective Date with the opportunity to execute and deliver to the lender thereunder (including Managing Member, if applicable) a Bottom Guarantee for such Replacement Indebtedness;

 

The Managing Member shall provide each Initial Non-Managing Member who has executed and delivered a Bottom Guarantee with respect to a Managing Member Loan as of the Effective Date or any permitted Replacement Indebtedness thereafter with not less than thirty (30) days’ prior written notice of its desire to refinance such Managing

 

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Member Loan or any permitted Replacement Indebtedness with Replacement Indebtedness; or

 

(4)   fails to continue to provide the opportunity to each Initial Non-Managing Member who elected as of the Effective Date to execute and deliver a Bottom Guarantee with respect to a Managing Member Loan, to execute a Bottom Guarantee therefor or for any Replacement Indebtedness therefor in an amount up to the applicable Managing Member Loan Amount. If any Initial Non-Managing Member who elected to execute and deliver a Bottom Guarantee as of the Effective Date with respect to a Managing Member Loan, elected to deliver the same for less than the applicable Managing Member Loan Amount, then upon written notice to the Company and the Managing Member (and, if applicable, the lender under any Replacement Indebtedness), not more frequently than one time per year during the Tax Protection Period, such Initial Non-Managing Member may elect to increase such Non-Managing Member’s Bottom Guarantee in an amount up to the applicable Managing Member Loan Amount. As used herein, “Bottom Guarantee” means an agreement in substantially the form attached hereto as Exhibit E or in such other form as may be reasonably acceptable to the lender and such Initial Non-Managing Member and providing substantively the same benefits to such Initial Non-Managing Member as the form attached hereto as Exhibit E. By their execution and delivery hereof, each Initial Non-Managing Member acknowledges that it has been provided the opportunity to execute a Bottom Guarantee for a Managing Member Loan as of the Effective Date, and if such Initial Non-Member has exercised such opportunity, it has executed and delivered such Bottom Guarantee to Managing Member as of the Effective Date. Notwithstanding anything to the contrary contained herein, any Initial Managing Member that fails to execute and deliver a Bottom Guarantee with respect to a Managing Member Loan as of the Effective Date, shall be deemed to have elected not to exercise its opportunity to execute a Bottom Guarantee with respect thereto and the Managing Member shall have no further obligation to provide such opportunity to execute and deliver a Bottom Guarantee or to maintain a Managing Member Loan or any Replacement Indebtedness for the benefit of such Initial Non-Managing Member.

 

In the event that the prior Consent of the Non-Managing Members is not required for the Managing Member, on behalf of the Company, to take or engage or fail to take, as the case may be, in any of the actions described in the foregoing subparagraphs (1), (2) and (3) or fails to provide the rights in the foregoing subparagraph (4), the Managing Member may take such action only after providing the Non-Managing Members with not less than fifteen (15) days’ notice of its intention to do so.

 

F.     The Company shall pay to each applicable Non-Managing Member the Make Whole Payment as provided in Section 7.3G if the Company takes any action to dissolve or otherwise terminate the Company during the Tax Protection Period. In addition, an applicable Non-Managing Member shall be entitled to the Make Whole Payment in the event of the exercise of such Non-Managing Member’s right to a Redemption under Section 8.6A after receipt by such Non-Managing Member of a written notice of a Liquidating Event provided by the Company to the same extent such Non-Managing Member would have been entitled to such Make Whole Payment had such Non-Managing Member not have been redeemed pursuant to

 

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such Redemption. In the event the Managing Member intends to dissolve or otherwise terminate the Company following the Tax Protection Period, it shall give not less than fifteen (15) calendar days notice of such intent to the Non-Managing Members prior to taking any action in furtherance of such intent.

 

G.             Any event in Sections 7.3E and 7.3F that triggers the obligation of the Company to make a Make-Whole Payment (as defined below) is called a “Triggering Event.” The Company shall pay to each applicable Non-Managing Member an amount (the “Make-Whole Payment”)  equal to the aggregate federal, state and local income taxes, if any, incurred by such applicable Non-Managing Member as a result of a Triggering Event. Any such federal, state and local income taxes shall be deemed to be the amount of Built-in Gain recognized by the Non-Managing Members multiplied by the then highest rate or rates applicable to such Built-in Gain for the year in which such Built-in Gain is recognized grossed up to include any federal, state and local income taxes incurred by the Non-Managing Member by reason of the receipt of the payment from the Company. No effect shall be given in determining the amount of the Make-Whole Payment of a Non-Managing Member’s taxable income, tax deductions, tax credits, tax carry forwards nor to any other of their tax benefits or tax attributes (except that state and local taxes paid on account of the Make-Whole Payment shall be deducted in determining federal income taxes for purposes of determining the Make-Whole Payment). The Make-Whole Payment shall be made within a reasonable period of time after the Triggering Event, but in no event later than the date by which the Non-Managing Member would be required to make the applicable tax payment. In addition to any other rights available under law or equity, in the event that the Company fails to pay any amounts owed pursuant to this Section 7.3 when due, the Non- Managing Member to whom such payment is owed shall be deemed to have loaned such amount to the Company. Any amounts payable to a Non-Managing Member shall be increased by an amount equal to the greater of (x) interest accrued on such amount at the Prime Rate from the date such amount is due until such amount is paid in full and (y) actual interest and penalties assessed by the relevant taxing authorities with respect to such amounts plus any penalties actually imposed thereon by the relevant taxing authorities. In the event that any Member becomes entitled to a Make Whole Payment and the Company, for any reason, fails to satisfy such obligation, then the Managing Member shall make the Make Whole Payment promptly following such failure by the Company to make such Make Whole Payment. In the event that any Non-Managing Member becomes entitled to a Make-Whole Payment, then, on or before the date on which such Make-Whole Payment is payable to the Non-Managing Member, the Managing Member shall make a Capital Contribution to the Company of cash in an amount equal to said Make-Whole Payment.

 

H.            The parties agree that the sole and exclusive rights and remedies to which the Non-Managing Members may be entitled at law or in equity in connection with any Triggering Event shall be for payment of the Make-Whole Payment pursuant to Section 7.3G, and no Non-Managing Member shall be entitled to enjoin or otherwise object to any transaction that would result in a taxable event or pursue any other claim with respect to a Triggering Event. If any Non-Managing Member notifies the Company of a claim that the Company owes a Make-Whole Payment, the Managing Member, on behalf of the Company, and the Non-Managing Member shall negotiate in good faith to resolve any disagreements regarding any such Triggering Event. If any such disagreement cannot be resolved by the parties within thirty (30) calendar days after the receipt by the Company of the notice in accordance with the preceding sentence, the

 

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Managing Member, on behalf of the Company, and the Non-Managing Member shall jointly retain a nationally recognized independent public accounting firm (an “Accounting Firm”)  to act as an arbitrator to resolve as expeditiously as possible all points of any such disagreement (including, without limitation, whether a Triggering Event has occurred and, if so, the amount of the applicable Make-Whole Payment that the Non-Managing Member is entitled to as a result thereof, determined as set forth in Section 7.3G). If the parties cannot agree on an Accounting Firm, each of the Managing Member, on behalf of the Company, and the Non-Managing Member shall retain an Accounting Firm, and the Accounting Firms selected shall jointly retain a third Accounting Firm. If the two Accounting Firms cannot agree upon a third Accounting Firm within thirty (30) calendar days, such matter shall be referred to a court of competent jurisdiction to select the third Accounting Firm. The Accounting Firms shall be instructed to resolve as expeditiously as possible all points of any such disagreement (including, without limitation, whether a Triggering Event has occurred and, if so, the amount of the applicable Make-Whole Payment that the Non-Managing Member is entitled to as a result thereof, determined as set forth in Section 7.3.G). All determinations made by the Accounting Firm or the Accounting Firms, as the case may be, with respect to the resolution of whether a Triggering Event has occurred shall be final, conclusive and binding on the Company and the Non-Managing Member. The fees and expenses of any Accounting Firms incurred in connection with any such determination shall be shared equally by the Company and the Non-Managing Member.

 

7.4 Compensation of the Managing Member

 

A.           The Managing Member shall not be compensated for its services as the manager of the Company. Distributions, payments and allocations to which the Managing Member may be entitled in its capacity as the Managing Member shall not constitute compensation for services rendered by the Managing Member as provided in this Agreement (including the provisions of Articles V and VI hereof).

 

B.             Subject to Section 7.4C hereof, the Company shall be liable, and shall reimburse the Managing Member on a monthly basis (or such other basis as the Managing Member may determine in its sole and absolute discretion), for all sums expended in connection with the Company’s business. Any such reimbursements shall be in addition to any reimbursement of the Managing Member as a result of indemnification pursuant to Section 7.7  hereof.

 

C.             To the extent practicable, Company expenses shall be billed directly to and paid by the Company. Reimbursements to the Managing Member or any of its Affiliates by the Company shall be allowed, however, for the actual cost to the Managing Member or any of its Affiliates of operating and other expenses of the Company, including, without limitation, the actual cost of goods, materials and administrative services related to (i) Company operations, (ii) company accounting, (iii) communications with Members, (iv) legal services, (v) tax services, (vi) computer services, (vii) risk management, (viii) mileage and travel expenses and (ix) such other related operational and administrative expenses as are necessary for the prudent organization and operation of the Company. “Actual cost of goods and materials”  means the actual cost to the Managing Member or any of its Affiliates of goods and materials used for or by the Company obtained from entities not affiliated with the Managing Member, and “actual cost of administrative services”  means the pro rata cost of personnel (as if such persons were

 

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employees to the Company) providing administrative services to the Company. The cost for such services to be reimbursed to the Managing Member or any Affiliate thereof shall be the lesser of the Managing Member’s or Affiliate’s actual cost, or the amount the Company would be required to pay to independent parties for comparable administrative services in the same geographic location.

 

D.            In addition to any reimbursements to which the Managing Member is entitled pursuant to Sections 8.6 and 11.3 hereof or elsewhere in this Agreement, the Managing Member shall also be reimbursed for all expenses it incurs relating to any issuance of additional Membership Interests, Debt of the Company, or rights, options, warrants or convertible or exchangeable securities of the Company pursuant to Article VIII hereof (including, without limitation, all costs, expenses, damages and other payments resulting from or arising in connection with litigation related to any of the foregoing), all of such expenses are considered by the Members to constitute expenses of, and for the benefit of, the Company.

 

To the extent that reimbursements to the Managing Member or any of its Affiliates by the Company pursuant to this Section 7.4 would constitute gross income to the Managing Member for purposes of Code Section 856(c)(2) or 856(c)(3), then such amounts shall be treated as “guaranteed payments” within the meaning of Code Section 707(c).

 

7.5 Other Business of Managing Member

 

The Managing Member shall devote to the Company such time as may be necessary for the performance of its duties as Managing Member, but the Managing Member is not required, and is not expected, to devote its full time to the performance of such duties. The Managing Member may engage independently or with others in other business ventures of every nature and description, including, without limitation, the ownership of other properties and the making or management of other investments. Nothing in this Agreement shall be deemed to prohibit the Managing Member or any Affiliate of the Managing Member from dealing, or otherwise engaging in business with, Persons transacting business with the Company, or from providing services related to the purchase, sale, financing, management, development or operation of real or personal property and receiving compensation therefor, not involving any rebate or reciprocal arrangement that would have the effect of circumventing any restriction set forth herein upon dealings with the Managing Member or any Affiliate of the Managing Member. Neither the Company nor any Member shall have any right by virtue of this Agreement or the relationship created hereby in or to such other ventures or activities or to the income or proceeds derived therefrom, and the pursuit of such ventures, even if competitive with the business of the Company, shall not be deemed wrongful or improper.

 

7.6 Contracts with Affiliates

 

A.           Subject to Section 7.6B below, the Company may lend or contribute to Persons in which it has an equity investment, and such Persons may borrow funds from the Company, on terms and conditions established in the sole and absolute discretion of the Managing Member. The foregoing authority shall not create any right or benefit in favor of any Person.

 

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B.             The Managing Member or any of its Affiliates, directly or indirectly, shall be permitted to sell, transfer or convey any property to, or purchase any property from, or borrow funds from, or lend funds to, the Company or engage in any other transaction with the Company, but only upon terms determined by the Managing Member in good faith to be fair and reasonable and comparable to terms that could be obtained from an unaffiliated party in an arm’s length transaction, except as otherwise expressly permitted by this Agreement.

 

C.             Notwithstanding any other provision of this Agreement, on and as of the Effective Date the Members acknowledge that an Affiliate of certain of the Non-Managing Members shall be engaged by the Company to provide day-to-day property management and leasing services for the Company pursuant to a written agreement upon terms and conditions approved by the Managing Member, in its sole discretion.

 

7.7  Indemnification

 

A.           To the fullest extent permitted by applicable law, the Company shall indemnify each Indemnitee from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including, without limitation, attorney’s fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Company (“Actions”)  as set forth in this Agreement in which such Indemnitee may be involved, or is threatened to be involved, as a party or otherwise unless it is established that: (i) the act or omission of the Indemnitee was material to the matter giving rise to the proceeding and either was (A) committed in bad faith, (B) was the result of gross  negligence or willful misconduct or (C) in material breach of such Indemnitee’s express duties, covenants or obligations under this Agreement; (ii) the Indemnitee actually received an improper personal benefit in money, property or services; or (iii) in the case of any criminal proceeding, the Indemnitee had reasonable cause to believe that the act or omission was unlawful. Without limitation the foregoing indemnity shall extend to any liability of any Indemnitee, pursuant to a loan guaranty or otherwise, for any indebtedness of the Company or any Subsidiary of the Company (including, without limitation, any indebtedness which the Company or any Subsidiary of the Company has assumed or taken subject to), and the Managing Member is hereby authorized and empowered, on behalf of the Company, to enter into one or more indemnity agreements consistent with the provisions of this Section 7.7 in favor of any Indemnitee having or potentially having liability for any such indebtedness. The termination of any Action by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 7.7A, unless such judgment or order against an Indemnitee establishes the same. The termination of any Action upon a plea of nolo contendre or its equivalent, or an entry of an order of probation prior to judgment against an Indemnitee, creates a rebuttable presumption that the Indemnitee acted in a manner contrary to that specified in this Section 7.7A with respect to the subject matter of such proceeding. Any indemnification pursuant to this Section 7.7 shall be made only out of the assets of the Company, and any insurance proceeds from the liability policy covering the Managing Member and any Indemnitees, and neither the Managing Member nor any Non-Managing Member shall have any obligation to contribute to the capital of the Company or otherwise provide funds to enable the Company to fund its obligations under this Section 7.7.

 

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B.             Reasonable expenses incurred by an Indemnitee who is a party to a proceeding or otherwise subject to or the focus of or is involved in any Action shall be paid or reimbursed by the Company as incurred by the Indemnitee in advance of the final disposition of the Action upon receipt by the Company of (i) a written affirmation by the Indemnitee of the Indemnitee’s good faith belief that the standard of conduct necessary for indemnification by the Company as authorized in Section 7.7A has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met.

 

C.             The indemnification provided by this Section 7.7 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Members, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity unless otherwise provided in a written agreement with such Indemnitee or in the writing pursuant to which such Indemnitee is indemnified.

 

D.            The Company may, but shall not be obligated to, purchase and maintain insurance, on behalf of any of the Indemnitees and such other Persons as the Managing Member shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Company’s activities, regardless of whether the Company would have the power to indemnify such Person against such liability under the provisions of this Agreement.

 

E.              In no event may an Indemnitee subject any of the Members to personal liability by reason of the indemnification provisions set forth in this Agreement.

 

F.              An Indemnitee shall not be denied indemnification in whole or in part under this Section 7.7 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.

 

G.             The provisions of this Section 7.7 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. Any amendment, modification or repeal of this Section 7.7 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the Company’s liability to any Indemnitee under this Section 7.7 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.

 

H.            If and to the extent any reimbursements to the Managing Member pursuant to this Section 7.7 constitute gross income to the Managing Member (as opposed to the repayment of advances made by the Managing Member on behalf of the Company) such amounts shall constitute guaranteed payments within the meaning of Code Section 707(c), shall be treated consistently therewith by the Company and all Members, and shall not be treated as distributions for purposes of computing the Members’ Capital Accounts.

 

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7.8 Liability of the Managing Member

 

A.           Notwithstanding anything to the contrary set forth in this Agreement, neither the Managing Member nor any of its directors, officers, agents or employees shall be liable or accountable in damages or otherwise to the Company, any Members or any Assignees for losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law or of any act or omission if the Managing Member or such director, officer, agent or employee of the Managing Member, as the case may be, acted in good faith and has not engaged in gross negligence or breached its express covenants set forth in this Agreement.

 

B.             The Non-Managing Members expressly acknowledge that the Managing Member is acting for the benefit of the Company, the Members and the Managing Member’s shareholders collectively, that the Managing Member is under no obligation to give priority to the separate interests of the Members or the Managing Member’s shareholders (including, without limitation, the tax consequences to Members, Assignees or the Managing Member’s shareholders) in deciding whether to cause the Company to take (or decline to take) any actions and that the Managing Member shall not be liable to the Company or to any Member for monetary damages for losses sustained, liabilities incurred, or benefits not derived by Non-Managing Members in connection with such decisions, provided that the Managing Member has acted in good faith and has not engaged in gross negligence or breached its express covenants set forth in this Agreement.

 

C.             Subject to its obligations and duties as Managing Member set forth in Section 7.1.A hereof, the Managing Member may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its employees or agents. The Managing Member shall not be responsible for any misconduct or negligence on the part of any such agent appointed by it in good faith.

 

D.            Any amendment, modification or repeal of this Section 7.8 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the Managing Member’s, its officers’, directors’, agents’ or employees’ liability to the Company and the Non-Managing Members under this Section 7.8 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.

 

7.9 Other Matters Concerning the Managing Member

 

A.           The Managing Member may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties.

 

B.             The Managing Member may consult with legal counsel, accountants, appraisers, management consultants, investment bankers, architects, engineers, environmental consultants and other consultants and advisers selected by it, and any act taken or omitted to be taken in reliance upon the opinion of such Persons as to matters that the Managing Member

 

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reasonably believes to be within the Managing Member’s professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion.

 

C.             The Managing Member shall have the right, in respect of any of its powers or obligations hereunder, to act through any of its duly authorized officers and a duly appointed attorney or attorneys-in-fact. Each such attorney shall, to the extent provided by the Managing Member in the power of attorney, have full power and authority to do and perform all and every act and duty that is permitted or required to be done by the Managing Member hereunder.

 

D.            Notwithstanding any other provisions of this Agreement or the Act, any action of the Managing Member on behalf of the Company or any decision of the Managing Member to refrain from acting on behalf of the Company undertaken in the good faith belief that such action or omission is necessary or advisable in order (i) to protect the ability of any REIT Member or any Affiliate thereof to continue to qualify as a REIT, (ii) for any REIT Member or any Affiliate thereof otherwise to satisfy the REIT Requirements or (iii) to allow any REIT Member or any Affiliate thereof to avoid incurring any liability for taxes under Section 857 or Section 4981 of the Code, is expressly authorized under this Agreement and is deemed approved by all of the Non-Managing Members. If in the opinion of the Managing Member any such action or omission shall adversely affect the rights of a Non-Managing Member hereunder, the Managing Member shall give such affected Non-Managing Member notice of such intended action or omission.

 

7.10 Title to Company Assets

 

Title to Company assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Company as an entity, and no Member, individually or collectively with other Members or Persons, shall have any ownership interest in such Company assets or any portion thereof. All Company assets shall be recorded as the property of the Company in its books and records, irrespective of the name in which legal title to such Company assets is held.

 

7.11 Reliance by Third Parties

 

Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Company shall be entitled to assume that the Managing Member has full power and authority, without the consent or approval of any other Member or Person, to encumber, sell or otherwise use in any manner any and all assets of the Company and to enter into any contracts on behalf of the Company, and take any and all actions on behalf of the Company, and such Person shall be entitled to deal with the Managing Member as if it were the Company’s sole party in interest, both legally and beneficially. Each Non-Managing Member hereby waives any and all defenses or other remedies that may be available against such Person to contest, negate or disaffirm any action of the Managing Member in connection with any such dealing. In no event shall any Person dealing with the Managing Member or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expediency of any act or action of the Managing Member or its representatives. Each and every certificate, document or other instrument executed on behalf of the Company by

 

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the Managing Member or its representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (ii) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Company and (iii) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Company.

 

ARTICLE VIII.
  RIGHTS AND OBLIGATIONS OF MEMBERS

 

8.1 Limitation of Liability

 

The Non-Managing Members shall have no liability under this Agreement except as expressly provided in this Agreement or under the Act.

 

8.2 Managing of Business

 

No Non-Managing Member or Assignee (other than the Managing Member, any of its Affiliates or any officer, director, employee, partner, agent or trustee of the Managing Member, the Company or any of their Affiliates, in their capacity as such) shall take part in the operations, management or control (within the meaning of the Act) of the Company’s business, transact any business in the Company’s name or have the power to sign documents for or otherwise bind the Company. The transaction of any such business by the Managing Member, any of its Affiliates or any officer, director, employee, partner, agent or trustee of the Managing Member, the Company or any of their Affiliates, in their capacity as such, shall not affect, impair or eliminate the limitations on the liability of the Non-Managing Members or Assignees under this Agreement.

 

8.3 Outside Activities of Members

 

Subject to any agreements entered into by a Member or its Affiliates with the Managing Member, the Company or a Subsidiary (including, without limitation, any employment agreement), any Member and any Assignee, officer, director, employee, agent, trustee, Affiliate or shareholder of any Member shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Company, including business interests and activities that are in direct or indirect competition with the Company or that are enhanced by the activities of the Company. Neither the Company nor any Member shall have any rights by virtue of this Agreement in any business ventures of any Member or Assignee. Subject to such agreements, none of the Members nor any other Person shall have any rights by virtue of this Agreement or the relationship established hereby in any business ventures of any other Person (other than the Managing Member, to the extent expressly provided herein), and such Person shall have no obligation pursuant to this Agreement, subject to any agreements entered into by a Member or its Affiliates with the Managing Member, the Company or a Subsidiary, to offer any interest in any such business ventures to the Company, any Member or any such other Person, even if such opportunity is of a character that, if presented to the Company, any Member or such other Person, could be taken by such Person. The Non-

 

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Managing Members shall not, by virtue of their ownership of Non-Managing Member Units, owe a fiduciary duty to the other Members or the Company.

 

8.4 Return of Capital

 

Except pursuant to the rights of Redemption set forth in Section 8.6 hereof, no Member shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent of distributions made pursuant to this Agreement or upon termination of the Company as provided herein. Except to the extent provided in Article V, Article VI and Article XIII hereof or otherwise expressly provided in this Agreement, no Member or Assignee shall have priority over any other Member or Assignee either as to the return of Capital Contributions or as to profits, losses, distributions or credits.

 

8.5 Rights of Non-Managing Members Relating to the Company

 

A.           In addition to other rights provided by this Agreement or by the Act, and except as limited by Section 8.5C hereof, each Non-Managing Member shall have the right, for a purpose reasonably related to such Non-Managing Member’s Membership Interest in the Company, upon written demand with a statement of the purpose of such demand and at such Non-Managing Member’s own expense:

 

(1)   to obtain a copy of (i) the most recent annual and quarterly reports filed with the SEC by the Managing Member pursuant to the Exchange Act and (ii) each report or other written communication sent to the shareholders of the Managing Member;

 

(2)   to obtain a copy of the Company’s federal, state and local income tax returns for each Fiscal Year;

 

(3)   to obtain a current list of the name and last known business, residence or mailing address of each Member;

 

(4)   to obtain a copy of this Agreement and the Certificate and all amendments thereto, together with executed copies of all powers of attorney pursuant to which this Agreement, the Certificate and all amendments thereto have been executed; and

 

(5)   to obtain true and full information regarding the amount of cash and a description and statement of any other property or services contributed by each Member, and the date on which each became a Member.

 

B.             The Company shall notify any Non-Managing Member of the then current Adjustment Factor or any change made to the Adjustment Factor or to the REIT Shares Amount within 30 days following such change or adjustment.

 

C.             Notwithstanding any other provision of this Section 8.5, the Managing Member may keep confidential from the Non-Managing Members, for such period of time as the Managing Member determines in its sole and absolute discretion to be reasonable, any information that (i) the Managing Member believes to be in the nature of trade secrets or other

 

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information the disclosure of which the Managing Member in good faith believes is not in the best interests of the Company or could damage the Company or its business or (ii) the Company or the Managing Member is required by law or by agreements with unaffiliated third parties to keep confidential.

 

8.6 Redemption Rights

 

A.           On or after the first (1st) anniversary of the Effective Date, each Non-Managing Member shall have the right (the “Redemption Right”) (subject to the terms and conditions set forth herein) to require the Company to redeem all or a portion of the Non-Managing Member Units held by such Non-Managing Member (all such Non-Managing Member Units being hereafter called “Tendered Units”)  for the Cash Amount payable on the Specified Redemption Date (the “Redemption”); provided, however, that at the election of and in the sole and absolute discretion of the Managing Member, the Managing Member may elect to assume the Company’s obligation with respect to the Redemption (though such assumption shall not relieve the Company from such obligation in the event the Managing Member fails to fulfill such obligation) and, at the election of and in the sole and absolute discretion of the Managing Member, to satisfy the Redemption by (i) paying either the Cash Amount payable on the Specified Redemption Date or (ii) delivering a number of REIT Shares equal to the REIT Shares Amount payable on the Specified Redemption Date.

 

B.             Any Redemption shall be exercised pursuant to a Notice of Redemption delivered to the Company by a Non-Managing Member or any Substituted Member of a Non-Managing Member or an Assignee of either exercising the Redemption Right (the “Tendering Party”). On the Specified Redemption Date, the Tendering Party shall sell the Tendered Units to the Company or the Managing Member, as the case may be, in accordance with this Section 8.6. Any Tendered Units acquired by the Managing Member pursuant to this Section 8.6 shall be held by the Managing Member as Non-Managing Member Units with all the rights and preferences relating thereto as provided in this Agreement. The Tendering Party shall submit (i) such information, certification or affidavit as the Company may reasonably require in connection with the Ownership Limit and (ii) in the event that the REIT Shares issued upon such Redemption are not registered for issuance or resale under the Securities Act as of the date of issuance, such written representations, investment letters, legal opinions or other instruments necessary, in the Company’s view, to effect compliance with the Securities Act. If a Cash Amount is to be delivered upon the Redemption, the Cash Amount shall be delivered as a certified check payable to the Tendering Party or, in the Company’s or the Managing Member’s sole discretion, as the case may be, in immediately available funds via wire transfer to an account or account(s) specified by the Tendering Party. If REIT Shares are to be delivered upon the Redemption, the REIT Shares Amount shall be delivered by the Managing Member as duly authorized, validly issued, fully paid and nonassessable REIT Shares (and, if applicable, Rights), free of any pledge, lien, encumbrance or restriction, other than (1) the Ownership Limit and other restrictions provided in the Charter or the Bylaws of the Managing Member and (2) in the event the REIT Shares issued upon such Redemption are not registered for issuance or resale under the Securities Act as of the date of issuance, the Securities Act and relevant state securities or “blue sky” laws. The Tendering Party shall be deemed the owner of such REIT Shares and Rights for all purposes, including, without limitation, rights to vote or consent, receive dividends, and exercise rights, as of the Specified Redemption Date. REIT Shares issued upon an acquisition of the

 

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Tendered Units by the Managing Member pursuant to this Section 8.6 may contain such legends regarding restrictions on Transfer or ownership to protect the Managing Member’s tax status as a REIT and in the event the REIT Shares issued upon such Redemption are not registered for resale under the Securities Act as of the date of issuance, restrictions under the Securities Act and applicable state securities laws as the Managing Member in good faith determines to be necessary or advisable in order to ensure compliance with such laws.

 

C.             Notwithstanding the provisions of Sections 8.6A. and 8.6B. hereof, the following shall apply:

 

(1) no Tendering Party shall have any right to tender for Redemption (whether for the REIT Shares Amount or the Cash Amount) any Excess LLC Units held by such Tendering Party. The Managing Member shall have no obligation to acquire Excess LLC Units, whether for the REIT Shares Amount or the Cash Amount;

 

(2) No Tendering Party may exercise the Redemption Rights pursuant to Section 8.6.A. and 8.6.B. hereof more than one (1) time during any Calendar Quarter or more than three (3) times during any calendar year. In determining whether such limit has been reached during any Calendar Quarter or calendar year with respect to any Non-Managing Member or Substituted Member of a Non-Managing Member, it is understood and agree that the exercise of the Redemption Rights by any Assignee of such Non-Managing Member or Substituted Member shall be counted for all purposes as the exercise of such Redemption Rights by the Non-Managing Member or Substituted Member assignor. Notwithstanding the foregoing, each Tendering Party may exercise the Redemption Rights after the receipt of a notice of a Liquidating Event;

 

(3)                                  no Tendering Party may exercise the Redemption Rights pursuant to Sections 8.6.A and B as to fewer than 5,000 Non-Managing Member Units (unless they constitute all of the Non-Managing Member Units held by such Tendering Party);

 

(4)                                  No Tendering Party may deliver a Notice of Redemption during the period from November 10th through December 31 of any year; and

 

(5) each Tendering Party shall pay to the Managing Member the sum of $1,500.00 as the stipulated and agreed upon reimbursement cost for the Managing Member’s administrative overhead and out-of-pocket costs in connection with any Redemption pursuant to Sections 8.6A. and 8.6B.; provided, however, that no such reimbursement shall be due with respect to the first such Redemption by any Non-Managing Member or Substituted Member in any calendar year; provided, further, however, that the exercise by any Assignee of a Non-Managing Member or Substituted Member shall be deemed a Redemption by such Non-Managing Member or Substituted Member of such Assignee (and vice versa) for purposes of determining whether such reimbursement is due and owing to the Managing Member.

 

D.            Notwithstanding anything herein to the contrary, with respect to any Redemption pursuant to this Section 8.6, each Tendering Party shall continue to own all LLC Units subject to any Redemption, and be treated as a Member with respect to such LLC Units for

 

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all purposes of this Agreement, until such LLC Units are Transferred to the Company or the Managing Member, as the case may be, and paid for or exchanged on the Specified Redemption Date; subject, however, to the provisions of Section 5.7. Until a Specified Redemption Date and an acquisition of the Tendered Units by the Managing Member, if it so elects, pursuant to Sections 8.6A and 8.6B hereof, the Tendering Party shall have no rights as a shareholder of the Managing Member with respect to the REIT Shares issuable in connection with such Redemption.

 

E.              In connection with an exercise of Redemption Rights pursuant to this Section 8.6, the Tendering Party shall submit the following to the Managing Member, in addition to the Notice of Redemption:

 

(1) Any information reasonably required by the Managing Member in order to allow it to determine (a) the actual and Constructive Ownership, as determined for purposes of Code Sections 856(a)(6), 856(h), 856(d)(2)(b) and 856(d)(5), of REIT Shares by (i) such Tendering Party and (ii) any Related Party and (b) that, after giving. effect to the Redemption, neither the Tendering Party nor any Related Party will have actual, Beneficial Ownership or Constructive Ownership of a number of REIT Shares that is in excess of the Ownership Limit;

 

(2) A written representation that neither the Tendering Party nor any Related Party has any intention to acquire any additional REIT Shares prior to the closing of the Redemption on the Specified Redemption Date that would cause such Tendering Party or any Related Party to have Beneficial Ownership or Constructive Ownership of a number of REIT Shares that is in excess of the Ownership Limit; and

 

(3) An undertaking to certify, at and as a condition to the closing of the Redemption that either (a) the actual and Constructive Ownership of REIT Shares by the Tendering Party and any Related Party remain unchanged from that disclosed pursuant to Section 8.6D.(1) or (b) after giving effect to the Redemption, neither the Tendering Party nor any Related Party shall have actual or Constructive Ownership of a number of REIT Shares that is in violation of the Ownership Limit.

 

ARTICLE IX.

BOOKS, RECORDS, ACCOUNTING AND REPORTS

 

9.1 Records and Accounting

 

A.           The Managing Member shall keep or cause to be kept at the principal office of the Company those records and documents required to be maintained by the Act and other books and records deemed by the Managing Member to be appropriate with respect to the Company’s business, including, without limitation, all books and records necessary to provide to the Members any information, lists and copies of documents required to be provided pursuant to Section 9.3 hereof. Any records maintained by or on behalf of the Company in the regular course of its business may be kept on, or be in the form of, punch cards, magnetic tape, photographs, micrographics or any other information storage device, provided that the records so maintained are convertible into clearly legible written form within a reasonable period of time.

 

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B.             The books of the Company shall be maintained, for financial and tax reporting purposes, on an accrual basis, and for financial purposes in accordance with GAAP, or on such other basis as the Managing Member determines to be necessary or appropriate. To the extent permitted by sound accounting practices and principles, the Company and the Managing Member may operate with integrated or consolidated accounting records, operations and principles.

 

9.2 Fiscal Year

 

The Fiscal Year of the Company shall be the calendar year.

 

9.3 Reports

 

Upon written request after any Calendar Quarter, the Managing Member shall as promptly as practicable deliver to each requesting Member a profit and loss statement and balance sheet of the Company dated as of the last day of such Calendar Quarter.

 

9.4 Cooperation Regarding Tax Matters Relating to Contributed Property

 

A.           In connection with the issuance of Non-Managing Member Units to the Initial Non-Managing Members upon the contribution of the Contributed Property to the Company pursuant to the Contribution Agreement, the Initial Non-Managing Members shall deliver, or cause Contributor to deliver, to the Company at or prior to the effective date of such issuance, at the Initial Non-Managing Members’ or the Contributor’s sole cost and expense, the following information prepared as of the date of such anticipated contribution.

 

(1) depreciation and amortization schedules for the assets constituting the Contributed Property, as kept for both book and tax purposes, showing original basis and accumulated depreciation or amortization;

 

(2) basis information (computed for both book and tax purposes, if different) for the Contributed Property and all assets that are components of the Contributed Property;

 

(3) the adjusted basis of each Initial Non-Managing Member and any constituent partners or members of each Initial Non-Managing Member in its interest in the Company; and

 

(4) calculations of the estimated amounts of gain to be realized and recognized (if any) by each Initial Non-Managing Member, as a result of the transactions involving the Contributed Property in accordance with this Agreement and showing the method by which such amounts are calculated.

 

B.             The Company shall be permitted to rely on the information provided or to be provided to it under this Section 9.4 as to the adjusted tax basis of the Contributed Property and the relevant depreciation schedules thereto in determining the amount of Built-in Gain on a going forward basis.

 

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C.             Each Initial Non-Managing Member shall provide reasonable assistance to the Company to enable the Company and the Managing Member to determine the Built-in Gain or to prepare their tax returns. Each Initial Non-Managing Member shall also provide to the Company, promptly upon receipt, any notice that it receives from any of its direct or indirect constituent partners or members (including such Contributor’s Partners) that such partner(s) or member(s) intends to prepare its tax returns in a manner inconsistent with the returns filed by such Initial Non-Managing Member. Each Initial Non-Managing Member understands and agrees that he shall cause the tax returns filed by such Initial Non-Managing Member to be substantially consistent with the information provided to the Company pursuant to this Section 9.4.

 

ARTICLE X.

TAX MATTERS

 

10.1                        Preparation of Tax Returns

 

The Managing Member shall arrange for the preparation and timely filing, including extension, of all returns with respect to Company income, gains, deductions, losses and other items required of the Company for federal and state income tax purposes and shall use all commercially reasonable efforts to furnish, within 90 days of the close of each taxable year, such tax information to enable each Member to reasonably estimate their tax liability.

 

10.2                        Tax Elections

 

Except as otherwise provided herein, the Managing Member shall (a) determine whether to make any available election pursuant to the Code, including, without limitation, the election under Section 754 of the Code and (b) also determine whether to revoke any such election (including, without limitation, any election under Code Section 754); provided, however, that any such determination by the Managing Member pursuant to this Section 10.2 made prior to the Subsequent Threshold Date shall be made in good faith based upon the best interests of the Members in the aggregate and after the Subsequent Threshold Date in the Managing Member’s sole and absolute discretion.

 

10.3                        Tax Matters Partner

 

A.           The Managing Member shall be designated and shall operate as “Tax Matters Partner”  (as defined in Code Section 6231), to oversee or handle matters relating to the taxation of the Company; provided, however, that prior to the Subsequent Threshold Date, the Consent of the Non-Managing Members (which approval or disapproval shall not be unreasonably withheld or delayed) shall be required to settle any administrative proceeding or institute or settle any litigation with respect to tax issues if such action (i) is reasonably likely to materially and adversely affect the Non-Managing Members in the aggregate, and (ii) does not relate to a REIT Member’s or its Affiliate’s tax status as a REIT.

 

B.             Income tax returns of the Company shall be prepared by such certified public accountant(s) as the Managing Member shall retain at the expense of the Company.

 

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10.4                        Organizational Expenses

 

The Company shall elect to deduct expenses, if any, incurred by it in organizing the Company ratably as provided in Code Section 709.

 

ARTICLE XI.

TRANSFERS AND WITHDRAWALS

 

11.1                        Transfer

 

A.           No part of the interest of a Member shall be subject to the claims of any creditor, to any spouse for alimony or support, or to legal process, and may not be voluntarily or involuntarily alienated or encumbered except as may be specifically provided for in this Agreement.

 

B.             No Membership Interest shall be Transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article XI. Any Transfer or purported Transfer of a Membership Interest not made in accordance with this Article XI shall be null and void ab initio.

 

11.2                        Transfer of Managing Member’s Membership Interest

 

A.           Except in connection with a transaction described in Section 11.2B., the Managing Member shall not withdraw from the Company and shall not Transfer all or any portion of its interest in the Company without the Consent of the Non-Managing Members, which Consent shall not be unreasonably withheld, conditioned or delayed; provided, however, that the Managing Member may Transfer all or any portion of its interest in the Company without Consent to any Affiliate of the Managing Member, provided that the Managing Member guarantees the obligations of such Affiliate under this Agreement (the “Managing Member Guarantee”). Upon any Transfer of the Membership Interest of the Managing Member in accordance with the provisions of this Section 11.2, the transferee shall become a Substitute Managing Member for all purposes herein, and shall be vested with the powers and rights of the transferor Managing Member, and shall be liable for all obligations and responsible for all duties of the Managing Member, once such transferee has executed such instruments as may be necessary to effectuate such admission and to confirm the agreement of such transferee to be bound by all the terms and provisions of this Agreement with respect to the Membership Interest so acquired. It is a condition to any Transfer otherwise permitted hereunder that the transferee assumes, by operation of law or express agreement, all of the obligations of the transferor Managing Member under this Agreement with respect to such Transferred Membership Interest, and in such event such Transfer shall relieve the transferor Managing Member of its obligations under this Agreement accruing subsequent to the date of such Transfer except for the Managing Member Guarantee. In the event the Managing Member withdraws from the Company, in violation of this Agreement or otherwise, or otherwise dissolves or terminates, or upon the Incapacity of the Managing Member, all of the remaining Members may elect to continue the Company business by selecting a Substitute Managing Member in accordance with the Act.

 

B.             The Managing Member may engage in any merger, consolidation or other combination with or into another Person, sale of all or substantially all of its assets or any

 

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reclassification, or change of its outstanding equity interests (a “Termination Transaction”), if either (i) the Termination Transaction has been approved by the Consent of the Non-Managing Members or (ii) in connection with the Termination Transaction, all holders of LLC Units (other than the Managing Member) either will receive for each LLC Unit, or will be entitled to receive, for each LLC Unit (in lieu of the REIT Shares Amount) upon a Redemption of the LLC Unit pursuant to Section 8.6 hereof, an amount of cash, securities, or other property equal to the amount that would have been paid to the holder had the LLC Unit been redeemed for REIT Shares pursuant to Section 8.6 hereof immediately prior to the consummation of the Termination Transaction subject, in the event of a Redemption of the LLC Unit pursuant to Section 8.6 hereof subsequent to the consummation of the Termination Transaction, to further adjustment to the extent provided in this Agreement to compensate for the dilutive effect of certain transactions described herein; provided, however, that, if, in connection with the Termination Transaction, a purchase, tender or exchange offer shall have been made to and accepted by the holders of more than fifty percent (50%) of the outstanding REIT Shares, each Member shall receive, or shall have the right to elect to receive, the greatest amount of cash, securities, or other property which such Member would have received had it redeemed its LLC Units for REIT Shares pursuant to Section 8.6 immediately prior to the expiration of such purchase, tender or exchange offer and had thereupon accepted such purchase, tender or exchange offer. No provision of this Agreement, including, without limitation, the provisions of Section 7.3B hereof, shall prohibit the consummation of any Termination Transaction permitted by the provisions of this Section 11.2B.

 

11.3                        Non-Managing Members’ Rights to Transfer

 

A.           General. No Non-Managing Member shall Transfer all or any portion of its Membership Interest, or any of such Non-Managing Member’s economic rights as a Non-Managing Member, to any transferee without first offering such Membership Interest to the Managing Member or otherwise obtaining the Consent of the Managing Member, which Consent may be withheld in its sole and absolute discretion; provided, however, that notwithstanding the foregoing, but subject to the balance of the provisions of this Article XI, any Non-Managing Member may, without the Consent of the Managing Member, (x) pledge all or any portion of its Membership Interest to a lender to such Member to secure indebtedness to such lender and Transfer such Membership Interest to such lender upon foreclosure of the debt secured by such Membership Interest, so long as any such pledge or other Transfer would not otherwise violate the provisions of this Agreement or (y) transfer all or any portion of its Membership Interest or economic rights as a Non-Managing Member to a partner or member of such Non-Managing Member as a distribution or in liquidation of such partner’s or member’s interest in such Non-Managing Member, to a family member of such Non-Managing Member, a trust, all of the beneficiaries of which are, such Non-Managing Member and family members of such Non-Managing Member, a corporation, general or limited partnership or limited liability company all of the owners of which are such Non-Managing Member and family members of such Non-Managing Member or to an organization described in Sections 170(b)(1)(A), 170(b)(c)(2) or 501(c)(3) of the Code, so long as any such Transfer would not otherwise violate the provisions of this Agreement (herein, a “Permitted Non-Managing Member Assignment”), and in connection with any Permitted Non-Managing Member Assignment, such Non-Managing shall reimburse to the Managing Member all actual out-of-pocket costs and expenses in connection with such Permitted Non-Managing Member Assignment, including, without limitation, attorneys’ fees and

 

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costs and any other expenses incurred by the Managing Member, including the costs of filing any amendment or prospectus supplement to any registration statement or prospectus as necessary to reflect such Transfer. In addition, it is understood and agreed that the transferee pursuant to any Permitted Non-Managing Member Assignment shall only become an Assignee and not a Substituted Member, unless otherwise consented to by the Managing Member in its sole and absolute discretion.

 

B.             Conditions to Transfer. It is a condition to any Transfer otherwise permitted hereunder that the transferee assume by operation of law or express agreement all of the obligations of the transferor Member under this Agreement with respect to such Transferred Membership Interest, and that the Managing Member be reimbursed for all actual out-of-pocket costs and expenses incurred by the Managing Member in connection with such Transfer, including, without limitation, attorneys’ fees and costs and any other expenses incurred by the Managing Member, including the costs of filing any amendment or prospectus supplement to any registration statement or prospectus as necessary to reflect such Transfer. Notwithstanding the foregoing, any transferee of any Transferred Membership Interest shall be subject to the Ownership Limits and any and all ownership limitations contained in the Charter. Any transferee, whether or not admitted as a Substituted Member, shall take subject to the obligations of the transferor hereunder. Unless admitted as a Substituted Member, no transferee, whether by a voluntary Transfer, by operation of law or otherwise, shall have any rights hereunder, other than the rights of an Assignee as provided in Section 11.5 hereof.

 

C.             Incapacity. If Non-Managing Member is subject to Incapacity, the executor, administrator, trustee, committee, guardian, conservator or receiver of such Non-Managing Member’s estate shall have all the rights of a Non-Managing Member, but not more rights than those enjoyed by other Non-Managing Members, for the purpose of settling or managing the estate, and such power as the Incapacitated Non-Managing Member possessed to Transfer all or any part of its interest in the Company. The Incapacity of a Non-Managing Member, in and of itself, shall not dissolve or terminate the Company.

 

D.            Opinion of Counsel. In connection with any Transfer of a Membership Interest other than in connection with a Redemption, the Managing Member shall have the right to receive an opinion of counsel reasonably satisfactory to it to the effect that the proposed Transfer may be effected without registration under the Securities Act and will not otherwise violate any federal or state securities laws or regulations applicable to the Company or the Membership Interests Transferred. If, in the opinion of such counsel, such Transfer would require the filing of a registration statement under the Securities Act or would otherwise violate any federal or state securities laws or regulations applicable to the Company or the LLC Units, the Managing Member may prohibit any Transfer by a Member of Membership Interests otherwise permitted under this Section 11.3.

 

E.              Transfers to Lenders. No Transfer of any LLC Units may be made to a lender to the Company or any Person who is related (within the meaning of Section 1.752-4(b) of the Regulations) to any lender to the Company whose loan constitutes a Nonrecourse Liability, without the Consent of the Managing Member, in its sole and absolute discretion; provided that, as a condition to such Consent, the lender will be required to enter into an arrangement with the Company and the Managing Member to redeem or exchange for the REIT Shares Amount any

 

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LLC Units in which a security interest is held simultaneously with the time at which such lender would be deemed to be a member in the Company for purposes of allocating liabilities to such lender under Code Section 752.

 

11.4                        Substituted Members

 

A.           No Member shall have the right to substitute a transferee (including any transferees pursuant to Transfers permitted by Section 11.3 hereof) as a Member in its place. The Managing Member shall, however, have the right to Consent to the admission of a transferee of the interest of a Member pursuant to this Section 11.4 as a Substituted Member, which Consent may be given or withheld by the Managing Member in its sole and absolute discretion. The Managing Member’s failure or refusal to permit a transferee of any such interests to become a Substituted Member shall not give rise to any cause of action against the Company or any Member.

 

B.             A transferee who has been admitted as a Substituted Member in accordance with this Article XI shall have all the rights and powers and be subject to all the restrictions and liabilities of a Member under this Agreement. The admission of any transferee as a Substituted Member shall be subject to the transferee executing and delivering to the Company an acceptance of all of the terms and conditions of this Agreement (including without limitation, the provisions of Section 2.4 and such other documents or instruments as may be required to effect the admission) from and after the date of such Transfer.

 

C.             Upon the admission of a Substituted Member, the Managing Member shall update the books and records of the Company to reflect the name, address, Capital Account, number of LLC Units and Percentage Interest of such Substituted Member and to eliminate or adjust, if necessary, the name, address, Capital Account, number of LLC Units and Percentage Interest of the predecessor of such Substituted Member (and any other Member, as necessary).

 

11.5                        Assignees

 

If the Managing Member, in its sole and absolute discretion, does not Consent to the admission of any permitted transferee under Section 11.3 hereof as a Substituted Member, as described in Section 11.4 hereof, such transferee shall be considered an Assignee for purposes of this Agreement. An Assignee shall be entitled to all the rights of an assignee of a limited liability company interest under the Act, including the right to receive distributions from the Company and the share of Net Income, Net Loss and other items of income, gain, loss, deduction and credit of the Company attributable to the LLC Units assigned to such transferee, the rights to Transfer the LLC Units provided in this Article XI, and the right of Redemption provided in Section 8.6, but shall not be deemed to be a Member of LLC Units for any other purpose under this Agreement, and shall not be entitled to effect a Consent or vote with respect to such LLC Units on any matter presented to the Members for approval (such right to Consent or vote, to the extent provided in this Agreement or under the Act, fully remaining with the transferor Member). In the event that any such transferee desires to make a further assignment of any such LLC Units, such transferee shall be subject to all the provisions of this Article XI to the same extent and in the same manner as any Members desiring to make an assignment of LLC Units. The Managing

 

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Member shall have no liability under any circumstance with respect to any Assignee as to which it does not have notice.

 

11.6                        General Provisions

 

A.           No Non-Managing Member may withdraw from the Company other than (i) as a result of a permitted Transfer of all of such Non-Managing Member’s LLC Units in accordance with this Article XI and the transferee(s) of such LLC Units being admitting to the Company as a Substituted Member or (ii) pursuant to a Redemption by the Non-Managing Member of all of its LLC Units under Section 8.6 hereof.

 

B.             Any Non-Managing Member who shall Transfer all of its LLC Units in a Transfer (i) permitted pursuant to this Article XI where such transferee was admitted as a Substituted Member; (ii) pursuant to the exercise of its rights to effect a Redemption of all of its LLC Units under Section 8.6 hereof; (iii) pursuant to a Reduction; or (iv) pursuant to a combination of Transfers of the types specified in the foregoing (i) - (iii), shall cease to be a Member.

 

C.             Except in connection with a Redemption, Transfers pursuant to this Article XI may only be made on the first day of a Calendar Quarter of the Company, unless the Managing Member otherwise agrees.

 

D.            All distributions of Available Cash attributable to an LLC Unit with respect to which the LLC Record Date is before the date of a Transfer or a Redemption of the LLC Unit shall be made to the transferor Member and all distributions of Available Cash thereafter attributable to such LLC Unit shall be made to the transferee Member.

 

E.              Notwithstanding anything to the contrary set forth herein, in addition to any other restrictions on Transfer herein contained, in no event may any Transfer or assignment of a Membership Interest by any Member (excluding any Redemption or any other acquisition of LLC Units by the Company) be made:

 

(1) to any person or entity who lacks the legal right, power or capacity to own a Membership Interest;

 

(2) in violation of applicable law;

 

(3) without the Consent of the Managing Member, if such Transfer would, in the opinion of counsel to the Company or the Managing Member, cause an increased tax liability to any other Member or Assignee as a result of the termination of the Company, in either case for federal or state income or franchise tax purposes (except in the case of a Terminating Capital Transaction or as a result of the Redemption of all LLC Units pursuant to Section 8.6);

 

(4) without the Consent of the Managing Member, if such Transfer could, as reasonably determined by the Managing Member, (i) result in the Company being treated as an association taxable as a corporation for federal income tax or for state income or franchise tax purposes, (ii) adversely affect the ability of any REIT Member or

 

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any Affiliate thereof to continue to qualify as a REIT or subject any REIT Member or any Affiliate thereof to any additional taxes under Code Section 857 or Code Section 4981 or (iii) be treated as having been effectuated through an “established securities market”  or a “secondary market (or the substantial equivalent thereof)”  within the meaning of Code Section 7704, or such Transfer fails to satisfy a “safe-harbor” preventing such treatment (as set forth in Treasury Regulations under Code Section 7704 or any successor provision);

 

(5) if such Transfer could cause the Company to become, with respect to any employee benefit plan subject to Title I of ERISA, a “party-in-interest”  (as defined in ERISA Section 3(14)) or a “disqualified person”  (as defined in Code Section 4975(c));

 

(6) if such Transfer could, in the opinion of legal counsel to the Company, cause any portion of the assets of the Company to constitute assets of any employee benefit plan pursuant to Department of Labor Regulations Section 2510.2-101;

 

(7) if such Transfer could cause the Company (as opposed to the Managing Member) to become a reporting company under the Exchange Act;

 

(8) if such Transfer could subject the Company to regulation under the Investment Company Act of 1940, the Investment Advisors Act of 1940 or ERISA, each as amended; or

 

(9) without the Consent of the Managing Member, which Consent may be granted or withheld in its sole and absolute discretion, if such Transfer could result in the Company having more than 100 Members (including as Members those persons indirectly owning an interest in the Company through a partnership, limited liability company, S corporation or grantor trust (such entity, a “flow through entity”), but only if substantially all of the value of such person’s interest in the flow through entity is attributable to the flow through entity’s interest (direct or indirect) in the Company) (the “One Hundred Member Limit”).

 

F.              No Non-Managing Member will take or allow any Affiliate to take any action that would cause a violation of the One Hundred Member Limit.

 

ARTICLE XII.

ADMISSION OF MEMBERS

 

12.1                        Admission of Initial Non-Managing Members

 

Pursuant and subject to the terms of the Contribution Agreement, upon the contribution of the Contributed Property to the Company, the Contributor has distributed to each of Contributor’s Partners identified on Exhibit A attached hereto the number of Non-Managing Member Units otherwise issuable to Contributor pursuant to the Contribution Agreement, and each of such Persons identified on Exhibit A attached hereto shall be admitted to the Company as an Initial Non-Managing Member.

 

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12.2        Admission of Successor Managing Member

 

A successor to all of the Managing Member’s Membership Interest pursuant to Section 11.2 hereof who is proposed to be admitted as a successor Managing Member shall be admitted to the Company as the Managing Member, effective immediately upon such Transfer. Any such successor shall carry on the business of the Company without dissolution. In each case, the admission shall be subject to the successor Managing Member executing and delivering to the Company an acceptance of all of the terms, conditions and applicable obligations of this Agreement and such other documents or instruments as may be required to effect the admission, in accordance with and subject to the provisions of Section 11.2 hereof.

 

12.3        Admission of Additional Members

 

A.  A Person (other than an existing Member) who makes a Capital Contribution to the Company in accordance with this Agreement shall be admitted to the Company as an Additional Member, only upon furnishing to the Managing Member (i) evidence of acceptance, in form and substance satisfactory to the Managing Member, of all of the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Section 2.4 hereof, and (ii) such other documents or instruments as may be required in the sole and absolute discretion of the Managing Member in order to effect such Person’s admission as an Additional Member.

 

B.  Notwithstanding anything to the contrary in this Agreement, no Person shall be admitted as an Additional Member without the Consent of the Managing Member and the Affirmative Consent of the Non-Managing Members, which Consent may be given or withheld by each Member in its sole and absolute discretion; provided, however, that in no event shall any Person be admitted as an Additional Member if such Additional Member shall be granted preferential distributions or rights ahead of the other Non-Managing Members, unless such preferential distributions and/or rights shall be approved by the Affirmative Consent of a Supermajority of the Non-Managing Members. The admission of any Person as an Additional Member shall become effective on the date upon which the name of such Person is recorded on the books and records of the Company, following the Consent of the Managing Member and the Affirmative Consent of the Non-Managing Members to such admission.

 

C.  If any Additional Member is admitted to the Company on any day other than the first day of a Fiscal Year, then Net Income, Net Loss, each item thereof and all other items of income, gain, loss, deduction and credit allocable among Members and Assignees for such Fiscal Year shall be allocated among such Additional Member and all other Members and Assignees by taking into account their varying interests during the Fiscal Year in accordance with Code Section 706(d), using the “interim closing of the books”  method or another permissible method selected by the Managing Member. Solely for purposes of making such allocations, each of such items for the calendar month in which an admission of any Additional Member occurs shall be allocated among all the Members and Assignees including such Additional Member, in accordance with the principles described in Section 11.6C hereof. All distributions of Available Cash with respect to which the LLC Record Date is before the date of such admission shall be made solely to Members and Assignees other than the Additional Member, and all distributions

 

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of Available Cash thereafter shall be made to all the Members and Assignees including such Additional Member.

 

12.4        Amendment of Agreement and Certificate

 

For the admission to the Company of any Member, the Managing Member shall take all steps necessary and appropriate under the Act to amend the records of the Company and, if necessary, to prepare as soon as practical an amendment of this Agreement (including if elected by the Managing Member an amendment of Exhibit A) and, if required by law, shall prepare and file an amendment to the Certificate and may for this purpose exercise the power of attorney granted pursuant to Section 2.4 hereof.

 

12.3        Limitation on Admission of Members

 

No Person shall be admitted to the Company as a Substituted Member or an Additional Member if, in the opinion of legal counsel for the Company, it would result in the Company being treated as a corporation for federal income tax purposes or otherwise cause the Company to become a reporting company under the Exchange Act.

 

ARTICLE XIII.

DISSOLUTION, LIQUIDATION AND TERMINATION

 

13.1        Dissolution

 

The Company shall not be dissolved by the admission of Substituted Members or Additional Members or by the admission of a successor Managing Member in accordance with the terms of this Agreement. Upon the withdrawal of the Managing Member, any successor Managing Member shall continue the business of the Company without dissolution. However, the Company shall dissolve, and its affairs shall be wound up, upon the first to occur of any of the following (each a “Liquidating Event”):

 

A.  an event of withdrawal of the Managing Member, as defined in the Act (other than an event of bankruptcy), unless, within 90 days after the withdrawal, a Majority of Remaining Members agree in writing to continue the business of the Company and to the appointment, effective as of the date of withdrawal, of a substitute Managing Member;

 

B.  subject to the provisions of Sections 7.3E and 7.3H hereof, an election to dissolve the Company made by the Managing Member;

 

C.  entry of a decree of judicial dissolution of the Company pursuant to the provisions of the Act;

 

D.  subject to the provisions of Sections 7.3E and 7.3H hereof, the sale of all or substantially all of the assets and properties of the Company;

 

E.  subject to the provisions of Sections 7.3E and 7.3H hereof, a final and non-appealable judgment is entered by a court of competent jurisdiction ruling that the Managing Member is bankrupt or insolvent, or a final and non-appealable order for relief is entered by a

 

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court with appropriate jurisdiction against the Managing Member, in each case under any Bankruptcy Law as now or hereafter in effect, unless prior to or within 90 days after the entry of such order or judgment a Majority of Remaining Members’ Consent in writing to continue the business of the Company and to the appointment, effective as of a date prior to the date of such order or judgment, of a substitute Managing Member;

 

F.  the Incapacity of the Managing Member, unless prior to or within 90 days after such Incapacity a Majority of Remaining Members agree in writing to continue the business of the Company and to the appointment, effective as of a date prior to the date of such Incapacity, of a substitute Managing Member; or

 

G.  the Redemption of all LLC Units (other than those held by the Managing Member).

 

13.2        Redemption of Non-Managing Member Units

 

Notwithstanding anything in this Agreement to the contrary, on or after such time as the Managing Member has the right to dissolve the Company or upon the occurrence of a Liquidating Event or at any time after the expiration of the Tax Protection Period, the Managing Member may, in its sole and absolute discretion, require each Non-Managing Member (by delivering a Call Notice to such Non-Managing Member) to tender all or a portion of its Non-Managing Member Units to the Managing Member in exchange for, at the election of and in the sole and absolute discretion of the Managing Member, either (a) an amount of cash equal to the sum of (i) the Cash Amount and (ii) the NMM Sharing Amount, calculated as if all of the Properties then owned by the Company were sold in a taxable transaction at their fair market values, or (b) a number of REIT Shares equal to the sum of (i) the REIT Shares Amount payable on the Specified Redemption Date and otherwise in accordance with the procedures and provisions set forth in Sections 8.6A. and 8.6B., and (ii) a number of REIT Shares with a value equal to the amount set forth in Section 13.2(a)(ii).

 

13.3        Winding Up

 

A.  Upon the occurrence of a Liquidating Event, the Company shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets and satisfying the claims of its creditors and Members. After the occurrence of a Liquidating Event, no Member shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Company’s business and affairs. The Managing Member (or, in the event that there is no remaining Managing Member, any Person elected by a Majority in Interest of the Non-Managing Members (the Managing Member or such other Person being referred to herein as the “Liquidator”))  shall be responsible for overseeing the winding up and dissolution of the Company and shall take full account of the Company’s liabilities and property, and the Company property shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom (which may, to the extent determined by the Managing Member, include shares of stock in the Managing Member) shall be applied and distributed in the following order:

 

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(1)  First, to the satisfaction of all of the Company’s debts and liabilities to creditors other than the Members and their Assignees (whether by payment or the making of reasonable provision for payment thereof);

 

(2)  Second, to the satisfaction of all of the Company’s debts and liabilities to the Members, including, but not limited to, any loan made to the Company by a Member in accordance with the terms of this Agreement (including the Managing Member Loan) (whether by payment or the making of reasonable provision for payment thereof); and

 

(3)  The balance, if any, to the Members and any Assignees in accordance with and proportion to their positive Capital Account balances, after giving effect to all contributions, distributions and allocations for all periods.

 

The Managing Member shall not receive any additional compensation for any services performed pursuant to this Article XIII.

 

B.  Notwithstanding the provisions of Section 13.3A hereof that require liquidation of the assets of the Company, but subject to the order of priorities set forth therein, if prior to or upon dissolution of the Company the Liquidator determines that an immediate sale of part or all of the Company’s assets would be impractical or would cause undue loss to the Members, the Liquidator may defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Company (including to those Members as creditors) and/or with the Consent of the Managing Member and the Affirmative Consent of the Non-Managing Members, distribute to the Members, in lieu of cash, as tenants in common and in accordance with the provisions of Section 13.3A hereof, undivided interests in such Company assets as the Liquidator deems not suitable for liquidation. Notwithstanding the foregoing, any such distributions in kind shall be made only if, in the good faith judgment of the Liquidator, such distributions in kind are in the best interest of the Members, and shall be subject to such conditions relating to the disposition and management of such properties as approved by the Consent of the Managing Member and the Affirmative Consent of the Non-Managing Members and to any agreements governing the operation of such properties at such time. The Liquidator shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt.

 

C.  In the event that the Company is “liquidated”  within the meaning of Regulations Section 1.704-1(b) (2)(ii)(g), distributions shall be made pursuant to this Article XIII to the Members and Assignees that have positive Capital Accounts in compliance with Regulations Section 1.704-1(b) (2)(ii)(b) (2) to the extent of, and in proportion to, their positive Capital Account balances. If any Member has a deficit balance in its Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs), such Member shall have no obligation to make any contribution to the capital of the Company with respect to such deficit, and such deficit shall not be considered a debt owed to the Company or to any other Person for any purpose whatsoever. A pro rata portion of the distributions that would otherwise be made to the Members pursuant to this Article XIII may be withheld or escrowed to provide a reasonable reserve for Company liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment

 

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obligations owed to the Company, provided that such withheld or escrowed amounts shall be distributed to the Members in the manner and order of priority set forth in Section 13.3A hereof as soon as practicable.

 

13.4        Deemed Contribution and Distribution

 

Notwithstanding any other provision of this Article XIII, in the event that the Company is liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), but no Liquidating Event has occurred, the Company’s Property shall not be liquidated, the Company’s liabilities shall not be paid or discharged and the Company’s affairs shall not be wound up. Instead, for federal and state income tax purposes, the Company shall be deemed to have contributed its assets and liabilities to a new limited liability company in exchange for an interest in such new limited liability company and, immediately thereafter, the Company will be deemed to liquidate by distributing interests in the new limited liability company to the Members.

 

13.5        Rights of Members

 

Except as otherwise provided in this Agreement, (a) each Member shall look solely to the assets of the Company for the return of its Capital Contribution, (b) no Member shall have the right or power to demand or receive property other than cash from the Company and (c) except as provided in this Agreement, no Member shall have priority over any other Member as to the return of its Capital Contributions, distributions or allocations.

 

13.6        Notice of Dissolution

 

In the event that a Liquidating Event occurs or an event occurs that would, but for an election or objection by one or more Members pursuant to Section 13.1 hereof, result in a dissolution of the Company, the Managing Member shall, within 30 days thereafter, provide written notice thereof to each of the Members and, in the Managing Member’s sole and absolute discretion or as required by the Act, to all other parties with whom the Company regularly conducts business (as determined in the sole and absolute discretion of the Managing Member), and the Managing Member may, or, if required by the Act, shall, publish notice thereof in a newspaper of general circulation in each place in which the Company regularly conducts business (as determined in the sole and absolute discretion of the Managing Member).

 

13.7        Cancellation of Certificate

 

Upon the completion of the liquidation of the Company’s cash and property as provided in Section 13.3 hereof, the Company shall be terminated and the Certificate and all qualifications of the Company as a foreign limited liability company in jurisdictions other than the State of Delaware shall be canceled and such other actions as may be necessary to terminate the Company shall be taken.

 

13.8        Reasonable Time for Winding-Up

 

A reasonable time shall he allowed for the orderly winding-up of the business and affairs of the Company and the liquidation of its assets pursuant to Section 13.3 hereof, in order

 

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to minimize any losses otherwise attendant upon such winding-up, and the provisions of this Agreement shall remain in effect between the Members during the period of liquidation.

 

13.9        Liability of Liquidator

 

The Liquidator shall be indemnified and held harmless by the Company from and against any and all claims, liabilities, costs, damages, and causes of action of any nature whatsoever arising out of or incidental to the Liquidator’s taking of any action authorized under or within the scope of this Agreement; provided, however, that the Liquidator shall not be entitled to indemnification, and shall not be held harmless, where the claim, demand, liability, cost, damage or cause of action at issue arises out of (i) a matter entirely unrelated to the Liquidator’s action or conduct pursuant to the provisions of this Agreement or (ii) the proven willful misconduct or gross negligence of the Liquidator.

 

ARTICLE XIV.

PROCEDURES FOR ACTIONS AND CONSENTS

OF MEMBERS; AMENDMENTS; MEETINGS

 

14.1        Procedures for Actions and Consents of Members

 

The actions requiring Consent or approval of Non-Managing Members pursuant to this Agreement, including Section 7.3 hereof, or otherwise pursuant to applicable law, are subject to the procedures set forth in this Article XIV and shall require the Consent of the Non-Managing Members unless a different standard or percentage is expressly required by this Agreement for the action in question.

 

14.2        Amendments

 

Except  for  amendments  permitted  hereby  by  the  Managing  Member  without  any  Consent  or  approval  of  any  other  Members,  amendments  to  this  Agreement  may  be  proposed  by  the  Managing  Member  or  by  a  Majority  in  Interest  of  the  Non-Managing Members. Following such proposal, the Managing Member shall submit any proposed amendment to the Members. The Managing Member shall seek the written Consent of the Members on the proposed amendment or shall call a meeting to vote thereon and to transact any other business that the Managing Member may deem appropriate. The affirmative vote or Consent, as applicable, of a Majority in Interest of the Non-Managing Members and the Managing Member is required for the approval of a proposed amendment.

 

14.3        Meetings of the Members; Written Consent Without a Meeting

 

A.  Meetings of the Members may be called by the Managing Member and shall be called upon the receipt by the Managing Member of a written request by a Majority in Interest of the Non-Managing Members. The call shall state the nature of the business to be transacted. Notice of any such meeting shall be given to all Members not less than seven days nor more than 30 days prior to the date of such meeting. The meeting shall be held at the headquarters office of the Managing Member or at such other location as may be designated by the Managing Member. Members may vote in person or by proxy at such meeting. Whenever the vote or Consent of Members is permitted or required under this Agreement, such vote or Consent may be given at a

 

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meeting of Members or may be given in accordance with the procedure prescribed in Section 14.3.B hereof

 

B.  Any action required or permitted to be taken at a meeting of the Members may be taken without a meeting if written notice thereof is sent to each Member in accordance with the provisions of Section 15.1 hereof, and written Consent setting forth the action so taken is signed by Members holding a majority of the LLC Units (or such other percentage as is expressly required by this Agreement for the action in question). Such Consent may be in one instrument or in several instruments, and shall have the same force and effect as a vote of Members holding a majority of the LLC Units (or such other percentage as is expressly required by this Agreement). Such Consent shall be filed with the Managing Member. An action so taken shall be deemed to have been taken at a meeting held on the effective date so certified. For purposes of obtaining a written Consent (other than the Affirmative Consent of the Non- Managing Members or the Affirmative Consent of a Supermajority of the Non-Managing Members), the Managing Member may require a response within a reasonable specified time, but not less than 30 days, and failure to respond in such time period shall constitute a Consent that is consistent with the Managing Member’s recommendation with respect to the proposal (herein, a “Deemed Consent”); provided, however, that an action shall become effective at such time as requisite Consents are received even if prior to such specified time.

 

C.  Each Member may authorize any Person or Persons to act for it by proxy on all matters in which a Member is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by the Member or its attorney-in-fact. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy (or there is receipt of a proxy authorizing a later date). Every proxy shall be revocable at the pleasure of the Member executing it, such revocation to be effective upon the Company’s receipt of written notice of such revocation from the Member executing such proxy.

 

D.  Each meeting of Members shall be conducted by the Managing Member or such other Person as the Managing Member may appoint pursuant to such rules for the conduct of the meeting as the Managing Member or such other Person deems appropriate in its sole and absolute discretion. Without limitation, meetings of Members may be conducted in the same manner as meetings of the Managing Member’s shareholders and may be held at the same time as, and as part of, the meetings of the Managing Member’s shareholders.

 

ARTICLE XV.

GENERAL PROVISIONS

 

15.1        Addresses and Notice

 

Any notice, demand, request or report required or permitted to be given or made to a Member or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written communication (including by telecopy, facsimile, or commercial courier service) (i) in the case of a Member, to that Member at the address set forth in Exhibit A  or such other address

 

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of which the Member shall notify the Managing Member in writing and (ii) in the case of an Assignee, to the address of which such Assignee shall notify the Managing Member in writing.

 

15.2        Titles and Captions

 

All article or section titles or captions in this Agreement are for convenience only. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Except as specifically provided otherwise, references to “Articles”  or “Sections”  are to Articles and Sections of this Agreement.

 

15.3        Pronouns and Plurals

 

Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa.

 

15.4        Further Action

 

The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.

 

15.5        Binding Effect

 

This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns.

 

15.6        Creditors

 

Other than as expressly set forth herein with respect to Indemnitees, none of the provisions of this Agreement shall be for the benefit of, or shall be enforceable by, any creditor of the Company.

 

15.7        Waiver

 

No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition.

 

15.8        Counterparts

 

This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart.

 

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15.9        Applicable Law

 

This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Delaware, without regard to the principles of conflicts of law. In the event of a conflict between any provision of this Agreement and any non-mandatory provision of the Act, the provisions of this Agreement shall control and take precedence.

 

15.10      Entire Agreement

 

This Agreement, the Contribution Agreement and the other agreements executed on the Effective Date as provided in the Contribution Agreement contain all of the understandings and agreements between and among the Members with respect to the subject matter of this Agreement and the rights, interests and obligations of the Members with respect to the Company.

 

15.11      Invalidity of Provisions

 

If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.

 

15.12      No Partition

 

No  Member  nor  any  successor-in-interest  to  a  Member  shall  have  the  right  while  this  Agreement  remains  in  effect  to  have  any  property  of  the  Company  partitioned,  or  to  file  a  complaint  or  institute  any  proceeding  at  law  or  in  equity  to  have  such  property  of  the  Company  partitioned,  and  each  Member,  on  behalf  of  itself  and  its  successors  and  assigns  hereby  waives  any  such  right.  It  is  the  intention  of  the  Members  that  the  rights  of  the  parties  hereto  and  their  successors-in-interest  to  Company  property,  as  among  themselves,  shall  be  governed  by  the  terms  of  this  Agreement,  and  that  the  rights  of  the  Members  and  their  successors-in-interest shall be subject to the limitations and restrictions as set forth in this Agreement.

 

15.13      Uniform Commercial Code Article 8 (Opt-In)

 

The Company hereby irrevocably elects that all LLC Units shall be securities governed by Article 8 of the Uniform Commercial Code as in effect in the State of Delaware and each other applicable jurisdiction. Each certificate evidencing LLC Units in the Company shall bear the following legend: “This certificate evidences an interest in HCP DR MCD, LLC and shall be a security governed by Article 8 of the Uniform Commercial Code as in effect in the State of Delaware and, to the extent permitted by applicable law, each other applicable jurisdiction.” This provision shall not be amended, and any purported amendment to this provision shall be null and void.

 

[Signatures appear on following page]

 

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IN WITNESS WHEREOF, the parties hereto have executed this agreement as of the date first written above.

 

	
MANAGING MEMBER:
    	
 
    	
HEALTH CARE PROPERTY INVESTORS, INC., a
    
	
 
    	
 
    	
Maryland corporation
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/ Tim Schoen
    
	
 
    	
 
    	
Name:
    	
Tim Schoen
    
	
 
    	
 
    	
Title:
    	
Senior Vice President
    

 

 

NON-MANAGING MEMBERS:

 

[See Additional Signature Pages of

Non-Managing Members Attached hereto]

 

 

[Additional Signatures of Non-Managing Members to

Amended and Restated Limited Liability Company Agreement

of HCP DR MCD, LLC]

 

POWER OF ATTORNEY

 

This Agreement has been signed by each of the following persons as a Non-Managing Member in the capacities and to be effective on February 9, 2007:

 

	
Signature
    	
 
    	
Non-Managing   Member
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
TWG   Medical, Ltd.
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
Marvin   C. Culbertson, Jr.
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
Pierce   D. Flanders
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
G&B   Johnson
    
	
 
    	
 
    	
Investments, Ltd.
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
Clifford   J. Osborn
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
Sandra   R. Cohen, as
    
	
 
    	
 
    	
Trustee   for the Ivy T.
    
	
 
    	
 
    	
Rabinowitz   Trust for
    
	
 
    	
 
    	
Sandra   R. Cohen
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
Joe   A. Stalcup
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
Howard   G. Thomas
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
Carol   E. Touchstone
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
Jesse   M. Hellums III
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
Hunt   H. Hellums
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
Frank   O. Seay
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
Robert   J. Wright
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
Cynthia   J. Hellstern
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
Mary   Ellen Thomas
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
Harlan   R. Crow
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
Wright   Williams, Ltd.
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
Allen   E. Cullum
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
Margaret   Anne Cullum
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
William   Bennett Cullom
    
	
 
    	
 
    	
 
    
	
*
    	
 
    	
James   McDonald Williams
    

 

 

	
*
    	
 
    	
Thornton   Tye Medical,
    
	
 
    	
 
    	
L.P.
    
	
*
    	
 
    	
Harlan   R. Crow, Trustee
    
	
 
    	
 
    	
for   the Trammell Crow
    
	
 
    	
 
    	
1994   Revocable Trust
    
	
*
    	
 
    	
Crow   Realty investors,
    
	
 
    	
 
    	
L.P.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
*By
    	
TWG   Medical, Ltd., a Texas limited
    
	
 
    	
 
    	
 
    	
partnership,   as Attorney-in-Fact
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
By:
    	
TWG,   Inc., its general partner
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
By:
    	
/s/   Robert J. Wright
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
Robert   J. Wright
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
President
    

 

 

EXHIBIT A

 

MEMBER’S CAPITAL CONTRIBUTIONS

 

[See Pages A-2 and A-3 attached hereto]

 

A-1

 

EXHIBIT A-2

CONTRIBUTIONS

 

Part I: Contributor

 

	
Contributor
    	
 
    	
Gross Asset Value
   of Contribution
    	
 
    	
Number of Non-Managing Member
   Units
    	
 
    
	
Medical City Dallas   Limited
    	
 
    	
$
    	
140,051,433.00
    	
 
    	
4,246,857
    	
 
    
							

 

(1)                                 See Part II (Exhibit A-3) for a breakout by individual Non-Managing Members and their respective allocations

 

Part II: Managing Member

 

	
Managing Member
    	
 
    	
Gross Asset Value
   of Contribution
    	
 
    	
Number of Managing Member Units
    	
 
    
	
Health Care Property   Investors, Inc.
    	
 
    	
$
    	
65,892,373.00
    	
 
    	
1,999,162
    	
 
    
							

 

A-2

 

EXHIBIT A-3

LLC UNITS (NON-MANAGING MEMBER AND MANAGING MEMBER)

 

Non-Managing Member Units

 

	
Name
    	
 
    	
Address
    	
 
    	
Number of Units
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
TWG   Medical, Ltd.
    	
 
    	
7777   Forest Lane
    	
 
    	
1,419,328
    
	
 
    	
 
    	
Suite C-840
    	
 
    	
 
    
	
 
    	
 
    	
Dallas,   TX 75230
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Marvin   C. Culbertson, Jr.
    	
 
    	
6126   Averell Way
    	
 
    	
30,551
    
	
 
    	
 
    	
#109   W
    	
 
    	
 
    
	
 
    	
 
    	
Dallas,   TX 75225
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Pierce   D. Flanders
    	
 
    	
1317   Palm Valley
    	
 
    	
25,481
    
	
 
    	
 
    	
Drive   East
    	
 
    	
 
    
	
 
    	
 
    	
Harlingen,   TX 78552
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
G&B   Johnson Investments, Ltd.
    	
 
    	
8523   Thackery
    	
 
    	
12,741
    
	
 
    	
 
    	
Apt.   2103
    	
 
    	
 
    
	
 
    	
 
    	
Dallas,   TX 75225
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Clifford   J. Osborn
    	
 
    	
5581   East Finisterra
    	
 
    	
25,481
    
	
 
    	
 
    	
Tucson,   AZ 85715
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Sandra   R. Cohen, as Trustee for
    	
 
    	
7030   South Jan Mar
    	
 
    	
10,193
    
	
the   Ivy T. Rabinowitz Trust for
    	
 
    	
Dallas,   TX 75230
    	
 
    	
 
    
	
Sandra   R. Cohen
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Joe   A. Stalcup
    	
 
    	
6510   Abrams
    	
 
    	
178,235
    
	
 
    	
 
    	
Suite 640
    	
 
    	
 
    
	
 
    	
 
    	
Dallas,   TX 75231
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Howard   G. Thomas
    	
 
    	
8333   Douglas
    	
 
    	
50,918
    
	
 
    	
 
    	
Suite 1414
    	
 
    	
 
    
	
 
    	
 
    	
Dallas,   TX 75225
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Carol   E. Touchstone
    	
 
    	
3829   Stratford
    	
 
    	
25,481
    
	
 
    	
 
    	
Dallas,   TX 75205
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Jesse M. Hellums III
    	
 
    	
16161   College Oak
    	
 
    	
6,325
    
	
 
    	
 
    	
Suite 100
    	
 
    	
 
    
	
 
    	
 
    	
San   Antonio, TX 78249
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Hunt   H. Hellums
    	
 
    	
906   Point Run Dr.
    	
 
    	
6,325
    
	
 
    	
 
    	
Pflugerville,   TX 78660
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Frank   O. Seay
    	
 
    	
4242   Lomo Alto N48
    	
 
    	
10,121
    
	
 
    	
 
    	
Dallas,   TX 75219
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Robert   J. Wright
    	
 
    	
7777   Forest Lane
    	
 
    	
22,386
    
	
 
    	
 
    	
Suite C-840
    	
 
    	
 
    
	
 
    	
 
    	
Dallas,   TX 75230
    	
 
    	
 
    

 

A-3

 

	
Name
    	
 
    	
Address
    	
 
    	
Number of Units
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cynthia   J. Hellstern
    	
 
    	
10827   Crooked Creek Drive
    	
 
    	
4,710
    
	
 
    	
 
    	
Dallas,   TX 75229
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Mary   Ellen Thomas
    	
 
    	
3904   Deepwood St.
    	
 
    	
4,710
    
	
 
    	
 
    	
Colleyville,   TX 76034
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Harlan   R. Crow
    	
 
    	
Crow   Holdings
    	
 
    	
1,187,080
    
	
 
    	
 
    	
2100   McKinney
    	
 
    	
 
    
	
 
    	
 
    	
Suite 700
    	
 
    	
 
    
	
 
    	
 
    	
Dallas,   TX 75201
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Wright   Williams, Ltd.
    	
 
    	
7777   Forest Lane
    	
 
    	
26,199
    
	
 
    	
 
    	
Suite C-840
    	
 
    	
 
    
	
 
    	
 
    	
Dallas,   TX 75230
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Allen   E. Cullum
    	
 
    	
5952   Royal Ln #216
    	
 
    	
72,146
    
	
 
    	
 
    	
Dallas,   TX 75230-3831
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Margaret   Anne Cullum
    	
 
    	
11   Turtle Creek Bend
    	
 
    	
84,878
    
	
 
    	
 
    	
Dallas,   TX 75204
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
William   Bennett Cullum
    	
 
    	
4940   Mangold Circle 
    	
 
    	
84,833
    
	
 
    	
 
    	
Dallas,   TX 75229-4343
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
James   McDonald Williams
    	
 
    	
c/o   Dorothy Hopkins
    	
 
    	
82,994
    
	
 
    	
 
    	
Williams   Interests
    	
 
    	
 
    
	
 
    	
 
    	
2001   Ross, Suite 3350
    	
 
    	
 
    
	
 
    	
 
    	
Dallas,   TX 75201
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Thornton   Tye Medical, L.P.
    	
 
    	
c/o   Ken Travis
    	
 
    	
82,994
    
	
 
    	
 
    	
Travis   Wolff
    	
 
    	
 
    
	
 
    	
 
    	
5580   LBJ Freeway
    	
 
    	
 
    
	
 
    	
 
    	
Suite 400
    	
 
    	
 
    
	
 
    	
 
    	
Dallas,   TX 75240
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Harlan   R. Crow, Trustee for the
    	
 
    	
2100   McKinney, Suite 700
    	
 
    	
631,111
    
	
Trammell   Crow 1994 Revocable
    	
 
    	
Dallas,   TX 75201
    	
 
    	
 
    
	
Trust
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Crow   Realty Investors, L.P.
    	
 
    	
2100   McKinney, Suite 700
    	
 
    	
161,636
    
	
 
    	
 
    	
Dallas,   TX 75201
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cumulative   Totals:
    	
 
    	
 
    	
 
    	
4,246,857
    

 

A-4

 

EXHIBIT A-3 (cont.)
 LLC UNITS (NON-MANAGING MEMBER AND MANAGING MEMBER)

 

Managing Member Units

 

	
Name
    	
 
    	
Address
    	
 
    	
Number of Units
    
	
Health Care Property Investors, Inc.
    	
 
    	
3760 Kilroy Airport Way,
    	
 
    	
1,999,162
    
	
 
    	
 
    	
Suite 300
    	
 
    	
 
    
	
 
    	
 
    	
Long Beach, CA 90806
    	
 
    	
 
    

 

A-5

 

EXHIBIT B

NOTICE OF REDEMPTION

 

	
To:
    	
HCP DR MCD, LLC
    
	
 
    	
c/o Health Care Property Investors, Inc.
    
	
 
    	
3760 Kilroy Airport Way, Suite 300
    
	
 
    	
Long Beach, California 90806
    

 

The undersigned Member or Assignee hereby irrevocably tenders for Redemption                     LLC Units in HCP DR MCD, LLC (the “Company”) in accordance with the terms of the Amended and Restated Limited Liability Company Agreement of HCP DR MCD, LLC, dated as of February     , 2007 (the “Agreement”),  and the Redemption Rights referred to therein. The undersigned Member or Assignee:

 

(a)             undertakes (i) to surrender such LLC Units and any certificate therefor at the closing of the Redemption and (ii) to furnish to the Managing Member, prior to the Specified Redemption Date, the documentation, instruments and information required under Section 8.6.E of the Agreement;

 

(b)             directs that, at the sole discretion of the Managing Member, either (i) a certified check representing the Cash Amount deliverable upon closing of the Redemption be delivered to the address specified below, after deducting therefrom any costs or expenses to which the undersigned Member or Assignee is responsible pursuant to the Agreement, or (ii) a certificate(s) representing the REIT Shares deliverable upon the closing of such Redemption be delivered to the address specified below;

 

(c)             represents, warrants, certifies and agrees that: (1) the undersigned Member or Assignee has, and at the closing of the Redemption will have unencumbered title to such LLC Units, free and clear of the rights or interests of any other person or entity other than any rights of the Managing Member thereto or the Company in respect thereof, (2) the undersigned Member or Assignee has, and at the closing of the Redemption will have, the full right, power and authority to tender and surrender such LLC Units as provided herein, (3) the undersigned Member or Assignee has obtained the consent or approval of all persons and entities, if any, having the right to consent to or approve such tender and surrender, (4) such Redemption is in compliance with the provisions of Section 8.6 of the Agreement, and (5) except to the extent deducted from the Cash Amount pursuant to clause (b)(i) above, the undersigned Member or Assignee shall, as a condition to receipt of the REIT Shares, reimburse to the Managing Member all costs and expenses for which such undersigned Member or Assignee is responsible pursuant to the Agreement; and

 

(d)             acknowledges that it will continue to own such LLC Units until and unless such Redemption transaction closes, subject to the provisions of Section 5.7 of the Agreement.

 

B-1

 

All capitalized terms used herein and not otherwise defined shall have the same meaning ascribed to them respectively in the Agreement.

 

	
Dated:
    	
 
    	
 
    	
Name of Member or Assignee:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(Signature of Member or Assignee)
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(Street Address)
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(City) (State) (Zip)
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Signature Guaranteed by:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Issue REIT Shares in the name of:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Please insert social security or identifying number:
    	
 
    
						

 

B-2

 

EXHIBIT C

FORM OF JOINDER AGREEMENT

 

JOINDER TO OPERATING AGREEMENT

 

THIS JOINDER TO OPERATING AGREEMENT (the “Joinder”) is dated as of                     ,                    effecting a joinder to the Amended and Restated Limited Liability Company Operating Agreement of HCP DR MCD, LLC dated as of February       , 2007 (the “Operating Agreement”) by and between HCP DR MCD, LLC, a Delaware limited liability company (the “Company”), and                                  , a                                     (the “New Member”). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Operating Agreement.

 

1.                                      New Member agrees to be bound by, the terms and conditions of the Operating Agreement, a copy of which is attached hereto as Exhibit A.

 

2.                                      New Member represents to the Company and the Managing Member that the representations and warranties set forth in Section 3.4 of the Operating Agreement are true and correct as of the date hereof.

 

3.                                      The Company agrees to admit New Member as a Non-Managing Member of the Company and, in connection therewith, to update and amend the books and records of the Company to reflect the information set forth on Exhibit B attached hereto.

 

4.                                      This Joinder may be executed in separate counterparts each of which shall be an original and all of which taken together shall constitute one and the same agreement.

 

5.                                      This Joinder shall be governed by and construed in accordance with the internal laws of the State of Delaware, without giving effect to principles of conflicts of laws or choice of law of the State of Delaware or any other jurisdiction which would result in the application of the law of any jurisdiction other than the State of Delaware.

 

6.                                      The descriptive headings of this Joinder are inserted for convenience only and do not constitute a part of this Joinder.

 

7.                                      If any provision of this Joinder is in conflict with or inconsistent with any provision of the Operating Agreement, the provision of the Operating Agreement shall control.

 

C-1

 

IN WITNESS WHEREOF, this Joinder to Operating Agreement has been duly executed and delivered by the parties as of the date first above written.

 

	
COMPANY:
    	
 
    	
NEW MEMBER:
    
	
 
    	
 
    	
 
    
	
HCP DR MCD, LLC, a Delaware limited liability company
    	
 
    	
 
    
	
By: 
    	
HEALTH CARE PROPERTY
    	
 
    	
By:
    	
 
    
	
 
    	
INVESTORS, INC.,
    	
 
    	
Name:
    	
 
    
	
 
    	
a Maryland corporation,
    	
 
    	
Title:
    	
 
    
	
 
    	
its Managing Member
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
 
    	
 
    	
 
    

 

C-2

 

EXHIBIT D

 

EXAMPLE OF CERTAIN CALCULATIONS PURSUANT TO SECTION 5.6.C

 

Assumptions for example — 

 

(1) LLC unit ownership:

 

	
 
    	
 
    	
Units
    	
 
    	
Effective Price
    	
 
    	
Value of
   Interest
    	
 
    	
Percentage
   Interest
    	
 
    
	
the Managing Member Units   (MMUs)
    	
 
    	
2,400,000
    	
 
    	
$
    	
25.
    	
 
    	
60,000,000
    	
 
    	
75
    	
%
    
	
Non-Managing Member Units   (NMMUs)
    	
 
    	
800,000
    	
 
    	
$
    	
25.
    	
 
    	
20,000,000
    	
 
    	
25
    	
%
    
	
Total
    	
 
    	
3,200,000
    	
 
    	
 
    	
 
    	
80,000,000
    	
 
    	
 
    	
 
    

 

(2)  Sale of property to which distribution pursuant to Sec. 5.6A.(2) relates:

Disposition Proceeds = $30MM

Initial value = $25MM

Property Appreciation = $5MM

Portion of Disposition Proceeds to be distributed = $10MM

 

(3)  Other assumptions:

Value of REIT stock on Reduction Date = $30

There is no Preferred Return Shortfall or the Managing Member Shortfall

Unit Portion (Net Cash Flow of property sold/Net Cash Flow of all the contributed property) = .20

There have been no previous distributions of Disposition Proceeds or Refinancing Debt Proceeds Adjustment Factor = 1.0 

 

Calculation of Reduction:

 

Sec. 5.6C.(1) – NMMU Reduction = 82,733 Units ($2,482,000 ÷ 30), computed as

(i) excess of

(a)    $2.5MM ($10MM distribution * 25% NMM LLC units), over

(b)    NMM Sharing Amount of $18,000

(U)       (.20 Unit Portion * 3.2MM LLC Units Outstanding) = 640,000 = Unit Amount

(V)       640,000 * ($30 Value - $25 Effective Price) = $3.2MM Unit Appreciation

(W)    $5MM Property Appreciation - $3.2MM Unit Appreciation = $1.8MM = Aggregate Sharing Amount

(X)       $1.8MM Aggregate Sharing Amount - $0 Prior Sharing Amounts = $1.8MM Sharing Amount

(Y)       $1.8MM * 1% NMM Sharing Percentage = $18,000 NMM Sharing Amount

(Z)        $2.5MM – $18,000 = $2,482,000

 

D-1

 

Divided by

(ii) $30 Value on Reduction Date

 

Sec. 5.6C.(2) – MMU Reduction = 248,199 Units, computed as

(i) 82,733 Reduction Units for NMMs divided by 25% Aggregate Percentage Interests of NMMs before Reduction, times

(ii) 75% Percentage Interest of MM before Reduction

 

Calculation of Profit Participation Amount for NMMs:

 

$431,667, computed as the sum of

(a)    $18,000 (Cumulative distributions pursuant to Sec. 5.6A.(2) that did not result in a Reduction), and

(b)    $413,667 ($2,482,000 [$2.5MM cumulative distributions pursuant to sec. 5.6A.(2) – $18,000]

* (($30 weighted average Value on each Reduction Date - $25 Effective Price)/$30 weighted average Value on each Reduction Date)

 

D-2

 

EXHIBIT E

 

FORM OF BOTTOM DOLLAR GUARANTEE

 

[See Attached]

 

E-1

 

GUARANTY AGREEMENT

 

THIS GUARANTY AGREEMENT (“Guarantee”), dated as of February    , 2007, is made by each of the persons or entities whose names are set forth on the signature page hereof as a “Guarantor” (each, a “Guarantor,” and collectively, the “Guarantors”), in favor of Health Care Property Investors, Inc., a Maryland corporation (“Guaranteed Party”).

 

WHEREAS, HCP DR MCD, LLC (“Borrower”), is indebted to Guaranteed Party pursuant to that certain Promissory Note in the original principal amount of Fifty Million and No/100 Dollars ($50,000,000.00) (the “Credit Document”) by Borrower in favor of Guaranteed Party.

 

WHEREAS, each Guarantor desires to guarantee collection of a portion of the amount owing under the Credit Document (the “Obligations”) not in excess of the amount listed next to such Guarantor’s name on Schedule 1 attached hereto (such amount, as applicable to each individual Guarantor, the “Maximum Guaranteed Amount” and all such amounts in the aggregate, the “Maximum Guaranteed Amounts”).

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, Guarantors agree as follows:

 

1.                                      Guarantee.

 

A.                                    Guarantors hereby irrevocably and unconditionally guarantee the collection by Guaranteed Party of, and hereby agree to pay to Guaranteed Party upon demand (following the exhaustion of the exercise of any and all remedies available to Guaranteed Party against Borrower, including, without limitation and to the extent applicable, realizing upon the assets of Borrower), an amount equal to the excess, if any, of the Maximum Guaranteed Amounts over the  Borrower Proceeds (as hereinafter defined); provided, however, the obligation of each Guarantor shall be limited severally, and not jointly, to the Maximum Guaranteed Amount set forth opposite its name on Schedule 1 attached hereto. Each Guarantor’s obligations as set forth in this Paragraph 1.A. are hereinafter referred to as the “Guaranteed Obligations.”

 

B.                                    For the purposes of this Guarantee, the term “Borrower Proceeds” shall mean the aggregate of all amounts collected from Borrower or realized from the sale or other disposition of assets of Borrower (whether applied to the Guaranteed Obligations or other obligations).

 

2.                                      Waivers: Other Agreements. Guaranteed Party is hereby authorized, without notice or demand upon any Guarantor, which notice or demand is expressly waived hereby, and without discharging or otherwise affecting the enforceability of the obligations of any Guarantor

 

 

hereunder (which shall remain absolute and unconditional notwithstanding any such action or omission to act), from time to time to:

 

(i)                                     waive or otherwise consent to noncompliance with any provision of the Credit Document, or any part thereof, or any other instrument or agreement in respect of the Guaranteed Obligations now or hereafter executed by Borrower or any other person and delivered to Guaranteed Party;

 

(ii)                                  accept partial payments on the Guaranteed Obligations by Borrower;

 

(iii)                               receive, take and hold additional security or collateral for the payment of the Guaranteed Obligations or for the payment of this Guarantee, or for the payment of any other guarantees of the Guaranteed Obligations, and exchange, enforce, waive, substitute, liquidate, terminate, abandon, fail to perfect, subordinate, transfer, or otherwise alter or release any such additional security or collateral;

 

(iv)                              apply any and all such security or collateral and direct the order or manner of sale thereof as Guaranteed Party may determine in its sole discretion;

 

(v)                                 settle, release, compromise, collect or otherwise liquidate the Guaranteed Obligations or accept, substitute, release, exchange or otherwise alter, affect or impair any mortgage or any other security or collateral for the Guaranteed Obligations or any other guarantee therefore, in any manner;

 

(vi)                              add, release or substitute any one or more other guarantors, borrowers or endorsers of the Guaranteed Obligations and otherwise deal with Borrower or any other guarantor as Guaranteed Party may elect in its sole discretion; and 

 

(vii)                           apply any and all payments or recoveries from Borrower, any Guarantor or from any other guarantor of the Guaranteed Obligations, to such of the Guaranteed Obligations as Guaranteed Party in its sole discretion may determine, whether such Guaranteed Obligations are secured or unsecured or guaranteed or not guaranteed by others.

 

3.                                      Independent Obligations. Except as expressly set forth in Paragraph 1, the obligations of each Guarantor hereunder are independent of the obligations of Borrower, and a separate action or actions may be brought by Guaranteed Party against any Guarantor. Each Guarantor expressly waives any and all rights of subrogation, reimbursement, indemnity, exoneration, contribution or any other claim which such Guarantor may now or hereafter have against Borrower, or any other person directly or contingently liable for the payment or performance of the obligations under the Credit Document arising from the existence or performance of this Guarantee (including, but not limited to, Guaranteed Party, or any other member of Borrower) (except and only to the extent that such Guarantor makes a payment to Guaranteed Party in excess of the amount required to be paid under Paragraph 1 and the limitations set forth therein).

 

2

 

4.                                      Miscellaneous.

 

A.                                    1.                                      Subject to the provisions of Section 4.A.2., this Guarantee is irrevocable as to any and all of the Guaranteed Obligations of each Guarantor until such Guarantor has disposed of all of its equity interests in Borrower (the “Termination Date”),  provided that the obligations of such Guarantor hereunder shall continue after the Termination Date to the extent of any claims that are attributable fully and solely to an event or action that occurred on or before the Termination Date.

 

2.                                                                                      In the event that any Guarantor disposes of all or any portion of such Guarantor’s equity interest in Borrower, the Guaranteed Obligations of such Guarantor shall be decreased by an amount equal to the portion of the Guaranteed Obligations of such Guarantor allocable to the disposed of equity interest (a “Reduction Date”),  provided that the obligations of such Guarantor hereunder shall continue after the Reduction Date with respect to the Guaranteed Obligations undiminished by such reduction to the extent of any claims that are attributable fully and solely to an event or action that occurred on or before said Reduction Date.

 

B.                                    This Guarantee is binding on each Guarantor and its successors and assigns, and inures to the benefit of Guaranteed Party.

 

C.                                    No delay on the part of Guaranteed Party in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise or waiver by Guaranteed Party of any right or remedy shall preclude any further exercise thereof, nor shall any modification or waiver of any of the provisions of this Guarantee be binding upon Guaranteed Party, except as expressly set forth in a writing duly signed or delivered by Guaranteed Party or on Guaranteed Party’s behalf by an authorized officer or agent of Guaranteed Party. Guaranteed Party’s failure at any time or times hereafter to require strict performance by Borrower, any Guarantor or any other person of any of the provisions, warranties, terms and conditions contained in any security agreement, agreements, guarantee, instrument or document now or at any time or times hereafter executed by Borrower or any Guarantor or delivered to Guaranteed Party shall not waive, affect or diminish any right of Guaranteed Party at any time or times hereafter to demand strict performance thereof and such right shall not be deemed to have been waived by any act or knowledge of Guaranteed Party, its agents, officers, or employees, unless such waiver is contained in an instrument in writing signed by an officer or agent of Guaranteed Party and directed to Borrower or such Guarantor, or any of them (as the case may be) specifying such waiver. No waiver by Guaranteed Party of any default shall operate as a waiver of any other

 

3

 

default or the same default on a future occasion, and no action by Guaranteed Party permitted hereunder shall in any way affect or impair Guaranteed Party’s rights or the obligations of any Guarantor under this Guarantee.

 

D.                                    This Guarantee shall be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws (other than the conflicts of law provisions) of the State of Texas.

 

E.                                     This Guarantee contains all the terms and conditions of the agreement between Guaranteed Party and each Guarantor. The terms and provisions of this Guarantee may not be waived, altered, modified or amended except in writing duly executed by the party to be charged thereby.

 

F.                                      Any notice shall be directed to the parties at the following addresses:

 

	
If to a Guarantor:
    	
[To the address set forth   opposite its signature hereto]
    
	
 
    	
 
    
	
If to Guaranteed Party:
    	
Health Care Property Investors, Inc. 

3760 Kilroy Airport Way, Suite 300 

Long Beach, California 90806 

Attention:    Legal Department

Telephone No.: (562) 733-5100 

Facsimile No.: (562) 733-5200
    
	
 
    	
 
    
	
With a copy to:
    	
Latham & Watkins LLP

650 Town Center Drive

20th Floor

Costa Mesa, California   92626 

Attention:  David C. Meckler

Telephone No.: (714)   540-1235 

Facsimile No.: (714)   755-8290
    

 

[Remainder of page intentionally blank.]

 

4

 

GUARANTORS’ SIGNATURE PAGE
 ATTACHED TO AND MADE A PART OF
 THAT CERTAIN GUARANTY AGREEMENT
 DATED AS OF FEBRUARY   , 2007

 

POWER OF ATTORNEY

 

IN WITNESS WHEREOF, this Guarantee has been duly executed by each of the following persons as a “Guarantor” effective as of the date set forth above.

 

	
Signature
    	
 
    	
Guarantor
    	
 
    	
Address
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
*
    	
 
    	
TWG Medical, Ltd.
    	
 
    	
7777 Forest Lane
    
	
 
    	
 
    	
 
    	
 
    	
Suite C-840
    
	
 
    	
 
    	
 
    	
 
    	
Dallas, TX 75230
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
*
    	
 
    	
M.C. Culbertson, Jr.
    	
 
    	
6126 Averell Way
   #109 W
   Dallas, TX 75225
    
	
 
    
	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
*
    	
 
    	
Pierce D. Flanders
    	
 
    	
1317 Palm Valley
   Drive East
   Harlingen, TX 78552
    
	
 
    
	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
*
    	
 
    	
G&B Johnson   Investments, Ltd.
    	
 
    	
8523 Thackery
   Apt. 2103
   Dallas, TX 75225
    
	
 
    
	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
*
    	
 
    	
Clifford J. Osborn
    	
 
    	
5581 East Finisterra
   Tucson, AZ 85715
    
	
 
    
	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
*
    	
 
    	
Sandra R. Cohen, Trustee   for the Ivy T. Rabinowitz Trust for Sandra R.Cohen
    	
 
    	
7030 South Jan Mar
   Dallas, TX 75230
    
	
 
    
	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
*
    	
 
    	
Joe A. Stalcup
    	
 
    	
6510 Abrams
   Suite 640
   Dallas, TX 75231
    
	
 
    
	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
*
    	
 
    	
Howard G. Thomas
    	
 
    	
8333 Douglas
   Suite 1414
   Dallas, TX 75225
    
	
 
    
	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
*
    	
 
    	
Carol E. Touchstone
    	
 
    	
3829 Stratford
   Dallas, TX 75205
    
	
 
    
	
 
    

 

Signature Page

 

 

	
*
    	
 
    	
Jesse M. Hellums III
    	
 
    	
16161 College Oak
    
	
 
    	
 
    	
 
    	
 
    	
Suite 100
   San Antonio, TX 78249
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
*
    	
 
    	
Hunt H. Hellums
    	
 
    	
906 Point Run Dr.
    
	
 
    	
 
    	
 
    	
 
    	
Pflugerville, TX 78660
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
*
    	
 
    	
Frank O. Seay
    	
 
    	
4242 Lomo Alto N48
    
	
 
    	
 
    	
 
    	
 
    	
Dallas, TX 75219
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
*
    	
 
    	
Robert J. Wright
    	
 
    	
7777 Forest Lane Suite C-840
    
	
 
    	
 
    	
 
    	
 
    	
Dallas, TX 75230
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
*
    	
 
    	
Cynthia J. Hellstern
    	
 
    	
10827 Crooked Creek Drive
    
	
 
    	
 
    	
 
    	
 
    	
Dallas, TX 75229
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
*
    	
 
    	
Mary Ellen Thomas
    	
 
    	
3904 Deepwood St.
    
	
 
    	
 
    	
 
    	
 
    	
Colleyville, TX 76034
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
*
    	
 
    	
Harlan R. Crow
    	
 
    	
Crow Holdings
    
	
 
    	
 
    	
 
    	
 
    	
2100 McKinney Suite 700
   Dallas, TX 75201
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
*
    	
 
    	
Wright Williams, Ltd.
    	
 
    	
7777 Forest Lane
    
	
 
    	
 
    	
 
    	
 
    	
Suite C-840
   Dallas, TX 75230
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
*
    	
 
    	
Thornton Tye Medical, L.P.
    	
 
    	
c/o Ken Travis
    
	
 
    	
 
    	
 
    	
 
    	
Travis Wolff
   5580 LBJ Fwy, Suite 400
   Dallas, TX 75240
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
*
    	
 
    	
James McDonald Williams
    	
 
    	
c/o Dorothy Hopkins
    
	
 
    	
 
    	
 
    	
 
    	
Williams Interests
   2001 Ross Ave., Suite 3350
   Dallas, TX 75201
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
*
    	
 
    	
Harlan R. Crow, Trustee for the Trammell Crow 1994   Revocable Trust
    	
 
    	
2100 McKinney Ave.,
    
	
 
    	
 
    	
 
    	
Suite 700
   Dallas, Texas 75201
    

 

Signature Page

 

 

	
*
    	
 
    	
Crow Realty Investors, L.P.
    	
 
    	
2100 McKinney Ave.,
    
	
 
    	
 
    	
 
    	
 
    	
Suite 700
   Dallas, Texas 75201
    

 

	
 
    	
*By
    	
TWG Medical, Ltd., a   Texas limited partnership, as Attorney-in-Fact
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
TWG, Inc., its   general partner
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
Robert J. Wright
    
	
 
    	
 
    	
 
    	
 
    	
President
    

 

Signature Page

 

 

Schedule 1

 

	
Guarantor
    	
 
    	
Maximum Guaranteed Amount
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
TWG   Medical, Ltd.
    	
 
    	
$
    	
8,075,302
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
M.C.   Culbertson, Jr.
    	
 
    	
$
    	
838,133
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Pierce   D. Flanders
    	
 
    	
$
    	
698,308
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
G&B   Johnson Investments, Ltd.
    	
 
    	
$
    	
349,145
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Clifford   J. Osborn
    	
 
    	
$
    	
698,306
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Sandra   R. Cohen, Trustee for the Ivy T. Rabinowitz Trust for Sandra R.Cohen
    	
 
    	
$
    	
279,251
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Joe   A. Stalcup
    	
 
    	
$
    	
4,888,946
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Howard   G. Thomas
    	
 
    	
$
    	
1,397,011
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Carol   E. Touchstone
    	
 
    	
$
    	
698,307
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Jesse   M. Hellums III
    	
 
    	
$
    	
174,573
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Hunt   H. Hellums
    	
 
    	
$
    	
174,573
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Frank   O. Seay
    	
 
    	
$
    	
277,046
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Robert   J. Wright
    	
 
    	
$
    	
620,559
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Cynthia   J. Hellstern
    	
 
    	
$
    	
130,066
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Mary   Ellen Thomas
    	
 
    	
$
    	
130,065
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Harlan   R. Crow
    	
 
    	
$
    	
7,717,439
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Wright   Williams, Ltd.
    	
 
    	
$
    	
717,825
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Thornton   Tye Medical, L.P.
    	
 
    	
$
    	
1,520,464
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
James   McDonald Williams
    	
 
    	
$
    	
1,520,464
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Harlan   R. Crow, Trustee for the Trammell Crow 1994 Revocable Trust
    	
 
    	
$
    	
16,128,645
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Crow   Realty Investors, L.P.
    	
 
    	
$
    	
2,965,572
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Total Maximum Guaranteed Amounts
    	
 
    	
$
    	
50,000,000.00
    	
 
    

 

 

GUARANTY AGREEMENT

 

THIS GUARANTY AGREEMENT (“Guarantee”), dated as of February   , 2007, is made by each of the persons or entities whose names are set forth on the signature page hereof as a “Guarantor” (each, a “Guarantor,” and collectively, the “Guarantors”), in favor of Health Care Property Investors, Inc., a Maryland corporation (“Guaranteed Party”).

 

WHEREAS, HCP DR MCD, LLC (“Borrower”), is indebted to Guaranteed Party pursuant to that certain Promissory Note in the original principal amount of Fifty-Five Million Nine Hundred Sixty-Eight Thousand Eight Hundred Forty-Eight and No/100 Dollars ($55,968,848.00) (the “Credit Document”)  by Borrower in favor of Guaranteed Party.

 

WHEREAS, each Guarantor desires to guarantee collection of a portion of the amount owing under the Credit Document (the “Obligations”)  not in excess of the amount listed next to such Guarantor’s name on Schedule 1 attached hereto (such amount, as applicable to each individual Guarantor, the “Maximum Guaranteed Amount” and all such amounts in the aggregate, the “Maximum Guaranteed Amounts”).

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, Guarantors agree as follows:

 

1.                                      Guarantee.

 

A.            Guarantors hereby irrevocably and unconditionally guarantee the collection by Guaranteed Party of, and hereby agree to pay to Guaranteed Party upon demand (following the exhaustion of the exercise of any and all remedies available to Guaranteed Party against Borrower, including, without limitation and to the extent applicable, realizing upon the assets of Borrower), an amount equal to the excess, if any, of the Maximum Guaranteed Amounts over the Borrower Proceeds (as hereinafter defined); provided, however, the obligation of each Guarantor shall be limited severally, and not jointly, to the Maximum Guaranteed Amount set forth opposite its name on Schedule 1 attached hereto. Each Guarantor’s obligations as set forth in this Paragraph 1.A. are hereinafter referred to as the “Guaranteed Obligations.”

 

B.            For the purposes of this Guarantee, the term “Borrower Proceeds” shall mean the aggregate of all amounts collected from Borrower or realized from the sale or other disposition of assets of Borrower (whether applied to the Guaranteed Obligations hereunder or other obligations) after reduction of the Guaranteed Obligations under that certain Guaranty Agreement in favor of Guaranteed Party from the Guarantors listed on Schedule 2 attached hereto (the “$50,000,000 Note Guarantors”).

 

 

2.             Waivers: Other Agreements. Guaranteed Party is hereby authorized, without notice or demand upon any Guarantor, which notice or demand is expressly waived hereby, and without discharging or otherwise affecting the enforceability of the obligations of any Guarantor hereunder (which shall remain absolute and unconditional notwithstanding any such action or omission to act), from time to time to:

 

(i)            waive or otherwise consent to noncompliance with any provision of the Credit Document, or any part thereof, or any other instrument or agreement in respect of the Guaranteed Obligations now or hereafter executed by Borrower or any other person and delivered to Guaranteed Party;

 

(ii)           accept partial payments on the Guaranteed Obligations by Borrower;

 

(iii)          receive, take and hold additional security or collateral for the payment of the Guaranteed Obligations or for the payment of this Guarantee, or for the payment of any other guarantees of the Guaranteed Obligations, and exchange, enforce, waive, substitute, liquidate, terminate, abandon, fail to perfect, subordinate, transfer, or otherwise alter or release any such additional security or collateral;

 

(iv)          apply any and all such security or collateral and direct the order or manner of sale thereof as Guaranteed Party may determine in its sole discretion;

 

(v)           settle, release, compromise, collect or otherwise liquidate the Guaranteed Obligations or accept, substitute, release, exchange or otherwise alter, affect or impair any mortgage or any other security or collateral for the Guaranteed Obligations or any other guarantee therefore, in any manner;

 

(vi)          add, release or substitute any one or more other guarantors, borrowers or endorsers of the Guaranteed Obligations and otherwise deal with Borrower or any other guarantor as Guaranteed Party may elect in its sole discretion; and

 

(vii)         apply any and all payments or recoveries from Borrower, any Guarantor or from any other guarantor of the Guaranteed Obligations, to such of the Guaranteed Obligations as Guaranteed Party in its sole discretion may determine, whether such Guaranteed Obligations are secured or unsecured or guaranteed or not guaranteed by others.

 

3.             Independent Obligations. Except as expressly set forth in Paragraph 1, the obligations of each Guarantor hereunder are independent of the obligations of Borrower, and a separate action or actions may be brought by Guaranteed Party against any Guarantor. Each Guarantor expressly waives any and all rights of subrogation, reimbursement, indemnity, exoneration, contribution or any other claim which such Guarantor may now or hereafter have against Borrower, or any other person directly or contingently liable for the payment or performance of the obligations under the Credit Document arising from the existence or performance of this Guarantee (including, but not Guaranteed Party, or any other

 

2

 

member of Borrower) (except and only to the extent that such Guarantor makes a payment to Guaranteed Party in excess of the amount required to be paid under Paragraph 1 and the limitations set forth therein).

 

4.             Miscellaneous.

 

A.            1.             Subject to the provisions of Section 4.A.2., this Guarantee is irrevocable as to any and all of the Guaranteed Obligations of each Guarantor until such Guarantor has disposed of all of its equity interests in Borrower (the “Termination Date”),  provided that the obligations of such Guarantor hereunder shall continue after the Termination Date to the extent of any claims that are attributable fully and solely to an event or action that occurred on or before the Termination Date.

 

2.                                                                                      In the event that any Guarantor disposes of all or any portion of such Guarantor’s equity interest in Borrower, the Guaranteed Obligations of such Guarantor shall be decreased by an amount equal to the portion of the Guaranteed Obligations of such Guarantor allocable to the disposed of equity interest (a “Reduction Date”), provided that the obligations of such Guarantor hereunder shall continue after the Reduction Date with respect to the Guaranteed Obligations undiminished by such reduction to the extent of any claims that are attributable fully and solely to an event or action that occurred on or before said Reduction Date.

 

B.            This Guarantee is binding on each Guarantor and its successors and assigns, and inures to the benefit of Guaranteed Party.

 

C.            No delay on the part of Guaranteed Party in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise or waiver by Guaranteed Party of any right or remedy shall preclude any further exercise thereof, nor shall any modification or waiver of any of the provisions of this Guarantee be binding upon Guaranteed Party, except as expressly set forth in a writing duly signed or delivered by Guaranteed Party or on Guaranteed Party’s behalf by an authorized officer or agent of Guaranteed Party. Guaranteed Party’s failure at any time or times hereafter to require strict performance by Borrower, any Guarantor or any other person of any of the provisions, warranties, terms and conditions contained in any security agreement, agreements, guarantee, instrument or document now or at any time or times hereafter executed by Borrower or any Guarantor or delivered to Guaranteed Party shall not waive, affect or diminish any right of Guaranteed Party at any time or times hereafter to demand strict performance thereof and such right shall not be deemed to have been waived by any act or knowledge of Guaranteed Party, its agents, officers, or employees, unless such waiver is contained in an instrument in writing signed by an officer or agent of Guaranteed Party and directed to Borrower or such

 

3

 

Guarantor, or any of them (as the case may be) specifying such waiver. No waiver by Guaranteed Party of any default shall operate as a waiver of any other default or the same default on a future occasion, and no action by Guaranteed Party permitted hereunder shall in any way affect or impair Guaranteed Party’s rights or the obligations of any Guarantor under this Guarantee.

 

D.            This Guarantee shall be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws (other than the conflicts of law provisions) of the State of Texas.

 

E.            This Guarantee contains all the terms and conditions of the agreement between Guaranteed Party and each Guarantor. The terms and provisions of this Guarantee may not be waived, altered, modified or amended except in writing duly executed by the party to be charged thereby.

 

F.             Any notice shall be directed to the parties at the following addresses:

 

	
If to a Guarantor:
    	
 
    	
[To the address set forth   opposite its signature hereto]
    
	
 
    	
 
    	
 
    
	
If to Guaranteed Party:
    	
 
    	
Health Care Property   Investors, Inc.
   3760 Kilroy Airport Way, Suite 300
   Long Beach, California 90806
   Attention: Legal Department
   Telephone No.: (562) 733-5100
   Facsimile No.: (562) 733-5200
    
	
 
    	
 
    	
 
    
	
With a copy to:
    	
 
    	
Latham & Watkins   LLP
   650 Town Center Drive
   20th Floor
   Costa Mesa, California 92626
   Attention: David C. Meckler
   Telephone No.: (714) 540-1235
   Facsimile No.: (714) 755-8290
    

 

[Remainder of page intentionally blank.]

 

4

 

GUARANTORS’ SIGNATURE PAGE
 ATTACHED TO AND MADE A PART OF
 THAT CERTAIN GUARANTY AGREEMENT
 DATED AS OF FEBRUARY    , 2007

 

IN WITNESS WHEREOF, this Guarantee has been duly executed by each of the following persons as a “Guarantor” effective as of the date set forth above.

 

	
Address:
    	
 
    	
Guarantor
    
	
 
    	
 
    	
 
    
	
7777 Forest Lane
    	
 
    	
TWG Medical, Ltd., a Texas limited
    
	
Suite C-840
    	
 
    	
partnership
    
	
Dallas, TX 75230
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
TWG, Inc., its general partner
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
Robert J. Wright 
    
	
 
    	
 
    	
 
    	
 
    	
President
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Crow Holdings 
    	
 
    	
 
    
	
2100 McKinney 
    	
 
    	
Harlan R. Crow
    
	
Suite 700
    	
 
    	
 
    
	
Dallas, TX 75201
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
2100 McKinney
    	
 
    	
Harlan R. Crow, Trustee for the Trammell
    
	
Suite 700
    	
 
    	
Crow 1994 Revocable Trust
    
	
Dallas, TX 75201
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Harlan R. Crow, Trustee
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
2100 McKinney
    	
 
    	
Crow Realty Investors, L.P.
    
	
Suite 700
    	
 
    	
 
    
	
Dallas, Texas 75201
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
Crow Family, Inc.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
 
    	
Title:
    	
 
    

 

Signature Page

 

 

	
c/o Ken Travis
    	
 
    	
Thornton Tye Medical, L.P.
    
	
Travis Wolff
    	
 
    	
 
    
	
5580 LBJ Freeway, Suite 400
    	
 
    	
 
    
	
Dallas, TX 75240
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
Thornton Tye Management I, LLC,
    
	
 
    	
 
    	
its general partner
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
Judith K. Williams 
    
	
 
    	
 
    	
 
    	
 
    	
President
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
c/o Dorothy Hopkins
    	
 
    	
 
    
	
Williams Interests
    	
 
    	
 
    
	
2001 Ross Avenue, Suite 3350
    	
 
    	
James McDonald Williams
    
	
Dallas, TX 75201
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
7777 Forest Lane, Suite C-840
    	
 
    	
 
    
	
Dallas, TX 75230
    	
 
    	
Robert J. Wright
    

 

Signature Page

 

 

Schedule 1

 

	
Guarantor
    	
 
    	
Maximum Guaranteed Amount
    	
 
    
	
TWG Medical, Ltd.
    	
 
    	
$
    	
18,764,623
    	
 
    
	
Harlan R. Crow
    	
 
    	
$
    	
21,469,339
    	
 
    
	
Harlan R. Crow, Trustee for the Trammell Crow 1994 Revocable Trust
    	
 
    	
$
    	
11,412,711
    	
 
    
	
Crow Realty Investors, L.P.
    	
 
    	
$
    	
2,077,949
    	
 
    
	
Thornton Tye Medical, L.P.
    	
 
    	
$
    	
1,038,995
    	
 
    
	
James McDonald Williams
    	
 
    	
$
    	
1,038,995
    	
 
    
	
Robert J. Wright
    	
 
    	
166,236
    	
 
    
	
Total Maximum Guaranteed Amounts
    	
 
    	
$
    	
55,968,848.00
    	
 
    

 

Schedule 1

 

 

Schedule 2

 

The $50,000,000 Note Guarantors

 

TWG Medical, Ltd. 

 

M.C. Culbertson, Jr. 

 

Pierce D. Flanders

 

G&B Johnson Investments, Ltd.

 

Clifford J. Osborn

 

Sandra R. Cohen, Trustee for the Ivy T. Rabinowitz Trust for Sandra R.Cohen

 

Joe A. Stalcup

 

Howard G. Thomas 

 

Carol E. Touchstone 

 

Jesse M. Hellums III 

 

Hunt H. Hellums 

 

Frank O. Seay

 

Robert J. Wright

 

Cynthia J. Hellstern 

 

Mary Ellen Thomas 

 

Harlan R. Crow

 

Wright Williams, Ltd. 

 

Thornton Tye Medical, L.P.

 

James McDonald Williams

 

Harlan R. Crow, Trustee for the Trammell Crow 1994 Revocable Trust

 

Crow Realty Investors, L.P.

 

Schedule 2

 

 

EXHIBIT F - 1

 

FORM OF MANAGING MEMBER NOTE

 

[See Attached]

 

F-1

 

NEGOTIABLE DEMAND PROMISSORY NOTE

 

	
Principal Amount:   $50,000,000.00
    	
 
    	
Date of this Note:   February    , 2007
    

 

1.             Promise to Pay. For good and valuable consideration, HCP DR MCD, LLC, a Delaware limited liability company (“Payor”), promises to pay to HEALTH CARE PROPERTY INVESTORS, INC., a Maryland corporation (“HCP”), on order, Fifty Million Dollars ($50,000,000.00) (the “Principal Amount”), together with interest thereon at the Applicable Interest Rate from the date of this Note until paid, in accordance with the terms contained herein. Interest shall be computed on the basis of a 360-day year and the actual number of days elapsed. As used herein, “Applicable Interest Rate” shall mean the ten-year U.S. Treasury Note rate published in the Wall Street Journal as of the date of each payment by Payor, plus One Percent (1.00%)

 

2.             Payment Schedule. From the date of this Note to and until the Demand Date, Payor shall pay quarterly all accrued and unpaid interest under this Note. Each such quarterly installment of accrued and unpaid interest shall be paid on or before the Quarterly Installment Date. For purposes of this Note, the “Quarterly Installment Date” shall be January 1, April 1, July 1, and October 1 of each year to and until the Demand Date. The first installment of accrued and unpaid interest under this Note shall be paid on or before April 1, 2007. The entire indebtedness under this Note (including the Principal Amount and all accrued and unpaid interest) shall be due and payable on the date (the “Demand Date”) that the holder of this Note delivers to Payor at 3760 Kilroy Airport Way, Suite 300, Long Beach, California 90806, a writing demanding immediate payment of the indebtedness hereunder. All payments shall be applied first to amounts owing under this Note other than interest and principal, next to accrued interest and then to the principal balance. All payments shall be made in lawful money of the United States.

 

3.             Purpose of Loan. The Loan evidenced by this Note is being made by HCP to Payor pursuant to the provisions of Section 4.3B of that certain Amended and Restated Limited Liability Company Agreement for HCP DR MCD, LLC dated February    , 2007, as amended (the “LLC Agreement”).

 

4.             Miscellaneous Provisions. If the holder of this Note refers this Note to an attorney to enforce, construe or defend any provision hereof, with or without the filing of any legal action or proceeding, Payor shall pay to the holder of this Note upon demand the amount of all attorneys’ fees, costs and other expenses incurred in connection therewith, together with interest thereon from the date of demand at the rate set forth in Section 1 above. No provision of this Note may be amended, modified, supplemented, changed, waived, discharged or terminated unless the holder of this Note consents thereto in writing. In case any one or more of the provisions contained in this Note should be held to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. This Note shall be binding upon and inure to the benefit of Payor, the holder of this Note and their respective successors and assigns. The parties intend for this Note to he negotiable in accordance with Section 3-104 of the California Uniform Commercial Code. Time is of the essence of this Note and the performance of each of

 

 

the covenants and agreements contained herein. This Note shall be governed by and construed in accordance with the laws of the State of California.

 

[Signature Page Follows]

 

2

 

IN WITNESS WHEREOF, Payor has executed this Note as of the Date of this Note set forth above.

 

	
 
    	
HCP DR MCD, LLC, a   Delaware limited liability company
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
HEALTH CARE PROPERTY   INVESTORS, INC., a Maryland corporation, its Sole Member
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
 
    	
Its:
    	
 
    

 

 

EXHIBIT F - 2

 

FORM OF MANAGING MEMBER NOTE (Subordinate Note)

 

[See Attached]

 

F-2-1

 

SUBORDINATE NEGOTIABLE DEMAND PROMISSORY NOTE

 

	
Principal Amount:   $55,968,848.00
    	
 
    	
Date of this Note:   February    ,2007
    

 

1.             Promise to Pay. For good and valuable consideration, HCP DR MCD, LLC, a Delaware limited liability company (“Payor”), promises to pay to HEALTH CARE PROPERTY INVESTORS, INC., a Maryland corporation (“HCP”), on order, Fifty-Five Million Nine Hundred Sixty-Eight Thousand Eight Hundred Forty-Eight Dollars ($55,968,848.00) (the “Principal Amount”), together with interest thereon at the Applicable Interest Rate from the date of this Note until paid, in accordance with the terms contained herein. Interest shall be computed on the basis of a 360-day year and the actual number of days elapsed. As used herein, “Applicable Interest Rate” shall mean the ten-year U.S. Treasury Note rate published in the Wall Street Journal as of the date of each payment by Payor, plus One Percent (1.00%)

 

2.             Payment Schedule. From the date of this Note to and until the Demand Date, Payor shall pay quarterly all accrued and unpaid interest under this Note. Each such quarterly installment of accrued and unpaid interest shall be paid on or before the Quarterly Installment Date. For purposes of this Note, the “Quarterly Installment Date” shall be January 1, April 1, July 1, and October 1 of each year to and until the Demand Date. The first installment of accrued and unpaid interest under this Note shall be paid on or before April 1, 2007. The entire indebtedness under this Note (including the Principal Amount and all accrued and unpaid interest) shall be due and payable on the date (the “Demand Date”) that the holder of this Note delivers to Payor at 3760 Kilroy Airport Way, Suite 300, Long Beach, California 90806, a writing demanding immediate payment of the indebtedness hereunder. All payments shall be applied first to amounts owing under this Note other than interest and principal, next to accrued interest and then to the principal balance. All payments shall be made in lawful money of the United States.

 

3.             Purpose of Loan. The Loan evidenced by this Note is being made by HCP to Payor pursuant to the provisions of Section 4.3B of that certain Amended and Restated Limited Liability Company Agreement for HCP DR MCD, LLC dated February        , 2007, as amended (the “LLC Agreement”).

 

4.             Subordinate Note. Payor and HCP, by its acceptance of this Note, agree that this Note shall be subordinate in all respects to that certain Negotiable Demand Promissory Note in the original principal amount of $50,000,000.00 dated concurrently herewith and made by Payor in favor of HCP.

 

5.             Miscellaneous Provisions. If the holder of this Note refers this Note to an attorney to enforce, construe or defend any provision hereof, with or without the filing of any legal action or proceeding, Payor shall pay to the holder of this Note upon demand the amount of all attorneys’ fees, costs and other expenses incurred in connection therewith, together with interest thereon from the date of demand at the rate set forth in Section 1 above. No provision of this Note may be amended, modified, supplemented, changed, waived, discharged or terminated unless the holder of this Note consents thereto in writing. In case any one or more of the provisions contained in this Note should be held to be invalid, illegal or unenforceable in any

 

 

respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. This Note shall be binding upon and inure to the benefit of Payor, the holder of this Note and their respective successors and assigns. The parties intend for this Note to be negotiable in accordance with Section 3-104 of the California Uniform Commercial Code. Time is of the essence of this Note and the performance of each of the covenants and agreements contained herein. This Note shall be governed by and construed in accordance with the laws of the State of California.

 

[Signature Page Follows]

 

2

 

IN WITNESS WHEREOF, Payor has executed this Note as of the Date of this Note set forth above.

 

	
 
    	
HCP DR MCD, LLC, a   Delaware limited liability company
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
HEALTH CARE PROPERTY   INVESTORS, INC., a Maryland corporation, its Sole Member
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
 
    	
Its:

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